SUGGESTED ANSWERS TO QUESTIONS SET AT THE

COMMON FOR

INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION GROUP I & ACCOUNTING TECHNICIAN EXAMINATION
MAY, 2011

BOARD OF STUDIES THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)

The suggested Answers published in this volume do not constitute the basis for evaluation of the students’ answers in the examination. The answers are prepared by the Faculty of the Board of Studies with a view to assist the students in their education. While due care is taken in preparation of the answers, if any errors or omissions are noticed, the same may be brought to the attention of the Director of Studies. The Council of the Institute is not in anyway responsible for the correctness or otherwise of the answers published herein.

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...................................25 – 39 Cost Accounting and Financial Management ... Paper 1......................... Paper 2...Contents Page Nos.................... Paper 3........40 – 63 Taxation .................. 1 – 24 Business Laws....... Paper 4 Accounting ....................................................................... Ethics and Communication .64 – 89 Summary of Examiners’ comments on the performance of the candidates ................................................................................

Question 1 Answer the following question: (a) The abstract of the Balance Sheet of the AXE Ltd. Working Notes should form part of the answer.00.00. From the books of accounts. Actual expenses amounted to ` 12. (5) The average rate of gross profit is 20% of sales. 2011. It was decided that the share in BXE Ltd. on the following terms: (1) For each preference share in AXE Ltd. (6) The value of the salvaged goods was ` 12. (3) Liquidation expenses of AXE Ltd.75. Wherever necessary suitable assumptions should be made by the candidates.300. the following particulars are available relating to the period 1st January to 30th March 2011. (1) Stock as per Balance Sheet at 31st December. The concern had taken an insurance policy of ` 60.70. 1 is compulsory Answer any five questions from the remaining six questions. (2) For each equity share AXE Ltd.00.000 which was subject to the average clause.000 (3) Wages (including wages ` 3. agreed to take over AXE Ltd. ` 10 in cash and one 9% preference share of ` 100 in BXE Ltd.000 st On 31 March. ` 20 in cash and one equity share in BXE Ltd.000 13% Debentures 3.000. BXE Ltd.000. No approval has been received in respect of 2/3rd of the goods sold on approval. will be issued at market price ` 140 per share. ` 95.000. You are required to compute the amount of purchase consideration. are as follows: Liabilities Equity share capital (` 100 each) 12% Preference share capital (` 100 each) ` 15. to the extent of ` 10. . 2010.600.500) ` 2.000 8. (2) Purchases (including purchase of machinery costing ` 30. (b) On 30th March. are to be reimbursed by BXE Ltd..000 for installation of machinery) ` 50. 2011 fire occurred in the premises of M/s Suraj Brothers. as at 31st March 2011. of ` 100 each.PAPER – 1 : ACCOUNTING Question No.500.000) ` 1. (4) Sales (including goods sold on approval basis amounting to ` 49.

Rajat sold 1/3rd of entitlement to Umang for a consideration of ` 2 per share and subscribe the rest on 5th November. On 31st March. 2011 You are required to compute the amount of the claim to be lodged to the insurance company. 2010. Shareholders can transfer their rights in full or in part. 2011 they agreed to admit Hari as a partner for one fourth share.000 and ` 2.000 preference shares of AXE Ltd. the balances of their capital accounts were ` 3.000 respectively. Hari will bring ` 1.00. You are required to prepare Investment A/c in the books of Rajat for the year ending 31st March.000 as capital. (d) On 1st April. 2010. On 1st April. : Cash @ ` 10 per share (8. 2011.00. (3) On 31st October.000 ⎛ 8.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. Rajat has 50. 2011.000 and the rate of normal profit is 20%. (c) Shiv and Mohan are partners in a firm sharing profits and losses equally. (2) On 1st August. 2010.000 preference shares x ` 10) ∗ ∗ 80.000 equity shares of P Ltd. (4 х 5 = 20 Marks) Answer (a) Calculation of purchase consideration ` I Payment made to shareholders of 8. at a book value of ` 15 per share (face value ` 10 each).00. at ` 16 per share.000 preference shares ⎝ 100 ⎠ 2 .000 shares of P Ltd. the directors of P Ltd. He provides you the further information: (1) On 20th June. he purchased another 10. 2010.000 ⎞ ⎜ ⎟ = 8.36. P Ltd. announced a right issue which entitle the holders to subscribe three shares for every seven shares at ` 15 per share. if goodwill is to be calculated on the basis of: (1) 5 years purchase of super profit (2) Capitalization method (3) 3 years purchase of average profit. The average profits of the firm are ` 1. issued one equity bonus share for every six shares held by the shareholders. You are required to compute the value of the goodwill of the firm on admission of Hari. 2010.00.

(b) Computation of claim for loss of stock ` Stock on the date of fire i.PAPER – 1 : ACCOUNTING 9% Preference shares in BXE Ltd.000 ⎞ × 50.80.N.40. will not be included in the calculation of purchase consideration.000 26.00030.000 – Amount Particulars (`) 95. 2011 (W. : Cash @ ` 20 per share (15.000 By Sales (W.000) Wages (50.400 62.42.70.000.) Amount (`) 2. @ ` 100 each II Payment made to Equity shareholders of 15.000 shares x ` 140) Total purchase consideration ∗ 8.000 shares x ` 20) Equity shares in BXE Ltd. on 30th March.N.000 ⎞ ⎜ ⎟ = 15.000 24.2) Closing stock (Bal. Working Notes: 1.000 32.000 equity shares ⎝ 100 ⎠ 3 .e.00.00.300) 50.600 ⎠ A claim of ` 48.3) Goods with customers (for approval) (W.00. 2011 to 30th March.00.211 (approx.00. 2011 Memorandum Trading Account for (from 1st January.80.000 8.600 By By 1. issued at market price ` 140 each (15.300 ⎟ = ⎜ ⎝ 62.600 (12.211 (approx.1) Less: Value of salvaged stock Loss of stock Amount of claim = Insured value Total cost of stock on the date of fire 62. fig.) x Loss of stock ⎛ 60.600 ∗ ⎛ 15.N.000 3. 2011) Particulars To To To Opening stock Purchases (1.000 21.000 equity shares of AXE Ltd.000 Note: Re-imbursement of liquidation expenses of AXE Ltd. Calculation of closing stock as on 30th March.300 48.) should be lodged by M/s Suraj Brothers to the insurance company. to the extent of ` 10.

000 48. (2) Capitalisation method Normal value of business = = Average profit Normal rate of profit 1.000) Super profit Value of goodwill = 5 × Super profit = 5 × ` 36.000 (5.000 20% ` Normal value of business Less: Actual capital employed – Shiv – Mohan Value of goodwill of the firm will be (3) 3 years purchase of average profits Goodwill = 3 × Average profit 4 6.400 3.000 = ` 1.000 Value of goodwill of the firm will be ` 1.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.000 3. Calculation of actual sales Total sales – Sale of goods on approval = ` 2.000.000 2.000 = ` 26.42. ` 33.000 Calculation of goods with customers Since no approval for sale has been received for the goods of ` 33.80.000) 36.80.000 (i.e.00.00. these should be valued at cost i.000 = ` 6.000 .000 (1.80.31. 3.00.000) To Gross profit (20% on sales) 47.000 = ` 2.80.000 – 20% of ` 33.00.31.00.000) 1.36.00.000 2.000+ ` 2.36.e.400. 2/3 of ` 49.500) hence. 2011 3.75.000 – ` 33. 3.000 1.80.000. (c) Valuation of goodwill (1) 5 years purchase of super profit ` Average profit Less : Normal profit @ 20% of (` 3.

000 10.000 = 10.000 12.000 .08.000 × 3 = 30.000 10.3.N.000 shares × × ` 15 = ` 3.000 Debtors 3.50. fig.31.000 .10 Particulars To Balance b/d To Bank A/c To Bonus issue (W.00.000 90.) No.4.000 shares× × ` 2= ` 20.000 Working Notes: (1) Bonus shares = (2) Right shares = 50.00.4) No.11.00. (d) In the books of Rajat Investment Account (Equity shares in P Ltd.00.10 20.11 Particulars By Bank A/c (sale of rights) (W.1) To Bank A/c (right shares) (W.000 3 Question 2 Amit and Sumit are partners sharing profits and losses in the ratio of 3:2.000 3.000 shares 6 50.000) 2.000 3.08.000 Amount Date (`) 7.90.N.60.000 90.000 shares 7 1 (3) Sale of rights = 30.000 90.000 50. of shares Amount (`) 20.6.000 Less: Provision for doubtful debts 10.N.000 5 ` 3. ) Date 1.000 20.10.76.20.3) By Balance c/d (Bal.000 + 10.54. Their Balance Sheet as on 31st March 2011 is given below: Liabilities Capital Accounts: Amit Sumit Loan from Puneet Amount Assets Amount ` Land & building 1.10 1.10.000.36.8.000 + 10.10 1.000 + 10.000 Investments (Market value ` 55.000 3 2 (4) Rights subscribed = 30.11.000 12.90.000 Value of goodwill of the firm will be ` 4.10 5. of shares 50.000 2.000 5.000 11.000 = ` 4.PAPER – 1 : ACCOUNTING = 3 × ` 1.

000 Cash at bank 50.00.00.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.05.000 To Stock To Provision for doubtful debts To Profit transferred to Amit’s capital A/c Sumit’s capital A/c 1. (5) Stock was found overvalued by ` 60.000.000 5.000 st They decided to admit Puneet as a new partner from 1 April. (2) Puneet’s loan account will be converted into his capital. (4) Land and building was found undervalued by ` 1.000 8.00.05.000.20. (3) The Goodwill of the firm is valued at ` 3.000 10.000 Stock 1. It was decided that the total capital of the firm after admission of new partner would be ` 10.000 6 .20. 2011 on the following terms: (1) Amit will give 1/3rd of his share and Sumit will give 1/4th of his share to Puneet. (6) Provision for doubtful debts will be made equal to 5% of debtors.000 By Land & building 5.000 1.000 By Investments 24.000 8.000 50.000 ` 1. You are required to prepare: (a) Revaluation A/c (b) Partners’ capital A/cs (c) Balance Sheet of the firm after admission of a new partner Answer Revaluation A/c Particulars (16 Marks) ` Particulars 60. Puneet will bring his share of goodwill in cash and the same was immediately withdrawn by the partners.000.00.10.000. Capital accounts of partners will be readjusted on the basis of their profit sharing ratio and excess or deficiency will be adjusted in cash. (7) Investments are to be valued at their market price. 2011 General Reserve Employer’s provident fund Creditors 30.000 16.

20.000 3.000 - 4. Hence.60.000 10. 2011 (After admission of a new partner .00.000 50.00.000 Balance Sheet as on 1st April.00.30.000 Cash at bank (W.Puneet) Liabilities Amount Assets ` Amount ` Capital accounts Amit Sumit Puneet Creditors Employers’ provident fund∗ Working Notes: Land and building (3.PAPER – 1 : ACCOUNTING Partners’ Capital Accounts Particulars To Amit’s capital A/c To Puneet’s capital A/c To Bank A/c To Balance c/d Amit Sumit Puneet Particulars Amit Sumit Puneet ` 60.000 By Puneet’s capital A/c .000 4.000 (1) Calculation of incoming partner’s share.000 10.N.000 – 60.000 ` By Balance b/d 60.00.000 3.000 2.000) 4.90.000 Stock (1.00. the same represents a current liability.60.000 4.000 90.000 Investments 3.30.60.00.000 60.000 Less: Provision for doubtful debts (15.000 + 1.000 ` 30.60.54.90.000) 10.20.000 By Puneets' Loan A/c 30.000 3.000 3.000 24.2) 3.000 30.00.000 2.000 .76.000 12.3. 3) 3.000 3. 7 .00.000 2.000 55.000 Debtors 50.000 18.By Bank A/c (W.000 3.000 By Revaluation A/c By General reserve By Bank ` ` ` 1.10.000 16.000 1.00.50.N. new profit sharing ratio and sacrificing ratio Amit Sumit Old profit sharing ratio ∗ 3/5 2/5 It is assumed that Employer’s Provident Fund represents employer’s contribution to provident fund which is yet to be deposited.82.000 - 18.85.000) 4.

INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011

Surrendered by old partners Remaining share Puneet’s total share in profits = 1/5 + 1/10 = 3/10

3/5 x 1/3 = 1/5 3/5 – 1/5 = 2/5

2/5 x 1/4 = 1/10 2/5 – 1/10 = 3/10

New profit sharing ratio of Amit : Sumit : Puneet =2/5 : 3/10 : 3/10 = 4:3:3 Sacrificing ratio of Amit : Sumit is 1/5 : 1/10 : or 2:1
(2) Calculation of share of goodwill by old partners

Goodwill of the firm was ` 3,00,000 Share of Puneet in goodwill = ` 3,00,000 ×

3 = ` 90,000 10

Goodwill will be distributed among the old partners in their sacrificing ratio of 2:1 i.e. ` 60,000 by Amit and ` 30,000 by Sumit.
(3) Calculation of closing balance of bank account after admission Bank A/c Particulars Amount Particulars (` ) Amount (` )

To Balance b/d To Puneet’s capital A/c To Sumit’s capital A/c To Amit’s capital A/c
Question 3

50,000 By Amit’s capital A/c 90,000 By Sumit’s capital A/c 18,000 By Balance c/d 1,82,000 3,40,000

60,000 30,000 2,50,000 3,40,000

The Balance Sheet of Mars Limited as on 31st March, 2011 was as follow: Liabilities Share Capital: 1,00,000 Equity shares of ` 10 each fully paid up Reserve and surplus Capital reserve Contingency reserve Profit and loss A/c

` Assets
Fixed Assets: Land and building 10,00,000 Current Assets Stock 42,000 Sundry debtors 2,70,000 Less : Provision for 2,52,000 doubtful debts
8

`
7,64,000 7,75,000 1,60,000 1,52,000 8,000

PAPER – 1 : ACCOUNTING

Current Liabilities & Provisions Bills payable Sundry creditors Provisions for income tax 2,26,000 2,20,000 20,50,000

Bill receivable 40,000 Cash at bank

30,000 3,29,000

20,50,000

On 1st April, 2011, Jupiter Limited agreed to absorb Mars Limited on the following terms and conditions: (1) Jupiter Limited will take over the assets at the following values:

`
Land and building Stock 10,80,000 7,70,000

Bills receivable 30,000 (2) Purchase consideration will be settled by Jupiter Ltd. as under: 4,100 fully paid 10% preference shares of ` 100 will be issued and the balance will be settled by issuing equity shares of `10 each at ` 8 paid up. (3) Liquidation expenses are to be reimbursed by Jupiter Ltd. to the extent of ` 5,000. (4) Sundry debtors realized ` 1,50,000. Bills payable were settled for ` 38,000. Income tax authorities fixed the taxation liability at ` 2,22,000 and the same was paid. (5) Creditors were finally settled with cash remaining after meeting liquidation expenses amounting to ` 8,000 You are required to: (i) (ii) Calculate the number of equity shares and preference shares to be allotted by Jupiter Limited in discharge of purchase consideration Prepare the Realisation account, Bank account, Equity shareholders account and Jupiter Limited’s account in the books of Mars Ltd. (16 Marks) Calculation of number of shares to be allotted Particulars Amount (`)

Answer (i)

Land and building Stock Bills receivable Total

10,80,000 7,70,000 30,000 18,80,000

9

INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011

Amount discharged by issue of preference shares Number of preference shares to be issued (4,10,000/100) Amount discharged by issue of equity shares (` 18,80,000 – 4,10,000) Number of equity shares to be issued (` 14,70,000 / 8)
(ii) Particulars Ledger Accounts in the books of Mars Limited Realization Account

4,10,000 4,100 shares 14,70,000 1,83,750 Shares

To Land and building To Stock To Sundry debtors To Bills receivable To Bank A/c –liquidation expenses To Bank A/c- bills payable To Bank A/c –income tax To Bank A/c –sundry creditors To Profit transferred to equity shareholders A/c

` 7,64,000 7,75,000 1,60,000 30,000 3,000

Particulars

By Provision for doubtful debts By Bills payable By Sundry creditors By Provision for taxation By Jupiter Ltd. (purchase consideration)

` 8,000 40,000 2,26,000 2,20,000
18,80,000 1,50,000

38,000 By Bank A/c- sundry debtors 2,22,000 2,16,000 3,16,000 25,24,000
Bank Account

25,24,000

Particulars

` Particulars

`

To Balance b/d To Realisation A/c (payment received from debtors) To Jupiter Ltd. (liquidation expenses)

3,29,000 By Realisation A/c (liquidation expenses) 1,50,000 By Jupiter Ltd. 5,000 By Bills payable By Income tax By Sundry creditors (Bal.fig.) 4,84,000

3,000 5,000 38,000 2,22,000 2,16,000 4,84,000

Equity Shareholders Account Particulars

To 10% Preference shares

` Particulars 4,10,000 By Equity share capital A/c
10

` 10,00,000

000 60.80.000 To 10% Preference shares in Jupiter Limited To Equity shares in Jupiter Limited 18.00.70.00.50.00.000 ` 4.000 11 .000 18.000 4.000 Jupiter Limited Account 42.00.000 ` 3.000 9.00.000 2.000 4.000 4.000 By Contingency reserve By Profit and loss A/c By Realisation A/c (profit) 18.000 2.40.80.16.00.80.00.00.50.000 4.52.80.80.000 Question 4 The following are the summarized Balance Sheets of Lotus Ltd.00.000 1.000 ` 4.000 18.00.70.000 3.20.000 Particulars To Realisation A/c ` Particulars 18.00.000 3.000 3.000 26.000 7.000 ` 12.000 50.00.PAPER – 1 : ACCOUNTING in Jupiter Limited To Equity shares in Jupiter Limited By Capital reserve 14.000 24.80.000 26.80.70.000 14.000 4.20.000 4.50.000 4.00.10.000 1.000 5.000 2.00.000 5. as on 31st March 2010 and 2011: Liabilities Equity share capital (` 10 each) Capital reserve Profit and loss A/c Long term loan from the bank Sundry creditors Provision for taxation Assets Land and building Machinery Investment Stock Sundry debtors Cash in hand Cash at bank 31-3-2010 31-3-2011 ` 10.000 50.50.10.000 2.000 24.000 10.80.

