Ipcc Guess Questions - grp-1

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GROUP 1 - GUESS QUESTIONS_34e
APPLICABLE FOR MAY 2016 EXAMS
INDEX
S.No. Chapter Name Starting Page
1. Accounting 3
2. B. Law, Ethics & Communication 57
3. Cost Accounting & FM 73
4. Taxation 134
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DISCLAIMER: Dear students,

a) Since CA is a professional course it is impossible to predict the questions / problems which may
come in the public examination.
b) We are not saying that it is enough to prepare the list of questions / problems given here. But
compared to other questions / problems, put more focus on the questions / problems listed below
and also questions / problems which are similar to questions / problems listed below.
c) There are chances of getting questions / problems in the model which are similar to questions /
problems listed below…but don’t expect exact questions / problems to repeat in the public
examination.
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e) Don’t blame us even if you don’t get any questions from this list in the public exams of IPCC.
f) Even if you get good number of questions / problems from this list in the public examinations then it is
purely accidental.
g) Questions mentioned in this document are based on the following editions of books:
• Study Material (SM) – July 2015 edition
• Study Material for Taxation – Oct 2015 edition
• Practice Manual (PM) – July 2015 edition
• Practice Manual for Taxation – Oct 2015 edition
• RavikanthMiryala text book for Accounting Standards – 3rd edition
• Previous examination questions or problems can be referred in Scanner or similar text book.
h) If you are planning to attempt Group 1 only then atleast prepare the guess questions released by us
and attempt Group 2 also instead of leaving the Group 2 exams completely.
i) One’s May-2016 RTP & MTP are released; we will release Guess Questions from those RTP & MTP
also. So students shall not forget to refer those Questions / Problems also.
IPCC |Guess Questions– May 2016 – Accounts 2

ACCOUNTS
1. AVERAGE DUE DATE
1) Mr. Black accepted the following bills drawn by Mr. White.
Date of Bill Period Amount (Rs.)
09.03.2010 4 months 4,000
16.03.2010 3 months 5,000
07.04.2010 5 months 6,000
18.05.2010 3 months 5,000
He wants to pay all the bills on a single date. Interest chargeable is @ 18% p.a. and Mr. Black wants to save
Rs.150 on account of interest payment. Find out the date of on which he has to effect the payment to save
interest of Rs.150. Base date to be taken shall be the earliest due date.
2) Mr. Green and Mr. Red had the following mutual dealings and desire to settle their account on the average due
date:
Purchase by Green from Red Amount (Rs.)
th
6 January, 2011 6,000
2nd February, 2011 2,800
31st March, 2011 2,000
Sales by Green to Red:
Sales by Green to Red Amount (Rs.)
6th January, 2011 6,600
9th March, 2011 2,400
20th March 2011 500
You are asked to ascertain the average due date.
3) Rs.10,000 lent by Dass Bros. to Kumar & Sons on 1st January, 2008 is repayable in 5 equal annual installments
commencing on 1st January, 2009. Find the average due date and calculate interest at 5% per annum, which
Dass Bros. will recover from Kumar & Sons.
4) Mr. Yash and Mr. Harsh are partners in a firm. They drawn the following amounts from the firm during the year
ended 31.03.2015:
Date Amount (Rs.) Drawn by
01.05.2014 75,000 Mr. Yash
30.06.2014 20,000 Mr. Yash
14.08.2014 60,000 Mr. Harsh
31.12.2014 50,000 Mr. Harsh
04.03.2015 75,000 Mr. Harsh
31.03.2015 15,000 Mr. Yash
Interest is charged @ 10% p.a. on all drawings. Calculate interest chargeable from each partner by using
Average due date system. (Consider 1st May as base date)
5) Anand purchased goods from Amritha, the average due date for payment in cash is 10.08.2015 and the total
amount due is Rs. 67,500. How much amount should be paid by Anand to Amritha, if total payment is made on
following dates and interest is to be considered at the rate of 12% p.a. (SM,NOV-15)
i) On average due date. iii) On 30 July, 2015.
th
ii) On 25 August, 2015.

th

2. ACCOUNT CURRENT
6) Following transaction took place between X and Y during the month of April, 2012.
April Particulars Rs.
1 Amount payable by X to Y 10,000
7 Received acceptance of X to Y for 2 months 5,000
10 Bills receivable (accepted by Y) on 7.2.2012 is honoured on this due date 15,000
12 X sold goods to Y (invoice dated 10.5.2012) 7,500
15 X received cheque form Y dated 15.5.2012 6,000
20 Y sold goods to X (invoice dated 15.5.2012) 1,000
20 X returned goods sold by Y on 15.4.2012 5,000
Bill accepted by Y is dishonoured on this due date
You are required to make out an account current by products method to be rendered by X to Y as on
30.4.2012, taking interest into account @ 10% p.a. (assume 1 year = 365 days).
7) Roshan has a current account with partnership firm. It has debit balance of Rs.75,000 as on 01-07-2012. He
has further deposited the following amounts:
Date Amount (Rs.)
14-07-2012 1, 38,000
18-08-2012 22,000
He withdrew the following amounts:
Date Amount (Rs.)
29-07-2012 97,000
09-09-2012 11,000
Show Roshan's A/c in the ledger of the firm. Interest is to be calculated at 10% on debit balance and 8% on
credit balance. You are required to prepare current account as on 30th September, 2012 by means of product
of balances method.
3. ACCOUNTING FOR BUSINESS ACQUISITION
8) ACS Ltd. was incorporated for taking over the business of B from 1st April, 2012. The following is the Balance
Sheet of B as on 31st March, 2012
Liabilities Rs. Assets Rs.
Capital 1,00,800 Tangible Fixed Assets 2,08,000
Loans 1,20,000 Sundry Debtors 84,000
Creditors 71,200
2,92,000 2,92,000
The company takes over the business with fixed assets and loans on the following terms:
i) The fixed assets should be depreciated at 10%.
ii) The value of goodwill is estimated at Rs.80,000
The company realized Rs.80,000 from sundry debtors as the agent of the Vendor in full settlement and
discharged all the trade creditors by paying Rs.68,000 for a commission of 3% on the amount collected and
2% on the amount paid.
The creditors accepted 10% preference shares of Rs.100 each in discharge of the loans. After realization of
the debts and discharge of the liabilities, the total amount due to the Vendor was settled by payment of
Rs.5,440 in cash and the balance in the share of fully paid equity shares of Rs.10 each.
Required: Show purchase consideration and pass journal entries in the books of the company. Also give the
Balance Sheet of the company after taking over the business of B.

4. PROFIT OR LOSS PRIOR TO INCORPORATION
9) A firm which was carrying on business from 1st January, 2007 gets itself incorporated as a company on 1st
May, 2007. The first accounts are drawn up to 30th September, 2007. The gross profit for the period is
Rs.56,000. The general expenses are Rs.14,220; directors’ fees Rs.12,000 p.a.; formation expenses Rs.1,500.
Rent up to 30th June is Rs.1,200 p.a., after which it is increased to Rs.3,000 per annum. Salary of the
manager, who upon incorporation of the company was made a director, is Rs.6,000 p.a. His remuneration
thereafter is included in the above figure of fees to directors.
Give Profit and Loss Account showing pre-and post-incorporation profits. The net sales are Rs.8,20,000 the
monthly average of which for the first four months of 2007 is one half of that of the remaining period the
company earned a uniform profit. Interest and tax may be ignored.
10) Bidyut Limited was incorporated on 1st July, 2012 to acquire from Bijli as and from 1st January, the individual
business carried on by him. The purchase price of the fixed assets and goodwill was agreed to be the sum
equal to 80% of the profits made each year on ascertainment of the sum due.
The following Trial Balance as on 31st Dec., 2012 is presented to you to enable you to prepare a Balance
Sheet as at that date. Also draft a statement of appropriation of profit writing off the preliminary expenses.
Particulars Debit ( Rs.) Credit ( Rs.)
Share Capital – 1,500 equity shares
of Rs.100 each, Rs.80 paid up 1,20,000
Sundry Debtors 82,000
Stock on 31st Dec. 2012 67,000
Cash at bank and on hand 24,000
Directors’ fee 3,000
Preliminary expenses 24,000
Sundry Creditors 32,000
Net Profit for the year after providing for all expenses under
agreement entered into with Bijli. 48,000
2,00,000 2,00,000
11) BRIGHT Ltd. was formed to take over a running business of Mr. BRIGHT with effect from 1st April 20X1. The
company was incorporated in 1st Aug. 20X1 and the certificate of Commencement of business was received
on 1st Oct. 20X1. No entries relating to the transfer of the business were entered in the books which were
continued until 31st March 20X2. Trial Balance was extracted from the books as on 31st March 20X2
Journal
Particulars Dr. ( Rs.) Cr. ( Rs.)
Sales - 9,60,000
Cost of Goods Sold 7,77,000 -
Rent 40,000 -
Salaries 21,000 -
Travelling Expenses 8,400 -
Depreciation 4,800 -
Carriage outward 400 -
Printing & Stationary 2,400 -
Advertisement 8,000 -
Miscellaneous Expenses 12,600 -
Directors’ fees 600 -
Managing Director’s Remuneration 4,100 -
Bad debts 1,600 -
Commission & Brokerage to Selling Agents 8,000 -
Audit Fees 3,000 -
Interest on Debentures 1,500 -
Interest paid to Vendors 2,100 -
Selling & Distribution Expenses 12,000 -
Preliminary Expenses 1,500 -
Underwriting Commission 900 -
Fixed Assets 3,65,000 -
Current Assets 43,800 -
BRIGHT’s capital as on 01.04.20X1 - 2,78,000
Current Liabilities - 30,700
Debentures - 50,000
Additional Information:
a) Total Sales for the year arose evenly up to the date of certificate of Commencement where after they
spurted to record an increase of two thirds during the rest of the year.
b) The Company deals in one type of product. The unit cost of goods sold was reduced by 10% since 1st
Aug. 20X1 as compared to the pre-incorporation period.
c) Rent of old office building was increased to the by 20% since 1st Nov. 20X1. It had to occupy additional
space from 1st July 20X1 for which rent was Rs.3,000 p.m.
d) The salaries were Tripled from 1st July 20X1
e) Travelling Expenses include Rs.2,400 towards sales promotion.
f) Depreciation includes Rs.300 for new assets acquired in Aug. 20X1.
g) Purchase consideration was discharged by the company on 30th Sept. 20X1 by issuing 30,000 Equity
Shares of Rs.10 each.
h) One third of the preliminary expenses and underwriting Commission are to be written off.
Required: Prepare the Profit & Loss Account in a Columnary form, showing the allocation of profits between
pre-incorporation and post-incorporation periods indicating the basis of allocation.
12) ABC Ltd. took over a running business with effect from 1st April, 2013. The company was incorporated on 1st
August, 2013. The following summarized Profit and Loss Account has been prepared for the year ended
31.3.2014:
Additional information:
a) Total sales for the year, which amounted to Rs.19,20,000 arose evenly up to the date of 30.9.2013.
Thereafter they spurted to record an increase of two-third during the rest of the year.
b) Rent of office building was paid @ Rs.2,000 per month up to September, 2013 and thereafter it was
increased by Rs.400 per month.
c) Travelling expenses include Rs.4,800 towards sales promotion.
d) Depreciation include Rs.600 for assets acquired in the post incorporation period.
e) Purchase consideration was discharged by the company on 30th September, 2013 by issuing equity
shares of Rs.10 each.
Prepare Statement showing calculation of profits and allocation of expenses between pre and post
incorporation periods.
13) SALE Limited was incorporated on 01.08.2014 to take over the business of a partnership firm w.e.f.
01.04.2014. The following is the extract of Profit and Loss Account for the year ended 31.03.2015. (NOV-15)
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Salaries 1,20,000 By Gross Profit 6,00,000
To Rent Rates & Taxes 80,000
To Commission on Sales 21,000
To Depreciation 25,000
To Interest on Debentures 32,000
To Director Fees 12,000
To Advertisement 36,000
To Net Profit for the year 2,74,000
6,00,000 6,00,000
i) SALE Limited initiated an Advertising campaign which resulted increase in monthly average sales by 25%
post incorporation.
ii) The Gross profit ratio post incorporation increased to 30% from 25%.
You are required to apportion the profit for the year between pre-incorporation and post-incorporation, also
explain how pre-incorporation profit is treated in the accounts.
14) The partnership of Surya Agencies decided to convert the partnership into Private Limited Company named
Sohna Company Pvt. Ltd. with effect from 1st January, 2014. The consideration was agreed at Rs.2,34,00,000
based on firm’s Balance Sheet as on 31st December, 2013. However, due to some procedural difficulties, the
company could be incorporated only on 1st April, 2014. Meanwhile, the business was continued on behalf of
the company and the consideration was settled on that day with interest at 12% p.a. The same books of
accounts were continued by the company, which closed its accounts for the first time on 31st March, 2015 and
prepared the following summarized Profit and Loss account.
The company’s only borrowing was a loan of Rs.1,00,00,000 at 12% p.a. to pay the purchase consideration
due to the firm and for working capital requirements. The company was able to double the monthly average
sales of the firm from 1st April, 2014, but the salaries trebled from the date. It had to occupy additional space
from 1st July,2014 for which rent was Rs.60,000 per month.
Prepare a statement showing apportionment of costs and revenue between pre-incorporation and post-
incorporation periods.