000) 1.2) 1.00.000 equity shares of ` 10 each at par. 4) Net cash used in investing activities III Cash flow from financing activities Issue of equity shares (2.000 20.50.000 in cash and issued 10.000 – 1. Cash Flow Statement for the year ending 31st March.50.000 (1.1) Add: Depreciation on machinery (W. (16 Marks) Answer In the books of Lotus Ltd.000.25.00. 2011 Additional information: (1) Depreciation written off on land and building ` 20. You are required to prepare a cash flow statement for the year ended 31st March 2011 as per AS 3 by using indirect method.000 (45. (3) Income-tax provided during the year ` 55.10.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.000) 50.000 (65.000.25.000 2.000) (1.000 50.000 (20. 2011 ` I Cash flow from Operating Activities ` Net Profit before tax for the year (W.000) 65.000.N.00.25.000 12 Depreciation on land & building Operating profit before change in working capital Add: Decrease in stock Less: Increase in sundry debtors Less: Decrease in sundry creditors Cash generated from Operations Less: Income tax paid (W.000) 60.3) Net cash generated from operating activities II Cash flow from Investing activities Purchase of machinery (2.000 (1.000) Sale of investment (W.000-1.N.000.25.000 20.35.000) Repayment of long term loan Net cash generated from financing activities Net increase in cash and cash equivalents .N. (2) The company sold some investment at a profit of ` 10. which was credited to Capital Reserve.000) 1. They paid ` 1. (4) During the year. the company purchased a machinery for ` 2.000 55.N.10.00.

PAPER – 1 : ACCOUNTING Cash and cash equivalents at the beginning of the year (2.05.) balance Add: Provision for taxation made during the year 2. 80.25.000 By Depreciation (Bal.00.000 13 .50.50.05.000 9.35.000 50. 45.000 55.40.fig.000) Working Notes: 1.000 + 3.00.000 1.) 1.000 1.10.000 By Balance b/d 60.75. Calculation of Net Profit before tax ` 5.000 By Profit and Loss A/c 1.000 By Bank A/c (Bal.75. Calculation of tax paid during the year Provision for Taxation A/c Particulars Amount (`) Particulars Amount (`) To Cash (Bal.00.fig.000) Cash and cash equivalents at the end of the year (1.000 1.000 1.10.) To Balance c/d 4.000 Increase in Profit & Loss (Cr.000 Amount (`) 55.) 10.000 50.000 5.000 55.000 9.000 3.20.000 By Balance c/d 60.000+4.000 By Balance c/d 1.fig.10.000 9.00.000 Calculation of Depreciation charged during the year on Machinery account Particulars To Balance b/d To Bank To Equity share capital Amount (`) Particulars 7.00.000 Calculation of sales value of investment sold Investment A/c Particulars Amount (`) Particulars Amount (`) To Balance b/d To Capital reserve (Profit on sale of investments) 1.

000 (5) On 31st March.500 on 31st March.00.55.000 1.000 60.000 1.80.00.500 2. in the question given above.000 40.000.08.500 2. On 1st April. (16 Marks) In the questions paper.000 10.000. 2010 On 31st March.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.000 92. (3) Outstanding sundry expenses as on 31st March. ∗ 14 . 2010 outstanding subscription was ` 5. However.11.000 5. 2010 stood at ` 20. (6) Investment on 31st March.80. 2010 building stood in the books at ` 10. these corrections have been incorporated. income accrued on the investments purchased during the year amounted to ` 3.500 45.750. 2011 ` 5.000 5.000 7.23. 2010 totalled ` 7.000 and it was subject to depreciation @ 5% per annum. (2) There was an outstanding telephone bill for ` 3.000.500 By Investment By Sundry expenses By Balance c/d To Profit on sports meet To Income from investments Additional information: (1) There are 450 members each paying an annual subscription of ` 500. (7) On 31st march.25.000 ` 9. 2011.00. 2011 and the Balance Sheet as at that date. 2009-10 (instead of 2010-11) and 2010-11 (instead of 2011-12).500 4. 2011.02. Receipt To Balance b/d To Subscriptions 2009-10 2010-11 2011-12 ∗ Amount (`) 1. 2011 Question 5 The following is the Receipt and Payment Account of Park View Club in respect of the year ended 31st March.500 Payments By Salaries By Stationery By Rent By Telephone expenses Amount ( `) 2. 2011. the years have been wrongly printed as 2008-09 (instead of 2009-10). Prepare an Income and Expenditure Account for the year ended 31st March. (4) Stock of stationery: On 31st March.000 1.

500 50.47.PAPER – 1 : ACCOUNTING Answer Park View Club Income and Expenditure Account for the year ending on 31st March 2011 Expenditure To Salaries To Stationery consumed (W.000) Amount (`) 14.500 85.750 Less: Outstanding on 31.000 31.47.750 Building 10.000+1.000 30.N.000 9.000 Add: Outstanding on 31.28.250 (50.000 60.N.1) 31.3.750 1.25.750 Amount (`) 2.36.000 Add: Interest accrued on investments 3.250 Working Notes: (1) Liabilities Balance Sheet as at 31st March 2010 Amount (`) Assets Amount (`) Outstanding sundry expenses 7.00.750 4.250 7.750 Subscriptions received in advance Outstanding telephone bills 31.000 Add: Income accrued 3.500 To Sundry expenses To Depreciation of building To Surplus (excess of income over expenditure) 92.500 Income By Subscriptions (W.000 1.10 (7.00.000) 21.000 13.750 4. 2) By Profit on sports meet By Income on investments 1.55.000 Balance Sheet as at 31st March 2011 Liabilities Capital fund (W.05.3) To Rent To Telephone expenses 10.N.83.500 3.500 Add: Surplus 30.750 9.00.500 21.000 36.08.000 .11 3.500 Amount (`) Assets Outstanding subscriptions Investment (20.25.00.50.000) Amount (`) 2.83.000 Building 15 10.000 45.03.000 Less: Depreciation Stock of stationery Cash balance 31.3.25.

25.05.86.000 1.23. He closes the books of accounts on 31st March.) 2.fig.500 (2) Calculation of subscriptions accrued during the year Subscription A/c Particulars Amount Particulars (`) Amount (` ) To Outstanding Subscriptions (as on 1.000 16 ` 40.000 Furniture 82.3.000) 36.500 Investments Stock of stationery Cash balance Outstanding subscriptions 31.00.000 (9.37.000 7. 2011 2. 2010 was as follows: Liabilities A’s capital a/c Creditors ` Assets 4.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.500 (3) Calculation of stationery consumed during the year Stock of stationery as on 31 March.000 2.500 20.000 .000 1.000 31.10) To Income & Expenditure A/c To Subscriptions received in advance for 2011-12 5.86.000 Stock Debtors Cash in hand Cash at bank 4.000 4.11) (Bal.000 Mr A runs a business of readymade garments.) 31.000 14.80.500 2.000 28. 2010 Add: Purchased during the year 2010-11 Less: Stock of stationery as on 31st March.fig. 2010.500 5.500 (as on 31.04.00.000 38.37.02.12.500 Stationery consumed Question 6 ` 5.000 45. The Balance Sheet as on 31st March.000 5.000 By Cash A/c By Outstanding subscriptions 2. 2011 Capital fund (Bal.4.000 40.12.

000 17 ` 6. (16 Marks) Answer Trading and Profit and Loss Account for the year ending 31st March 2011 Particulars To Opening stock To Purchases (W.200 and personal expenses ` 500.60.000 to the clerk. 2011 were 20% higher than the sales of previous year. Analysis of bank pass book for the year ending 31st March 2011 disclosed the following: ` Payment to creditors Payment of rent up to 31st March. for the year ended 31st March.000 .46.60. Total sales during the year 2009-10 were ` 5.80. the cashier absconded with the available cash in the cash book.N.80.000 st On the evening of 31 March 2011.000 16. You are required to prepare Trading and Profit and Loss A/c for the year ended 31st March. 1) To Gross profit ` Particulars 2.000 Credit 4.60.000 Cash 1.64.000 7.000 ` 1.000 Creditors for goods 1.000 1. 3) 3.a. (3) Goods were sold for cash and credit both.000 1.PAPER – 1 : ACCOUNTING You are furnished with the following information: (1) His sales.000. (2) Payments for all the purchases were made by cheques only. (4) Deprecition on furniture is to be charged 10% p.00.20.000 1.20.00. 2011 and Balance Sheet as on that date.000 By Closing stock 7.000 80.00. All the workings should form part of the answer. office expenses `1.000 By Sales (W.60.N. Credit customers pay be cheques only. out of which 20% sales was cash sales. 2011: Stock Debtors 3.16. (5) Mr A sent to the bank the collection of the month at the last date of the each month after paying salary of ` 2. 2011 Cash deposited into the bank during the year The following are the balances on 31st March.

78.000 18 .000 By Purchases (Bal.N.78.000 34.000 By Gross profit 16.) ` 82.000 1.000 Stock Debtors 1.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.000 5.000 Liabilities A’s Capital Add: Net Profit Less: Drawings 4.000 (4.20.000 To Bank A/c To Balance c/d (2) Calculation of total sales ` Sales for the year 2009-10 Add: 20% increase 5.400 23.600 4.32. 6) To Depreciation on furniture To Net Profit 24.62.000 Creditors Account Particulars ` Particulars 3.46. 2011 To Salary To Rent To Office expenses To Loss of cash (W.000 Total sales for the year 2010-11 (3) Calculation of credit sales ` Total sales 6.000 6.000 1.000 ` 40.000 Balance Sheet as on 31st March.000 2.000 1.000 3.16.000 34.00.000) 36.000 Cash at bank 5.46. 2011 1.04.000 (6.64.00.00.00.16.46.46.60.000 4.16.000 4.000 By Balance b/d 1.000) Creditors Working Notes: (1) Calculation of purchases ` Assets Furniture Less: Depreciation 4.000 1.000 1.00.fig.000 14.

000 5.60.000) 4.80.60.000 (6) Calculation of the amount of cash defalcated by the cashier Cash balance as on 1st April 2010 Add: Cash sales during the year Less:Salary (` 2.000 To Balance b/d To Sales A/c ` Particulars 1.000 (1.000 1.20.400 6.000 By Bank A/c (Bal.PAPER – 1 : ACCOUNTING Less: Cash sales (20% of total sales) (4) Calculation of cash collected from debtors Debtors Account Particulars (1.78.000 80.20.80.) 4.48.62.000 4. fig.000x12) ` 28.200 x 12) Drawings of A (` 500x12) Cash deposited into bank during the year Cash balance as on 31st March 2011 (defalcated by the cashier) Question 7 Answer any four of the following: (a) A and B are partners in a firm and share profits and losses equally.000 2. A has withdrawn the following sum during the half year ending 30th June 2010: 19 .000 1.000 Particulars By Creditors A/c By Rent A/c By Balance c/d ` 3.24.000 80.600 Office expenses (` 1.000 24.000 Bank Account ` 4.00.20.78.000 14.80.00.000 (5) Calculation of closing balance of cash at bank Particulars To Balance b/d To Debtors A/c To Cash A/c ` 38.400) 23.000 By Balance c/d 5.000 1.000 5.000 5.80.000 16.

2011 Date January 15 February 10 April 5 May 20 Amount ` 5.80.000 2.500 in the books of M/s Zee Ltd.25.000 3.Y and Z are partners sharing profits an losses in the ratio of 4:3:2 respectively. 2011 as per AS 2 “Valuation of Inventories”? (c) X.25.000 Interest on drawings is charged @ 10% per annum.000 W brings required amount of goodwill.32.000 4.000 4. are replaced with computerized accounts”.000 9. (b) Best Ltd. Find out the average due date and calculate the interest on drawings to be charged on 30th June 2010. P. At the time of closing of its accounts for the year ending 31st March 2011. W is admitted for 3/10th shares in profits.75.000 T 1. the historical cost and net realizable value of the items of the closing stock are determined as follows: Items P Q R S Historical cost Net realizable value ` 5.000 What will be the value of closing stock for the year ending 31st March. 2010.000 4.89. On 31st March.16. 2011 Y retires and X and Z decide to share profits and losses in the ratio of 5:3.000 June 18 9. (d) “In business today.60.000 10. Goodwill of the firm is valued at ` 2. the accounts which were earlier maintained in a manual form. Explain the significance of computerized accounting system in modern time.000 2. Then immediately. Q.000 ` 4. and T which are neither similar nor interchangeable.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. Transactions during the 6 months ended on 31st March 2011 were as follows: 20 .000 10. the debit balances of debtors account is ` 77.16.000 8. S. (e) On 1st October.15. R. deals in five products.70. Give necessary Journal Entries to adjust goodwill on retirement of Y and admission of W if they do not want to raise goodwill in the books of accounts. 2/3rd of which was given by X and rest was taken by W from Z .

000) Payment received from debtors in cash Bills receivable received Discount allowed to customers for prompt payment Goods rejected and returned back by the customer Bad debts recovered (written off in 2009) Interest debited for delay in payment 84.000 Average due date = Base date + = 15th Jan + Total product × days Total amount 0 26 80 125 154 0 1.000 6.000 = 15th Jan + 94 days (approx.550 900 1.000 13. 2010 to 30th June.000 1.000 38.40.000 2.) = 19th April.000 36. of days Product ` ` January 15 February 10 April 5 May 20 June 18 5.000 8.000 33.000 26.250 You are required to prepare a Debtors Account for the period ending 31st March in the General of M/s Zee Ltd. (4 х 4 = 16 Marks) Answer (a) Date Calculation of Average due date (Base Date 15th Jan.000 4.000 9. 2010 = 72 days Interest on drawings from 19th April to 30th June @10%: 21 .000 10.PAPER – 1 : ACCOUNTING ` Total sales (including cash sales ` 14. 2010 Number of days from 19th April. 2010) Amount No.000 12.86.80.000 33.50.04.80.000 days 36.

000 4.000 9.000 10.75.000 72.29.29.600 To W’s capital A/c (3/10 х ` 2.000 9. Valuation of inventory (item wise) for the year ending 31st March 2011 Item Historical Cost Net realizable value Valuation of closing stock P Q R S T ` 5.000) (Being the amount of goodwill brought in by W) W’s capital A/c To X’s capital A/c To Z’s capital A/c (Being the goodwill credited to sacrificing partners in their sacrificing ratio 2:1) 22 Dr.000 ` 4. Inventories should be written down to net realizable value on an item-by-item basis. Dr. Dr.70.800 43. (c) Date Particulars Journal Entries L.000 3. 39.000 4.000 (Being Y’s share of goodwill adjusted in the capital accounts of gaining partners in their gaining ratio 13:11 – Refer Working Note.000 1.25.3.000.000) Dr.) Cash A/c Dr.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.800 64.000 2. (`) Cr.000 × = ` 710 72 10 × 365 100 Hence.800 64.000 1. .75.000 33.F.25.89. inventories should be valued at the lower of cost and net relizable value. 2010.16.200 21.000 2. 64.32.16. 2011 = ` 36.89.11 X’s capital A/c Z’s capital A/c To Y’s capital A/c (3/9 х ` 2.60.80.000 ` 4.000 2. (b) As per para 5 of AS 2 “Valuation of Inventories.000 The value of inventory for the year ending 31st March 2011 = ` 23. interest on drawings ` 710 will be charged from A on 30th June.000 4.(`) 31.16.25.15.60.000 23.80.

500 250 31. Particulars To Balance c/d To General Ledger Adjustment A/c: Sales (84. Hence. accuracy and security .3.PAPER – 1 : ACCOUNTING Working Note: Calculation of gaining ratio of X and Z Gaining ratio For X Z Gaining ratio = New ratio – Old ratio = 5/8-4/9 = 13/72 = 3/8-2/9 = 11/72 = 13:11 (d) In modern time.550 89. corresponding ledger posting is done automatically. computerized accounting systems are used in various areas.500 1. (2) Reduce errors .3.250 1.000-14.In computerized accounting.500 70.57.10. the possibilities of errors are also very less unless some mistake is made while recording the data.950 .11 Total Debtors account in the General Ledger of M/s Zee Ltd.10.57.3. (3) Immediate information .000 2.In computerized accounting system. with an entry of a transaction.10 1.000 1.500 23 1.In this system.11 1. trial balance will also be automatically tallied and the user will get the information immediately.000 Amount ` 77. The significance of the computerized accounting system is as follows: (1) Increase speed.11 ` Bills Receivable A/c Discount allowed Sales return By Balance c/d 26.10 to 31. Besides speed. the speed with which accounts can be maintained is several fold higher. level of accuracy is also high in computerized accounting system.000 Amount Date Particulars to By General Ledger Adjustment A/c: Cash collected 38. (e) Date 1.Computerized accounting systems also remove the duplication of the work. (4) Avoid duplication of work .10 31.000) Bills receivable (Bill dishonored) Bank (Noting charges) Interest 8.10.

INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011

Working Note:

1. 2.

Bad debts of the year 2008-09 recovered in 2010-11 will not appear in the ‘Total Debtors account. It will be credited to profit & loss account. Bills receivables of ` 5,000 endorsed to the supplier will not be shown in the ‘Total Debtors account because at the time of endorsement Supplier’s account will be debited and Bills receivable account will be credited.

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PAPER – 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION Question No. 1 is compulsory. Attempt any five questions from the remaining six questions. Question 1 (a) What is the law relating to determination of compensation, on breach of contract, contained in section 73 of the Indian Contract Act, 1872 ? (5 Marks) (b) (I) State whether the following statements are correct or incorrect.: (i) (ii) (i) A cheque marked “Not-Negotiable” is not transferable. (3 х 1= 3 Marks) Which one of the following statements is not true about minor’s position in the firm: (a) He can not become a partner in the firm. (b) A minor and a major can enter into an agreement of partnership. (c) He can be admitted to the benefits in the firm. (d) He can become a partner on becoming a major. (ii) The delivery of goods by one person to another for some specific purpose and time is known as: (a) Mortage (b) Pledge (c) Bailment (d) Charge (iii) An agency in which the agent himself has interest in the subject matter of agency is called: (a) Agency by estoppel (b) Agency by holding out (c) Agency by necessity (d) Agency coupled with interest (c) Explain clearly the concept of “perpetual-succession and “common-seal” in relation to a company incorporated under the Companies Act, 1956. (5 Marks) (d) What is the law and procedure relating to registration of a non-profit organization as a company under the Companies Act, 1956 ? (5 Marks) (2 х 1= 2 Marks) An agreement with a minor may be ratified on his attaining majority.

(II) Choose the correct answer from the following :

INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011

Answer (a) Compensation on Breach of Contract: Section 73 of the Indian Contract Act, 1872 provides that when a contract has been broken, the party who suffers by such breach is entitled to receive from the party who has broken the contract, compensation for any loss or damage caused to him thereby which naturally arose in the usual course of things from such breach or which the parties knew when they made the contract, to be likely to result from the breach of it. Such compensation is not given for any remote and indirect loss or damage sustained by reason of the breach. The explanation to the section further provides that in estimating the loss or damage from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account. (b) (I) (i) (ii) (II) (i) (ii) Incorrect Incorrect (b) A minor and a major can enter into an agreement of partnership. (c) Bailment.