5. INSURANCE CLAIMS
15) A fire occurred in the premises of Agni on 25-8-2004 when a large part of the stock was destroyed. Salvage
was Rs.15,000. Agni gives you the following information for the period 01-01-04 to 25-8-2004.
Purchases Rs.85,000.
Sales Rs.90,000.
Goods costing Rs.5,000 were taken by Agni for personal use.
Cost price of stock on 1-1-2004 was Rs.40,000. Over the past few years, Agni has been selling goods at a
consistent gross profit margin of 33.33%.
The insurance policy was for Rs.50,000. It included an average clause. Agni asks you to prepare a statement
of claim to be made to the insurance company.
16) On 30th June, 2004, accidental fire destroyed a major part of the stocks in the godown of Jay Associates.
Stock costing Rs.30,000 could be salvaged but not their stores ledgers. A fire insurance policy was in force
under which the sum insured was Rs.3,50,000. From available records, the following information was
retrieved:
a) Total of sales invoices during the period April-June amounted to Rs.30,20,000. An analysis showed that
goods of the value of Rs.3,00,000 had been returned by the customers before the date of the fire.
b) Opening stock on 1.4.2004 was Rs.2,20,000 including stocks of value of Rs.20,000 being lower of cost
and net value subsequently realised.
c) Purchases between 1.4.2004 and 30.6.2004 were Rs.21,00,000.
d) Normal gross profit rate was 33 1/3% on sales
e) A sum of Rs.30,000 was incurred by way of firefighting expenses on the day of the fire.
Prepare a statement showing the insurance claim recoverable.
17) A trader intends to take a loss of profit policy with indemnity period of 6 months, however he could not decide
the policy amount:
Turnover in last financial year Rs. 4,50,000
Standing charges in last financial year Rs. 90,000
Net profit earned in last year was 10% of turnover and the same trend expected in subsequent year. Increase
in turnover expected 25%.
To achieve additional sales, trader has to incur additional expenditure of Rs.31,250
18) On 1st April, 2011 the stock of Shri Ramesh was destroyed by fire but sufficient records were saved from which
following particulars were ascertained:
Particulars Rs.
Stock atcost-1st January, 2010 73,500
st
Stock at cost-31 December, 2010 79,600
st
Purchases-year ended 31 December, 2010 3,98,000
st
Sales-year ended 31 December, 2010 4,87,000
Purchases 1.1.2011 to 31.3.2011 1,62,000
Sales 1.1.2011 to 31.3.2011 2,31,200
st
In valuing the stock for the Balance Sheet at 31 December, 2010 Rs.2,300 had been written off on certain
stock which was a poor selling line having the cost Rs.6,900. A portion of these goods were sold in March,
2011 at loss of Rs.250 on original cost of Rs.3450. the remainder of this stock was now estimated to be worth
its original cost. Subject to the above exception, gross profit had remained at a uniform rate throughout the
year.
The value of stock salvaged was Rs.5,800. The policy was for Rs.50,000 and was subject to the average clause.
Work out the amount of the claim of loss by fire.
19) CCL wants to take up a loss of profit policy. Turnover during the current year is expected to increase by 20%.
The company will avail overdraft facilities from its bank @ 15% interest to boost up the sales. The average
daily overdraft balance will be around Rs.3 lakhs. All other fixed expenses will remain same. The following
further details are also available from the previous year’s account.
Particulars Rs.
Total variable expenses 24,00,000
Fixed expenses:
Salaries 3,30,000
Rent, Rates and Taxes 30,000
Travelling expenses 50,000
Postage, Telegram, Telephone 60,000
Director’s fees 10,000
Audit fees 20,000
Miscellaneous income 70,000
Net profit 4,20,000
Determine the amount of policy to be taken for the current year.
20) Monalisa & Co runs plastic goods shop. Following details are available from quarterly sales tax return filed.
Sales 2009 2010 2011 2012

From 1st January to 31st March 1,80,000 1,70,000 2,05,950 1,62,000
From 1st April to 30th June 1,28,000 1,86,000 1,93,000 2,21,000
From 1st July to 30th September 1,53,000 2,10,000 2,31,000 1,75,000
From 1st October to 31st December 1,59,000 1,47,000 1,90,000 1,48,000
TOTAL 6,20,000 7,13,000 8,19,950 7,06,000
Period Rs.
Sales from 16.09.2011 to 30.09.2011 34,000
Sales from 16.09.2012 to 30.09.2012 Nil
Sales from 16.12.2011 to 31.12.2011 60,000
Sales from 16.12.2012 to 31.12.2012 20,000
A Loss of Profit Policy was taken for Rs.1,00,000. Fire occurred on 15th September 2012. Indemnity Period
was for 3 months. Net Profit was Rs.1,20,000 and Standing charges (all insured) amounted to Rs.43,990 for
year ending 2011. Determine the Insurance Claim.
21) From the following particulars, you are required to calculate the amount of claim for Buildwell Ltd., whose
business premises was partly destroyed by fire:
Sum insured (from 31st December 2013) Rs. 4,00,000
Period of indemnity 12 months
Date of damage 1st January, 2014
Date on which disruption of business ceased 31st October, 2014

The subject matter of the policy was gross profit but only net profit and insured standing charges are included.
The books of account revealed:
a) The gross profit for the financial year 2013 was Rs. 3,60,000.
b) The actual turnover for financial year 2013 was Rs. 12,00,000 which was also the turnover in this case.
c) The turnover for the period 1st January to 31st October, in the year preceding the loss, was Rs.
10,00,000.
During dislocation of the position, it was learnt that in November-December 2013, there has been an upward
trend in business done (compared with the figure of the previous years)and it was stated that had the loss not
occurred, the trading results for 2014 would have been better than those of the previous years.
The Insurance company official appointed to assess the loss accepted this view and adjustments were made
to the pre-damaged figures to bring them up to the estimated amounts which would have resulted in 2014.
The pre-damaged figures together with agreed adjustments were:
Rate of Gross Profit 30% (actual for 2013), 32% (adjusted for 2014).
Increased cost of working amounted to Rs. 1,80,000.
There was a clause in the policy relating to savings in insured standard charges during the indemnity period
and this amounted to Rs. 28,000.
Standing Charges not covered by insurance amounted to Rs. 20,000 p.a. The annual Turnover for January
was nil and for the period February to October 2014 Rs. 8,00,000
22) Ramda & Sons had taken out policies (without Average Clause) both against loss of stock and loss of profit,
for Rs.2,10,000 and Rs.3,20,000 respectively. A fire occurred on 1st July, 2011 and as a result of which sales
were seriously affected for a period of 3 months.
Trading and Profit & Loss A/c of Ramda & Sons for the year ended on 31st March, 2011 is given below:

a) Sales, Purchases, Wages and Manufacturing Expenses for the period 1.04.2011 to 30.06.2011 were
Rs.3,36,000, Rs.2,14,000, Rs.51,000 and Rs.12,000 respectively.
b) Other Sales figure were as follows Rs.
From 01.04.2010 to 30.06.2010 3,00,000
From 01.07.2010 to 30.09.2010 3,20,000
From 01.07.2011 to 30.09.2011 48,000
c) Due to decrease in the material cost, Gross Profit during 2011-12 was expected to increase by 5% on
sales.
d) Rs.1,98,000 were additionally incurred during the period after fire. The amount of policy included
Rs.1,56,000 for expenses leaving Rs.42,000 uncovered.
Compute the claim for stock, loss of profit and additional expenses
23) A fire occurred in the premises of M/s. Kailash & Co. on 30th September 2013. From the following particulars
relating to the period from 1st April 2013 to 30th September 2013, you are required to ascertain the amount of
claim to be filed with the Insurance Company for the loss of Stock. The company has taken an Insurance
policy for Rs.75,000 which is subject to average clause. The value of goods at Rs.27,000. The average rate of
Gross Profit was 20% throughout the period. (MM-Similar Pr-10, PM,SM)
6. INVESTMENT ACCOUNTS
24) Mr. Brown has made following transactions during the financial year 2011-12:
Date Particulars
Purchased 24,000 12% Bonds of Rs.100 each at Rs.84 cum-interest. Interest is
01.05.2011
Payable on 30th September and 31st March every year.
Purchased 1,50,000 equity shares of Rs.10 each in Alpha Limited for Rs.25 each
15.06.2011
Through a broker, who charged brokerage @ 2%.
Purchased 60,000 equity shares of Rs.10 each in Beeta Limited for Rs.44 each
10.07.2011
Through a broker, who charged brokerage @2%.
14.10.2011 Alpha Limited made a bonus issue of two shares for every three shares held.
31.10.2011 Sold 80,000 shares in Alpha Limited for Rs.22 each.
01.01.2012 Received 15% interim dividend on equity shares of Alpha Limited.
Beeta Limited made a right issue of one equity share for every four shares held at Rs.5
15.01.2012 per share. Mr. Brown exercised his option for 40% of his entitlements and sold the
balance rights in the market at Rs.2.25 per share.
01.03.2012 Sold 15,000 12% Bonds at Rs.90 ex-interest.
15.03.2012 Received 18% interim dividend on equity shares of Beeta Limited.
Interest on 12% Bonds was duly received on due dates.
Prepare separate investment account for 12% Bonds, Equity Shares of Alpha Limited and Equity Shares of Beeta
Limited in the books of Mr. Brown for the year ended on 31st March, 2012.

25) Bharat Ltd. Wants to re- classify its investments in accordance with AS-13. Decide on the amount of transfer,
based on the following information
1. A portion of Current Investments purchased for Rs.20 lakhs, to be re-classified as Long Term
Investments, as the company has decided to retain them. The market value as on the date of Balance
sheet was Rs.25 lakhs.
2. Another portion of current investments purchased for Rs.15 lakhs, to be re-classified as long term
investments. The market value of these investments as on the date of balance sheet was Rs.6.5 lakhs.
3. Certain long term investments no longer considered for holding purposes, to be reclassified as current
investments. The original cost of these was Rs.18 lakhs but had been written down to Rs.12 lakhs to
recognize permanent decline, as per AS 13.
26) On 1st April, 2009, XY Ltd. has 15,000 equity shares of ABC Ltd. at a book value of Rs.15 per share (face
value Rs.10 per share). On 1st June, 2009, XY Ltd. acquired 5,000 equity shares of ABC Ltd. for Rs.1,00,000
on cum right basis. ABC Ltd. announced a bonus and right issue.
1. Bonus was declared, at the rate of one equity share for every five shares held, on 1st July 2009.
2. Right shares are to be issued to the existing shareholders on 1st September 2009. The company will issue
one right share for every 6 shares at 20% premium. No dividend was payable on these shares.
3. Dividend for the year ended 31.3.2009 were declared by ABC Ltd. @ 20%, which was received by XY Ltd.
on 31st October 2009. XY Ltd.
i) Took up half the right issue.
ii) Sold the remaining rights for Rs.8 per share.
iii) Sold half of its share holdings on 1st January 2010 at Rs.16.50 per share. Brokerage being 1%.
You are required to prepare Investment account of XY Ltd. for the year ended 31st March 2010 assuming the
shares are being valued at average cost.
27) The following information is presented by Mr. Z, relating to his holding in 9% Central Government Bonds.
Opening balance (face value) Rs.1,20,000, Cost Rs.1,18,000 (Face value of each unit is Rs.100).
1.03.2008 Purchased 200 units, ex-interest at Rs.98.
1.07.2008 Sold 500 units, ex-interest out of original holding at Rs.100.
1.10.2008 Purchased 150 units at Rs.98, cum interest.
1.11.2008 Sold 300 units, ex-interest at Rs.99 out of original holdings.
Interest dates are 30th September and 31st March. Mr. Z closes his books every 31st December. Show the
investment account as it would appear in his books.
28) On 1st January 2014, Singh had 20,000 equity shares in X Ltd. Face value of the shares was Rs. 10 each but
their book value was Rs. 16 per share. On 1st June 2014, Singh purchased 5,000 more equity shares in the
company at a premium of Rs. 4 per share.
On 30th June, 2014, the directors of X Ltd. announced a bonus and rights issue. Bonus was declared at the
rate of one equity share for every five shares held and these shares were received on 2nd August, 2014.
The terms of the rights issue were:
a) Rights shares to be issued to the existing holders on 10th August, 2014.
b) Rights issue would entitle the holders to subscribe to additional equity shares in the Company at the rate of one
share per every three held at Rs. 15 per share-the whole sum Being payable by 30th September, 2014.
c) Existing shareholders were entitled to transfer their rights to outsiders, either wholly or in Part.
d) Singh exercised his option under the issue for 50% of his entitlements and the balance of Rights he sold
to anent for a consideration of Rs. 1.50 per share.
e) Dividends for the year ended 31st March, 2014, at the rate of 15% were declared by the Company and
received by Singh on 20th October, 2014.
f) On 1st November, 2014, Singh sold 20,000 equity shares at a premium of Rs. 3 per share.
The market price of share on 31-12-2014 was Rs. 14. Show the Investment Account as it would Appear in
Singh’s books on 31-12-2014 and the value of shares held on that date.
29) Smart Investments made the following investments in the year 2013-14:
12% State Government Bonds having face value Rs. 100 (SM, PM, MAY-14,RTP NOV 15)
30) On 01-04-2011, Mr. T. Shekharan purchased 5,000 equity shares of Rs.100 each in V Ltd. @Rs.120 each
from a broker, who charged 2% brokerage. He incurred 50 paisa perRs.100 as cost of shares transfer stamps.
On 31-01-2012 bonus was declared in the ratio of 1 : 2.Before and after the record date of bonus shares, the
shares were quoted atRs.175 per share and Rs.90 per share respectively. On 31-03-2012, Mr. T. Shekharan
sold bonus shares to a broker, who charged 2% brokerage. Show the Investment Account in the books of T.
Shekharan, who held the shares as Current Assets and closing value of investments shall be made at cost or
market value whichever is lower. (MM-Similar Pr-4,PM)
31) A limited purchased 5,000 equity shares (face value Rs.100 each) of Allianz limited for Rs.105 each on 1st
April, 2014. The shares were quoted cum dividend. On 15th May,2014. Allianz limited declared & paid dividend
of 2% for year ended 31st March,2014. On 30th June,2014 Allianz limited issued bonus shares in ratio of 1:5.
On 1st October,2014 Allianz limited issued right shares in the ratio of 1:12 @45 per share. A limited subscribed
to half of the rights issue and the balance was sold at Rs.5 per right entitlement. The company declared interim
dividend of 1% on 30th November, 2014. Right shares were not entitled to dividend. The company sold 3,000
shares on 31st December, 2014 at 95 per share. The company a ltd. Incurred 2% as brokerage while buying
and selling shares. You are required to prepare Investment Account in books of a ltd.
(SM,NOV 15,MTP OCT 15)
7. SELF BALANCING LEDGERS

32) From the following information, prepare Sales Ledger Adjustment A/c in the General Ledger:
Particulars Amount
On 1.4.2010: Balance in sales ledger (Dr.) 1,41,880
(Cr.) 2,240
On 31.3.2011:
Total sales 7,68,000
Cash sales 40,000
Sales return 10,000
Cash received from debtors 6,24,000
Discount allowed 11,200

Cash paid to supplier 4,80,000
Transfer from sales to bought ledger 20,800
Discount received 7,200
B/R received 40,000
Reserve for doubtful debts 9,160
Cash paid to customer 1,840
Bills received dishonoured 6,000
Sales ledger balance (Dr.) 1,83,200
Sales ledger balance (Cr.) 13,720
33) Show rectifying journal entries for the following errors when (a) Sectional Ledgers and (b) Self-balancing
Ledgers are maintained.
1. A credit purchase of Rs.1,000 is entered in Sales Book, the suppliers of goods being Goodluck Co. Ltd.
2. Sales Book is found undercast by Rs.100.
3. Cash Received from a customer Mahendra Rs.1,870 is debited to Mohinder a supplier in Creditors
Ledger. Entry in the Cash Book is correct.
4. A discount of Rs.125 received from a supplier has not been recorded in the Cash Book although the
account of the supplier has been debited with Cash paid as well as discount received.
5. Rs.220, the amount of wages spent on installation of a new machinery has been debited to Wages A/c.
34) M.Govind keeps self-balancing ledgers. Record the following transactions in the General Ledger Adjustment
Account in the Sales Ledger:
Date Particulars
1.4.2010 Received Rs.475 from Mr. X in full settlement. He was allowed a discount of Rs.25.
2.4.2010 Received Rs.2,000 from Mr. Y towards his dues in full.
Goods supplied to Mr. T Rs.700 and received Rs.300 after adjustment of the advance of
3.4.2010
Rs.400.
4.4.2010 Bad debts recovered from Mr. Q Rs.1,000.
Goods sold to the following :
Mr. A Rs.1,000,
5.4.2010
Mr. B Rs.1,500
Mr. C Rs.2,000
15.4.2010 Mr. P paid Rs.750 towards dues. Balance thereafter due was Rs.250.
Amount received from the following :
Mr. A Rs.750
25.4.2010
Mr. B Rs.1,000
Mr. C Rs.2,000
30.4.2010 Advance received from Mr. R for supply Rs.2,000.
35) From the following particulars, prepare the Creditors' Ledger Adjustment Account as would, appear in the
General Ledger of Mr. Sathish for the month of March 2014. (MM-Similar Pr-5, PM)

8. AMALGAMATION OF COMPANIES – 1
THEORY:
36) Distinguish between (i) the pooling of interests method and (ii) the purchase method of recording transactions
relating to amalgamation.
PROBLEMS:
37) The financial position of two companies Hari Ltd. and Vayu Ltd. as on 31st march, 2012 was as under
Name of the Companies : Hari Ltd and Vayu Ltd
Balance Sheet as at : 31st march 2012
Notes Hari Ltd Vayu Ltd

Particulars
No. ( Rs.) ( Rs.)
1 2 3 4
EQUITY AND LIABILITIES:
Shareholder’s funds
1 a Share capital 1 11,00,000 4,00,000
b Reserves and Surplus 2 70,000 70,000
Current liabilities
a Trade Payable(sundry creditors) 1,30,000 80,000
2 b Short term provisions 50,000 20,000
(Retirement and gratuity fund)
TOTAL 13,50,000 5,70,000
ASSETS:
Non-current assets
1 a Fixed assets
i Tangible assets 3 8,00,000 2,50,000
ii Intangible assets (Good will) 50,000 25,000
Current Assets
a Inventories (Stock) 2,50,000 1,75,000
b Trade receivables (Debtors) 2,00,000 1,00,000
2
c Cash and cash equivalents 50,000 20,000
(Cash at bank)
TOTAL 13,50,000 5,70,000
Notes to Accounts:
Particulars Hari ( Rs.) Vayu ( Rs.)

1. Shareholder’s funds:
Equity share capital (Rs.10 each) 10,00,000 3,00,000
9% preference share capital (Rs.100 each) 1,00,000 -
10% preference share capital (Rs.100 each) - 1,00,000
2. Reserves and Surplus:
General reserve 70,000 70,000
3. Tangible assets:
Building 3,00,000 1,00,000
Machinery 5,00,000 1,50,000

Hari Ltd. absorbs Vayu Ltd. on the following terms:
a) 10% Preference Shareholders are to be paid at 10% premium by issue of 9% Preference Shares of Hari Ltd.
b) Goodwill of Vayu Ltd. is valued at Rs.50,000, Buildings are valued at Rs.1,50,000 and the Machinery at
Rs.1,60,000.
c) Stock to be taken over at 10% less value and Provision for Doubtful Debts to be created @ 7.5%.
d) Equity Shareholders of Vayu Ltd. will be issued Equity Shares @ 5% premium. Prepare necessary Ledger
Accounts to close the books of Vayu Ltd. And
Show the acquisition entries in the books of Hari Ltd. Also draft the Balance Sheet after absorption as at 31st
March, 2012
38) A Ltd. and B Ltd. were amalgamated on and from 1st April, 2012. A new company C Ltd. was formed to take
over the business of the existing companies. The summarized Balance Sheets of A Ltd. and B Ltd. as on 31st
March, 2012 are given below:
(Rs.in lakhs) (Rs.in lakhs)

Liabilities Assets
A Ltd. B Ltd. A Ltd. B Ltd.
Share Capital Fixed Assets
Equity Shares of Rs.100 Land and Building 550 400
each 800 750 Plant & Machinery 350 250
12% Preference shares of Investments 150 50
Rs.100 each 300 200 Current Assets,
Loans & Advances
Reserves and Surplus Stock 350 250
Revaluation Reserve 150 100 Sundry Debtors 250 300
General Reserve 170 150 Bills Receivable 50 50
Investment Allowance Cash and Bank 300 200
Reserve 50 50
Profit and Loss Account 50 30
Secured Loans
10% Debentures
(Rs.100 each) 60 30
Current Liabilities and
Provisions
270 120
Sundry Creditors
150 70
Bills Payable
2,000 1,500 2,000 1,500
1. 10% Debenture holders of A Ltd. and B Ltd. are discharged by C Ltd. issuing such number of its 15%
Debentures of Rs.100 each so as to maintain the same amount of interest.
2. Preference shareholders of the two companies are issued equivalent number of 15% preference shares of
C Ltd. at a price of Rs.150 per share (face value of Rs.100).
3. C Ltd. will issue 5 equity shares for each equity share of A Ltd. and 4 equity shares for each equity share
of B Ltd. The shares are to be issued @ Rs. 30 each, having a face value of Rs.10 per share.
4. Investment allowance reserve is to be maintained for 4 more years.
Prepare the Balance Sheet of C Ltd. as on 1st April, 2012 after the amalgamation has been carried out on the
basis of Amalgamation in the nature of purchase.

39) B Ltd. and C Ltd. were competing companies both of which had incurred losses in recent years. Their
respective balances sheets as on 30th June 2003 were as follows:
Name of the Companies: B Ltd.
Balance Sheet as at: 30th June 2003
Particulars Notes No. Rs.
1 2 3
1 a Share capital 1 1,00,000
b Reserves and Surplus 2 (19,420)
Non-current liabilities
2 a Other long term liabilities
Bank overdraft 6,050
Current liabilities
3 a Trade Payable(creditors) 18,560
TOTAL 1,05,190
ASSETS:
Non-current assets
1 a Fixed assets
i Tangible assets 3 44,600
ii Intangible assets 4 2,500
Current Assets
a Inventories (Stock) 42,460
2
b Trade receivables (Debtors) 15,630
TOTAL 1,05,190
Note to accounts:
Particulars Rs.
1. Share capital
10,000 equity shares of Rs.10 each fully paid up 1,00,000
2. Reserves and Surplus
Profit and Loss A/c (19,420)
3. Tangible Assets
Plants 40,000
Furniture & Fittings 4,600
4. Intangible Assets
Patents 2,500
Name of the Companies : C Ltd.
Balance Sheet as at: 30th June 2003
1 2 3
1 a Share capital 1 60,000
b Reserves and Surplus 2 640
Current liabilities
2 a Trade Payable (Creditors) 8,310
TOTAL 68,950

ASSETS:
Non-current assets
1 a Fixed assets
i Tangible assets 3 24,280
ii Intangible assets 4 18,000
Current Assets
a Inventories (Stock) 16,990
2 b Trade receivables (Debtors) 9,550
Cash And Cash Equivalent 130
TOTAL 68,950
Note to Accounts:
Particulars Rs.
1. Share capital
12,000 Equity Shares of Rs.5 each fully paid 60,000
Profit and Loss A/c 640
3. Tangible Assets
Plants 21,000
Furniture & Fittings 3,280
4. Intangible Assets
Good Will 10,000
Patents 8,000
In order to eliminate competition & provide for more economical working as well as to make it possible to
introduce fresh capital, the following arrangements were made and carried into effect:
a) Both companies were to be wound up, a new company A Ltd. being formed to take over both businesses.
b) A Ltd. took over the floating assets of both companies at book value (but not C Ltd's cash) and the fixed
assets at the following valuation.
Particulars B Ltd C Ltd.

Goodwill 1,000 1,000
Patents 500 2,000
Plants 27,000 11,000
Furniture & Fittings 3,000 2,300
31,500 16,300
c) The consideration for the assets of B Ltd. was satisfied by the issue of 1,200 12% preference shares of
Rs.10 each and Rs.64,490 in Rs.10 equity shares of A Ltd. fully paid and the balance in cash and for the
assets of C Ltd. Rs.34,300 in Rs.10 equity shares of A Ltd. and the balance in cash.
d) The liquidator of B Ltd transferred the preference shares to a loan creditor of Rs.12,000 in satisfaction of
his claim. The equity shares were distributed pro-rata among the shareholders of each of the original
companies, the cash being just sufficient to satisfy the creditors of each company and the expenses of
liquidation to be borne by B Ltd. & C Ltd. amounted to Rs.500 and Rs.300 respectively.
e) In order to provide the necessary cash A Ltd. issued 100, 15% debentures of Rs.100 each at a discount of
5% and 1,800, 12% Preference Shares of Rs.10 each at par, these were fully paid up.
You are required to show the necessary opening entries in the books of A Ltd.

40) The Balance Sheets 'P' Ltd. & 'Q' Ltd. as on 31.3.2003 were as follows:
Name of the Companies : P Ltd and Q Ltd.
Balance Sheet as at : 31.3.2003 ( Rs. in 000’s)
Notes P Ltd Q Ltd

Particulars
No. ( Rs.) ( Rs.)
1 2 3 4
1 a Share capital 1 20,000 4,000
b Reserves and Surplus 2 8,900 320
Current liabilities
2 a Trade Payable (Creditors) 500 210
TOTAL 29,400 4,530
ASSETS
Non-current assets
Fixed assets
1
a (i) Tangible assets 3 21,500 950
(ii) In tangible assets 4 2,000 -
(iii) Non-current investment 1,150 -
Current Assets
a Inventories(stock) 3,500 2,790
b Trade receivables(debtors) 800 620
2
c Cash and cash equivalents (cash at
bank) 450 170
TOTAL 29,400 4,530
Note to Accounts:
Particulars P Ltd ( Rs.) Q Ltd ( Rs.)
1. Share capital
20,00,000 E. shares of Rs.10 each 20,000 -
4,00,000 E. shares of Rs.10 each - 4,000
General Reserve 8,000 -
Profit and Loss A/c 900 320
3. Tangible Assets
Land & Building 6,000 -
Plant & Machinery 15,500 -
Motor vehicles - 600
Furniture - 350
4. In Tangible Assets
Patents 2,000 -
A new Company, 'R Ltd'. was formed to acquire the assets & liabilities of 'P Ltd'. & 'Q Ltd'. The terms of
acquisition of business were as under:
1. 'R Ltd'. to have an authorised capital of Rs.4,50,00,000 divided into 50,000, 13% P. shares of Rs.100
each and 40,00,000 equity shares of Rs.10 each
2. Business of 'P Ltd'. Valued at Rs.3,00,00,000; settlement being made by issue of fully paid Equity shares
at Rs.12.
3. Business of 'Q Ltd'. Valued at 48,00,000 to be satisfied by issue of fully-paid shares at Rs.12
4. 'R Ltd'. made a public issue of 30,000 P. shares at par and 3,00,000 E. shares at Rs.12. The issue was
underwritten at the commission allowed by law and was fully subscribed. All obligations were met.
5. 'S Ltd'. who mooted the scheme, was allotted 40,000 equity shares (fully paid) at Rs.12 in consideration of
his services.
You are required to make opening entries in the books 'R Ltd'.
41) Neel Ltd. and Gagan Ltd. amalgamated to form a new company on 1.04.2015. Following is the Draft Balance
Sheet of Neel Ltd. and Gagan Ltd. as at 31.3.2015: (PM)
Following are the additional information:

(i) The authorised capital of the new company will be Rs. 25,00,000 divided into 1,00,000 equity shares of
Rs. 25 each.
(ii) Liabilities of Neel Ltd. includes Rs. 50,000 due to Gagan Ltd. for the purchases made Gagan Ltd. made a
profit of 20% on sale to Neel Ltd.
(iii) Neel Ltd. had purchased goods costing Rs. 10,000 from Gagan Ltd. All these goods are included in the
current asset of Neel Ltd. as at 31st March, 2015.
(iv) The assets of Neel Ltd. and Gagan Ltd. are to be revalued as under:
(v) The purchase consideration is to be discharged as under:

a) Issue 24,000 equity shares of Rs.25 each fully paid up in the proportion of their profitability in the
preceding 2 years.
b) Profits for the preceding 2 years are given below:
c) Issue 12% preference shares of Rs.10 each fully paid up at par to provide income equivalent to 8%
return on net assets in the business as on 31.3.2015 after revaluation of assets of Neel Ltd. and
Gagan Ltd. respectively.
You are required to compute the
i) Equity and preference shares issued to Neel Ltd. and Gagan Ltd.,
ii) Purchase consideration

42) The summarised Balance Sheet of Mars Limited as on 31st March, 2015 was as follow: (PM)
On 1st April, 2015, 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:
2) Purchase consideration will be settled by Jupiter Ltd. as under:

4,100 fully paid 10% preference shares of Rs.100 will be issued and the balance will be settled by issuing
equity shares of Rs.10 each at Rs.8 paid up.
3) Liquidation expenses are to be reimbursed by Jupiter Ltd. to the extent of Rs.5,000.
4) trade receivables realized Rs.1,50,000. Bills payable were settled for Rs.38,000. Income tax authorities
fixed the taxation liability at Rs.2,22,000 and the same was paid.
5) Trade payables were finally settled with cash remaining after meeting liquidation expenses amounting to
Rs.8,000.
6) Details of trade receivables and trade payables as under:
You are required to:

i) Calculate the number of equity shares and preference shares to be allotted by Jupiter Limited in
discharge of purchase consideration
ii) Prepare the Realisation account, Bank account, Equity shareholders account and Jupiter Limited’s
account in the books of Mars Ltd.

9. INTERNAL RECONSTRUCTION – 1
43) S.P. Construction Co. finds itself in financial difficulty. The following is the balance sheet on 31st Dec.2005.
Name of the Company : S.P. Construction Co Ltd
Balance Sheet as at : 31-12-2005
1 2 3
Problem 4: Accounting treatment for internal
reconstruction- final settlement of
a EQUITY AND LIABILITIES: 1
1 b Shareholder’s funds 2 2,70,000
Share capital (39,821)
Reserves and Surplus
Non-current liabilities
2
a Long tem borrowings 3 9,6000
Current liabilities
a Trade Payable (Creditors) 96,247
3
b Other Current Liabilities 4 49,513
TOTAL 4,71,939
ASSETS:
Non-current assets
1 a Fixed assets
(i) Tangible assets 5 1,94,000
(ii) Intangible assets- (Good will) 60,000
Current Assets
a Current investments 27,000
(Investments (Quoted) in shares)
2
b Inventories (stock) 1,20,247
c Trade receivables(debtors) 70,692
TOTAL 4,71,939
Note to Accounts:
Particulars Rs.
1. Share capital
20,000 Equity Shares of Rs.10 each fully paid 2,00,000
5% Cum. Pref. Shares of Rs.10 each fully paid 70,000
Profit and Loss A/c (39,821)
3. Long term borrowings
8% Debentures 80,000
Loan from Directors 16,000
4. Other Current Liabilities
Bank Overdraft 36,713
Interest payable on Debentures 12,800
5. Tangible Assets
Land 1,56,000
Building (net) 27,246
Equipment 10,754
The authorized capital of the company is 20,000 Equity Shares of Rs.10 each and 10,000 5% Cumulative
Preference Shares of Rs.10 each.
During a meeting of shareholders and Directors, it was decided to carry out a scheme of internal
reconstruction. The following scheme has been agreed:
The equity shareholders are to accept reduction of Rs.7.50 per share and each equity share is to be re-
designated as a share of Rs.2.50 each.
1. The equity shareholders are to subscribe for a new share on the basis of 1 for 1 at a price of Rs.3 per
share.
2. The existing 7,000 preference Shares are to be exchanged for a new issue of 3,500 8% Cumulative
preference shares of Rs.10 each and 14,000 Equity shares of Rs.2.50 each.
3. The Debenture holders are to accept 2,000 Equity Shares of Rs.2.50 each in lieu of interest payable. The
interest rate is to be increased to 9 ½%. Further Rs.9,000 of this 9 1/2% Debentures are to be issued and
taken up by the existing holders at Rs.90 for Rs.100.
4. Rs.6,000 of director’s Loan is to be credited. The balance is to be settled by issue of 1,000 Equity shares
of Rs.2.50 each.
5. Goodwill and the profit and loss account balance are to be written off.
6. The investment in shares is to be sold at current market value of Rs.60,000.
7. The bank overdraft is to be repaid.
8. Rs.46,000 is to be paid to trade creditors now and balance at quarterly intervals.
9. 10% of the debtors are to be written off.
10. The remaining assets were professionally valued and should be included in the books of account as
follows:
Particulars Rs.
Land 90,000
Building 80,000
Equipment 10,000
Stock 50,000
It is expected that due to changed condition and new management operating profit will be earned at the
rate of Rs.50,000 p.a. after depreciation but before interest and tax.
Due to losses brought forward it is unlikely that any tax liability will arise until 2007.
You are required to show the necessary journal entries to affect the reconstruction scheme: Prepare the
balance sheet of the company immediately after the reconstruction.
44) Repair Ltd. is in the hands of a receiver for debenture holders who holds a charge on all assets except
uncalled capital. The following statement shows the position as regards creditors as on 30th June,2015:
A holds the first debentures for Rs. 3,00,000 and second debentures for Rs. 3,00,000. He is alsoan unsecured
creditor for Rs. 90,000. B holds second debentures for Rs. 3,00,000 and is anunsecured trade payables for
Rs. 60,000.