(iii) (d) Agency coupled with interest (c) Perpetual Succession and Common Seal: A company is a juristic person with a perpetual succession. It never dies nor does its life depends upon the life of its members. It is not in any manner affected by insolvency, mental disorder or retirement of any of its members. It is created by a process of law and can be put to an end only by the process of law. Members may come and go but the company can go on forever (until dissolved). It continues to exist even if all its human members are dead. Since a company had independent existence and since all acts of the company are done in the name of the company, it enjoys a “Seal” known as common seal. Common seal is equivalent to signature of the company and is affixed on all documents issued by the company. Common seal of the company is kept in safe custody by a responsible officer of the company. (d) Registration of Non-Profit Organisation: An association of persons set up for promoting commerce, art, science, religion, charity or any other useful object and intends to apply its profits or other income in promotion of its objects can be registered as a company under the Companies Act, 1956. However, it has to prohibit payment of any dividend to its members. The association has to apply to the Central Government for issuing a licence. Through this licence the Central Government shall direct the Registrar of Companies to register the association as a company with limited liability without the addition of words “limited” or “private limited” to its name. Therefore, the association may be registered accordingly.

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On registration it will have the same privileges and obligations as a limited company has. its Articles of Association and signatures of its founder members with two witnesses. On the basis of charge of violent behavior within the premises of the company. Question 2 (a) During the financial year 2010-2011 Mr. 1965? (8 Marks) (b) State the elements which create discrimination in employment in the business organizations. ETHICS AND COMMUNICATION The association has to fulfill the conditions needed for registration as a company.PAPER – 2 : BUSINESS LAWS. Therefore. In the given case Mr. whether Mr. misappropriation or sabotage of any property of the establishment. Here. Decide.223]. with back wages. Ram has worked as a temporary employee for 10 months continuously. a temporary workman is also entitled to bonus on the basis of total number of days which he has completed.e. (b) Elements of Discrimination: Generally. Ram will be entitled to bonus under the provisions of the Payments of Bonus Act. 1965. or (b) riotous or violent behavior while on the premises of the establishment. Since there was no adverse conclusion against him. he will be entitled to bonus. refusal of company is not valid and Mr. If an employee is guilty of riotous and disorderly behavior he is disqualified for bonus but if such employee because of riotous act. he was reinstated in the service with back salary. It is usually intended to refer to the 27 . the company refused to pay bonus to Mr. pending enquiry and later on he is reinstated as there is no adverse findings. Ram. Afterwards. Vs. Ram will be entitled to the bonus from every angle according to Section 9 of the Payment of Bonus Act. when bonus was paid to others employees. an employee shall be disqualified from receiving bonus under this Act. will be entitled for bonus [Gannon India Ltd. if he is dismissed from service for (a) fraud. so he is qualified and entitled to bonus. (8 Marks) Answer (a) Payment of Bonus: As per Section 9 of the Payment of Bonus Act. He worked for the remaining ten months in that financial year and thereafter resigned from the service. Niranjan Das (1984) 2LLJ. it must have its name. is being prevented from working in the company. the discrimination means to distinguish one object from another or treating people differently. 1965. Ram was a temporary employee in Ayurved Products Limited and drawing a salary of ` 6000/. i. After completion of the required period of services for the entitlement to bonus if a workman resigns.per month . or (c) theft. its Memorandum of Association. he was prevented from working in the company for 60 days pending inquiry.

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. calculated under the provisions of the Payment of Gratuity Act. promotions or better pay. 2011 wrongful act of making a difference in treatment or favour on a basis other than individual merit. 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. Such discrimination may also be related in employment in business organization.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. In the case of piece rated employees. payable to employees in a seasonal as well as other establishments. such as the ability to perform a given job. perhaps costing them jobs. If the decision has been derived solely from racial or sexual prejudice. In the case of seasonal establishment the employees can be classified into two groups – (i) Those who work throughout the year and 28 . In the case of a monthly rated employee 15 days wages shall be calculated by dividing the monthly rate of wages last drawn by 26 and by multiplying the quotient by 15. In the case of establishments other than seasonal establishments. (ii) (iii) If the decision has a harmful or negative impact on the interests of the employees. 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. daily wages shall be computed on the average of the total wages received by him for a period of 3 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. false stereotypes other kind of morally unjustified attitude against members of which the employee belongs. 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. 1972 stipulates the manner in which the amount of gratuity payable to an employee will be calculated. Question 3 (a) How is the amount of gratuity. 1972? What is the maximums amount of gratuity payable under the said Act ? (8 Marks) (b) What are the tips for improving inter-personal skills in a business organization ? (8 Marks) Answer (a) Payment of Gratuity: Section 4 of the Payment of Gratuity Act. seniority or other morally legitimate qualification.

There is no restriction contained in the Companies Act. Listening effectively: Effective or active listening is very important skill to enhance interpersonal communication. The latter are entitled to receive gratuity at the rate of 7 days for each season. The process of communication completes when the message as intended by the sender is understood by the receiver. the ceiling on the gratuity amount ` 3. the price higher than their normal value. Most of the persons assume that listening is natural trait. a company may issue its shares at premium i. (b) Tips for improving interpersonal skills: Lines of communication must be open between people who rely on one another to get work done. persuade and negotiate which are necessary for workplace success. ETHICS AND COMMUNICATION (ii) Those who work only during the season. To get this success the following tips are suggested: (i) Congruency in communication elements: If the words used are incongruent with the other interpersonal communication dynamics interpersonal communication is adversely affected.50. 1956 ? (8 Marks) (b) What are the fundamental principles of ethics applicable to the persons of finance and accounting profession ? (4 Marks) (c) Explain the merits and limitations of oral communication. Answer (a) Share at Premium: If the market exists. (ii) Question 4 (a) Whether shares at premiums can be issued by a company ? What are the purposes for which the share premium account can be used under the provisions of the Companies Act. The former 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 6 months. One needs to give the communicator of the message sufficient attention and make an effort to understand his view point. A consistent message ensures effective communication.e. As per the Payment of Gratuity (Amendment) Act. Listening helps to build strong personal relationships. but practically very few of us listen properly.000 has been increased to ` 10 lakhs. posture. sincerity and reliability of the communication. 2010. facial expression.PAPER – 2 : BUSINESS LAWS. movement. result in low productivity simply because one does not have the tools needed to influence. Poor interpersonal communication skills. Since communication is shared meaning. words must send the same message as the other interpersonal communication dynamics – body language. 1956 on the 29 (4 Marks) . which include active listening. tone of voice to help emphasize the truth.

The principle of objectivity: The principle requires accounting and financial professionals to stick to their professional and financial judgement without bias. 2011 sale of shares at a premium. The principle requires all accounting and finance personnel to be honest and straight-forward in discharging their respective professional duties. (c) Oral Communication – its merits and limitations .Communication through the spoken word is known as oral communication. conflicting interests. But SEBI (ICDR) Regulations. Premium may be received in cash or kind. (v) The principle of professional behavior: The principle requires accounting and financial professional to comply with relevant laws and regulations and avoid such action which may result into discrediting the profession. (b) It may be used to write off preliminary expenses.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. it is in essence an allotment at a premium. Some of the merits of oral communication are as under: (i) saves time and money. (ii) (iii) The principle of confidentiality: The principle requires accounting and financial professionals to refrain from disclosing confidential information related to their work. (b) Principles of Ethics The fundamental principles relating to ethics as applicable to accounting and finance professionals are as follows: (i) The principle of integrity: Integrity means veracity. or under influence of others. where the value of assets received by a company as a consideration for allotment is greater than the normal value of shares. An amount equal to extra value of the assets would have to be carried to the Securities Premium Account. The amount to the credit of share premium account has to be maintained with the same sanctity as share capital and can be reduced only in the manner of share capital. Such account be used in the following ways by the company – (a) It may be applied to issue to the members as fully paid by way of bonus the unissued shares of the company. The act does regulate the disbursement of the amount collected as premium. (iv) The principle of professional competence and due care: The financial and accounting professional need to update their professional skill in the modern competitive environment. (c) It may be used to write off commission or discount account. (d) It may be spent in providing for the premium payable on the redemption of preference shares or debentures of the company. 2009 have to be observed as they indicate when an issue has to be at par and when premium is chargeable. 30 .

(iii) Ineffective for lengthy communication. the drawee is always a bank. Some of the limitations of Oral Communication are: (i) (ii) Greater chances of misunderstanding.PAPER – 2 : BUSINESS LAWS. 2. Creation of proper ethical environment requires a proper understanding of the reasons which lead to an unethical behavior. whereas notice of dishonour is usually required in case of a bill of exchange. 3. In cheque. (vi) best tool during emergency. (v) builds a healthy climate. (iv) an effective tool for exhortation. 31 . days of grace are not allowed. (iv) Lower retention rate. State the reasons for this increasing importance. (v) No legal validity. Question 5 (a) Point out the differences between a “Cheque” and a “Bill of Exchange” under the Negotiable Instruments Act. (iii) saves paper work. Notice of dishonour is not needed in a cheque. (8 Marks) (b) State with reasons whether the following statements are correct or incorrect: (2 х 2 = 4 Marks) (i) (ii) The responsibility of the corporate management lies towards shareholders only. whereas in a bill of exchange. ETHICS AND COMMUNICATION (ii) immediate feed back. 3 days of grace are allowed for payment. whereas in a bill of exchange. (c) “Importance of communication is increasing day-by-day in the business organizations”. In cheque. (vi) Difficult to fix responsibility. 1881. the drawee may be a bank or any other person. Bad speaker. (4 Marks) Answer (a) Cheque and Bill of Exchange Following are the difference between a cheque and a bill of exchange:1.

if it is not duly presented for payment but the drawer of a cheque is not discharged by delay of the holder in presenting the cheque for payment unless the drawer has suffered some loss due to delay. whereas a bill of exchange cannot be drawn to bearer. 5. (b) (i) (ii) Correct: A creation of a proper ethical environment requires a proper understanding of the reasons which lead to an unethical behavior. 9. whereas bill of exchange must be stamped according to Law. requires presentment for acceptance and it is advisable to present them for acceptance even when it is not essential to do so. A cheque can be drawn to bearer and made payable on demand. Incorrect: The traditional governance model positions management is accountable solely to the shareholders only. 7. A cheque being a revocable mandate. 32 . the authority may be revoked by counter manding payment. 6. sometimes. These may be enumerated as follows: (a) Employees (b) Trade Unions (c) Customers (d) Shareholders and investors (e) Suppliers (f) Local Communities (g) Government (h) Competitors. 2011 4. It needs presentment for payment. This is not so in a bill. Bill of Exchange. A cheque may be crossed whereas a bill of exchange cannot be crossed. and is determined by notice of the customer’s death or insolvency. The reasons may be summarized as follows: (a) Emphasis on short term results (b) Ignoring small unethical issues (c) Economic Cycles (d) Change in accounting rules. 8. be responsible to them. if it is made payable on demand. Cheque does not require presentment for acceptance. therefore. The drawer of a bill of exchange is discharged from liability. But a growing number of corporations accept the constituents other than shareholders are affected by corporate activity and that the corporations must. Cheque does not require to be stamped in India.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.

(e) Advance in Behavioural Sciences: Modern management is deeply influenced by exciting discoveries made in behavioural sciences like psychology. No management can be successful without taking the trade unions in confidence. These advancements deeply affect not only methods of work but also the composition of groups. Management has to recognize them above all as sensitive human beings and work towards a spirit of integration with them which effective communication helps to achieve. The people working in these organizations may be spread over different states of a country or over different countries. Only through effective communication can a meaningful relationship be built between the management and workers. All of them throw light on subtle aspects of human nature and help in developing a positive attitude towards life and building up meaningful relationships. In such a situation proper communication between superiors and subordinates becomes very necessary. government. (4 Marks) (c) What are the characteristics of group personality ? (4 Marks) 33 . (8 Marks) (b) State in brief the guidelines for managing ethics and to prevent the need for whistleblowing in the work place. suppliers and the public at large. 1956. Communication with them is the only way an organization can project a positive image of itself. Question 6 (a) Describe the procedure for converting a private company into a public company under the provisions of the Companies Act. (c) Growing importance of human relations: Workers in an organization are not like machines. sending directions across and getting feedback is possible only when communication lines are kept working effectively. owing to scientific and technological advancements. towards customers. Keeping in touch. (d) Public Relations: Every organization has a social responsibility. ETHICS AND COMMUNICATION (c) Reasons for increasing importance of communication: It is true that importance of communication is increasing day by day in the business organizations. They have their own hopes and aspirations. transactional analysis etc. (f) Technological advancement: The world is changing very fast. sociology. And this is possible only through communication. The reasons for this growth may be stated as follows: (a) Growth in the size and multiple locations of organization: Most of the organizations are growing larger and large in size.PAPER – 2 : BUSINESS LAWS. (b) Growth of trade unions: Over the last so many decades trade unions have been growing strong.

34 . (2) Amend Memorandum of Association to change its name by removing the word “Private” by a special resolution. for the changed name. (b) Establishment of open communication. (c) Make ethical decisions in group and make decision public whenever appropriate.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. (b) Managing ethics and preventing whistle-blowing: The focus on core values and sound ethics. 2011 Answer (a) Conversion of a private company into a public company: The procedure for conversion of a private company into a public company is as follows: (1) Take necessary decision in its board meeting and fix up time. the existing name with the work “Private” deleted. [Section 44(1)]. (3) Pass a Special Resolution deleting from its articles the requirement of a private company under Section 3(1). namely. (6) The aforesaid prospectus or the statement in lieu of prospectus must be in conformity with Part I and II of Scheduled II or with Part I and II of Schedule IV respectively. (7) The company has to apply to the Registrar of Companies for the issue of a fresh Certificate of Incorporation. place and agenda for convening Annual General Meeting. A copy of the Special Resolution must be filed with the Register of Companies within 30 days. (d) Integrate ethics with other management practices. These guidelines for managing ethics and to avoid the need for whistleblowing in the work place may be summarized as follows:(a) Have a Code of Conduct and ethics. (4) Increase the number of shareholders/members to at least 7 and number of directors to atleast 3. provide their work force with an effective framework and guiding principles of identity and address ethical issues as they arise. 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. the hall mark of ethical management. who understand the importance of work place ethics. Employers. It becomes a public company on the date of alteration. Approval of the Central Government is not necessary. (5) Within 30 days from the passing of Special Resolution. a prospectus or a statement in lieu of prospectus in the prescribed form must be filed with the Registrar (Section 44).

(c) Characteristics of group personality Following are the characteristics of group personality: (a) Spirit of conformity: Individual member soon come to realize that in order to gain recognition. opinions and actions are influenced more by group opinion than by an individual’s opinion even if it is an expert opinion. religion. It is a different matter that the individual members may not admit their prejudiced attitude to other’s race. (d) Group prejudice: Just as hardly any individual is free from prejudice. Our beliefs. 1952. whether by dictation of its leader or by consensus. (b) 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. That is why individuals may find it difficult to speak out their minds in groups. (f) Appointing an ombudsman. groups have their own clearly evident prejudice. nationality etc. Question 7 (a) Write a short note on the composition and functions of the Central Board of Trustees under the Employees Provident Fund and Miscellaneous Provisions Act. (e) Collective power: Groups are always more powerful than individuals. admiration and respect from others they have to achieve a spirit of conformity. There is always the risk of the one-against many situations cropping up. (h) Regularly updating of policies and procedures (i) (j) Include a grievance policy for employees Set an example from the top. But the fact is that the individual’s prejudices get their intensified while coming in contact with other members of the group holding similar prejudices.PAPER – 2 : BUSINESS LAWS. (c) Resistance to change: It has been observed that a group generally does not take kindly to social change. The degree to which a group resists change serves as an important index of its personality. ETHICS AND COMMUNICATION (e) Use of cross functional teams when developing and implementing the ethics management programme. It helps us in dealing with it efficiently. how so ever influential the individual may be. (4 Marks) (b) Which documents are required to be filed with the Registrar of Companies at the time of registration of a company under the provisions of the Companies Act. (g) Creating an atmosphere of trust. 1956 ? (4 Marks) 35 . On the other hand the group may bring about its own changes.

The Central Board will perform other functions as may be required under any provisions of PF Scheme. the Central Board of Trustees consists of the following: (a) Chairman and Vice-Chairman appointed by the Central Government. 1952. 1956 . pension scheme and Insurance scheme (Section 5A). Employees Pension Scheme under Section 6A and Employees’ Deposit Linked Insurance Scheme (EDLI) under Section 6C is vested in the Central Board of Trustees. the following documents along with the application and prescribed fee. (b) Filing of document with the Registrar of Companies: After getting the name approved. The functions of the Board are as follows: The fund of Employees’ Provident Funds Scheme (EPF) under Section 5. (d) How is “noise” a barrier to effective communication ? OR Explain the concept of “Negotiation”. What are its techniques ? Answer (a) Central Board of Trustees: Under Section 5 of the Employees’ Provident Funds and Miscellaneous Provisions Act. The fund is administered by them as provided in the scheme. (e) 10 persons representing employees appointed by the Central Government. are to be filed with the Registrar:(1) Memorandum of Association [Section 33(1)(a)] (2) Articles of Association. (c) More than 5 officials of Central Government. (d) Not more than 15 persons representing the State Government.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. 2011 OR State the conditions whereunder the issuing of prospectus is not necessary under the provisions of the Companies Act. (c) State the pressures which are faced by the finance and accounting professionals’ in an organization in the compliance of fundamental principles of ethics. (b) Central Provident Fund Commissioner as ex-officio member. if any [Section 33(1)(b)] (4 Marks) 36 . (f) 10 persons representing employers appointed by the Central Government. (4 Marks) OR Write a note on ecological ethics.