The following scheme of reconstruction is proposed:
1. A is to cancel Rs. 2,10,000 of the total debt owing to him, to bring Rs. 30,000 in cash and to take first
debentures (in cancellation of those already issued to him) for Rs. 5,10,000 in satisfaction of all his claims.
2. B is to accept Rs. 90,000 in cash in satisfaction of all claims by him.
3. In full settlement of 75% of the claim, unsecured creditors (other than A and B) agreed toaccept four
shares of Rs. 7.50 each, fully paid against their claim for each share of Rs. 60.The balance of 25% is to
be postponed and to be payable at the end of three years fromthe date of Court’s approval of the scheme.
The nominal share capital is to be increasedaccordingly.
4. Uncalled capital is to be called up in full and Rs. 52.50 per share cancelled, thus makingthe shares of Rs.
7.50 each.
Assuming that the scheme is duly approved by all parties interested and by the Court, givenecessary journal
entries.
45) M/s Platinum Limited has decided to reconstruct the Balance Sheet since it has accumulated huge losses. The
following is the Balance Sheet of the company as on31st March, 2014 before reconstruction: (PM)
Following is the interest of Mr. Shiv and Mr. Ganesh in M/s Platinum Limited:
Mr. Shiv Mr. Ganesh
8% Debentures 3,00,000 1,00,000
12% Debentures 4,00,000 2,00,000
Total 7,00,000 3,00,000
The following scheme of internal reconstruction was framed and implemented, as approved bythe court and
concerned parties:
1) Uncalled capital is to be called up in full and then all the shares to be converted into Equity Shares of
Rs.40 each.
2) The existing shareholders agree to subscribe in cash, fully paid up equity shares of 40each for
Rs.12,50,000.
3) Trade Creditors are given option of either to accept fully paid equity shares of Rs.40 each for the amount
due to them or to accept 70% of the amount due to them in cash in fullsettlement of their claim. Trade
Creditors for Rs.7,50,000 accept equity shares and rest ofthem opted for cash towards full and final
settlement of their claim.
4) Mr. Shiv agrees to cancel debentures amounting to Rs.2,00,000 out of total debentures due to him and
agree to accept 15% Debentures for the balance amount due. He alsoagree to subscribe further 15%
Debentures in cash amounting toRs.1,00,000.
5) Mr. Ganesh agrees to cancel debentures amounting to Rs.50,000 out of total debenturesdue to him and
agree to accept 15% Debentures for the balance amount due.
6) Land & Building to be revalued at Rs.51,84,000, Machinery at Rs.7,20,000, Computers at Rs.4,00,000,
Inventories at Rs.3,50,000 and Trade receivables at 10% less to as they are appearing in Balance Sheet
as above.
7) Outstanding Expenses are fully paid in cash.
8) Goodwill and Profit & Loss A/c will be written off and balance, if any, of Capital ReductionA/c will be
adjusted against Capital Reserve.
You are required to pass necessary Journal Entries for all the above transactions and draft the company's
Balance Sheet immediately after the reconstruction.
46) The Balance sheet of M/s Clean Ltd. as on 31st March, 2015 was summarized as follows: (NOV 15)
Liabilities Amount (Rs.) Assets Amount (Rs.)

Share capital: Land and Building 75,00,000
Equity shares of Rs.50 each fully paid up 60,00,000 Plant and Machinery 22,00,000
9% Preference Shares of Rs.10
40,00,000 Trade Investment 16,50,000
each fully paid up
7 % Debentures
23,00,000 Inventories 9,50,000
(Secured by plant and machinery)
8 % Debentures 17,00,000 Trade Receivable 18,00,000
Trade Payable 6,00,000 Cash and Bank:
Provision for Tax 75,000 Balances 3,60,000
Profit & Loss A/c 2,15,000
1,46,75,000 1,46,75,000
The Board of Directors of the company decided upon the following scheme of reconstruction duly approved by
all concerned parties:
a) The equity shareholders agreed to receive in lieu of their present holding of 1,20,000 shares of Rs.50
each as under:
i) New fully paid equity shares of Rs.10 each equal to 2/3rd of their holding
ii) 9% preference shares of Rs..8 each to the extent of 25% of the above new equity share equal.
iii) Rs.2,80,000, 10% debentures of Rs.80 each.
b) The preference shareholders agreed that their Rs.10 shares should be reduced to Rs.8 by cancellation of
Rs.2 per share. They also agreed to subscribe for two new equity shares of Rs.10 each for every five
preference shares held.
c) The taxation liability of the company is settled at Rs.66,000 and the same is paid immediately.
d) One of the trade creditors of the company to whom the company owes Rs.1,00,000 decides to forgo 30%
of his claim. He is allotted equity shares of Rs.10 each in full satisfaction of his balance claim.
e) Other trade creditors of Rs.5,00,000 are given option of their to accept fully paid 9% preference shares of
Rs.8 each for the amount due to them or to accept 80% of the amount due to them in cash in full
settlement of their claim. Trade creditors for Rs.3,50,000 accepted preference shares option and rest of
them opted for cash towards full settlement of their claim.
f) Company’s contractual commitments amounting to Rs.6,50,000 have been settled by paying 4% penalty
of contract value.

g) Debenture holders having charge on plant and machinery accepted plant and machinery in full settlement
of their dues.
h) The rate of interest on 8% debentures is increased to 10%. The debenture holders surrender their existing
debenture of Rs.50 each and agreed to accept 10% debenture of Rs.80 each for every two debentures
held by them.
i) The land and building to be depreciated by 5%.
j) The debit balance of profit and loss account is to be eliminated.
k) 1/4th of trade receivables and 1/5th of inventory to the written off.
Pass Journal entries and prepare Balance Sheet after completion of the reconstruction scheme in the books of
M/s Clean Ltd. as per Schedule – III to the Companies Act, 2013.
10. FINANCIAL STATEMENTS OF NOT FOR PROFIT ORGANISATION

47) The following are the Receipts & Payments A/c of the Sports Club in respect of the year ended 31st March,
2004, Prepare Income & Expenditure A/c and Balance Sheet.
Receipts Rs. Payments Rs.

To Balance of cash on 1.4.2003 10,250 By Salaries 20,800
To Subscriptions: By Stationery 4,000
2002-2003 450 By Rates 6,000
2003-2004 21,100 By Telephone 1,000
2004-2005 750 22,300 By Investments 12,500
To Profit on sports meet 15,500 By Sundry expenses 9,250
To Income from investments 10,000 By Balance of cash on 31.3.04 4,500
58,050 58,050
The following additional information is provided to you:
a. There are 450 members each paying annual subscriptions of Rs.50; Rs.500 was in arrears for 2002-2003
as on 1st April, 2003.
b. On 31st March 2004 the rates were prepaid to 30.6.2004, the charge paid every year being Rs.6,000.
c. There was outstanding telephone bill for Rs.350 on 31st March, 2004.
d. Outstanding sundry expenses as on 31st March, 2003 totaled Rs.700.
e. Stock of stationery on 31st March, 2003 was Rs.500; on 31st March, 2004 it was Rs.900.
f. On 31st March, 2003; building stood in the books at Rs.1,00,000 and it was subject to depreciation at 5%
per annum.
g. Investments on 31st March, 2003 stood at Rs.2,00,000.
On 31st March, 2004 income accrued on investments purchased during the year is Rs. 375.
48) The following is the Receipts and Payments Account of Lion Club for the year ended 31st March, 2012.
Receipts Amount Payments Amount
Opening balance: Salaries 1,20,000
Cash 10,000 Creditors 15,20,000
Bank 3,850 Printing and stationary 70,000
Subscription received 2,02,750 Postage 40,000
Entrance donation 1,00,000 Telephones and telex 52,000
Interest received 58,000 Repairs and maintenance 48,000
Sale of assets 8,000 Glass and table linen 12,000
Miscellaneous income 9,000 Crockery and cutlery 14,000
Receipts at Garden upkeep 8,000
Coffee room 10,70,000 Membership fees 4,000
Wines and spirits 5,10,000 Insurance 5,000
Swimming pool 80,000 Electricity 28,000
Tennis court 1,02,000 Closing balance:
Cash 8,000
Bank 2,24,600
21,53,600 21,53,600
The assets and liabilities as on 1.4.2011 were as follows:
Particulars Amount
Fixed assets (net) 5,00,000
Stock 3,80,000
Investment in 12% Government securities 5,00,000
Outstanding subscription 12,000
Prepaid insurance 1,000
Sundry creditors 1,12,000
Subscription received in advance 15,000
Entrance donation received pending membership 1,00,000
Gratuity fund 1,50,000
The following adjustments are to be made while drawing up the accounts:
a) Subscription received in advance as on 31st March, 2012 was Rs.18,000.
b) Outstanding subscription as on 31st March, 2012 was Rs.7,000.
c) Outstanding expenses are salaries Rs.8,000 and electricity Rs.15,000.
d) 50% of the entrance donation was to be capitalized. There was no pending membership as on 31st March,
2012.
e) The cost of assets sold net as on 1.4.2011 was Rs.10,000.
f) Depreciation is to be provided at the rate of 10% on assets.
g) A sum of Rs.20,000 received in October 2011 as entrance donation from an applicant was to be refunded
as he has not fulfilled the requisite membership qualifications. The refund was made on 3.6.2012.
h) Purchases made during the year amounted Rs.15,00,000.
i) The value of closing stock was Rs.2,10,000.
j) The club as a matter of policy, charges off to income and expenditure account all purchases made on
account of crockery, cutlery, glass and linen in the year of purchase.
You are required to prepare an Income and Expenditure Account for the year ended 31st March, 2012 and the
Balance Sheet as on 31st March, 2012 along with necessary workings.
49) A doctor, after retiring from govt. service, started private practice on 1st April, 2010 with Rs.20,000 of his own
and Rs.30,000 borrowed at an interest of 15% per annum on the security of his life policies. His accounts for
the year were kept on a cash basis and the following is his summarized cash account:
Particulars Rs. Particulars Rs.
Own capital 20,000 Medicines purchased 24,500
Loan 30,000 Surgical equipments 25,000
Prescription fees 52,500 Motor car 32,000

Gifts from patients 13,500 Motor car expenses 12,000
Visiting fees 25,000 Wages and salaries 10,500
Fees from lectures 2,400 Rent of clinic 6,000
Pension received 30,000 General charges 4,900
Household expenses 18,000
Household furniture 2,500
Expenses on daughter’s marriage 21,500
Interest on loan 4,500
Balance at bank 11,000
Cash in hand 1,000
1,73,400 1,73,400
You are required to prepare his capital account and income and expenditure account for the year ended 31st
March, 2011 and balance sheet as on that date. One-third of the motorcar expense may be treated as
applicable to the private use of car and Rs.3,000 of the wages and salaries are in respect of domestic
servants.
The stock of machines in hand on 31st March, 2011 was valued at Rs.9,500.
50) From the following Income and Expenditure Account and the Balance Sheet of a club, prepare its Receipts
and Payments Account and Subscription Account for the year ended 31st March, 2015:
Income & Expenditure Account for the year 2014-15
The following adjustments have been made in the above accounts:

1) Upkeep of ground Rs. 600 and Printing Rs. 240 relating to 2013-2014 were paid in 2014-15.
2) One-half of entrance fee has been capitalised by transfer to General Fund.
3) Subscription outstanding in 2013-14 was Rs. 800 and for 2014-15 Rs. 700.
4) Subscription received in advance in 2013-14 was Rs. 200 and in 2014-15 for 2015-16 Rs. 100.

51) From the following Trial Balance of Education Society as on 31st Dec., 2014; prepare an Income &
Expenditure Account and a Balance Sheet:
52) From the following Income & Expenditure A/c of Premium Sports Club for the year ended 31st March, 2012,
you are required to prepare Receipts & Payment A/c for the year ended 31st March, 2012 and Balance Sheet
as on that date: (PM)

a) Some of Fixed Assets were purchased on 01.10.2011 and depreciation is to be charged @ 5% p.a.
b) Sports Material worth Rs.72,000 was purchased on credit during the year.
c) The Club became member of State Table Tennis Association on 01.01.2012 when it paidfee up to
31.12.2012.
d) 50% of Entrance Fee is to be capitalized.
e) Interest on 8% Government Bonds was received for two quarters only.
f) A Fixed Deposit of Rs.80,000 was made on 31st March, 2012.
53) The following information relates to Country Sports Club for the year ended 31.3.2014. You are required to
prepare the Receipts and Payments Account for the year ended 31.3.2014 and Balance Sheet as on that date.
(PM)
.
a)

b) During the year the club purchased sports material of Rs.1,80,000, out of which 75% was credit purchase.
c) 25% of the entrance fees is to be capitalized.
d) As per the Club's policy any excess of expense for prizes distributed over prize fund income is to be
charged to Income and Expenditure A/c and vice versa:-prize fund income earned during the year
Rs.36,000prizes distributed during the year Rs.40,000
e) Interest on Government bond is received half yearly on 30th June and 31st December each year.
11. ACCOUNTING FOR INCOMPLETE RECORDS
54) Mr. Anup runs a wholesale business where in all purchases and sales are made on credit. He furnishes the
following closing balances:
Particulars 31.12.2009 31.12.2010
Sundry debtors 70,000 92,000
Bills receivable 15,000 6,000
Bills payable 12,000 14,000
Sundry creditors 40,000 56,000
Stock 1,10,000 1,90,000
Bank 90,000 87,000
Cash 5,200 5,300
Summary of cash transactions during 2009-2010:
1. Deposited in to bank after payment of shop expenses @ Rs.600 p.m., wages @ Rs.9,200 p.m. and
personal expenses @ Rs.1,400 p.m. Rs.7,62,750.
2. Withdrawals Rs.1,21,000
3. Cash payment to suppliers Rs.77,200 for supplies and Rs.25,000 for furniture
4. Cheques collected from customers but dishonoured Rs.5,700
5. Bills accepted by customers Rs.40,000
6. Bills endorsed Rs.10,000
7. Bills discounted (gross) Rs.20,000, discount Rs.750
8. Bills matured and duly collected Rs.16,000
9. Bills accepted Rs.24,000
10. Paid suppliers by cheque Rs.3,20,000
11. Received Rs.20,000 on maturity of one LIC policy of the proprietor by cheque
12. Rent received Rs.14,000 by cheque
13. A building was purchased on 30.11.2010 for opening a branch for Rs.3,50,000 and some expenses were
incurred details of which are not maintained
14. Electricity and telephone bills paid by cash Rs.18,700, due Rs.2,200
Other transactions:
1. Claim against the firm for damage Rs.1,55,000 is under legal dispute. Legal expenses Rs.17,000. The
firm anticipates defeat in the suit
2. Goods returned to suppliers Rs.4,200
3. Goods returned by customers Rs.1,200
4. Discount offered by suppliers Rs.2,700
5. Discount offered to customers Rs.2,400
6. The business is carried on at the premises owned by the proprietor. 50% of the ground floor space is used for
business and remaining 50% is let out for an annual rent of Rs.20,000.
Prepare Trading and Profit & Loss A/c of Mr. Anup for the year ended 31.12.2010 and Balance Sheet as on
that date.
55) The following is the Balance Sheet of Sanjay, a small trader as on 31.3.2002:
Figures in Rs.'000
Capital 200 Fixed Assets 145
Creditors . 50 Stock 40
Debtors 50
Cash in Hand 5
Cash at Bank 10
250 250
A fire destroyed the accounting records as well as the closing cash of the trader on 31.3.2003. However, the
following information was available:
a) Debtors and creditors on 31.3.2003 showed an increase of 20% as compared to 31.3.2002
b) Credit Period: Debtors - 1 month Creditors - 2 months. All purchases were for credit only. Cash sales
constituted 20% of total sales.
c) Stock was maintained at the same level throughout the year.
d) Current ratio as on 31.3.2003 was exactly 2.
e) Total expenses excluding depreciation of 10% for the year amounted to Rs.2,50,000.
f) Bank and cash transactions:
Payment to creditors included Rs.50,000 by cash.
Receipts from debtors included Rs.5,90,000 by way of cheques.
Cash deposited into the bank Rs.1,20,000
Personal drawings from bank Rs.50,000
Fixed assets purchased and paid by cheques Rs.2,25,000.
For your exercise, assume cash destroyed by fire is written off in the Profit & Loss A/c.
You are required to prepare
a) The Trading and Profit & Loss A/c of Sanjay for the year ended 31.3.2003 and
b) A Balance Sheet on that date.
56) A and B are in partnership having profit sharing ratio 2: 1. The following information is available about their
assets and liabilities:
31.3.2010 31.3.2011
Particulars
Rs. Rs.
Furniture 1,20,000 -
Advances 70,000 50,000
Creditors 32,000 30,000
Debtors 40,000 45,000
Stock 60,000 74,750
Loan 80,000 -
Cash at Bank 50,000 1,40,000
The partners are entitled to salary @ Rs.2,000 p.m. They contributed proportionate capital. Interest is paid @
6% on capital and charged @ 10% on drawings.
Drawings of A and B
A B
Date
Rs. Rs.
April 30 2,000 -
May 31 - 2,000

June 30 4,000 -
Sept. 30 - 6,000
Dec. 31 2,000 -
Feb. 28 - 8,000
th rd
On 30 June, they took C as 1/3 partner who contributed Rs.75,000. C is entitled to share of 9 months profit.
The new profit ratio becomes 1:1:1. A withdrew his proportionate share. Depreciate furniture @ 10% p.a., new
purchases Rs.10,000 may be depreciated for 1/4th of a year.
Current account as on 31.3.2010: A Rs.5,000 (Cr.), B Rs.2,000 (Dr.)
Prepare Statement of Profit, Current Accounts of partners and Statement of Affairs as on 31.3.2011.
57) The income tax officer, assuming the income of Shri Moti for the financial year 2009-2010 and 2010-2011 feels
that Shri Moti has not disclosed the full income. He gives you the following particulars of assets and liabilities
of Shri Moti on 1st April 2009 and 1st April, 2011.
1.4.2009 Assets Cash in hand 25,000
Stock 56,000
Sundry debtors 41,500
Land and building 1,98,000
Wife’s jewellery 75,000
Liabilities Owing to Moti’s brother 40,000
Sundry creditors 35,000
1.4.2011 Assets Cash in hand 16,000
Stock 91,500
Sundry debtors 52,500
Land and building 1,90,000
Motor car 1,25,000
Wife’s jewellery 1,25,000
Loan to Moti’s brother 20,000
Liabilities Sundry creditors 55,000
During the two years the domestic expenditure was Rs.4,000 p.m. The declared income of the financial years
were Rs.1,05,000 for 2009-2010 and Rs.1,23,000 for 2010-2011 respectively.
State whether the income-tax officer’s contention is correct. Explain by giving your workings
58) ‘A’ and ‘B’ are in partnership sharing profits and losses equally. They keep their books by single entry system.
The following balances are available from their books as on 31.3.2010 and 31.3.2011.
Particulars 31.3.2010 ( Rs.) 31.3.2011 ( Rs.)

Building 1,50,000 1,50,000
Equipments 2,40,000 2,72,000
Furniture 25,000 25,000
Debtors ? 1,00,000
Creditors 65,000 ?
Stock ? 70,000
Bank loan 45,000 35,000
Cash 60,000 ?
The transactions during the year ended 31.3.2011 were the following:
Particulars Rs.
Collection from debtors 3,80,000
Payment to creditors 2,50,000

Cash purchases 65,000
Expenses paid 40,000
Drawings by ‘A’ 30,000
On 1.4.2010 an equipment of book value Rs.20,000 was sold for Rs.15,000. On 1.10.2010, some equipments
were purchased.
Cash sales amounted to 10% of sales
Credit sales amounted to Rs.4,50,000
Credit purchases were 80% of total purchases
The firm sells goods at cost plus 25%
Discount allowed Rs.5,500 during the year
Discount earned Rs.4,800 during the year
Outstanding expenses Rs.3,000 as on 31.3.2011
Capital of ‘A’ as on 31.3.2010 was Rs.15,000 more than the capital of ‘B’, equipments and furniture to be
depreciated at 10% p.a. and building @ 2% p.a.
You are required to prepare:
i. Trading and Profit and Loss Account for the year ended 31.3.2011 and
ii. The Balance Sheet as on that date.
59) Ms. Rashmi furnishes you with the following information relating to her business: (MM-Similar Pr-5)
(b) Receipts and payments during 2014:

Collections from debtors, after allowing discount of Rs. 3,000 amounted to Rs. 1,17,000.
Collections on discounting of bills of exchange, after deduction of discount of Rs. 250 by the bank, totaled
to Rs. 12,250.
Creditors of Rs. 80,000 were paid Rs. 78,400 in full settlement of their dues.
Payment for freight inwards Rs. 6,000.
Amount withdrawn for personal use Rs. 14,000.
Payment for office furniture Rs. 2,000.
Investment carrying annual interest of 4% were purchased at Rs. 192 (face value Rs. 200) on 1st July,
2014 and payment made there for.
Expenses including salaries paid Rs. 29,000.
Miscellaneous receipts Rs. 1,000.
(c) Bills of exchange drawn on and accepted by customers during the year amounted to Rs. 20,000. Of these,
bills of exchange of Rs. 4,000 were endorsed in favour of creditors. An endorsed bill of exchange of Rs.
800 was dishonoured.
(d) Goods costing Rs. 1,800 were used as advertising materials.
(e) Goods are invariably sold to show a gross profit of 33-1/3% on sales.
(f) Difference in cash book, if any, is to be treated as further drawing or introduction of capital by Ms. Rashmi.
(g) Provide at 2.5% for doubtful debts on closing debtors.
Rashmi asks you to prepare trading and profit and loss account for the year ended 31st December, 2014
and the balance sheet as on that date.
60) The following is the Balance Sheet of Sri Agni Dev as on 31st March, 2010: (PM)
Riots occurred and fire broke out on the evening of 31st March, 2011, destroying the books of account and
Furniture. The cashier was grievously hurt and the cash available in the cash box was stolen.
The trader gives you the following information:
a) Sales are effected as 25% for cash and the balance on credit. His total sales for the year ended 31st
March, 2011 were 20% higher than the previous year. All the sales and purchases of goods were evenly
spread throughout the year (as also in the last year).
b) Terms of credit
Debtors 2 Months
Creditors 1 Month
c) Stock level was maintained at Rs.33,000 all throughout the year.
d) A steady Gross Profit rate of 25% on the turnover was maintained throughout. Creditors are paid by
cheque only, except for cash purchase of Rs.50,000.
e) His private records and the Bank Pass-book disclosed the following transactions for the year.
i) Miscellaneous Business expenses Rs.1,57,500 (including Rs.5,000 paid by cheque and
Rs.7,500 was outstanding as on 31st March, 2011)
ii) Repairs Rs.3,500 (paid by cash)
iii) Addition to Machinery Rs.60,000 (paid by cheque)
iv) Private drawings Rs.30,000 (paid by cash)
v) Travelling expenses Rs.18,000 (paid by cash)
vi) Introduction of additional capital by depositing in to the Bank Rs.5,000
f) Collection from debtors were all through cheques.
g) Depreciation on Machinery is to be provided @ 15% on the Closing Book Value.
h) The Cash stolen is to be charged to the Profit and Loss Account.
i) Loss of furniture is to be adjusted from the Capital Account.
Prepare Trading, Profit and Loss Account for the year ended 31st March, 2011 and a Balance Sheet as on that
date. Make appropriate assumptions whenever necessary. All workings should form part of your answer.
12. HIRE PURCHASE AND INSTALLMENTS SALES TRANSACTIONS

THEORY:
61) What are the differences between Hire Purchase and Installment System? (PM,SM,NOV-14)
PROBLEM:
62) X Ltd. had purchased machinery on hire purchase system from Y Ltd. The terms are that X Ltd would pay
Rs.20,000 down on signing of the agreement and 4 annual installments of Rs.11,000 each commencing from
the beginning of the next year. X Ltd. charged depreciation @ 10% p.a. on cost under diminishing balance
system. Y Ltd. charged interest at the rate of 10% p.a. in their hire purchase contract. Prepare Machinery A/c
and Y Ltd. A/c for 5 years in the books of X Ltd.
63) MC purchased machinery from K & Co on Hire Purchase system on 1-1-2001. The cash price of the machine
was Rs.1,00,000. Rs.20,000 to be paid at the time of taking delivery and balance by four annual installments of
Rs.20,000 plus interest at 5% on the yearly balances (5% p.a.)MC failed to pay the installment due on 31-12-
2002. K & Co. took possession of the machinery and valued the same in his books after charging depreciation
@ 10% p.a. on reducing balance method. In 2003 K & Co. incurred Rs.1,000 for reconditioning and resold the
machinery for Rs.90,000. Show the ledger accounts in the books of K & Co.
64) X Transport Ltd. purchased from Delhi Motors 3 Tempos costing Rs.50,000 each on the hire purchase system
on 1-1-2010. Payment was to be made Rs.30,000 down and the remainder in 3 equal annual installments
payable on 31-12-2010, 31-12-2011 and 31-12-2012 together with interest @ 9%. X Transport Ltd. write off
depreciation at the rate of 20% on the diminishing balance. It paid the installment due at the end of the first
year i.e. 31-12-2010 but could not pay the next on 31-12-2011. Delhi Motors agreed to leave one Tempo with
the purchaser on 1-1-2012 adjusting the value of the other 2 Tempos against the amount due on 31-12-2011.
The Tempos were valued on the basis of 30% depreciation annually. Show the necessary accounts in the
books of X Transport Ltd. for the years 2010, 2011 and 2012.
65) M/s Delhi Electronics sells colour TVs, on hire purchase basis. Cost per set is Rs.14,000, Cash sale price
Rs.15,500 and hire purchase sale price is Rs.16,800 for 12 monthly installments payable by 10th of every
month. However, the buyer has to make cash down Rs.1,800 at the time of purchase.
Hire Purchase transactions (No. of sets) in 2010 - Jan. 10, Feb. 12, March 10, April 12, May 10, June 10, July
10, August 15, Sept. 11, Oct. 20, Nov. 20, Dec. 10.
Let us suppose all installments are duly collected. Show necessary Journal Entries.
66) On January 1, 2010 HP M/s acquired a Pick-up Van on hire purchase from FM M/s. The terms of the contract
were as follows:
a) The cash price of the van was Rs. 1,00,000.
b) Rs. 40,000 were to be paid on signing of the contract.
c) The balance was to be paid in annual installments of Rs. 20,000 plus interest.
d) Interest chargeable on the outstanding balance was 6% p.a.
e) Depreciation at 10% p.a. is to be written-off using the straight-line method.
a) Give Journal Entries and show the relevant accounts in the books of HP M/s from January 1,2010 to
December 31, 2012; and
b) Show the relevant items in the Balance Sheet of the purchaser as on December 31, 2010 to2012.
13. PARTNERSHIP ACCOUNTS-I

67) Manish, Jatin and Paresh were partners sharing Profits/ Losses in the ratio of Manish 40 percent, Jatin 35
percent, and Paresh 25 percent. The draft Balance Sheet of the partnership as on 31st December, 2011 was
as follows :
Liabilities Amount Assets Amount
Sundry Creditors 30,000 Cash in hand and at Bank 67,000
Bills payable 8,000 Stock 42,000
Loan from Jatin 30,000 Sundry Debtors 34,000
Current Accounts: Less: Provision for
Manish 12,000 Doubtful Debts (6,000) 28,000
Jatin 8,000 Plant and Machinery
Paresh 6,000 26,000 (at cost) 80,000
Capital Accounts: Less: Depreciation (28,000) 52,000
Manish 90,000 Premises (at cost) 75,000
Jatin 50,000
Paresh 30,000 1,70,000
2,64,000 2,64,000
Jatin retired on 31st December, 2011. Manish and Paresh continued in partnership sharing Profits/ Losses in
the ratio of Manish 60 percent and Paresh 40 percent. 50 percent of Jatin’s
Loan was repaid on 1.1.2012 and it was agreed that of the amount then remaining due to him a sum of
Rs.80,000 should remain as loan to partnership and the balance to be carried forward as ordinary trading
liability. The following adjustments were agreed to be made to the above mentioned Balance Sheet:
i) Rs.10,000 should be written off from the premises.
ii) Plant and Machinery was revalued at Rs.58,000.
iii) Provision for doubtful debts to be increased by Rs.1,200
iv) Rs.5,000 due to creditors for expenses had been omitted from the books of account.
v) Rs.4,000 to be written off on stocks.
vi) Provide Rs.1,200 for professional charges in connection with revaluation.
As per the deed of partnership, in the event of the retirement of a partner, goodwill was to be valued at an
amount equal to one year’s purchase of the average profits of the preceding three years on the date of
retirement. Before determining the said average profits a notional amount of Rs.80,000 should be charged for
remuneration to partners. The necessary profits before charging such remuneration were:
Year ending 30.12.2009 Rs.1,44,000
Year ending 31.12.2010 Rs.1,68,000
Year ending 31.12.2011 Rs.1,88,200 (As per draft accounts)
It was agreed that, for the purpose of valuing goodwill, the amount of profit for the year 2011 be recomputed
after charging the loss on revaluation in respect of premises and stock, the unprovided expenses (except
professional expenses) and increase in the provision for doubtful debts. The continuing partners decided to
eliminate goodwill account from their books.
i) Revaluation Account:
ii) Capital Accounts (merging current accounts therein):
iii) Jatin’s Accounts showing balance due to him; and
iv) Balance Sheet of Manish and Paresh as at 1st January, 2012.
68) Pathak, Quereshi and Ranjeet were partners sharing profits in the ratio of 7:5:3 respectively. On 31st March,
2013 Quereshi retired when the firm's Balance Sheet was as follows:
Capital Accounts : Land and Building 10,00,000
Pathak 8,50,000 Plant and Machinery 4,65,000
Quereshi 6,20,000 Furniture, Fixture & Fittings 2,30,100
Ranjeet 3,70,000 Stock 1,82,200
General Reserve 2,25,000 Trade Debtors 2,00,000
Trade Creditors 1,13,000 Less : Provision
for Bad Debts (6,000) 1,94,000
Cash at Bank 1,06,700
21,78,000 21,78,000
It was agreed that:
i) Land & Building be appreciated by 20%.
ii) Plant & Machinery be depreciated by 10%.
iii) Provision for Bad Debts be made equal to 4% of Trade Debtors.
iv) Outstanding repairs bill amounting to Rs.1,500 be recorded in the books of account.

v) Goodwill of the firm be valued at Rs.3,00,000 and Quereshi's capital account be credited with his share of
goodwill without raising goodwill account.
vi) Half of the amount due to Quereshi be immediately paid to him by means of a cheque and the balance be
treated as a loan bearing interest @ 12% per annum.
After Quereshi's retirement, Pathak and Ranjeet admitted Swamy as a new partner with effect from 1st April,
2013. Pathak, Ranjeet and Swamy agreed to share profits in the ratio of 2:1:1 respectively. Swamy brought
patents valued at Rs.20,000 and Rs.3,80,000 in cash including payment for his share of goodwill as valued by
the old firm. The entire amount of Rs.4,00,000 was credited to Swamy's Capital Account. Adjustments were
made in the capital accounts for Swamy's share of goodwill.
a) Pass journal entries for all the above transactions without any narration, and
b) Prepare the capital account of all the partners.
69) The following is the B/S of A, B & C as on 31.12.96, sharing profits in the ratio 4: 3: 1.