PAPER – 2 : BUSINESS LAWS. As they are having responsibilities to an employing organization. ETHICS AND COMMUNICATION (3) The agreement. which the company proposed to enter into with any individual for appointment as its Managing or Whole Time Director or Manager [Section 33(1)(c)]. (6) Apart from the above. (4) A declaration that the requirements of the Act and the rules framed there under have been complied with. (c) To facilitate unethical or illegal earnings management strategies. 1956. where the Articles name a person as director/directors. if any. (4) Where shares are not offered to the public. Such pressures which are being faced by finance and accounting professionals may be stated as follows: (a) To act contrary to Law or Regulation. 37 . (b) To act contrary to technical a professional standards. with shares or debentures previously issued and dealt in or quoted in a recognized stock exchange. the issue of prospectus is not necessary in the following cases (1) Where shares or debentures are offered to existing holders of shares or debentures. (3) Where a person is bona-fide invited to enter into an underwriting agreement.(Section 266). director or another individuals. (c) Pressures faced by finance and accounting professionals: The finance and accounting professionals are supposed to support the legitimate and ethical objectives established by the employer. manager. the company must give a notice regarding the situation of its registered office under Section 146 within 30 days of registration. (2) When the issue relates to shares or debentures uniform in all respects. This declaration is required to be signed by an advocate of the Supreme Court or High Court or an attorney or a pleader having the right to appear before High Court or a Company Secretary or a Chartered Accountant in whole time practice in India who is engaged in the formation of a company. or by person named in the Articles as a Director. Manager or Secretary of the company [Section 33(2)]. (OR) (b) Non-issuing of Prospectus: As per Section 56 of the Companies Act. may be under pressure to act or behave in ways that could directly or indirectly threaten compliance with the fundamental principles. the list of the directors and their written consent in prescribed form to act as directors and take up qualification shares. Such pressures may be explicit or implicit which may come from supervisor. (5) In the case of a public company having share capital.

which in turn live off decaying plant and fish waste products. (d) Noise as barrier to communication: Noise is the first and foremost barrier to communication. material resources. Ecological ethics is based on the idea that the environment should be protected not only for the sake of human being but also for its own sake. It means “interference that occurs in a signal and prevents you from hearing sounds properly. same technical problems in a public address system or a static in a telephone or television cable will distort the sound signal and affect communication. including statements. or otherwise intentionally mislead other. or (iv) Reports required by securities regulators. the activities of one of its parts will affect all other parts. in which the fish depend on small aquatic organisms. resource utilization or waste disposal. Adverse weather 38 . It is the issue of exploitive human nature and attitudes that should be addressed in a rational way. a financial or non financial report that materially misrepresents the facts. Business firms depend on the natural environment for their energy. An ecological system is an interrelated and interdependent set of organisms and environments. Unless business recognize the interrelationship and interdependencies of the ecological systems within which they operate and unless they ensure that their activities will not seriously injure these systems one cannot hope to deal with the problem of pollution. The issue of environmental ethics goes beyond the problem relating to protection of environment or nature in terms of pollution. waste disposal and that environment in turn is affected by the commercial activities of business firms. such as a lake. In a factory the continuous noise made by machines makes oral communication difficult. Problems like global warming. in connection with. ozone depletion and disposal of hazardous waste that concern the entire world. in particular the auditors of the employing organization or Regulators. OR (c) Note on Ecological Ethics: The problem of pollution and other environmental issues can best be framed in terms of our duty to recognize and preserve the ecological systems within which we live. For example: (i) The financial statements (ii) Tax compliance (iii) Legal compliance. Business and all social firms are parts of a larger ecological system. (e) To issue or otherwise be associated with.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. 2011 (d) Lie to. Since the various parts of an ecological system are interrelated. They require international co-operation and have to be tackled at the global level. In the same way.

OR (d) Negotiation: Negotiation occurs when two or more parties either individuals or groups discuss specific proposals in order to find a mutually acceptable agreement. letter service or solving a dispute with a co worker or family member. 39 .PAPER – 2 : BUSINESS LAWS. Further. family member or business associate. (b) Changing of position: Formulate the proposals in a different way. on this first agreement. hit by hit. The receiver’s prejudices may also come in the way of his understanding the message in the right spirit. (b) In appropriate Channel: Poor choice of channel of communication can also be contributory to them in understanding of the message. Thus the communication is always likely to affected by ‘noise’ that stands for so many things. Techniques for Negotiation: (a) Spiraling agreements: Begin by reaching a minimums agreement even though it is not related to the objectives and build. the sender may resort to ambiguous or confusing signals. Some of the factors contributing towards noise factors are as follows: (a) Poor Listening: A last moment communication with deadline may put too much pressure on the receiver and may result in resentment. Negotiation is a common way of settling conflicts in business. we all negotiate for things each day like higher salary. (c) Gathering information: Ask for information from the other party to clarify their position (d) Making the cake bigger: Offer alternatives that may be agreeable to the other party. Whether it is with an employer. without changing the terms. When handled skillfully. negotiation can improve the position of one or even both but when poorly handled. The receiver may mess up the message owing to inattention or may spoil decoding because of wrong or unexpected interpretation. (c) Network breakdown: Some time staff may forget to forward a letter or there may be professional jealousy resulting in closed channel. (e) Commitments: Formalize agreements orally and in writing before ending the negotiation. ETHICS AND COMMUNICATION conditions or some fault in the ultramodern telecommunications systems may also spoil the effect. it can leave a problem still unsolved and perhaps worse than before. without changing the final result.

000 10. : : : : : : : : ‘X’ 002 1-4-11 at 8 a.000 (b) You are given the following information of a worker: (i) (ii) Name of worker Ticket No.m.PAPER – 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT Question No.000 40. Question 1 (a) You are given two financial plans of a company which has two financial situations. Attempt any five questions from the remaining six questions.000 units 60% of installed capacity ` 30 ` 20 ` Equity Debt (cost of debt 12%) 12.000 Capital structure of the company is as follows: Financial Plans XY XM 10. (iii) Work started (iv) Work finished (v) Work allotted (vi) Work done and approved (vii) Time and units allowed (viii) Wage rate ` 25 per hour . 1 is compulsory.000 45. 5-4-11 at 12 noon Production of 2.160 units 2000 units 40 units per hour ` 35. Working Notes should form part of the answer.000 Situation ‘B’ = ` 25. The detailed information are as under: Installed capacity Actual production and sales Selling price per unit Variable cost per unit Fixed cost: Situation ‘A’ = ` 20.000 You are required to calculate operating leverage and financial leverage of both the plans.000 52.

(d) What is factoring? Enumerate the main advantages of factoring.000 4.000 Financial Plan Situation Contribution (C) Less: Fixed Cost Operating Profit or EBIT Less: Interest A XY B A XM B ` 60. Halsey plan and Rowan plan : 40% of time saved You are required to calculate the remuneration of the worker on the following basis: Prepare a Store Ledger Account from the following transactions of XY Company Ltd.000 4. April.000 1.000 = 6.200 ` 60.000 40.200 .000 units Contribution per unit: ` 30 – ` 20 = ` 10 Total Contribution: 6.000 1.000 40. Shortage will be charged as overhead.000 25.000 35.800 41 ` 60.000 × ` 10 = ` 60. (4 х 5 = 20 Marks) Answer (a) Computation of Operating and Financial Leverage Actual Production and Sales: 60% of 10. 2011 1 5 8 10 15 20 21 22 Opening balance 200 units @ ` 10 per unit.800 ` 60.PAPER – 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT (ix) Bonus (x) (i) (ii) (c) Worker X worked 9 hours a day.000 25.000 20.000 20.000 35.275 Issue 100 units Receipt 50 units costing ` 500 Shortage 10 units Receipt 60 units costing ` 540 Issue 400 units The issues upto 10-4-11 will be priced at LIFO and from 11-4-11 issues will be priced at FIFO. Receipt 250 units costing ` 2.000 Receipt 150 units costing ` 1.

800 = 1.800 = 1.000 = Total 40 × 10 × 25 50 = ` 200 ` 1.000 = 50 hours 40 50 hours 40 hours 10 hours = ` 1.000 = 1.800 60.000 units : Time saved Basic wages for time taken 40 hours @ ` 25 Bonus: 40% of time saved Total ` 1. 2011 Earnings before tax (EBT) Operating Leverage C = EBIT 35.000 38.000 Standard time = 40 units per hour Hourly Wage Rate = ` 25 Time allowed = 40 units per hour Time allowed for 2.000 units : Actual time taken for 2.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.000 40.000 33.16 (b) No.03 60.14 = 1.71 35.200 38.200 30.100 (ii) Calculation of Remuneration Under Rowan Plan: Wages for time taken 40 hours @ ` 25 Bonus = Time saved x (Time Taken x Hourly Rate) Time allowed = ` 1.000 = 1.200 42 .000 units (i) 2.000 = 1.71 35.000 = 1.5 60.000 30.000 40.04 Financial Leverage = EBIT EBT 40.200 = 1.200 60.000 35.000 =` 100 40 × 10 × 25 100 Calculation of Remuneration under Halsey Plan: Standard time allowed for 2.000 35. of units produced and approved = 2.000 35.5 40.800 33.

825 ” 21 60 9 540 5.580 1.000 4.50 10 8 8. Stock Level Min.50 10 9 8 8.50 ” 15 50 10 500 ” 20 (shortage) 10 10 100 200 250 50 200 250 50 50 190 250 50 50 190 250 50 50 60 40 50 50 60 4. :Description:Date Max. Rate Units Units Bin No.50 10 10 8 8.275 ` ` 200 200 250 200 250 150 ` 10 10 8 10 8 8.Location Code- Amount Qty.50 8.50 10 9 ` 2.425 4. Balance Rate Amount ` April 1 ” 5 ” 8 250 150 8 8.000 1.50 10 10 8 8. Stock Level Re-order level – Re-order quantityReceipts Issues Qty.000 5.925 4.50 10 8 8.365 ” 22 190 210 10 8 3.785 (Closing Stock) 43 .50 ` 2. Rate Amount Qty.PAPER – 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT (c) Store Ledger Account Name :Code No.275 ” 10 100 8.

2011 (d) Concept of Factoring and its Main Advantages: Factoring involves provision of specialized services relating to credit investigation. who charges commission and bears the credit risks associated with the accounts receivables purchased by it.500 4.000 20. The seller firm may continue to finance its receivables on a more or less automatic basis. Question 2 (a) You are given the following information of the three machines of a manufacturing department of X Ltd.500 C (`) 5. accounts receivables are generally sold to a financial institution (a subsidiary of commercial bank – called “factor”). Factoring ensures a definite pattern of cash inflows.000 40.000 2. Advantages of Factoring The main advantages of factoring are: (i) (ii) The firm can convert accounts receivables into cash without bothering about repayment. In factoring.000 10. (iv) Unlike an unsecured loan.000 2.000 8.: Preliminary estimates of expenses Total A (`) Depreciation Spare parts Power Consumable stores Insurance of machinery Indirect labour Building maintenance expenses 44 (per annum) Machines B (`) 7.000 20. sales ledger management purchase and collection of debts.000 20. Another advantage consists of relieving the borrowing firm of substantially credit and collection costs and from a considerable part of cash management.000 3.000 8.500 4. credit protection as well as provision of finance against receivables and risk bearing.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. Factoring is gaining popularity as useful source of financing short-term funds requirement of business enterprises because of the inherent advantage of flexibility it affords to the borrowing firm.000 2.000 .500 (`) 7. (iii) Continuous factoring virtually eliminates the need for the credit department. If sales expand or contract it can vary the financing proportionally. compensating balances are not required in this case.

90. of which two were on Saturdays.000 20.u. The following operational data of the company for the current year are taken from the records of the company: ` Selling price Variable cost Total cost Sales value 21 p.000 10.000 2 C 1. (b) The Marketing Manager of XY Ltd. Rating 1.000 20.000 20.000 (The foreman and the attendant control all the three machines and spend equal time on them. An increase of 25% in the consumption of spare parts for machine ‘B’ & ‘C’ only. All machines work at 90% capacity throughout the year and 2% is reasonable for breakdown.PAPER – 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT Annual interest on capital outlay Monthly charge for rent and rates Salary of foreman (per month) 50. You are required to : Calculate predetermined machine hour rates for the above machines after taking into consideration the following factors: • • • An increase of 15% in the price of spare parts.) 40.000 45 . 14 p. is giving a proposal to the Board of Directors of the company that an increase in credit period allowed to customers from the present one month to two months will bring a 25% increase in sales volume in the next year.00.u. 18. 18 p.000 40.000 10.000 Salary of Attendant (per month) 5.50.50.000 20. 20% general increase in wages rates.000 3 B 1.W.000 3 Floor space (sq.) The following additional information is also available: Machines A Estimated Direct Labour Hours Ratio of K. The manufacturing department works 8 hours in a day but Saturdays are half days.u. ft.000 There are 12 holidays besides Sundays in the year.

500 46 .875 15.40 Total standing charges Hourly rate for standing charges (B) Machine Expenses: Depreciation Spare parts Power Consumable Stores Direct Final estimates K.000 80.39.000 8.000 2.65.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.000 3.000 7.000 9.000 8.000 4.000 2.000 80.000 20.000 4.000 13. 2011 The Board.000 Floor Space Equal Equal 1.75 48.000 20.000 1.000 60.600 15.20.000 71.W.500 4.000 24. rating Direct 20.40.000 2. by forwarding the above proposal and data requests you to give your expert opinion on the adoption of the new credit policy in next year subject to a condition that the company’s required rate of return on investments is 40%.000 8.500 5.500 5.000 2.000 9.000 3.225 40.000 3.000 6.000 80.750 10.000 20.000 1.000 48.000 7.68.000 84.000 1.29 24. (8 + 8 = 16 Marks) Answer (a) Computation of Machine Hour Rate Basis of apportionment (A) Standing Charges Total ` Machines A ` B ` C ` Insurance Indirect Labour Building Maintenance expenses Rent and Rates Salary foreman Salary attendant of of Depreciation Basis Direct Labour Floor Space 8.000 20.72.000 2.000 86.

100 15.23 25.150 5.600 47 .375 13.000 600 4.64.750 13.PAPER – 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT Total Machine expenses Hourly Rate for Machine expenses Total (A + B) Machine rate Hour 81.52 1.03 553.375 84.600 1.300 575 2.93.000 300 2.225 30.600 − 4.875 4.95.000 600 4.750 2.987 (Rounded off) 40 (Rounded off) 1.21 1.46 25.208 Less: Normal loss of time (Breakdown) 2% 1.208 Hours Effective capacity 90% of 2.750 99. of days (Work full time) = 365 – 64 – 50 = 251 Hours Full days work 251 × 8 = 2.947 A ` Effective running hour (ii) Amount of spare parts is calculated as under: B ` C ` Preliminary estimates Add: Increase in price @ 15% Add: Increase in consumption @ 25% Estimated cost 4.225 1. of holidays 52 (Sundays) + 12 (other holidays) = 64 Saturday (52 – 2) = 50 No.100 100.008 Half days work 50 × 4 = 200 2.43 Working Notes: (i) Calculation of effective working hours: No.

000 4.2 1.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.22.000 = 2 months 19.500 × 14) ∴ Total cost of future sales ∴ Average cost per unit ` 16.12. (b) Advise regarding Change in Credit Policy Working Notes: (1) Present Sales Value Present Selling Price per unit ∴ Present Sales Volume ` 18.500 units Expected increase in Sales Volume ∴ Expected Sales Volume in next year (2) Present total cost (90.35. therefore it has been excluded from the cost accounts.35.000 19.000 = ` 17.000 19.000 × 18) Add: Variable cost on additional Sales (22.000 3.500 ` (3) Cost of Sale (1.500 12 48 .500 × 17.000 (iv) Interest on capital outlay is a financial matter and.000 90.12.90.12.000 + 22.2) Average collection period ∴ Average Investment in receivables in the proposed credit policy 19.15.20.000 units 21 = 25% = 90.000 + 25% = 90.90.35.35.000 2 3. 2011 (iii) Amount of Indirect Labour is calculated as under: ` Preliminary estimates Add: Increase in wages @ 20% 20.000 ` 21 18.000 24.500 = 1.

35.500 = ` 1.22.22. Expenses – 1 month Sales promotion expenses payable quarterly in advance Income tax payable in four instalments of which one falls in the next financial year Rate of gross profit is 20%.000 7.000 available to it including the overdraft limit of ` 75.87. Ignore work-in-progress and depreciation.500 (5) (6) Contribution from additional sales Return on receivables additional investments in = (21 – 14) 22.57.25.000 = ` 1. (16 Marks) 49 24.000 10.57. The records of the company reveal the following annual information: ` Sales –Domestic at one month’s credit Export at three month’s credit (sales price 10% below domestic price) Materials used (suppliers extend two months credit) Lag in payment of wages – ½ month Lag in payment of manufacturing expenses (cash) – 1 month Lag in payment of Adm.500 100 1.000 10. You are required to prepare the estimated working capital statement for the next year.00.000 2.500 - 90.000 18 12 = 3.20.50. The company keeps one month’s stock of raw materials and finished goods (each) and believes in keeping ` 2.40.000 1.500 = 84% Advise: Since the expected rate of return on additional investment in receivables (84%) is more than the required rate of return (40%).80.000 2. Question 3 The management of MNP Company Ltd.80.87. the proposed increase in credit period from one month to two months should be accepted and implemented in the next year.50.500 1.PAPER – 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT (4) Additional Investment in receivables ` 3.00. is planning to expand its business and consults you to prepare an estimated working capital statement.500–1. The management is also of the opinion to make 12% margin for contingencies on computed figure.000 .000 9.000 not yet utilized by the company.

000 37.250 69.000 90.27.80.51.000 12 1 9.20.000 20.500 75.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.00.60.60.000 12 1.40.00.250 3.000 56.000 12 1.000 12 Prepaid Sales promotion expenses Stock of Raw materials Stock of finished goods Cash at Bank and in Hand Total Current Assets (B) Current Liabilities in terms of Cash Costs Creditors for: Material Wages 2 9.81.000 Required Working Capital 50 . 2011 Answer Preparation of Statement of Working Capital Requirement for MNP Company Ltd.000 30.20.500 ` 3 9.75.000 12 1 7.000 12 1 28.000 1.40.40.000 24 1 10.50.46.000 12 1 2.750 6.000 2. Estimated Working Capital Statement (A) Current Assets in terms of Cash Costs ` Debtors: Domestic Sales Export Sales 1 19.80.000 2.000 9.250 ` Manufacturing expenses Administrative expenses Income Tax Payable Total Current Liabilities (C) Net Current Assets (A – B) Add: 12% margin for contingencies 5.

00.000 Short investment (less than 2 months) 1.20.000 4.000 25.20.80.30.000 30.20.00.000 28.000 The summarized Balance Sheets of XYZ Limited as at 31st March.000 4.000 21.000 9.000 Preliminary expenses 2.00.20.75.50.000 84.000 2.80.00.000 25.000 General reserve P & L A/c Current liabilities Proposed dividend Provision for tax Additional information: 1.75.000 1.00.000 Export Sales 10.20.41.000 1.000 2011 Assets (`) 2.000 21.000 Plant Machinery 6. 51 .000 equity shares of ` 10 each issued at 10% premium and partly out of profits otherwise available for dividends.000 11.00.000 Goodwill 1.00.PAPER – 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT Working Notes: Cash cost of sales is calculated as under: Domestic Sales Less: Gross profit @ 20% ` 24.000 and term 2010 (`) 7.000 4.000 40.20.60.20.80.000 Cash and Bank 9.000 1.60. 2010 and 2011 are given below: Liabilities Preference capital share 2010 (`) 4.80.000 × 100 ` = 12.000 20.000 50.000 1.000 40.000 ` 19.10.000 Equity share capital Share premium A/c Capital reserve redemption 9.000 During the year 2011 the company: (i) Preference share capital was redeemed at a premium of 10% partly out of proceeds issue of 10.40.000 Current Assets term 1.00.000 Long investment 30.00.10.000 6.60.000@10% 90 Question 4 10.000 1.000 3.80.75.000 2011 (`) 8.00.00.000 80.