Capital A/cs Property & Assets 2,28,000
A 1,00,000 Joint Survivorship 32,000
B 70,000 Bank 50,000
C 20,000 1,90,000
Creditors 1,20,000
3,10,000 3,10,000
On 1.1.97, D was admitted as a partner, entitling him to 1/5th share of the profit. D paid Rs.30,000 on A/c of
capital and also Rs.20,000 as his share of Goodwill (the latter sum to remain in the business.) On 30.6.97, A
died. The joint survivorship policy realised Rs.50,000. The share of the deceased partner in the goodwill of the
firm was determined at Rs.36,000. The P&L A/c for the period ending 30.6.97 disclosed a profit of Rs.45,000.
The surviving partners carried on the business, profit-sharing ratio remains unchanged. Net profit for the period
from 1.7.97 to 31.12.97 amounted to Rs.33,000.
Drawings of the partners were: A B C D
For 6 months up to 30.6.1997 (Rs.) 13,000 10,000 4,000 7,500
For 6 months up to 31.12.1997 (Rs.) Nil 8,000 5,000 7,000
A sum of Rs.50,000 was advanced by B as loan to facilitate payment in full on 1.12.97 of the deceased
partner’s share. Show the Partners’ Capital A/cs& draft the B/S as on 31.12.97. The Balances of ‘Property and
Assets, and ‘Creditors’ as on 31.12.1997 were Rs.2,37,000 and Rs.1,17,000 respectively.
70) P, Q, R are three doctors who are running a Polyclinic. Their capital on 31st March, 2009 was Rs.1,00,000
each. They agreed to admit X, Y and Z as partners w.e.f. 1st April 2009. The terms for sharing profits & losses
were as follows:
a) 70% of the visiting fee is to go to the specialist concerned.
b) 50% of the chamber fee will be payable to the individual specialist.
c) 40% of operation fee and fee for pathological reports, X-rays and ECG will accrue in favour of the doctor
concerned.
d) Balance of profit or loss is shared equally.
e) All the partners are entitled for 6% interest on capital employed.
They further agreed that:
i) X, Y and Z brought in Rs.20,000 each as goodwill. Goodwill is shared by the existing partners equally.
ii) X, Y and Z brought in Rs.50,000 each as capital. Each of the original partners also contributed Rs.50,000
by way of capital.
Rs. The receipts for the year after admission of new partners were:
Fees for reports,
Name of Visiting Chambers
Particulars operation etc.
Doctors Fees ( Rs.) Fees ( Rs.)
( Rs.)
P General Physician 1,50,000 2,00,000 -
Q Gynecologist 25,000 1,75,000 1,00,000
R Cardiologist - 1,00,000 75,000
X Child Specialist 1,00,000 1,50,000 -
Y Pathologist - - 1,00,000
Z Radiologist - 40,000 2,00,000
Total 2,75,000 6,65,000 4,75,000
Expenses for the year were as follows:
Particulars Rs.
Medicines, injections and other consumables 1,00,000
Printing and stationery 5,000
Telephone expenses 5,000
Rent 42,000
Power and light 10,000
Nurses salary 20,000
Attendants wages 20,000
Total 2,02,000
Depreciation:
X-Ray machines 15,000
ECG equipments 5,000
Furniture 5,000
Surgical equipments 5,000
Total Depreciation 30,000
You are requested to:
i) Pass necessary journal entries on admission of partners.
ii) Prepare the Profit and Loss Account of the polyclinic for the year ended 31st March, 2010.
Prepare capital accounts of all the partners at the end of the financial year 2009-10. Also show the distribution
of profit among partners.
71) Glad and happy, who make up their accounts to 30 September in each year, carried on business in
partnership under the firm name of Feelings.
Their partnership agreement provided:
1) Profits and losses should be shared Glad - two-third and Happy - one-third.
2) Interest on capital accounts should be allowed at the rate of 6% per annum but no interest should be
allowed or charged on current accounts.
3) On the retirement or admission of a partner:
i) If the change takes place during any accounting year, such partner’s share of profits or losses for the
period up to retirement or from admission is to be arrived at by apportionment on a time basis except
where otherwise agreed.
ii) No account for goodwill is to be maintained in the firm’s books, any adjusting entries for transactions
between the partners being made in their capital accounts.
iii) Any balance due to an outgoing partner is to carry interest at 8% per annum from the date of his
retirement to the date of payment.

Glad retired from the firm on 31st March 2012 and, on the same day, Happy took into partnership Joy, an
employee of the firm. It was agreed that the terms of the previous partnership agreement should apply in all
respects except that, as from the date, profits or losses are to be shared: Happy - three-fifth, Joy - two-fifth.
The trial balance extracted from the books of the firm as on 30th September 2012 was as follows:
Particulars Rs. Rs.
Capital Accounts – 30th September 2011
Glad - 8,000
Happy - 6,000
Current Accounts – 30th September 2011
Glad - 2,400
Happy - 1,600
Joy – Cash introduced 31st March, 2012 - 3,000
Plant and machinery at cost 14,000 -
Plant and machinery: Provision for depreciation -30th Sept., 2011 - 2,800
Motor vehicles at cost 6,200 -
Motor vehicles: provision for depreciation – 30th September 2011 - 3,400
Purchases 62,000 -
Stock – 30th September 2011 12,400 -
Wages 14,600 -
Salaries 10,800 -
Debtors 4,600 -
Sales - 96,000
Trade expenses 1,600 -
Creditors - 6,200
Rent and rates 1,400 -
Bad debts 600 -
Balance at bank 1,200 -
You are given the following further information:
1) The value of the firm’s goodwill as on 31st March 2012 was agreed to be Rs.12,000.
2) On 31st March, 2012, Joy had paid Glad Rs.5,000 on account of the balance due to him on retirement. But
no entry had been made in the books in respect of this payment. The balance due to Glad after taking into
account this payment remained unpaid as on 30th September, 2012.
3) Glad on retirement had taken over one of the firm’s motor vehicles and it was agreed that he should be
charged for it at its written down value on the date of his retirement. The vehicle had cost Rs.1,400 and up
to 30th September, 2011 depreciation of Rs.625 had been provided on it.
4) The stock as on 30th September 2012 was valued at Rs.14,200.
5) Partners’ drawings which are included in salaries were as follows:
Glad Rs.1,800; Happy Rs.2,400; Joy Rs.900.
6) Salaries also included Rs.1,200 paid to Joy prior to his being admitted as a partner and which is to be
charged against the half-year profits of the firm.
7) Professional charges of Rs.250 included in trade expenses are specifically attributable to the second half
of the year.
8) The whole of the charge of Rs.600 for bad debts related to the period upto 31st March, 2012.
9) A bad debts provision specifically, attributable to the second half of the year of 5% of the total debtors is to
be made as on 30th September 2012.
10) As on 30th September 2012, rent paid in advance amounted to Rs.400 and trade expenses accrued
amounted to Rs.180.
11) Provision is to be made for depreciation on plant and machinery and on motor vehicles at the rates of 10%
and 25% per annum respectively, calculated on cost.
a) The Trading and profit and loss account for the year ended 30th September 2012.
b) Partner’s capital and current accounts for the year ended 30th September 2012; and
c) The balance sheet as on that date.
72) Ram, Rahim and Robert are partners, sharing Profits and Losses in the ratio of 5:3:2. It was decided that
Robert would retire on 31.3.2011 and in his place Richard would be admitted as a partner with new profit
sharing ratio between Ram, Rahim and Richard at 3:2:1.
Balance Sheet of Ram, Rahim and Robert as at 31.3.2011:
Capital Accounts: Cash in hand 20,000
Ram 1,00,000 Cash in Bank 1,00,000
Rahim 1,50,000 Sundry Debtors 5,00,000
Robert 2,00,000 Stock in Trade 2,00,000
General Reserve 2,00,000 Plant & Machinery 3,00,000
Sundry Creditors 8,00,000 Land & Building 5,30,000
Loan from Richard 2,00,000
16,50,000 16,50,000
Retirement of Robert and admission of Richard is on the following terms:
a) Plant & Machinery to be depreciated by Rs.30,000.
b) Land and Building to be valued at Rs.6,00,000.
c) Stock to be valued at 95% of book value.
d) Provision for doubtful debts @ 10% to be provided on debtors.
e) General Reserve to be apportioned amongst Ram, Rahim and Robert.
f) The firm’s goodwill to be valued at 2 years purchase of the average profits of the last 3 years. The
relevant figures are:
Year ended 31.3.2008 − Profit Rs.50,000
g) Out of the amount due to Robert Rs.2,00,000 would be retained as loan by the firm and the balance will be
settled immediately.
h) Richard’s capital should be equal to 50% of the combined capital of Ram and Rahim.
Prepare:
a) Capital accounts of the partners; and
b) Balance Sheet of the reconstituted firm.
73) Lee and Lawson are in equal partnership. They agreed to take Hicks as one-fourth partner. For this it was
decided to find out the value of goodwill. M/s Lee and Lawson earned profits during 2011-2014 as follows:(SM)
On 31.12.2014 capital employed in M/s Lee and Lawson was Rs. 5,00,000. Rate of normal profitis 20%.
Find out the value of goodwill following various methods.

74) A, B and C were partners of a firm sharing profits and losses in the ratio of 3 : 4 : 3. The Balance Sheet of the
firm, as at 31st March, 2010 was as under:
Partner C died on 30th September, 2010. It was agreed between the surviving partners andthe legal
representatives of C that:
(i) Goodwill of the firm will be valued at Rs.60,000.
(ii) Fixed Assets will be written down by Rs.20,000.
(iii) In lieu of profits, C should be paid at the rate of 25% per annum on his capital as on31st March, 2010.
The profits for the year ended 31st March, 2011, after charging depreciation of Rs.10,000(depreciation upto
30th September was agreed to be Rs.6,000) were Rs.48,000.
Partners’ Drawings Accounts showed balances as under :
A Rs.18,000 (drawn evenly over the year)
B Rs.24,000 (drawn evenly over the year)
C (up-to-date of death) Rs.20,000
On the basis of the above figures, please indicate the entitlement of the legal heirs of C as on31st March, 2011
75) Ms. Naina, Ms. Radha and Ms. Khushi were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 2.
Balance Sheet of the firm as on 31.03.2014 was as follows: (NOV 15)
Liabilities Amount (Rs.) Assets Amount (Rs.)
Capital Accounts: Plant and Machinery 4,26,000
Naina 3,00,000 Stock 1,85,800
Radha 2,25,000 Debtors 1,30,500
Khushi 1,50,000 Bank Balance 92,700
Current Accounts:
Naina 25,000
Radha 12,500
Khushi 18,750
Creditors 1,03,750
8,35,000 8,35,000
st
On 1 April 2014,. Ms. Naina retired. On her retirement goodwill is valued at 1,80,000. Ms. Radha and Ms.
Khushi do not wish to raise Goodwill account in the books.
Ms. Naina drew her balance of current account on 2nd April, 2014 and it is agreed to pay balance of her capital
account over-a period of two years by half yearly installments with interest at 10% per annum.
On 1st Oct: 2014 Ms. Asmita (Daughter of Radha) admitted as a partner. Ms. Radha surrendered one third of
her share of profit and loss in favour of Asmita and also transferred one third of her capital to Ms. Asmita. Ms.
Asmita was manager in the firm with annual salary of Rs.16,000, prior to admission as a partner.
The other bank transactions during financial year 2014-15 were as follows :
i) Payment to creditors Rs.7,75,000
ii) Received from debtors Rs.11,25,000

iii) Expenses paid Rs.11,250
iv) Asmita's salary paid Rs.8,000
v) Partners Drawing:
Ms. Radha Rs.50,000
Ms. Khushi Rs.41,250
Ms. Asmita Rs.11,250
vi) First intallment with interest paid to Ms. Naina on 1st Oct., 2014.
vii) Plant & Machinery sold at Rs.9,000 on 3rd April, 2014 (Cost Rs.10,000 & Book value Rs.7,000)
viii) Balances as on 31st March, 2015 Debtors Rs1,50,000 Creditors for purchases Rs.1,25.000,
Creditors for expenses Rs.10,000 and Stock Rs.1,71,250
ix) Depreciation is to be written off on Plant &Machinery Rs.30,350:
x) Second installment with interest paid to Ms. Naina on 1st April, 2015.
a) Ms. Naina's loan account, d) Bank Account and
b) Partners' capital account, e) Balance Sheet as on 31st March, 2015 in
c) Partners current account, the books of the firm.
15. CASH FLOW STATEMENTS

THEORY:
76) Explain Classification of activities (with two examples) as suggested in AS 3, to be used for preparing a cash
flow statements.
PROBLEMS:
77) The following data were provided by the accounting records of Ryan Ltd. at year-end, March 31, 2013:
Income Statement
Particulars Amount Amount
Sales 6,98,000
Cost of Goods Sold (5,20,000)
Gross Margin 1,78,000
Operating Expenses
(including Depreciation Expense of Rs.37,000) (1,47,000)
31,000
Other Income / (Expenses)
Interest Expense paid (23,000)
Interest Income received 6,000
Gain on Sale of Investments 12,000
Loss on Sale of Plant (3,000) (8,000)
23,000
Income tax (7,000)
16,000
Comparative Balance Sheets:
31st March 31st March
Particulars
2013 2012
Assets:
Plant Assets 7,15,000 5,05,000
Less: Accumulated Depreciation (1,03,000) (68,000)
6,12,000 4,37,000

Investments (Long term) 1,15,000 1,27,000
Current Assets:
Inventory 1,44,000 1,10,000
Accounts receivable 47,000 55,000
Cash 46,000 15,000
Prepaid expenses 1,000 5,000
9,65,000 7,49,000
Liabilities:
Share Capital 4,65,000 3,15,000
Reserves and surplus 1,40,000 1,32,000
Bonds 2,95,000 2,45,000
Current liabilities:
Accounts payable 50,000 43,000
Accrued liabilities 12,000 9,000
Income taxes payable 3,000 5,000
9,65,000 7,49,000
Analysis of selected accounts and transactions during 2012-13
1. Purchased investments for Rs.78,000.
2. Sold investments for Rs.1,02,000. These investments cost Rs.90,000.
3. Purchased plant assets for Rs.1,20,000.
4. Sold plant assets that cost Rs.10,000 with accumulated depreciation of Rs.2,000 for Rs.5,000.
5. Issued Rs.1,00,000 of bonds at face value in an exchange for plant assets on 31st March, 2013.
6. Repaid Rs.50,000 of bonds at face value at maturity.
7. Issued 15,000 shares of Rs.10 each.
8. Paid cash dividends Rs.8,000.
Prepare Cash Flow Statement as per AS-3 (Revised), using indirect method.
78) The following figures have been extracted from the Books of X limited for the year ended on 31.3.2004. You
are required to prepare a cash flow statement.
1. Net profit before taking into account Income Tax and Income from law suits but after taking into Account
the following items was Rs.20 lakhs:
a) Depreciation on Fixed Assets Rs.5 lakhs.
b) Discount on issue of Debentures written off Rs.30,000.
c) Interest on Debentures paid Rs.3,50,000.
d) Books value of investments Rs.3 lakhs (Sale of Investments for Rs.3,20,000).
e)Interest received on investments Rs.60,000.
2. Compensation received Rs.90,000 by the company in a suit filed.
3. Income tax paid during the year Rs.10,50,000.
4. 15,000, 10% preference shares of Rs.100 each were redeemed on 31.3.2004 at a premium of 5%. Further
the company issued 50,000 equity shares of Rs.10 each at premium of 20% on 2.4.2003. Dividend on
preference shares were paid at the time of redemption.
5. Dividends paid for the year 2002-2003 Rs.5 lakhs and Interim dividend paid Rs.3 lakhs for the year 2003-04.
6. Land was purchased on 2.4.2003 for Rs.2,40,000 for which the company issued 20,000 equity shares of
Rs.10 each at a premium of 20% to the land owner as consideration.

7. Current assets and Current liabilities in the beginning and at the end of the years were as detailed below:
Particulars 31.3.03 31.3.04
Stock 12,00,000 13,18,000
Sundry Debtors 2,08,000 2,13,100
Cash in hand 1,96,000 35,000
Bills receivable 50,000 40,000
Bills payable 45,000 40,000
Sundry Creditors 1,66,000 1,71,300
Outstanding expenses 75,000 81,800
st
79) Raj Ltd. gives you the following information for the year ended 31 March, 2011:
1. Sales for the year Rs.48,00,000. The Company sold goods for cash only.
2. Cost of goods sold was 75% of sales.
3. Closing inventory was higher than opening inventory by Rs.50,000.
a. Trade creditors on 31.3.2011 exceed the outstanding on 31.3.2010 by Rs.1,00,000.
b. Tax paid during the year amounts to Rs.1,50,000.
c. Amounts paid to Trade creditors during the year Rs.35,50,000.
d. Administrative and Selling expenses paid Rs.3,60,000.
e. One new machinery was acquired in December, 2010 for Rs.6,00,000.
f. Dividend paid during the year Rs.1,20,000.
g. Cash in hand and at Bank on 31.3.2011 Rs.70,000.
h. Cash in hand and at Bank on 1.4.2010 Rs.50,000.
Prepare Cash Flow Statement for the year ended 31.3.2011 as per the prescribed Accounting standard.
80) The following summary cash account has been extracted from the company’s accounting records:
Prepare Cash Flow Statement of this company Hills Ltd. for the year ended 31st March, 2015in accordance
with AS-3 (Revised). (SM)
The company does not have any cash equivalents.
81) Prepare Cash flow for Gamma Ltd., for the year ending 31.3.2014 from the following information:
a) Sales for the year amounted to Rs. 135 crores out of which 60% was cash sales.
b) Purchases for the year amounted to Rs. 55 crores out of which credit purchase was 80%.
c) Administrative and selling expenses amounted to Rs. 18 crores and salary paid amounted to Rs. 22
crores.
d) The Company redeemed debentures of Rs. 20 crores at a premium of 10%. Debentureholders were
issued equity shares of Rs. 15 crores towards redemption and the balance was paid in cash. Debenture
interest paid during the year was Rs. 1.5 crores.

e) Dividend paid during the year amounted to Rs. 11.7 crores(including Dividend distribution tax) was also
paid.
f) Investment costing Rs. 12 crores were sold at a profit of Rs. 2.4 crores.
g) Rs. 8 crores was paid towards income tax during the year.
h) A new plant costing Rs. 21 crores was purchased in part exchange of an old plant. The book value of the
old plant was Rs. 12 crores but the vendor took over the old plant at a value of Rs. 10 crores only. The
balance was paid in cash to the vendor.
i) The following balances are also provided: (SM)
Rs.in crores 1.4.2013 Rs.in crores 31.3.2014
Debtors 45 50
Creditors 21 23
Bank 6
82) The following figures have been extracted from the books of X Limited for the year ended on31.3.2015. You
are required to prepare a cash flow statement.
i) Net profit before taking into account income tax and income from law suits but after taking into account the
following items was Rs.20 lakhs:
a. Depreciation on Fixed Assets Rs.5 lakhs.
b. Discount on issue of Debentures written off Rs.30,000.
c. Interest on Debentures paid Rs.3,50,000.
d. Book value of investments Rs.3 lakhs (Sale of Investments for Rs.3,20,000).
e. Interest received on investments Rs.60,000.
f. Compensation received Rs.90,000 by the company in a suit filed.
ii) Income tax paid during the year Rs.10,50,000.
iii) 15,000, 10% preference shares of Rs.100 each were redeemed on 31.3.2015 at a premium of5%. Further
the company issued 50,000 equity shares of Rs.10 each at a premium of 20% on2.4.2014. Dividend on
preference shares were paid at the time of redemption.
iv) Dividend paid for the year 2013-2014 Rs.5 lakhs and interim dividend paid Rs.3 lakhs forthe year 2014-
2015.
v) Land was purchased on 2.4.2014 for Rs.2,40,000 for which the company issued 20,000equity shares of
Rs.10 each at a premium of 20% to the land owner as consideration.
vi) Current assets and current liabilities in the beginning and at the end of the years were asdetailed below:
83) Prepare cash flow statement of M/s MNT Ltd. for the year ended 31st March, 2015. with the help of the
following information: (PM)
i) Company sold goods for cash only
ii) Gross Profit Ratio was 30% for the year, gross profit amounts to Rs.3,82,500.
iii) Opening inventory was lesser than closing inventory by Rs.35,000.
iv) Wages paid during the year Rs.4,92,500
v) Office and selling expenses paid during the year Rs.75,000

vi) Dividend paid during the year Rs.30,000 (including dividend distribution tax).
vii) Bank loan repaid during the year Rs.2,15,000 (included interest Rs.15,000)
viii) Trade payable on 31st March, 2014 exceed the balance on 31st March, 2015 by Rs.25,000.
ix) Amount paid to trade payables during the year Rs.4,60,000.
x) Tax paid during the year amounts to Rs.65,000 (Provision for taxation as on 31.03.2015 Rs.45,000)
xi) Investments of Rs.7,00,000 sold during the year at a profit of Rs.20,000.
xii) Depreciation on fixed assets amounts to Rs.85,000
xiii) Plant and Machinery purchased on 15th November, 2014 for Rs.2,50,000.
xiv) Cash and Cash Equivalents on 31st March, 2014 Rs.2,00,000
xv) Cash and Cash Equivalents on 31st March, Rs.6,07,500
15. ACCOUNTING FOR BONUS SHARES

84) The following is the summarised Balance Sheet of Bumbum Limited as at 31st March, 2012:
Particulars Rs.
Sources of funds
Authorized capital 5,00,000
50,000 Equity shares of Rs.10 each 10,00,000
10,000 Preference shares of Rs.100 each 15,00,000
Issued, subscribed and paid up

30,000 Equity shares of Rs.10 each 3,00,000
5,000, 8%Redeemable Preference shares of Rs.100 each 5,00,000
Reserves & Surplus

Securities Premium 6,00,000
General Reserve 6,50,000
Profit & Loss A/c 40,000
2,500, 9% Debentures of Rs.100 each 2,50,000

Sundry Creditors 1,70,000
25,10,000
Application of funds:
Fixed Assets (Net) 7,80,000
Investments (Market value Rs.5,80,000) 4,90,000
Deferred Tax Assets 3,40,000
Sundry Debtors 6,20,000
Cash & Bank balance 2,80,000
25,10,000
In Annual General Meeting held on 20th June, 2012 the company passed the following Resolutions:
a) To split equity share of Rs.10 each into 5 equity shares of Rs.2 each from 1st July, 12.
b) To redeem 8% preference shares at a premium of 5%.
c) To redeem 9% Debentures by making offer to debenture holders to convert their holdings into equity
shares at Rs.10 per share or accept cash on redemption.

d) To issue fully paid bonus shares in the ratio of one equity share for every 3 sharesheld on record date.
On 10th July, 2012 investments were sold for Rs.5,55,000 and preference shares were Redeemed. 40% of
Debenture holders exercised their option to accept cash and their claims were settled on 1st August, 2012.The
Company fixed 5th September, 2012 as record date and bonus issue was concluded by 12th September, 2012.
You are requested to journalize the above transactions including cash transactions and Prepare Balance
Sheet as at 30th September, 2012. All working notes should form part of your answer.
85) Following is the extract from the Balance Sheet of M/s. Yahoo Ltd. as at 31st March, 2012:
Particulars Rs.
Authorized capital:
50,000, 10% Preference shares of Rs.10 each 5,00,000
2,00,000 Equity shares of Rs.10 each 20,00,000
Issued and subscribed capital:
40,000, 10% Preference shares of Rs.10 each fully paid 4,00,000
1,80,000, Equity shares of Rs.10 each, of which Rs.7.50 paid up 13,50,000
Reserves and Surplus:
General reserve 2,40,000
Capital reserve 1,50,000
Securities premium 50,000
Profit and loss account 3,00,000
On 1st April, 2012, the company has made a final call @ Rs.2.50 each on 1,80,000 equity shares. The call
money was received by 30th April, 2012. There after the company decided to capitalize its reserves by issuing
bonus shares at the rate of one share for every three shares held. Securities premium of Rs.50,000 includes a
premium of Rs.20,000 for shares issued to vendor for purchase of a special machinery. Capital reserve
includes Rs.60,000 being profit on exchange of plant and machinery.
Show necessary Journal Entries in the books of the company and prepare the extract of the Balance Sheet
after bonus issue. Necessary assumption, if any, should form part of your answer.
16. COMPANY FINAL ACCOUNTS

86) The balance sheet of XYZ Ltd. as at 31st December, 2013 inter alia includes the following:
Rs.
50,000 8% Preference shares of Rs.100 each Rs. 70 paid up 35,00,000
1,00,000 Equity shares of Rs.100 each fully paid up 1,00,00,000
Securities premium 5,00,000
Capital redemption reserve 20,00,000
General reserve 50,00,000
Under the terms of their issue, the preference shares are redeemable on March 31, 2014 at a Premium of 5%.
In order to finance the redemption, the company makes a right issue of 50,000 equity shares of Rs.100 each at
Rs.20 being payable on application, Rs.35 (including Rs.10 premium)on allotment and the balance on May 1,
2014. The issue was fully subscribed and allotment made on May 1, 2014. The monies due on allotment were
received by March 30, 2014. The preference shares were redeemed after fulfilling the necessary conditions of
Section 55 of the Companies Act, 2013. The company decided to make the minimum utilization of general
reserve.
You are asked to pass the necessary journal entries and show the relevant extracts from the Balance Sheet as
on March 31, 2014 with the corresponding figures as on 31st December, 2013.

87) The Articles of Association of S Ltd. Provide the following:
1. That 20% of the net profit of each year shall be transferred to reserve fund.
2. That an amount equal to 10% of equity dividend shall be set aside for staff bonus.
3. That the balance available for distribution shall be applied:
a) In paying 14% on cumulative preference shares.
b) In paying 20% dividend on equity shares.
c) One-third of the balance available as additional dividend on preference shares and 2/3 as additional
equity dividend.
A further condition was imposed by the articles viz. that the balance carried forward shall be equal to 12%
on preference shares after making provisions a), b) and c) mentioned above. The company has issued
13,000, 14% cumulative participating preference shares of Rs.100 each fully paid and 70,000 equity
shares of Rs.10 each fully paid up.
The profit for the year ended 31st March, 2008 was Rs.10,00,000 and balance brought from previous year
Rs.80,000. Provide Rs. 31,200 for depreciation and Rs.80,000 for taxation before making other
appropriations. Prepare Profit and Loss Account.
88) The following is statement of profit and loss of Mundra Ltd., the year ended 31st march, 2011.
Name of the Company : Mundra Ltd
Profit and Loss Statement for the year ended: 31st March, 2011
Particulars Note no Rs.
Revenue from operations 40,25,365
Other Income 1 2,73,925
Total Revenue 42,99,290
I Expenses:
Employee benefits expense 2 3,52,100
Finance costs 3 31,240
Depreciation and amortization expenses 4 5,22,543
Other expenses 5 890572
Total Expenses 17,96,455
Profit in the current year before tax (I-II) 25,02,835
II
(-) Provision for tax (1242500)
Profit in the current year after tax 12,60,335
Add last year profit 5,72,350
Less transfer to reserves (4,00,000)
Less investment allowance reserve (12,500)
Profit transfer to balance sheet 14,20,185
Note to Accounts:
Particulars Rs.
1. Other Income:
(a) Subsidies received from Govt. 2,32,560
(b) Interest on Investments 15,643
(c) Transfer fee 722
(d) Profit on sale of Machinery:
Amount realized 55,000
Written down value 30,000 25,000
TOTAL 2,73,925
2. Employee benefits Expense:
(a) Director fee 66,750
(b) Managerial remuneration 2,85,350
TOTAL 3,52,100
3. Finance Costs:
(a) Interest on debentures 31,240
4. Depreciation and amortization expenses 5,22,543
5. Other Expenses:
(a) Donation to charitable funds 25,500
(b) Compensation for breach of contract 42,530
(c) Administration & selling 8,22,542
TOTAL 8,90,572
1. Original Cost of the machinery sold was Rs.40,000
2. Depreciation on fixed assets as per the Companies Act, 2013 was Rs.5,75,345.
You are required to comment on the managerial remuneration in the following situation:
a) There is only one whole time director;
b) There are two whole time directors.
c) There are two whole time directors, a part time director and a manager.
89) BHARAT Ltd. provides you the following information:
Year Dividend Paid up capital

2001-2002 9% Rs.1,00,000
2002-2003 8% Rs.1,00,000
2003-2004 10% Rs.1,00,000
2004-2005 7% Rs.1,00,000
2005-2006 6% Rs.1,00,000
Equity share capital Rs. 1,00,000
Reserve as on 01.04.2006 Rs.50,000
Loss after charging depreciation for the year 2006-2007 Rs.6,000
Depreciation for year 2006-2007 Rs.6,000
Required: X Ltd. desires to declare divided for the loss year 2006-2007. Can it do so? If yes, at what rate, it
may declare dividend?
90) You are required to prepare a Profit and Loss Account and Balance Sheet from the following Trial Balance
extracted from the books of the international Hotels Ltd., on 31st March, 2012.
Particulars Debit Credit
Authorized Capital divided into 5,000 6% Preference Shares of Rs.100
each and 10,000 equity shares of Rs.100 each 15,00,000
Subscribed Capital –
5,000 6% Preference Shares of Rs.100 each 5,00,000
Equity Capital 8,05,000
Purchases – Wines, Cigarettes, Cigars etc 45,800
Foodstuffs 36,200
Wages and Salaries 28,300
Rent, Rates and Taxes 8,900
Laundry 750

Sales – Wines, Cigarettes, Cigars, etc. 68,400
- Food 57,600
Coal and Firewood 3,290
Carriage and Cooliage 810
Sundry Expenses 5,840
Advertising 8,360
Repairs 4,250
Rent of Rooms 48,000
Billiard 5,700
Miscellaneous Receipts 2,800
Discount received 3,300
Transfer fees 700
Freehold Land and Building 8,50,000
Furniture and Fittings 86,300
Stock on hand, 1st April, 2011:
Wines, Cigarettes, Cigars etc. 12,800
Foodstuffs 5,260
Cash in hand 2,200
Cash with Bankers 76,380
Preliminary and formation expenses 8,000
2,000 Debentures of Rs.100 each (6%) 2,00,000
Profit and Loss Account 41,500
Sundry Creditors 42,000
Sundry Debtors 19,260
Investments 2,72,300
Goodwill at cost 5,00,000
19,75,000 19,75,000
Wages and Salaries Outstanding 1,280
Stock on 31st March, 2012:
Wines Cigarettes and Cigars, etc. 22,500
Foodstuffs 16,400
Depreciation:
Furniture and Fittings @ 5% p.a.: Land & Buildings @ 2% p.a.
The equity capital on 1st April, 2011 stood at Rs.7,20,000 that is 6,000 shares fully paid and 2,000 shares
Rs.60 paid. The directors made a call of Rs.40 per share on 1st October 2011. A shareholders could not pay
the call on 100 shares and his shares were then forfeited and reissued @ Rs.90 per share as fully paid. The
directors propose a dividend of 8% on equity shares, transferring any amount that may be required from
General Reserve. Ignore Taxation.
17. ACCOUNTING IN COMPUTERIZED ENVIRONMENT

91) Explain the factors to be considered before selecting the pre-packaged accounting software? Or market is full
of readymade accounting soft wares. What factors will you consider to choose one of the for your enterprises?
92) What are the advantages and disadvantages of an prepackage accounting software?