(iv) The company paid tax of ` 1.40. 2011 (a) Cash flow from Operating Activities (16 Marks) ` 4.600 (95. (iii) Foreign exchange loss of ` 1. 2011 (ii) The company purchased plant and machinery for ` 95.00.600 20.000) ` Profit before tax (2.000 1.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.600 represents loss in value of short-term investment.000 80.50.60.000 and paid ` 1.600 1.70.60. You are required to prepare cash flow statement.05.000 + 1.000) Add: Depreciation on machinery Foreign exchange loss Preliminary expenses written off Cash flow before working capital adjustment Add: Stock obtained on acquire Increase in Current Liabilities Less: Increase in current assets Cash flow before tax paid Less: Tax paid Cash flow from operating activities (b) Cash flow from Investing Activities 4.000 (2.000 (1.46.000 in Equity share capital for the acquisition.20.75.600 (1.10.31.000 5.600 25.65. Answer Preparation of Statement of Cash Flow for XYZ Limited Cash flow statement as per AS 3 for the year ending 31st March.000) (80.60.000) 1.000 and plant and machinery ` 1.000) (2.000.70.000.600 (1.000 1.75.60.40.000) (2.000) 15.000) 6.000 2.000) Purchase of Machinery Purchase of investment (c) Cash flow from Financing Activities Issue of shares at premium Payment of dividend Redemption of preference shares at premium Net increase/decrease in cash and cash equivalent (a+b+c) Cash and cash equivalent at the beginning of the year Cash and cash equivalent at the end of the year 52 . It also acquired another company stock ` 25.45.

000 8.00.000 By depreciation 95. To bank To balance c/f Plant and Machinery Account ` 7.60.000+1.000+1.000 Provision for Tax Account ` 80.000 By balance c/f 9.000 1.000 Opening balance + short term investment =1.10.000 = ` 1.000 2.000) Transfer to general reserve (1.000 By P & L 3.00.000 .80.PAPER – 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT Working Notes: 1.20.000 Closing balance = Closing cash + short term investment + foreign exchange loss = 80.65.20.000 67.000 3.70.75.000 ` P&L Account (1.000 1.000 9.50.000 By balance b/d 1.600=` 1.00.000 20.40.20.000+84.000 + 50.20.000 for redemption-opening 2.20. Profit for the year 2011 ` 1.000 2.00. To balance b/d To bank To acquired from other 2.600 Question 5 (a) You are given the following information of the cost department of a manufacturing company: ` Stores: Opening Balance Purchases 53 12.00.00.000 3.75. Cash and Cash Equivalent 45.000) Proposed dividend Net Profit 4.000-1.05.000 ` 1.30.50.

000 By Work-in-progress control A/c 54 Cr.000 (iii) Costing Profit and Loss account.000 .00.20.40.20.000 25.40. 2011 Transfer from work-in-progress Issue to work-in-progress Issue to repairs and maintenance Shortage found in stock taking Work-in-progress: Opening Balance Direct wages applied Overhead applied Closing Balance Finished products: Entire output is sold at a profit of 12% on actual cost from work-in-progress.000 2. Other information: 33.000 15.60. 29.60.000 ` Wages incurred Overhead incurred Income from Investment Loss on sale of fixed assets Shortage in stock taking is treated as normal loss. (iv) Profit and Loss account and (v) Reconciliation statement (b) What is debt securitization? Explain the basic debt securitization process.000 4.40.000 95. Work-in-progress control account.20.50.08. ` 67.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.52.000 8.000 90.000 67.000 8.000 25.20. (12 + 4 = 16 Marks) Answer (a) Stores Leger Control Account Dr. You are require to prepare: (i) (ii) Stores control account.20. ` To Balance b/d 12.

20.000 By stock: 29.48.20.I.60.58.P Control A/c 8.88.000 control Dr. ` ` 1.94.P To Purchases To Wages 12.000 15.68.77.000 Sales) (Balancing figure) 90.I.PAPER – 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT To General adjustment A/C To Work-in Control A/c ledger progress 67.06.13.40.20.560 4.000 By Overhead control A/c 33.28.88.08.40.07. ` To W.77. ` To opening stock : Stores W.000 By Overhead (Shortage) By Balance c/d 1.94.560 Dr.000 Closing 35. ` ` 1.000 By General Ledger 19.07.52.20.000 1.06.000 15.P Control A/c To General ledger Adj. ` 33.20.77.000 50.77.94.000 ` By Sales 37.40.28.I.58.000 By Stores ledger control A/c 67.000 .000 25.88.58.000 35.20.560 Financial Profit and Loss A/c Cr.000 1.000 BY Balance c/d 2. ` To Balance b/d To Stores ledger control A/c To Direct wages Control A/c To Overhead control A/c 25.000 2.13.560 1.68.000 By Costing P&L A/c (Cost of 25.60.000 Costing Profit and Loss A/c Cr.P 55 Cr.000 A/c 2.000 Stores W.000 Dr.000 By Income from investment 67.20.00.20.94.I.60. A/c Cost of sales Add 12%Profit 1.560 Adj.80.560 1.40.000 W.000 19. A/c (Profit) 1.

000 By loss 8. ` To General Ledger Adj. Assets generating steady cash flows are packaged together and against this asset pool..000 Cr. and credit card receivable.87. auto loans.560 4.40.50. housing finance.000 To stores ledger control A/c To wages control A/c Indirect wages (` 29.000-25.560 8.40.54.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.38.000 Dr. Process of Debt securitization (i) The Origination Function: A borrower seeks a loan from finance company.87.20.000 1.30.10.54.000 28.06.10..00.440 2.06.20.000 4.P control A/c 252000 By balance c/d (under absorption of overheads) 8. ` Profit as per Cost Accounts Add: Income from investments Less : Loss on sale of fixed assets Under absorption of overheads (working note) Loss as per Financial Accounts Working Notes: Overhead Control Account Cr. the credit worthiness of borrower is evaluated and contract is entered into with repayment schedule structured over the life of the loan.000 Reconciliation Statement 5.94.000 (b) Debt Securitisation and its Basic Process: It is a method of recyling of funds.08. 2011 To Overhead To Loss on sale of fixed assets 95.440 Dr.30. ` 19.g.000 20.000 20.I.62. market securities can be issued e.000) 1. 56 .000 5.000 23. A/c To stores Ledger Control A/c 9550000 By W. bank. ` 90. It is especially beneficial to financial intermediaries to support the lending volumes.62.40. etc.38.40.000 2.

PAPER – 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT (ii) The Pooling Function: Similar loans or receivables are clubbed together to create an underlying pool of assets. The company has various combination of proposals to raise its funds. (iii) The Securitization Function: SPV will structure and issue securities on the basis of assets pool. Credit enhancement facilities like insurance. From the above proposals the management wants to take advice from you for appropriate plan after computing the following: % of Equity 100 50 50 % of Debts 50 % of Preference shares 50 • • • Earnings per share Financial break-even-point Compute the EBIT range among the plans for indifference. (12 + 4 = 16 Marks) (b) Distinguish between cost units and cost centres. mutual funds and insurance funds.00. investors bear the credit risk or risk of default. wants to raise its funds from market to meet out the financial demands of its long-term projects. You are given the following proposals of the company: (i) Proposals P Q (ii) R Cost of debt – 10% Cost of preference shares – 10% (iii) Tax rate – 50% (iv) Equity shares of the face value of ` 10 each will be issued at a premium of ` 10 per share.000. The pool is transferred in favour of special purpose vehicle (SPV). Also indicate if any of the plans dominate. These are generally sold to investors through merchant bankers. The process of securitization is without resource i.e. which acts as a trustee for investors.00.000. The securities carry a coupon and expected maturity. letter of credit and guarantees are provided. (vi) Expected earnings before interest and tax ` 18. 57 . (v) Total investment to be raised ` 40. which can be asset based/mortgage based. Investors are pension funds. Question 6 (a) The management of Z Company Ltd.

000 9.000 9.00.00.00.000 2.00.000 8.00.00.00.00.00.e.000 4.000 2. 2011 Answer (a) (i) Computation of Earnings per Share (EPS) Plans P Q R ` Earnings before interest & tax (EBIT) Less: Interest charges ` 18.00.00.000 7.000 16.P.5 Earnings before tax (EBT) Less : Tax @ 50% Earnings after tax (EAT) Less : Preference share dividend Earnings available for equity shareholders No.00.00.000 7 18.00.5 (Tax Rate) = ` 4.000 1.S (Rs.000 8 ` 18.000 8.000 9.00.000 ÷ 0.00.000 9.000 1.00.00.000 9. of shares E.00.000 2.00.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.000 18.000 18.) (ii) Computation of Financial Break-even Points Proposal ‘P’ Proposal ‘Q’ Proposal ‘R’ =0 = ` 2.000 (iii) Computation of Indifference Point between the Proposals The indifference point (EBIT − 11 )(1 − T ) (EBIT − 12 )(1 − T ) = E1 E2 Where. EBIT = Earnings before interest and tax 11 12 T E1 E2 = Fixed Charges (Interest) under Proposal ‘P’ = Fixed charges (Interest) under Proposal ‘Q’ = Tax Rate = Number of Equity shares in Proposal P = Number of Equity shares in Proposal Q 58 . ` 2.00.00.000 (Interest charges) = Earnings required for payment of preference share dividend i.000 8.00.

00.00.000 .00.00.000 1.5) (EBIT − 2.000.5EBIT .000 1.000 = 2.000)(1 − 0.00. volume. (b) Cost units: It is a unit of product.00.PAPER – 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT Combination of Proposals (a) Indifference point where EBIT of proposal “P” and proposal ‘Q’ is equal (EBIT − 0)(1 − .000) 2.25 = ` 8.000 .00.00.000 2. it is ` 4.5 EBIT – 2. service or time (or combination of these) in relation to which costs may be ascertained or express.00.000 .000 = 1.00. 59 .00.00.5 EBIT (1.5) = 2.000 (b) Indifference point where EBIT of proposal ‘P’ and Proposal ‘R’ is equal: (EBIT − 1)(1 − T) = E1 EBIT − 12)(1 − T) . weight.5) (EBIT − 0)(1 − 0.5EBIT − 2.000 EBIT = ` 4.00.5) − 2. since the financial break-even-point of the former is only ` 2. A batch which consists of a group of identical items and maintain its identity through one or more stages of production may also be considered as a cost unit.00.00.00.25 EBIT = 0.000)(1 − 0. Cost units are usually the units of physical measurement like number.00.5 EBIT = EBIT – 2.5 EBIT -2.5 EBIT -1. length.000 (c) Indifference point where EBIT of proposal ‘Q’ and proposal ‘R’ are equal (EBIT − 2.00.00. area.5) (EBIT − 0)(1 − .000 .5 EBIT -1.000 EBIT = 2.000 but in case of latter.Preference share dividend E2 (EBIT − 0)(1 − .000 . time and value.000 = .5) − 2.00.00.00.000 = 1.000) = (.000 1.00.00.00.000 There is no indifference point between proposal ‘Q’ and proposal ‘R’ Analysis: It can be seen that Financial proposal ‘Q’ dominates proposal ‘R’.000 ÷ 0.

2011 Cost centre: It is defined as a location. it is to be treated as a selling overhead. viz. Hence. The cost of packing to facilitate the transportation of the product from the factory to the customer should become a part of the distribution cost. The cost of fancy packing necessary to attract customers is an advertising expenditure. (b) (i) Concept of Operating Ratio Operating ratio= Cost of goods sold + operating expenses × 100 Net sales This is the test of the operational efficiency with which the business is being carried. Question 7 Answer any four of the following: (a) How do you deal with the following in cost account? (i) (ii) (i) (ii) Packing Expenses Fringe benefits Operating ratio Price earnings ratio (b) Explain the following ratios: (c) Enumerate the causes of labour turnover. person or an stress of equipment (or group of these) for which cost may be ascertained and used for the purpose of cost control. (d) Write short note on William J. the operating ratio should be low enough to leave a portion of sales to give a fair return to the investors.. should become a part of the prime cost. Cost centres are of two types. personal and impersonal. 60 .INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. otherwise these may be collected as part of production overheads. If the amount of fringe benefit is considerably large. (e) Discuss the process of estimating profit/loss on incomplete contracts. Miller-Orr cash management model. the same should be charged to the specific work order or the job. If the cost of special packing is at the request of the customer. Fringe benefits: These are the additional payments or facilities provided to the workers apart from their salary and direct cost-allowances like house rent and city compensatory allowances. A personal cost centre consists of a person or group of persons and an impersonal cost centre consists of a location or an item of equipment (or group of these). (4 х 4 = 16 Marks) Answer (a) Packing expenses: Cost of primary packing necessary for protecting the product or for convenient handling. Baumal Vs. it may be recovered as direct charge by means of a supplementary wage or labour rate.

(b) Unavoidable Causes. making a worker unfit for work. (iii) Domestic problems and family responsibilities. slack market for the product etc. Shortage of raw material. such causes include the following : (i) (ii) Change of jobs for betterment. remuneration. Avoidable causes are those which require the attention of management on a continuous basis so as to keep the labour turnover ratio as low as possible. Unavoidable causes are those under which it becomes obligatory on the part of management to ask one or more of their employees to leave the organisation.. 61 . Personal causes are those which induce or compel workers to leave their jobs. The main causes under this case are indicated below : (i) (ii) Dissatisfaction with job. It indicates the expectation of equity investors about the earnings of the firm.. (iv) Disability. (v) Disciplinary measures. Premature retirement due to ill health or old age. (iv) Discontent over the jobs and working environment. and (c) Avoidable Causes.PAPER – 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT (ii) Concept of Price-Earning ratio Price Earning Ratio = Market price per equity share Earning per share This ratio indicates the number of times the earnings per share is covered by its market price. (c) Causes of Labour Turnover : The main causes of labour turnover in an organisation/industry can be broadly classified under the following three heads : (a) Personal Causes. supervisors or fellow workers. working conditions. such causes are summed up as listed below: (i) (ii) Seasonal nature of the business. power. (vi) Marriage (generally in the case of women). hours of work. (iii) Change in the plant location. etc. Strained relationship with management.

These limits satisfy the demands for cash at the lowest possible total costs. The formula for determining optimum cash balance is : C = 2U×P S C U P S . and zero as the lower limit. the following process is followed: (i) Completion of contract is less than 25 per cent: In this case no profit should be taken to profit and loss account. the opportunity cost of holding cash and the degree of likely fluctuations in cash balances.m) Miller-Orr cash management model is a net cash flow stochastic model. (d) William J Baumal vs Miller. Where.Orr Cash Management Model: According to William J Baumal’s Economic order quantity model optimum cash level is that level of cash where the carrying costs and transactions costs are the minimum. These limits may consist of h as upper limit. 62 . the interest foregone on marketable securities. When it touches the lower limit. registration and other costs. The carrying costs refer to the cost of holding cash. During the period when cash balance stays between (h. When the cash balances reach the upper limit. (iv) Lack of recreational and medical facilities. (e) Process of Estimating Profit/Loss on Incomplete Contracts: To determine the profit to be taken to Profit and Loss Account. a transfer from marketable securities account to cash account is made. This model is designed to determine the time and size of transfers between an investment account and cash account. in the case of incomplete contracts. = Optimum cash balance = Annual (monthly) cash disbursements = Fixed cost per transaction = Opportunity cost of one rupee p. 2011 (iii) Lack of training facilities and promotional avenues. namely. brokerage. The transaction costs refer to the cost involved in getting the marketable securities converted into cash. (v) Low wages and allowances. The optimim cash balance according to this model will be that point where these two costs are equal. o ) i.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.z) and (z. z as the return point. The high and low limits of cash balance are set up on the basis of fixed cost associated with the securities transactions. In this model control limits are set for cash balances. This happens when the firm falls short of cash and has to sell the securities resulting in clerical.a. the transfer of cash equal to h-z is invested in marketable securities account.e high and low limits no transactions between cash and marketable securities account is made. (or p.

Mathematically : 2 Cash received × Notional Profit × 3 Work received (iv) Completion of contract is upto 90 per cent or more than 90 per cent i.PAPER – 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT (ii) Completion of contract is upto 25 per cent or more than 25 per cent but less than 50 per cent: In this case one-third of the notional profit. is transferred to the Profit and Loss Account. two-third of the notional profit. should be transferred to the Profit and Loss Account. reduced by proportion of cash received to work certified. it is nearing completion: In this case the profit to be taken to Profit and Loss Account is determined by determining the estimated Profit and using any one of the following formulas : (a) Estimated Profit × (b) Estimated Profit × Work certified Contract price Work certified Cash received × Contract price Work certified OR Estimated Profit × (c) Estimated Profit × (d) Estimated Profit × (e) Notional Profit × Cash received Contract price Cost of work to date Estimated total cost Cost of work to date Cash received × Estimated total cost Work certified Work certified Contract price 63 . reduced in the ratio of cash received to work certified.e. Mathematically: 1 Cash received × Notional Profit × 3 Work received (iii) Completion of contract is upto 50 per cent or more than 50 per cent but less than 90 per cent: In this case.

of Net sales shares value (`) 100 All bonus shares 100 2. and the same may be adopted for computing the capital gains. Thilagam as under: Date sale of Manner of sale Sold in recognized stock exchange. etc. The brief summarized details for the year ended 31. brokerage. unless stated otherwise in the question. Janak gifted to his wife Mrs. bonus shares were allotted in the ratio of 1:1.2010 21.10. (5 marks) (b) Nathan Aviation Ltd.70.1 is compulsory.3.000 21.Y. Mr. Attempt any five questions from the remaining six questions.25. the quantum and the head of income in respect of the above transactions. one in a SEZ (Unit S) and another in a normal area (Unit N). Thilagam 200 listed shares. is running two industrial undertakings. STT paid Private sale to an outsider Private sale to her friend Mrs. Hema (Market value on this date was ` 2.000 1. which is the assessment year relevant for May.2011 are as under: The Suggested Answers for Paper 4: Taxation are based on the provisions of law as amended by the Finance Act.2011 Briefly state the income-tax consequences in respect of the sale of the shares by Mrs. 2010 and applicable for A.000 per share. 2011-12 (in the case of Income-tax).. showing clearly the person in whose hands the same is chargeable. Thilagam. Question 1 (a) On 21-3-2010. suitable assumptions may be made by the candidate and stated clearly in the answer. Net sales value represents the amount credited after all taxes. which had been bought by him on 19-4-2009 at ` 2.PAPER – 4 : TAXATION Question No. . Working notes should form part of the answer. Detailed computation of total income is NOT required.7. All questions relate to the assessment year 2011-12.2. All these shares were sold by Mrs.000) No.000 1.2010 28.20. levies. Cost inflation index for the FY 2010-11 is 711 and for the FY 2009-10 is 632.5. On 1-6-2010. 2011 examination. Wherever required.

30.2011 : Particulars Purchase of raw materials within State.000 2.000 Advances received from prospective employers for conducting campus 1.5. a registered dealer. 1000 units.00. effected by Vasudha & Co.000 65 . sales.50. is a partnership firm engaged in the business of recruitment and supply of labourers..9.30.2010. service tax has been charged separately and received from clients. etc.000 interviews in colleges Wherever applicable.000 3.000 4. (5 Marks) Pareesh & Co. inclusive of VAT levy at 10% (input credit to be spread over 2 financial years) Amount (` ) 5.PAPER – 4 : TAXATION (` in lacs) S Domestic turnover Export turnover Gross profit Less: Expenses and depreciation Profits derived from the unit 10 120 20 7 13 N 100 Nil 10 6 4 (c) The brought forward business loss pertaining to Unit N is ` 2 lacs.000 2. (5 Marks) (d) The following are details of purchases. Briefly compute the business income of the assessee.35.000 4.00. The firm. inclusive of VAT levy at 6% Inter-State purchases of raw materials.00. inclusive of CST at 2% Import of raw materials. inclusive of customs duty of ` 35. which had rendered taxable services to the tune of ` 20.04..000 Capital goods purchased on 1.2010 : (` ) (i) (ii) Amounts collected from companies for pre-recruitment screening Amounts collected from companies for recruitment of Permanent staff Temporary staff (iii) 3. for the year ended 31.2 lacs in the financial year 2009-10. furnishes the following details pertaining to the half year ended on 30. Compute the value of taxable services rendered and the service tax payable by the assessee for the relevant half year.3.

000 1. Hence.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. income arising to the transferee from such accretion will not be clubbed. inclusive of VAT leyy at 4% Sale of goods within State. the period of holding of the previous owner should be considered for determining whether the capital gain is long term or short term. Long-term capital gains on sale of such shares is exempt under section 10(38) Shares sold to a friend on 28. and the capital gains arising from the sale of bonus shares would be taxable in the hands of Mrs. Janak Long-term capital gains/loss Particulars (i) 100 shares sold on 21. Thilagam will be chargeable to tax in the hands of Mrs.3.2011 was 100 units of raw materials purchased within the State 1. exempt from levy of VAT (Goods were manufactured from the Inter-State purchase of raw materials) Closing stock as on 31. Janak 1.2011. 2011 Other manufacturing expenses Sale of taxable goods within State.2010 in a recognized stock exchange. Income/loss to be clubbed in the hands of Mr.000 (55. The cost to the previous owner has to be taken as the cost of acquisition.000 x 100 x 711/632) Long term capital loss to be included in the hands of Mr.20.000 2. Therefore.2011 Sale consideration Less: Indexed cost of acquisition of 100 shares (` 2.2. (5 Marks) Answer (a) Where an asset has been transferred by an individual to his spouse otherwise than for adequate consideration. Where there is any accretion to the asset transferred.28.3. Compute the VAT liability of the dealer for the year ended 31.70. the income arising from the sale of the said asset by the spouse will be clubbed in the hands of the individual.000 7.000) ` Nil (ii) 66 . Thilagam.000 Input credit is allowed only on raw materials used in manufacture of the taxable goods.25. STT paid.5. Janak.50. Where an asset received by way of gift has been sold. the profit from sale of bonus shares allotted to Mrs. Thilagam. the capital gains arising from the sale of the original shares has to be included in the hands of Mr.

50.PAPER – 4 : TAXATION Income taxable in the hands of Mrs. Hema. for inadequate consideration.13 lacs + Rs. Thilagam. the provisions of section 56(2)(vii) would not be attracted in the hands of Mrs. Hema has received shares from her friend. Hema under the head “Income from other sources” Mrs. Even though shares fall within the definition of “property” under section 56(2)(vii).000.25.4 lacs) Less: Less: Exemption under section 10AA [See Working Note below] Brought forward business loss ` in lacs 17 12 5 2 3 Working Note Computation of exemption under section 10AA in respect of Unit S located in a SEZ Domestic turnover of Unit S Export turnover of Unit S Total turnover of Unit S Profit derived from Unit S Exemption under section 10AA Profit of Unit S x ` in lacs 10 120 130 13 Export turnover of unit S 120 = 13 х = Total turnover of Unit S 130 12 67 .000 Nil 1. (b) Computation of business income of Nathan Aviation Ltd.000 Taxability in the hands of Mrs. Particulars Total profit dervied from Units S & N (Rs.25. Thilagam Short-term capital gains (on sale of 100 bonus shares) Particulars Sale consideration Less: Cost of acquisition of bonus shares Short-term capital gains ` 1. since the difference between the fair market value of shares and actual sale consideration does not exceed Rs. Mrs.

:Particulars Taxable services (`) Service tax (`) Amounts collected from companies for prerecruitment screening Amounts collected from companies recruitment of permanent staff for 2. Hence.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.2010-11 falls within the first five year period commencing from the year of manufacture or production of articles or things or provision of services by the Unit in SEZ. Since the value of taxable services rendered in the preceding year is more than ` 10 lakh (i.00.200 Amounts collected from companies for recruitment of temporary staff (It is also a taxable service) Advances received from prospective employers for conducting campus interview in colleges (Note – 1) Total Notes: 1.338 and ` 90.08.000 .662 respectively.e. service tax has been charged separately.Y.00. Amount (`) (d) Computation of VAT liability of Vasudha & Co. for the year ended 31. However. the assessee is not a small service provider.3.000 10.000 4. advance has also been taken as exclusive of service tax. it is not eligible for the exemption available to the small service provider. it may be noted that in actual practice.00. the total service tax payable and total value of taxable service would be ` 1. Therefore. advance for a taxable service is generally inclusive of service tax and accordingly service tax is computed by making back calculations.150 1.900 41.2011:Particulars Input tax credit: Intra-State purchases of 1000 units of raw materials [Refer Note 1] 68 30. 2011 Note – 100% of the profit derived from export of articles or things or from services is eligible for deduction under section 10AA. ` 20. (c) Computation of value of taxable services and service tax payable by M/s Pareesh & Co.188 and ` 10. In such a case.000 25. Since the question specifically provides that wherever applicable.50. assuming that F. the amount of service tax and the value of taxable service in relation to the advance received for conducting campus interview would be ` 9.750 30.662 respectively.40. 2.07.000 3.2 lakh).50.300 1.000 10.

implies that the same is not allowable in respect of sale of goods within the State which are exempt from levy of VAT. However. Kulasekhara. ⎣ 110 × 2 ⎦ 5. the ⎡ 3.000 x 4)/104] Sale of exempted goods within State [Refer Note 6] Total VAT payable (B) Net VAT liability (VAT credit to be carried forward) [(B) . input tax credit in respect of closing stock of raw materials need not be reduced from total input tax credit available. The payment was made in Colombo. since the services were used in India? (4 Marks) 69 . 2.000 45. Note: The statement in the question.000 (17000) ⎡ 5. Therefore. a management consultant practising in Colombo.000 28. 15. specializing in project financing.PAPER – 4 : TAXATION Inter-State purchases of raw materials [Refer Note 2] Import of raw materials [Refer Note 3] Purchase of Capital Goods [Refer Note 4] Other manufacturing expenses [Refer Note 5] Total input tax credit available (A): Output VAT payable: Sale of taxable goods within State [(7.(A)] Notes:1. No VAT will be payable on sale of goods exempted from levy of VAT. Further.30.000 × 6 ⎤ VAT paid on intra-State purchases is eligible for input tax credit ⎢ ⎥. 106 ⎣ ⎦ CST paid on intra-State purchases is not eligible for input tax credit. Is this payment chargeable to tax in India in the hands of Mr. irrespective of when the supplies/inputs purchased are utilized/sold. 4. No input tax credit can be availed on expenses incurred on manufacturing. input tax credit is not affected. VAT paid on purchase of capital goods is eligible for input tax credit. since these goods are manufactured from the inter-State purchases of raw materials (nonvattable inputs). 3. The consultancy is related to a project in India with possible Ceylonese collaboration.000 × 10 ⎤ same has to be spread over a period of two years ⎢ ⎥. Kulasekhara is a non-resident.000 28. Question 2 (a) (i) Miss Vivitha paid a sum of 5000 USD to Mr.30. 7. Mr. Kulasekhara. “Input credit is allowed only on raw materials used in manufacture of the taxable goods”. VAT system allows credit in respect of purchases made during a period to be set-off against the taxable sales during that period.28. Customs duty is not eligible for input tax credit. 6.

has collected a sum of ` 10.2011 Amount (` ) 20. ` 70. However.000 Determine the service tax liability for the quarter and indicate the date by which the service tax has to be remitted by the assessee.2011 : (` in lacs) (i) (ii) (iii) Payments made to K Research Ltd.6. 2011 (ii) Mr. Payment made to LMN College Payment made to OPQ College Note: K Research Ltd.2010.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. (4 Marks) (c) Which variant of VAT is most widely used in the world and why? Are some services also included in the VAT net by such countries? (4 Marks) Answer (a) (i) A non-resident is chargeable to tax in respect of income received outside India only if such income accrues or arises or is deemed to accrue or arise to him in India.00. The details pertaining to the quarter ended 30.000 was met through Cenvat credit and the balance was paid by cheques on various dates. 70 . Kohli & Co.50.3. on 30.4.2010 are as under: Particulars Value of free coaching rendered Coaching fees collected from students (Service tax collected separately) Advance received from a college for coaching their students.6. (iv) (v) (vi) Payment made to National Laboratory Machinery purchased for in-house scientific research Salaries to research staff engaged in in-house scientific research 8 25 12 20 15 10 Compute the amount of deduction available under section 35 of the Income-tax Act.2 lacs as service tax.2010. (4 Marks) (b) During the year ended 31. and LMN College are approved research institutions and these payments are to be used for the purposes of scientific research. no coaching was conducted and the money was returned on 12.3.000 14. Praveen Kumar has furnished the following particulars relating to payments made towards scientific research for the year ended 31. running a coaching centre. 1961 while arriving at the business income of the assessee.000 3..

00 12. [See Note 3] LMN College OPQ College [See Note 1] National Laboratory In-house research [See Note 2] 20 15 10 8 25 12 35(1)(ii) 35(1)(ii) 35(2AA) 35(1)(iv) r. technical or consultancy services.25 Nil 14. Deduction for in-house research and development Only company assessees are entitled to weighted deduction@200% under 71 . In the instant case. (ii) Computation of deduction allowable under section 35 Particulars Payment for scientific research Amount (` in lacs) Section % of Amount of weighted deduction deduction (` in lacs) K Research Ltd. the payment received by Mr.25 Capital expenditure Revenue expenditure Deduction allowable under section 35 Notes :1.w. income by way of fees for technical services. and LMN College (mentioned in item (i) and (ii). inter alia. Payment to OPQ College Since the note in the question below item (iii) clearly mentions that only K Research Ltd. payment to a management consultant relating to project financing is covered within the scope of “fees for technical services”. since the services were utilized in India. in Colombo is chargeable to tax in his hands in India.00 112. payment to OPQ College would not qualify for deduction under section 35.PAPER – 4 : TAXATION The income deemed to accrue or arise in India under section 9 comprises.00 26. fees for technical services. it is a logical conclusion that OPQ College mentioned in item (iii) is not an approved research institution. 2. inter alia. whether or not such services were rendered in India. Therefore. as it is deemed to accrue or arise in India. a non-resident. 35(2) 35(1)(i) 175% 175% Nil 175% 100% 100% 35. Kulasekhara. which includes any consideration for rendering of any managerial. The Explanation below section 9(2) has been substituted to clarify that income by way of. from services utilized in India would be deemed to accrue or arise in India in case of a non-resident and be included in his total income.00 25. respectively) are approved research institutions. Therefore.

49. 3.2011. However.3 ⎤ Coaching fees collected from students ⎢ ⎥ 100 ⎣ ⎦ Nil 1. inclusive of CENVAT credit availed was more than ` 10 lakh. in this case.365 Advance received from a college for coaching their students Total service tax liability for the quarter ended 30. Therefore. 125% of ` 20 lacs).00.350 28.000 × 10. for the quarter ended 30. in which case. during the 72 . Hence. Payment to K Research Ltd. assuming that such expenditure is laid out or expended on scientific research related to his business.000 × 10. the assessee is an individual. he would be entitled to deduction@100% of the revenue expenditure incurred under section 35(1)(i) and 100% of the capital expenditure incurred under section 35(1)(iv) read with section 35(2).e.25 lacs. (b) Particulars Computation of service tax liability of Kohli & Co. Advance receipt is chargeable to service tax.3 ⎣ ⎦ During the preceding financial year. the service tax liability met by the assessee. 2.50. as is approved by the prescribed authority.3%.2010. 3. Advance would be chargeable to service tax in the quarter ended 30. the total deduction under section 35 would be ` 102.06. Free coaching is not exigible to service tax Coaching fees collected from students will be liable to service tax @ 10. qualifies for a weighted deduction of 125% under section 35(1)(iia).4. It is immaterial that no coaching was conducted and the money was returned on 12.015 1.06. The weighted deduction under section 35(1)(iia) would be ` 25 lacs (i. it is also possible to take a view that payment of ` 20 lakhs to K Research Ltd. qualifies for a weighted deduction of 125% under section 35(1)(iia) since K Research Ltd. 2011 section 35(2AB) in respect of in-house research and development. (Alternative Answer) Any sum paid to a company registered in India which has as its main object scientific research.3 ⎤ assumed to be inclusive of service tax ⎢ ⎥ 110.2010:Amount of service tax (`) Free coaching rendered ⎡ 14.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.2010 Notes: 1.06.77. is a company.. Advance has been ⎡ 3. Therefore.

300 Net profit from wholesale business Amounts debited include the following: Depreciation as per books Motor car expenses Municipal taxes for the shop (For two half years. it does not cause any cascading effect. most VAT countries include many services in the tax base.2010 is 6th July.000 . Secondly. a resident individual aged 64. the consumption variant is widely used. The following details are made available for the year ended 31. payment of service tax will have to be made electronically.. In practice..000 7. the system is tax neutral in respect of techniques of production (labour or capital-intensive). The reasons for preference of this variant are: Firstly.11.PAPER – 4 : TAXATION current financial year.50. the last date for making the payment of service tax by Kohli & Co. 2010. Also. Question 3 (a) Mr. payment for one half year made on 12. (c) Among the three variants of VAT.000 ` 1.6.2011) Salary to manager for whom single cash 73 21. Vidyasagar.000 13.06.2011 : ` (i) (ii) (iii) (iv) Interest on capital received from Oscar Musicals & Co. (non-corporate assessee) for the quarter ended 30. therefore. He also runs a wholesale business in medical products. Hence.60.3.000 34.000 40. Since the business gets set-off for the tax on services.500 34. Several countries of Europe and other countries have adopted this variant. Therefore. for all quarters. a partnership firm. is a partner in Oscar Musicals & Co. on 14.500) Income-tax refund received relating to assessment year 2009-10 including interest of ` 2. most countries use the consumption variant. at 15% Interest from bank on fixed deposit (Net of TDS ` 1. it does not affect decisions regarding investment because the tax on capital goods is also set-off against the VAT liability.500 5.2011 and for the other. the consumption variant is convenient from the point of administrative expediency as it simplifies tax administration by obviating the need to distinguish between purchases of intermediate and capital goods on the one hand and consumption goods on the other hand.

4.26.000 Compute the total income of the assessee for the assessment year 2011-12.20.000/2) Disallowance under section 40A(3) in respect of salary paid in cash since the same exceeds ` 20. having stock of goods purchased from outside the State.500 6.100 Depreciation allowable (Note 1) 74 .500 21.400 5.500 1.000 66.000 70. (ii) Briefly discuss about the adjustment of excess amount of service tax paid in case of renting of immovable property service.10. 2011 payment was made for (v) The WDV of the assets (as on 1. (8 Marks) (b) (i) Where any transaction of taxable service is entered into with an associated enterprise.000 20% of car expenses for personal use Less: ` ` 5.Y. Vidyasagar for the A. since the same was paid after the due date of filing of return (` 7. owing to property tax payment.000 3.000 34. Also compute the WDV of the different blocks of assets as on 31.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. Will the VAT chain be broken if the dealer opts for the said scheme? (4 Marks) Answer (a) Computation of total income of Mr.000 60. (2 Marks) (c) M/s. receipt of service tax is not material for levy of service tax.2010) used in above wholesale business is as under: Computers Motor car (20% used for personal use) (vi) LIP paid for major son PPF of his wife 1.000 3. The computation should show the proper heads of income. (2 Marks) whether you agree or disagree with this statement.16.000 8. Explain with reasons.000 Long-term infrastructure bonds (Approved) 30. Advise him whether the same is possible.2011. wishes to opt for the Composition Scheme.2011-12 Particulars Profits and gains of business or profession Income from own business Net profit as per books Add: Depreciation as per books Disallowance of municipal taxes paid for the second half-year under section 43B. a registered dealer under the local VAT law.20.. Staruss & Co.3.60.

000 5.81.33.a. It is assumed that the partnership deed provides for the same and hence is allowable to this extent in the hands of the firm.100 Interest on bank fixed deposit (Gross) Interest on income-tax refund Gross total income Less: 15.000 9.30.600 Depreciation 72.000 3. Maximum interest allowable as deduction in the hands of the firm is 12% p.00. deduction is restricted to Under section 80CCF 60. 1962 Opening WDV Block 1 Block 2 Computers Motor Car 1.000 1.600 38.000 Approved Infrastructure bonds (` 30.000 Closing WDV 48. (3) Deduction under Chapter VI-A Particulars Under section 80C ` ` LIP for major son PPF paid in wife’s name As per section 80CCE.20.000 Less: 20% disallowance for personal use (2) Only to the extent the interest is allowed as deduction in the hands of the firm.53. the same is includible as business income in the hands of the partner.000 6.300 6. amounting to ` 1. interest @12% p.400 1.000 70.300 17. Vidyasagar.36. Therefore.000 Rate 60% 15% 48.000 2.400 Deductions under Chapter VIA (Note 3) 1.PAPER – 4 : TAXATION Income from firm Interest on capital from partnership firm (Note 2) Income from other sources 1.400 Total Income Notes: (1) Depreciation allowable under the Income-tax Rules.20.10.20.000 but restricted to 75 .a.000 would be treated as the business income of Mr.20.400 2.20.000 1.

The details of such adjustment have to be intimated to the Superintendent of Central Excise having jurisdiction over the service provider within a period of 15 days from the date of such adjustment.000 Total deduction 1. 2011 ` 20. where any amount in excess of the amount required to be paid towards service tax liability has been paid on account of non-availment of such deduction. Therefore. Hence. However.2007.20.3.000. Thus. Question 4 (a) The following are the details relating to Mr. in the books of account of a person liable to pay service tax. Section 68 casts the liability to pay service tax upon the person liable to pay service tax.2011 : 76 . the VAT chain is broken.000 Yes. whether called “Suspense account” or by any other name. aged 57. such excess amount may be adjusted against the service tax liability within one year from the date of payment of such property tax. The selling dealer will not be able to pass on the benefit of the input credit when he opts for the Composition Scheme.05. service tax would be payable on such credits as well.27/2007 ST dated 22. as soon as any dealer opts for the Composition Scheme. The statutory liability does not get extinguished if the service provider fails to realize or charge service tax from the service receiver. being the maximum deduction allowable u/s 80CCF) (b) (i) 20. a dealer desirous of availing the benefits of VAT Composition Scheme should not have stock of the goods purchased from outside the State. a resident Indian. A purchasing dealer buying goods from a dealer operating under the Composition Scheme will not get any tax credit for the goods purchased. This liability is not contingent upon the service provider realizing or charging the service tax rate at the prevailing rate. (ii) In case of renting of immovable property service. relating to the year ended 31. a deduction of property taxes paid in respect of the immovable property is allowed from the gross amount charged for renting of the said immovable property vide Notification No. he must ensure that he does not possess stock of such goods as on the date of exercise of option. if the dealer wishes to avail the benefit of the scheme. Advice is to be tendered on above lines.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. (c) As per the principles laid down in the White Paper. This is so because in such a case any payment received towards the value of taxable service includes any amount credited or debited to any account. I agree with the statement. It may be noted that in case of transactions of taxable services involving any associated enterprise service tax is liable to be paid even if the value of taxable service has not been received. Srivatsan.

2011-12 Particulars Salaries ` ` Answer (a) Income from salaries Less: 2. 2.000 30.000 40.000 1.000 32.50.000 77 .90.000 30.000 30. (4 Marks) (c) What is meant by input tax credit in the context of VAT provisions? How does input tax credit help in achieving the essence of VAT? (4 Marks) Computation of total income of Mr.000 2.000 (8 Marks) (b) State the provisions which enable the Central Government to make rules for administering service tax. Srivatsan for the A.000 1.40.PAPER – 4 : TAXATION ` Income from salaries Loss from house property Loss from cloth business Income from speculation business Loss from specified business covered by section 35AD Long-term capital gains from sale of urban land Long-term capital loss from sale of listed shares in recognized stock exchange (STT paid) Loss from card games Income from betting Life Insurance Premium paid Compute the total income and show the items eligible for carry forward. For what purposes are such rules made? Name any four such rules issued by the Central Government so far.000 1.000 20.50.20.10.10.000 Loss from house property Profits and gains of business or profession Income from speculation business Less: Loss from cloth business set off Capital gains 30.90.000 2.000 Nil Long-term capital gains from sale of urban land Less: Loss from cloth business set off 2.000 45.20.20.Y.000 2.000 1.

000-30. Therefore.000. Gross Total Income of ` 1.000 from sale of urban land.15. The unabsorbed loss has to be carried forward for set-off against profits and gains of any specified business in the following year.. such loss cannot be set off against any other income.10.000 30. Loss from specified business covered by section 35AD can be set-off only against profits and gains of any other specified business.000 ` (1) Loss from cloth business (2. Loss from an exempt source cannot be set off against profits from a taxable source. (vi) Income from betting is chargeable at a flat rate of 30% under section 115BB and no expenditure or allowance can be allowed as deduction from such income. the deduction under section 80C in respect of life insurance premium paid has to be restricted to ` 30. gross total income has to be reduced by the amount of long-term capital gains and casual income. (ii) (iii) Business loss cannot be set off against salary income.000 set-off against income from speculation business) can be set-off against long-term capital gains of ` 2. However. the taxable long-term capital gains would be ` 40.e. 2011 Income from other sources Income from betting Gross total income Less: Deduction under section 80C (life insurance premium paid) Total income Losses to be carried forward 45. Consequently. (iv) Loss from card games can neither be set off against any other income. the balance business loss of ` 2.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.15.000) (2) Loss from specified business covered by section 35AD Notes Nil 20. (v) For providing deduction under Chapter VIA.000 1.000 (LTCG) – ` 45. nor can any loss be set-off against such income. long-term capital loss on sale of listed shares cannot be set-off against long-term capital gains from sale of urban land. Therefore.000 [i.40. Therefore. nor can it be carried forward.000 – ` 40.000 85.000-2.40.50.10. 1994 grant powers to Central Government to make rules for carrying out the provisions of these 78 .000 – ` 30. (b) Section 94 of Chapter V and section 96-I of Chapter VA of the Finance Act.000 (i) Long-term capital gains from sale of listed shares in a recognized stock exchange is exempt under section 10(38).000 (` 2.000 (Casual income)].

1986. Rakesh and Mr. 2003 (c) CENVAT Credit Rules. 1994 (b) Service Tax (Advance Ruling) Rules. 1979 for ` 1. Rakesh purchased a house property on 14th April. It can also be referred to as tax credit on a sale within the State or in the course of intra-State trade or commerce. He entered into an agreement with Mr. The essence of VAT is in providing set-off for the tax paid earlier. and this is given effect through the concept of input tax credit/rebate. 2005 (f) Service Tax (Determination of Value) Rules. input tax credit in relation to any period can be set off by the registered dealer against the amount of his output tax. Rakesh forfeited the advance.05. B did not remit the balance amount. 2005 (e) Service Tax (Registration of Special Category of Persons) Rules.000 50. 2004 (d) Export of Service Rules. Mr. 1982 and received an advance of ` 25. 2008 and (k) Dispute Resolution Scheme Rules.000 . Thus. Rules can never override the Act and cannot be in conflict with the same. since Mr.PAPER – 4 : TAXATION Chapters. So far. 2006 (g) Taxation of Services (Provided from Outside India and Received in India) Rules. A on 15th June.000. Later on. Rules should be read with the statutory provisions contained in the Act. Rakesh during FY 1979-80 By Mr.90. This amount is adjusted/rebated against the tax payable by the purchasing dealer on his sales. 2008 Service Tax (Provisional Attachment of Property) Rules. Following renovations were carried out by Mr. 2007 (i) (j) Service Tax (Publication of Names) Rules. B for the sale of house on 15th September. A to the house property: Amount (`) By Mr. (c) The tax paid by a registered dealer at the earlier point is called input tax. A during FY 1993-94 79 10. This credit availability is called input tax credit (ITC). he gifted the house property to his friend Mr. the Central Government has issued the following rules for administering service tax – (a) Service Tax Rules. Question 5 (a) Mr. Note: Any four rules may be mentioned.000.000 1. Rakesh during FY 1983-84 By Mr. However. 2006 (h) Works Contract (Composition Scheme for Payment of Service Tax) Rules. 2008.

The said amount was forfeited by Mr.000.00.000 .05. A for the assessment year 2011-12.44.1981 is ` 1. (c) What are the major deficiencies of VAT system in India ? Answer (4 Marks) (4 Marks) (a) Computation of capital gains chargeable to tax in the hands of Mr. since Mr.50.55.000 Fair Market Value on 1st April.500 8.500 8. Mr. Sanjay on 2nd January. 2011 for a consideration of ` 12.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. Cost inflation indices are as under: Financial Year 1981-82 1983-84 1986-87 1993-94 2010-11 Cost inflation index 100 116 140 244 711 (8 Marks) (b) Briefly explain the provisions relating to advance payment of service tax.00.50. 1981. the house was sold by Mr. A to Mr. C for sale of the house on 1st June. is to be taken as cost of acquisition of Mr. 2011 The fair market value of the property as on 1. whichever is more. A.e. 1981 is ` 1.000 Cost to the previous owner or FMV on 1st April. Finally. A 80 1. 1995 and received an advance of ` 80.4. Rakesh is ` 1.000.60. C could not fulfil the terms of the agreement.000 3.50.114 (15. A Particulars Amount (`) Sale consideration Less: Indexed cost of acquisition (Note 1) Less: Indexed cost of improvement (Note 2) Long term capital loss Note 1 12.000. Compute the capital gains chargeable to tax in the hands of Mr.614) Indexed cost of acquisition is determined as under: Cost to the previous owner i. Mr. A entered into an agreement with Mr.

60. Therefore.53. Distortion occurs on account of different rates of VAT.55. 1981 During 1983-84 Indexed cost of Improvement During 1993-94 Indexed cost of Improvement Total indexed cost of improvement NIL 3. Note 2 Indexed cost of Improvement is determined as under: Expenditure incurred before 1st April.Y. not be deducted) 80.500 Cost of acquisition Indexed cost of acquisition (70.Y. it is difficult to put the purchases from other States at par with the purchases within the State. (ii) (c) The major deficiencies of VAT system in India are as under: (1) There is lack of uniformity in the rates of VAT in different States.000 × 711/116] [1. and its adjustment. 1981 should not be considered Expenditure incurred on or after 1st April. A and 711 is the Cost Inflation Index for F. Rakesh.648 8.114 [50. Such facility is available when the assessee: (i) intimates the details of the amount of service tax paid in advance.06. to the Jurisdictional Superintendent of Central Excise within a period of 15 days from the date of such payment. the previous owner.PAPER – 4 : TAXATION Less: Advance money forfeited by Mr. and indicates the details of the advance payment made. should. 2010-11. etc.000 3. 81 . difference in classification of goods. 1986-87. however.466 5. exemptions. the advantage of neutrality is confined only for purchases within the State. being the first year in which property is held by Mr. composition scheme.000 70.000 × 711/140) 140 is the Cost Inflation Index for F. if any in the subsequent return to be filed under section 70. Consequently.000 × 711/244] (b) Service tax law provides the assessee a facility to make advance payment of service tax on his own volition and adjust the amount so paid against the service tax which he is liable to pay for the subsequent period. being the year in which the property is sold. A (as per section 51) (Note : Advance forfeited by Mr. (2) Central Sales Tax is not integrated with the State VAT.90.

000.2010 (A.00.2010” may be read as “Cost of land”. the accounting cost has increased which may not be commensurate with the benefits to traders and small firms. there was disruption of business and the assets were put into use by the LLP only from 1st March.1. 2007-08) 9. (8 Marks) Note – “WDV of land as on 1. in existence since 2003. the administrative cost to the States has increased on account of number of dealers going up significantly.1.2011.00. Assuming that the necessary conditions laid down in section 47(xiiib) of the Income-tax Act. tends to be regressive since the proportion of income spent on consumption is large for the poor than the rich.3.2011.000 12. Above building was revalued as on the date of conversion into LLP as 5. This has increased the requirement of working capital and the interest burden on the same.00. (4) VAT is paid at various stages and not at last stage.Y.2009 for which deduction was allowed under section 35AD.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.4. is converted into Harish Jayaraj LLP on 1.00.000 3.2010 WDV of machinery as on 1. Ltd. explain the tax treatment of the above in the hands of the LLP.000 3.4.000 (vi) Unabsorbed business loss as on 1. The same included the following receipts also: ` (i) (ii) Handling of cargo containing life saving drugs Handling of export cargo 2. Note: Any four points may be mentioned. 2011 onwards.000 Though the conversion into LLP took place on 1. Ltd. Question 6 (a) Harish Jayaraj Pvt.00. 2011 (3) For complying with the VAT provisions.3. 1961 have been complied with.000 82 .2010 Building acquired on 12.00. For the quarter ended 31. (b) Nigamanth Cargo Handlers Pvt.00. The company earned profits of ` 8 lacs prior to computation of depreciation.000 3. is a cargo handling agency.4.2010 Patents acquired on 1.00.000 7. total collections for handling cargo (excluding service tax) was ` 32.30. (6) As a result of introduction of VAT.2011. being a consumption tax. (5) VAT. The following particulars are available to you: ` (i) (ii) (iii) (iv) (v) WDV of land as on 1.4.6.

3.30. Wherever applicable.00. Therefore. it could have been used by the company for 214 days only.00.000 Towards providing service of packing together with transportation of 4. service tax was charged separately and received in full.000 1. the depreciation calculated at the prescribed rates as if the conversion had not taken place. the depreciation on assets has to be allocated between the company and LLP as follows – 83 .000 cargo Ascertain the quantum of taxable cargo handling services for the quarter ended 31.500 Allocation of depreciation Depreciation on machinery and patents have to be apportioned between the company and the LLP in the ratio of the number of days for which the assets were used by them. depreciation has to be first calculated as if the conversion had not taken place and then apportioned between the company and the LLP in the ratio of the number of days for which the assets were used by them. (4 Marks) (c) How can a Chartered Accountant help a client in the handling of VAT audit called for by the Department and in conducting external audit of VAT records? (4 Marks) Answer (a) Tax treatment of depreciation and unabsorbed business loss of a private company on its conversion into a LLP The LLP would be allowed to carry forward and set-off the business loss and unabsorbed depreciation of the predecessor company [Section 72A(6A)]. in any previous year.000 3. Since patents were acquired only on 1.24.2011.2010.500 75. ` ` Block I Block II Machinery Patents 3. Depreciation The aggregate depreciation allowable to the predecessor company and successor LLP shall not exceed.6. 1.00.000 15% 25% 49. Such depreciation shall be apportioned between the predecessor company and the successor LLP in the ratio of the number of days for which the assets were used by them [Section 32(1)] Therefore.PAPER – 4 : TAXATION (iii) (iv) Handling of cargo for storage in cold storage 1.

00.30.005 9. which would be the actual cost in the case of the LLP.510 = ` 2. Asset 2. The cost of acquisition of land to the LLP would be the cost for which the company acquired it.85.500 275 44.09.1. deduction had been allowed in the earlier year under section 35AD. respectively. 2011 Company LLP Depreciation Depreciation Total No.90. (3) In respect of the building.34.515 WDV of Patents as on 1.24. Unabsorbed business loss to be carried forward by the LLP.12.000 – 65.09.00. of depreciation days of days of for the year usage usage Machinery 49.34.1. Actual cost of assets to the LLP (1) The actual cost of the block of assets in case of the LLP shall be the WDV of the block of assets as in the case of the company on the date of conversion.2011 = 3.00.505 Therefore.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.995 and depreciation to be allowed in the hands of the LLP is ` 14.995 Business income of the company after depreciation Brought forward business loss Unabsorbed business loss as on 31.000 – 44. (b) Quantum of taxable cargo handling services for the quarter ended 31.3.485 31 5.2011:Particulars Amount (`) Amount (`) Total collections for handling cargo (excluding service tax) 84 32.490 1. Particulars ` Profits of the company before depreciation Less: Current year depreciation 8.500 1.515 and ` 2.2011 for Machinery and Patents are ` 2.00.000 1.485 = ` 2.490 (2) Land is not a depreciable asset.1. WDV of Machinery as on 1. as increased by the cost of improvement.000 2.09.995 14.000 . of No.490. depreciation to be allowed in the hands of the company is ` 1. The WDV as on 1.2011 = 3.09. The actual cost of the building to the LLP would be Nil.000 214 65. Hence.85.510 31 9.995 6.015 Patents 75.505.2010 to be carried forward by the LLP 3. there is no question of depreciation during the current year.

PAPER – 4 : TAXATION Less: (i) (ii) (iii) (iv) Receipts for handling of cargo containing life saving drugs [Refer Note 1] Receipts for handling of export cargo [Refer Note 2] Receipts for handling of cargo for being stored in cold storage [Refer Note 3] Receipts towards providing service of packing together with transportation of cargo [Refer Note 4] 4. the same is liable to service tax and no adjustment is needed. Question 7 (a) Answer any two of the following three sub divisions: 85 . returns filed by dealers will be accepted. 10/2002 ST dated 01.2002. but only few returns will be scrutinized. Thus. 2.00.000 1.00. 3. In other cases.08. Chartered Accountants can ensure proper record keeping to satisfy the Departmental auditors. The professional expertise of a Chartered Accountant will help him in effectively replying audit queries and sorting out audit objections.000 3. The definition of cargo handling service specifically excludes handling of export cargo.000 Notes: 1.00. Hence.00. 4. (c) Handling audit by Departmental Auditors There are audit wings in VAT Departments and certain percentage of dealers are taken up for audit every year on scientific basis. Chartered Accountants can play a very vital role in ensuring tax compliance by audit of VAT accounts. External audit of VAT records Under VAT system. a check on compliance becomes necessary. Handling of cargo containing life saving drugs is taxable service as there is no specific exemption available for such activity.000 Value of taxable services 28. trust has been reposed on tax payers as there will be no regular assessment of all VAT returns. Service of packing together with transportation of cargo is covered by the definition of cargo handling service. Cargo handling service provided in relation to goods intended to be stored in a cold storage is exempt from payment of service tax vide Notification No.

how much? (4 Marks) (c) Briefly list out the contents of VAT invoice. Commission of ` 15. Burman.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. a diamond necklace worth ` 2 lacs was presented by her sister living in Dubai.3.2010. the following payments/expenditure were made/incurred by Mr. R. Yuvan Raja. a wedding function celebrated on her husband completing 60 years of age.000 was paid to Mr. Hemali pertaining to the year ended 31. a non-resident. He gave Mr. Association of persons. (4 Marks) (3) During the financial year 2010-11.00. This was also her 25th wedding anniversary.000 was paid to Rehman & Co. Compute the income. (ii) (iii) When she celebrated her daughter's wedding on 21. (4 Marks) (b) State the due dates for filing of service tax returns. 1961.2011. without deduction of tax at source. a resident partnership firm.000 was paid as interest to Mr.000 received from her friend on the occasion of her “Shastiaptha Poorthi”. Deva a cash discount of ` 12.3. (iii) ` 3.000. Local authority.. tax was deducted at source. assessable as income from other sources. 2011 (1) Specify the persons who are authorized to sign and verify under section 140. if any. without deduction of tax at source. her friend assigned in Mrs.2010 was ` 39 lacs) : (i) (ii) Interest of ` 12.000 later. the return of income filed under section 139 of the Income-tax Act.2. Vidyasagar on 2. Deva. Hemali's favour.2011 : (i) Cash gift of ` 51. Interest of ` 4. the value of the fixed deposit and the accrued interest on the said date was ` 51. (4 Marks) (2) The following details have been furnished by Mrs. and Limited Liability Partnership (LLP). a resident individual (whose turnover during the year ended 31. 86 (4 Marks) . 1961 in the case of: (i) (ii) (iii) (iv) Political party.D. (iv) He had sold goods worth ` 5 lacs to Mr.000 was paid as salary to a resident individual without deduction of tax at source. In none of these transactions. a fixed deposit held by the said friend in a scheduled bank. Will the delayed filing of service tax return result in payment of any late fee? If so. Briefly discuss whether any disallowance arises under the provisions of section 40(a)(i)/40(a)(ia) of the Income-tax Act. On the above occasion.7.

however. the gift of diamond necklace received from her sister is not taxable under section 56(2)(vii). Any member of the association or the principal officer thereof. I II III (i) (ii) (iii) (iv) Political party Local authority Association Persons LLP of Chief Executive Officer of such party (whether known as secretary or by any other designation). Principal Officer thereof. not applicable to a cash gift received during a wedding function celebrated on completion of 60 years of age.000 in a year. the provisions of section 56(2)(vii) are not 87 . (iii) To be exempt from applicability of section 56(2)(vii). Therefore. therefore. this exemption provision is not attracted in this case.000 received from a non-relative is. Therefore. not been defined under section 56(2)(vii). (2) (i) Any sum of money received by an individual on the occasion of the marriage of the individual is exempt. Hemali. “Sum of money” has. to sign and verify the return of income filed under section 139. or Any partner. even though jewellery falls within the definition of “property”. however. there are two possible views in respect of the value of fixed deposit assigned in favour of Mrs. where there is no designated partner. Any sum of money received without consideration by an individual is chargeable to tax under section 56(2)(vii). chargeable to tax under section 56(2)(vii) in the hands of Mrs. This provision is. (ii) The provisions of section 56(2)(vii) are not attracted in respect of any sum of money or property received from a relative. Hemali – (1) The first view is that fixed deposit does not fall within the meaning of “sum of money” and therefore.PAPER – 4 : TAXATION Answer (a) (1) The following persons (mentioned in Column III below) are authorised as per section 140. Designated partner. where the designated partner is not able to sign and verify the return for any unavoidable reason. Thus. if the aggregate value exceeds ` 50. not that of the individual’s son or daughter. The gift of ` 51. the property should be received on the occasion of the marriage of the individual.

88 . P. the provisions of section 56(2)(vii) would be attracted in respect of the fixed deposit assigned and the “Income from other sources” of Mrs. 1961 is attracted where the assessee fails to deduct tax at source as is required under the Act. Income assessable as “Income from other sources” If the first view is taken.7.2009-10. In the case of interest paid to a non-resident. it is clear that he was not subject to tax audit under section 44AB in the P.000 (` 51.000. the total amount chargeable to tax as “Income from other sources” would be ` 51. (2) However. disallowance under section 40(a)(ia) is not attracted in this case. 2011 attracted. 1. From the data given. fails to remit the same to the credit of the Central Government within the stipulated time limit. (3) Disallowance under section 40(a)(i)/40(a)(ia) of the Income-tax Act.Y. only where he was subject to tax audit under section 44AB in the immediately preceding previous year. who was not subjected to tax audit during the immediately preceding previous year i. being cash gift received from a friend on her Shastiaptha Poorthi. Hence. there is no obligation to deduct tax at source under section 194H during the P.Y.2009-10. Hemali would be ` 1. there is obligation to deduct tax at source under section 195. Hence. or having deducted tax at source. (ii) (iii) Disallowance under section 40(a)(ia) is not attracted for failure to deduct tax at source under section 192 from salaries.e.e..2010 to a resident arises in the case of an individual.f. only where he was subject to tax audit under section 44AB in the immediately preceding previous year. it is clear that he was not subject to tax audit under section 44AB in the P. The assessee is a resident individual.02. Therefore. hence non-deduction of tax at source will attract disallowance under section 40(a)(i).e. (iv) The obligation to deduct tax at source under section 194-H from commission paid in excess of ` 5.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY.000).000 + ` 51. P.2009-10. From the data given.Y. (i) The obligation to deduct tax source from interest paid to a resident arises under section 194A in the case of an individual.2009-10 (as his turnover is less than ` 40 lakh in that year) and the TDS obligations have to be considered bearing this in mind. 2010-11.. It may be noted that fixed deposit is also not included in the definition of “property”.Y. i. As per the second view. Hemali falls within the meaning of “sum of money” received. disallowance under section 40(a)(ia) is not attracted in this case.Y. another possible view is that fixed deposit assigned in favour of Mrs.000 w.

name and address of the selling dealer. Beyond 30 days from the date prescribed for submission of the return Late fee ` 500 The (a) (b) (c) 1. registration number of the purchasing dealer (may not be required under all VAT legislations). the various legislations provide that the tax invoice should have the following contents: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) the words tax invoice in a prominent place. the total late fee for delayed submission should not exceed ` 2.000. Period of delay Particulars 15 days from the date prescribed for submission of the return Beyond 15 days but not later than 30 days from the date prescribed for submission of the return. The due dates on this basis are as under: Half year Due date 1st April to 30th September 1st October to 31st March 25th October 25th April In case the due date of filing of return falls on a public holiday. pre-printed or self-generated serial numbers. rate and amount of tax charged in respect of taxable goods. late fee will be levied for delay in furnishing of the service tax return. prescribed late fee is given hereunder: S. date of issue. 89 . Generally. However.000 plus ` 100 for every day from the 31st day till the date of furnishing the said return. (c) VAT legislations of all the States provide for the tax invoice.PAPER – 4 : TAXATION (b) The service tax return (in Form ST-3) should be filed on half yearly basis by the 25th of the month following the particular half-year.000 An amount of ` 1. the assessee can file the return on the immediately succeeding working day. No. signature of the selling dealer or his regular employee duly authorized by him for such purposes. registration number of the selling dealer. description. name and address of the purchasing dealer. Yes. quantity and value of goods sold.

Some candidates took 30th June as base date but while calculating . It is also suggested that the candidates should go through the study material thoroughly. Question 7. Majority of the candidates added the reimbursement of liquidation expenses to purchase consideration. They should lay stress on theoretical aspects of each and every topic. few candidates erred in the calculation of number of days from the base date. Not many candidates were able to correctly compute the amount of income tax paid during the year. clarity and precision. Short length questions with reasoning. Specific Comments Question 1. many candidates added liquidation expenses for the purpose of calculating purchase consideration. Revaluation account was inversely prepared by several candidates. In part (d). Also. Therefore. Most of the candidates erred in the calculation of purchase consideration.000 as cash-in-flow from equity shares instead of ` 1. candidates are advised to work hard on such questions. In part (a) of the question. In part (a) of the question.000. Many candidates directly reduced 1/3rd from old share of Amit and 1/4th from old share of Sumit to arrive at new profit sharing ratio instead of reducing their 1/3rd and 1/4th share respectively. In part (b). most of the answers lacked proper presentation. Many candidates failed to support their calculations with proper working notes. Share of goodwill distributed among new and old partners was wrongly calculated by few candidates. spelling mistakes and poor usage of grammar was the common problem among the candidates. Question 6.50. few candidates were not able to present the investment account in a proper manner. good expression. Many candidates prepared cash and bank account jointly. It is observed that the candidates generally neglect basic accounting concepts.50.SUMMARY OF EXAMINERS’ COMMENTS ON THE PERFORMANCE OF THE CANDIDATES PAPER – 1 : ACCOUNTING General Comments As contemplated by the examiners. thereby making mistake in calculation of cash defalcated by the cashier. Candidates are suggested to strictly follow the instructions given in the question paper. Some candidates considered ` 2. Some failed to understand that the cash defalcated by the cashier is a loss to the entity and therefore erred in the calculation of correct net profit. Question 2. Some candidates treated ‘Goods sold on approval basis’ as sales and some added it with closing stock destroyed by fire. Question 3. intricately test the candidates’ understanding of the topics covered under the study material. most of the candidates showed lack of conceptual understanding relating to adjustment for ‘Goods sold on approval basis’ for the purpose of calculation of loss of stock and its insurance claim. Question 4.

wherever necessary and in this connection. Question 2. working knowledge.e. they are advised to read the study material. the basis on which it is calculated were not correctly written. (b) & (c) The performance to the multiple objective questions was found excellent. Candidates are further advised to read the subject with a practical orientation and writing answers based on general view should be avoided. under the payment of Gratuity Act. Some candidates wrongly entered ‘bad debts recovered and Bills receivable endorsed’ into Total Debtors Account. 2. answers were in general and the performance was average. On the second 91 . items not to be posted in the ‘Debtors Total Account’ were not supported with proper reasoning. 1972.(a) Instead of writing answer on the determination of compensation on the breach of contract. In part (e). answers were general in nature and provisions of section 25 were not mentioned. 1965 was well answered by many candidates. In part (c). The performance to the question in general was average. Considering the level of knowledge that is expected from the candidates in this paper i. 1872 were not known to many. Question 3. Specific Comments Question 1. The performance in general was satisfactory. PAPER – 2 : BUSINESS LAWS. 3. most of the candidates could not give the necessary journal entries for adjustment of goodwill on retirement and admission of a partner. ETHICS AND COMMUNICATION General Comments 1. (d) On the law and procedure relating to registration of a non-profit organisation as a company under the Companies Act. Amendment in the ceiling regarding maximum gratuity payable was correctly mentioned by many candidates. they have adopted the formula of average due date on the basis of base date as the starting date. (b) Tips for improving inter-personal skills in a business organisation were not specific and it is evident that candidates did not read the study material. (b) In stating the elements which create discrimination in employment in the business organisations.SUMMARY OF EXAMINERS’ COMMENTS the average due date. Candidates did not explain the purposes for which the Securities Premium Account can be used. though they could refer the relevant case law and section in the said Act.(a) While the candidates correctly mentioned the amount of gratuity payable to employees in a seasonal as well as other establishments. 1956.(a) The problem based on provisions as contained in the Payment of Bonus Act. candidates described different types of breach of contract and provisions as contained in Section 73 of the Indian Contract Act. candidates are required to write answers based on provisions of the law. Question 4.

P. Since it is also a compulsory question almost all the candidates tried to prepare the ledger accounts but many candidates 92 .INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. need for whistleblowing in the work place and characteristics of group personality. The procedure for converting a private company into a public company under the provisions of the Companies Act. (c) This question requires preparation of stores ledger. who failed to show the calculations separately for the two plans under the given situations. candidates have to equip their working knowledge in the subject. 1956 were not listed out in order and they were general in nature. The performance of the candidates in general to the various sub-parts of the question was satisfactory. Question 6. Further. Performance revealed a lack of knowledge of concepts in the areas of Cost Accounting and Financial Management as expected of a professional student of Accountancy course. it seems that candidates are having some difficulty in answers. many of them were not aware of documents other than Memorandum and Articles of Association. On the documents to be filed with ROC at the time of registration of a company under the Companies Act. Based on performance to this question and other related questions related to company law portion. some candidates attempted different parts of the same question at random instead of answering them consecutively. The candidates need to understand the subjects conceptually and also fine tune their presentation skills. Question 5. either due to less attention being paid or in understanding the subject. Act. In respect of questions relating to guidelines for managing ethics. Question 7. On the composition and functions of the Central Board of Trustees under E. The answers to the third alternative choice questions based on ethics was not upto the mark.F & M. (b) Problem based on calculation of remuneration of the workers under Halsey and Rowen plans.(a) This question related to computation of operating and financial leverage for two plans. Since many candidates could not arrive at the time saved correctly. The performance to the second alternative choice question on company law and ethics was average. Majority of the candidates performed well except a few of them.P. very few could write correct answers. The fourth alternative choice questions relating to communication were written in general. PAPER – 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT General Comments Overall performance of the candidates was average. 1956. 2011 part of the question relating to ethics. 1952. were not able to calculate the correct remuneration. therefore. Specific Comments Question 1. very few candidates could write correct answers and many of them even did not attempted it.

(c) Many candidates explained the meaning without giving the causes of labour turnover. the candidates have not presented their answers supported by proper working notes in preparation of cash flow statement. Almost all the candidates have just opened the head of relevant accounts but the figures given are irrelevant. However. few of the candidates faltered in computation of total shares. Apportionment was made by almost all the candidates. (a) This question on Computation of earnings per share was well attempted by many candidates. Most of the candidates ignored the format while preparing the store ledger.(a) Problem on machine hour rate was not attempted well by many candidates since they could not calculate the effective working hours. However. However.(a) This problem was on cost ledger. (b) A large percentage of the candidates explained Operating Profit ratio and Operating leverage instead of Operating ratio.SUMMARY OF EXAMINERS’ COMMENTS could not prepare it since they were confused with the methods to be adopted though the date is clearly mentioned in the problem. No candidate was able to calculate the profit under both costing and financial methods. Question 2. (d) Short note on factoring and its advantages was discussed by many candidates on correct lines. Question 3. Question 6. few of them have wrongly calculated investment in receivables on the basis of total sales instead of total cost. Question 4. (b) Majority of the candidates were not able to discuss debt securitisation well and gave answers based on security for a debt or loan. Further. (b) This theory question on cost unit and cost centers are generally discussed without correct definition and proper points. (b) The question required the candidates to advise the management regarding adoption of new credit policy. Only a few of the candidates have calculated the cash cost of sales correctly and majority have computed debtors on the basis of sales. a small percentage of the candidates explained the concept of present value tables or factors of working capital management instead.(a) Packing expenses and Fringe benefits were generally explained by the candidates but without indicating the requirement of treatment. Majority of the candidates prepared the Cash Flow Statement on correct lines but failed to present it in the proper format. Question 5. Majority of the candidates have well attempted the question and have advised correctly. 93 . Majority of the candidates computed indifference points between different proposals on correct lines. A large percentage of the candidates have attempted this problem on Preparation of estimated working capital statement but only a few could attempt it on correct lines. a few candidates could not work out cash flow from operating activities correctly and only a few have computed the cash and cash equivalent at the beginning as well as at the end of the year. However. Question 7.

e.000) in the fair market value and actual sale consideration of shares in the hands of Mrs. some students have answered the same on the basis of service tax provisions related to import of services 94 .70. Students were found to be lacking on provisions of section 56 as well as on applicability of clubbing provisions in relation to accretion to the assets transferred to spouse.000 – ` 1. Baumal versus Miller Orr cash management model. many of them have wrongly taken service tax liability as nil in case of advance received. (c) In many cases. They also ignored the fact that since the firm had rendered taxable service of ` 20. The question is to be answered based on the amendment made by the Finance Act. Some students have wrongly treated profit on sale of bonus shares as long term capital gains. Hema on account of the difference not exceeding ` 50. students calculated ‘value of taxable service’ but omitted to calculate ‘service tax payable’. (b) Only few have answered this question correctly. While some of them did not consider the VAT credit on closing stock of raw materials. Further. Students have not written about the nontaxability of the difference of ` 40. students also failed to give reasons for excluding other items provided in the question which were not relevant for computation of input credit. 1961. PAPER − 4 : TAXATION Specific Comments Question 1.(a)(i) The question is on taxability of payment made outside India to a nonresident for the consultancy services related to a project in India. A number of adjustments were asked on computation of long term capital gain. many students have wrongly considered the amount collected from companies for prerecruitment screening as well as for recruitment of permanent and temporary staff as inclusive of service tax.2 lakh in the previous financial year.(a) The question is based on computation of capital gain in case of transfer of shares by an individual to his spouse without consideration. Also. 2011 (d) Majority of the candidates explained correctly William J. others allowed the whole credit on capital goods in one year. income earned thereon and subsequent sale of shares at concessional price by the spouse to her friend. Since the question did not specify chargeability under the Income-tax Act. Majority of the students have wrongly taken the total profits derived from the Unit S i.000. Question 2. (d) Only a very few students were able to compute the net VAT liability correctly. instead calculating the profits in relation to export turnover of Unit S.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. 2010 in section 9 of the Income-tax Act. clubbing of income and provisions of section 56(2)(vii). ` 13 lacs as fully exempt on account of the unit being in SEZ.10. it is not a small service provider. Further. Some students also did not consider the credit on capital goods at all. short term capital gain. (e) Process of estimating profit/loss on incomplete contracts was given correctly by many candidates. 1961.000 (` 2.

(b)(i) It has been observed that majority of the students have simply answered as ‘I agree’ without giving suitable explanations for such agreement. few of them wrongly considered the value of free coaching to be liable to service tax.500 received for AY 2009-10 as income under the head “Income from Other Sources” instead of considering only the interest of ` 2.50.000 collected from students.000. (iv) Many students have not applied the correct rate of depreciation in case of Computer.20. 95 . Also. They were not aware that loss from an exempt source cannot be set off against gains from a taxable source. (v) Some of the students have wrongly set off loss from specified business covered under section 35AD against income from speculation business.SUMMARY OF EXAMINERS’ COMMENTS (ii) The most common mistake committed by students was that they had applied weighted deduction @200% under section 35(2AB) (applicable to companies) for in-house research and development expenditure instead of 100% under section 35(1) (applicable for individual). (v) Only few students have correctly worked out the WDV of Motor Car.000 from card games against income of ` 45.2010 which was returned subsequently. (b) Though the question clearly provided that service tax is collected separately on coaching fees of ` 14.000 on capital received from Oscar Musicals & Co. only a handful of them were able to answer the second part relating to services being included in the VAT net. (iii) Some students have wrongly set off long term capital loss from sale of listed shares in a recognized stock exchange against long term capital gain from sale of urban land.50.(a) (i) (ii) Most of the students were not clear regarding the provisions of set off of losses. whereas the same must be restricted to ` 1.06. A large number of students failed to charge service tax on the advance received during the quarter ended 30. many students wrongly assumed it to be inclusive of service tax and made the calculations accordingly.300. Many students have considered net interest of ` 13. Many students have wrongly set off loss of ` 32.000 from betting.(a) The common mistakes committed by students while answering this question are:(i) Most of the students have wrongly taken the entire interest of ` 1. (c) While the first part of the question was answered correctly by a large number of students.500 on fixed deposit as income instead of gross interest of ` 15. (ii) (iii) Several students have taken the entire income tax refund of ` 34. Question 3. Question 4.000 which is the maximum interest allowable in the hands of the firm. (iv) Few students have wrongly exempted long term capital gain from sale of urban land.

2011 (b) This question was based on the general understanding to administer service tax laws and to name such rules issued by the Central Government.04.Students wrote long essay types answer for this question instead of mentioning the specific areas in relation to VAT audit where a Chartered Accountant could play a vital role. Some students have wrongly considered ` 1.000 on 01. which is higher. Many students simply ignored item no. A lot of guess work has gone in answering this question. instead of adopting the fair market value of ` 1. 2.1981. The question was answered by a very few candidates due to Iack of knowledge and their answers were very general. Almost all the candidates have provided depreciation for building without considering that deduction under section 35AD has already been allowed in an earlier year. Question 6. Few of them also wrongly mentioned the time limit of intimating the details of service tax paid in advance to jurisdictional Superintendent of Central Excise as 30 days from the date of adjustment of the service tax in the subsequent period instead of 15 days from the date of advance payment.(a)(1) Majority of candidates have answered this question incorrectly. does not arise. (b) Students were required to calculate the value of taxable cargo handling services in this question.INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY. Candidates were not aware of the fact that since the assessee was not subject to tax audit in the immediately preceding financial year hence. Rakesh to arrive at the cost to be considered for indexation. (c). In case of depreciation on Patents and Machinery the number of days of usage for the LLP has been calculated as 3 months instead of 31 days and for the private limited company as 275 days instead of 214 days (for depreciation on patents). (c) Many students answered the first part correctly.00 lakh. the question of disallowance of interest and commission payment in item nos (i) & (iv). Many students have wrongly deducted the amount of ` 25.(a) Most students have failed to calculate the allocation of depreciation between private limited company and LLP correctly. Students did not write the name of the rules correctly and secured partial marks for general understanding. respectively. Question 5.(a) 1. they failed to explain as to how input tax credit helps in achieving the essence of VAT and instead wrote long answers explaining the advantages of input tax credit.50. (a)(3) This question is to test the applicability of TDS provisions and allowability of payments/ expenditures made by a resident individual to residents and non-residents.000 as the cost of the house property. Question 7. (i) & (iv) without mentioning that these are covered under cargo handling services and hence no adjustment is needed from total collections of ` 32. They were also not aware that salary is not an item figuring in Section 40(a)(ia) for disallowance.000 forfeited by Mr. (b) Some students wrongly answered this question on the basis of income-tax provisions. However.05. (b) Many students wrongly mentioned the due dates for payment of service tax instead of writing the due dates for filing of service tax returns which was required by the question. 96 .