93) What is Enterprise Resource Planning (ERP) software? What are the factors which you will take into
consideration while choosing an ERP software?
94) What are spread sheets? What are the advantages and disadvantages of spread sheets?
95) What are the disadvantages of using an Enterprise Resource planning package?
ACCOUNTING STANDARDS
AS-1
96)
97)
98) In the books of M/s Prashant Ltd., closing inventory as on 31.03.2015 amounts to Rs.1,63,000 (on the basis of
FIFO method).
The company decides to change from FIFO method to weighted average method for ascertaining the cost of
inventory from the year 2014-15. On the basis of weighted average method, closing inventory as on 31.03.2015
amounts to Rs.1,47,000. Realizable value of the inventory as on 31.03.2015 amounts to Rs.1,95,000. Discuss
disclosure requirement of change in accounting policy as per AS-1. (NOV 15)
AS-2
99)
100)
101)

102)
AS-3
103)
AS-6
104)
105)
106) On 01.04.2010 a machine was acquired at Rs.4,00,000. The machine was expected to have a useful life of 10
years. The residual value was estimated at 10% of the original cost. At the end of the 3rd year, an attachment
was made to the machine at a cost of Rs.1,80,000 to enhance its capacity. The attachment was expected to
have a useful life of 10 years and zero terminal value. During the same time the original machine was revalued
upwards by Rs.90,000 and remaining useful life was reassessed at 9 years and residual value was
reassessed at nil.
Find depreciation for the year, If
(i) Attachment retains its separate identity.
(ii) Attachment becomes integral part of the machine.

107) A machinery with a useful life of 6 years was purchased on 1st April, 2012 for Rs.1,50,000. Depreciation was
provided on straight line method for first three years considering a residual value of 10% of cost.
In the beginning of fourth year the company reassessed the remaining useful life of the machinery at 4 years
and residual value was estimated at 5% of original cost.
The accountant recalculated the revised depreciation historically and charged the difference to profit and loss
account. You are required to comment on the treatment by accountant and calculate the depreciation to be
charged for the fourth year. (NOV 15)
AS-7
108)
109)
110)
AS-9
111)
112)
113)

114) M/s. Umang Ltd. sold goods through its agent. As per terms of sales, consideration is payable within one
month. In the event of delay in payment, interest is chargeable @ 12% p.a. from the agent. The company has
not realized interest from the agent in the past. For the year ended 31st March, 2015 interest due from agent
(because of delay in payment) amounts to Rs.1,72,000. The accountant of M/s Umang Ltd. booked
Rs.1,72,000 as interest income in the year ended 31st March, 2015. Discuss the contention of the accountant
with reference to Accounting Standard - 9.
AS-10
115)
116)
117)
118)
119)

120) Briefly explain the treatment of following items as per relevant accounting standards:
i) The accountant of Star Limited valued the Goodwill of the company at Rs. 50 lakhs and showed the same
as Fixed Asset in Balance Sheet. The corresponding credit was given to Reserves.
ii) An expense of Rs,5 crores was incurred on a Machine towards its Repairs and Maintenance. The
accountant wants to capitalized the same considering the significance of amount spent.
iii) A plant was ready for commercial production on 01.04.2014 but could commence actual production only
on 01.06.2014. The company incurred Rs.50 lakhs as administrative expenditure during the period of
which 20% was allocable to the plant. The accountant added Rs.10 lakhs to cost of plant. (NOV 15)
AS-13
121)
122)
AS-14
123)
124)
NOTE: All the Questions are from MM Material 34th edition unless otherwise specified
THE END

MASTER MINDS 98851 25025 / 26 No.1 for CA/CMA & MEC/CEC
BUSINESS LAWS
BAILMENT AND PLEDGE
THEORY QUESTIONS:
1. Briefly discuss the Rights and Duties of Bailee?
2. Write about Bailee’s Right of Lien? (Or) Write about Bailee’s General Lien and Particular Lien?
3. State the provisions relating to Pledge by Non – Owners.
PRACTICAL QUESTIONS:
4. A hires a car from B and agrees to pay Rs.5,000 as hire charges. The car is not safe, though B is unaware of
it. A is injured and claims compensation for injuries suffered by him. B refuses to pay. Discuss the liability of B.
5. M lends a sum of Rs.5,000 to B, on the security of 2 shares of a Limited Company on 1st April 2007. On 15th
June 2007, the company issued 2 bonus shares. B repays the loan amount of Rs.5,000 alongwith interest but M
returns only 2 shares which were pledged and refuses to give the 2 bonus shares. Advise B in the light of the
provisions of the Indian Contract Act, 1872.
6. Ravi sent a consignment of goods worth Rs.60,000 by railway and got railway receipt. He obtained an
advance of Rs.30,000 from the bank and endorsed the railway receipt in favour of the bank by way of security.
The railway failed to deliver the goods at the destination. The bank filed a suit against the railway for
Rs.60,000. Decide in the light of provisions of the Indian Contract Act, 1872, whether the bank would succeed
in the said suit?
INDEMNITY AND GUARANTEE
THEORY QUESTIONS:
7. Write about Contract of Indemnity? State the rights of Indemnity holder and Indemnifier?
8. When is the Surety discharged from liability? Point out the circumstances in which a surety is discharged from
liability by the conduct of the creditor.
9. Ravi becomes guarantor for Ashok for the amount which may be given to him by Nalin within six months. The
maximum limit of the said amount is Rs 1 lakh. After two months Ravi withdraws his guarantee. Upto the time
of revocation of guarantee, Nalin had given to Ashok Rs 20,000.
(i) Whether Ravi is discharged from his liabilities to Nalin for any subsequent loan.
(ii) Whether Ravi is liable if Ashok fails to pay the amount of Rs 20,000 to Nalin?
CONTRACT OF AGENCY
THEORY QUESTIONS:
10. What is meant by Agency by Ratification? State some rules for valid ratification. (Or) The relationship of
Principal and Agent may be constituted by subsequent ratification by the Principal. (Sec.196)
11. What is an Irrevocable Agency? When such agency is created?
12. State the position of an Agent towards third parties (Or) State the rules relating to the personal liability of an
Agent for a contract entered into by him on behalf of his Principal.
13. R is the wife of P. She purchased some sarees on credit from Q. Q demanded the amount from P. P refused.
Q filed a suit against P for the said amount. Decide in the light of provisions of the Indian Contract Act, 1872,
whether Q would succeed?
14. Mr.Ahuja of Delhi engaged Mr.Singh as his Agent to buy a house in West Extension area. Mr.Singh bought a
house for Rs.20 lakhs in the name of a nominee and then purchased it himself for Rs.24 lakhs. He then sold
the same house to Mr.Ahuja for Rs.26 lakhs. Mr.Ahuja later comes to know the mischief of Mr.Singh and tries
to recover the excess amount paid to Mr.Singh. Is he entitled to recover any amount from Mr.Singh? If so, how
much? Explain. (Or)
IPCC | Guess Questions– May 2016 – Business Laws 57
P appoints A as his agent to sell his estate. A, on looking over the estate before selling it, finds the existence of
a good quality Granite-Mine on the estate, which is unknown to P. A buys the estate himself after informing P
that he (A) wishes to buy the estate for himself but conceals the existence of Granite-Mine. P allows A to buy
the estate, in ignorance of the existence of Mine. State giving reasons in brief the rights of P, the principal,
against A, the agent.
What would be your answer if A had informed P about the existence of Mine before he purchased the estate,
but after two months, he sold the estate at a profit of Rs 1 lac?
PAYMENT OF GRATUITY ACT, 1972

THEORY QUESTIONS:
15. Eligibility and payment of Gratuity [Sec.4 (1)] (Or) When is Gratuity payable? To whom it is payable? By whom
it is payable?
16. Write about the computation of Gratuity amount payable. (Or) Explain the manner in which the gratuity is
payable to employees in a seasonal as well as other establishments as is calculated under the payment of
Gratuity Act, 1972. Also state the maximum amount of Gratuity payable under the Act. [Sec.4(2)]
17. Write a short notes on reduction and forfeiture of gratuity [Sec. 4(6)]
18. Describe the legal provisions as to compulsory insurance U/s 4A of the payment of gratuity Act, 1972.
19. Explain the provisions in respect of disputes as to gratuity. [Sec.7(4) - 7(7)] (Or) State the nature of dispute as
to gratuity that may be decided by the Controlling Authority? What action can be taken by the Controlling
Authority on receipt of it? (Or) Explain how disputes are resolved under the Payment of Gratuity Act, 1972.
20. K is an employee of RST Limited, a software company which works five days in a week. K was not in
continuous service during the financial year 2009-10. However, she worked only for 150 days because she
was on maternity leave with full pay for 50 days. Referring to the provisions of the Payment of Gratuity Act,
1972 decide, whether K is entitled to gratuity payable under the Act? Will your answer remain same if RST
Limited works six days in a week?
21. Mr. X was an employee of Mutual Developers Limited. He retired from the company after completing 30 years
of continuous service. He applied to the company for the payment of gratuity within the prescribed time. The
company refused to pay the gratuity and contended that due to stringent financial condition the company is
unable to pay the gratuity. Mr. X applied to the appropriate authority for the recovery of the amount of gratuity.
Examine the validity of the contention of the company and also state the provisions of law to recover the
gratuity under the Payment of Gratuity Act, 1972.
22. National Steels Limited decided to forfeit the amount of gratuity of its employees A,B and C on account of
disorderly conduct and other acts which caused loss to the property belonging to the company, A,B and C
committed the following acts:
(a) A refused to surrender the occupied land belonging to the company.
(b) B committed theft under law involving offence of moral turpitude’
(c) C after superannuation continued to occupy the quarter of the company for six months. Against the
decision of the company, A,B and C applied to the appropriate authorities for relief. The company
contented that the right to gratuity is not a statutory right and the forfeiture of the amount of gratuity was
within the law.
Examine the contention of the company and the decision taken by the company to forfeit the amount of
gratuity in the light of the Payment of Gratuity Act, 1972.
THE EMPLOYEES PROVIDENT FUND ACT, 1952

THEORY QUESTIONS:
23. What are the entities to which EPF Act is applicable?
24. State the classes of establishments to which this Act is not applicable. (Or) State the establishments which are
exempted from the operations of Employees Provident Funds and Miscellaneous Provisions Act, 1952.
25. Explain the meaning of the following terms as used in the EPF Act.
26. Write about the “Employee’s Deposit-linked Insurance Scheme” (OR) In what way is the “EDLI” scheme
regulated under EPF ACT, 1952?
27. What do you know about the constitution, rights and duties of the central board of trustees, with regard to EPF
Act? (OR) State the composition and functions of the Central Board as provided under the provisions of EPF
Act.
28. Write a short note on the Executive Committee under the EPF Act. (Or) Discuss the Power of CG to set up an
Executive Committee under the EPF Act. (Or) State the composition of Executive Committee.
29. Explain the powers of the Commissioner to determine money due from employers under the EPF Act. (OR)
Who determines the money due from an employer under the EPF Act? State the factors considered by the
authorities at the time of determining the amount.
30. Explain the provisions of the EPF Act with regard to the protection against attachment of Provident Fund. (Or)
Is the amount standing to the credit of a member of the Provident Fund attachable in the execution of decree
or order of the Court?
31. Explain the provisions of the EPF Act with regard to transfer of accounts of an employee in case of his leaving
the employment and taking up employment in another establishment. (OR) An employee leaves the
establishment in which he was employed and gets re-employment in another establishment. He desires that
his Provident Fund Account be transferred to the establishment wherein he has been employed. Explain the
procedure.
32. What are the orders that can be passed by Employee’s Provident Fund Appellate Tribunal on appeals against
the orders passed by officers? (Or) Examine the appellate jurisdiction and the procedures relating thereto
under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
33. S retired from the services of PQR Limited, on 31st March, 2009. He had a sum of Rs.5 lakhs in his Provident
Fund Account. It has become due for payment to S on 30th April, 2009 but the company made the payment of
the said amount after one year. S claimed for the payment of interest on due amount at the rate of 15 percent
per annum for one year. Decide, whether the claim of S is tenable under the provisions of the Employees’
Provident Funds and Miscellaneous Provisions Act, 1952.
34. Manorama Group of Industries sold its textiles unit to the Giant Group of Industries. Manorama Group
contributed 25% of total contribution of the Pension Scheme which was due before sale under the Act. The
transferee company refused to bear the remaining 75% contribution in the pension scheme. Decide under EPF
Act who will be liable to pay for the remaining contribution in case of transfer of Establishment and up to what
extent.
35. R, a 57 years old district judge was appointed by the Central Government as Presiding Officer of the
Employee’s Provident Funds Appellate Tribunal for a period of five years. After three years, he (R) resigns
from his office and ceases to work with immediate effect without handing over the charge to his successor,
who was not appointed by the Government till that date. Examine the validity of R’s action to cease work under
the provisions of the Employee’s Provident Funds and Miscellaneous Provisions Act, 1952.
PAYMENT OF BONUS ACT, 1965
THEORY QUESTIONS:
36. Discuss the applicability of the Payment of the Bonus Act, 1965.
37. Who are the employees excluded from the Payment of Bonus Act?
38. Who is entitled and who is not entitled to claim Bonus under the Payment of Bonus Act?
39. Write the provisions relating to minimum & maximum bonus?
40. Discuss the provisions of the Payment of Bonus Act relating to the appointment, powers and functioning of
inspectors appointed under the Act.
41. When the Payment of Bonus Act is applicable to the establishment in public sector?
42. State the circumstances under which an employer is exempted to pay the minimum bonus? Who is
empowered to exempt him?

43. Circumstances under which different departments of a company can be treated as a separate establishment
for the payment of bonus.
44. PQR Limited, New Delhi refused to pay bonus to its employees on the ground that an authorized controller
appointed by the Delhi Government controls its management and as such is exempt from the liability to pay
bonus. Referring the provisions of the Payment of Bonus Act, 1965, decide whether the plea of the company is
tenable.
45. X, a temporary employee drawing a salary of Rs.3,000 per month, in an establishment to which the Payment
of Bonus Act, applies was prevented by the employers from working in the establishment for two months
during the financial year 2001-2002, pending certain inquiry. Since there were no adverse findings ‘X’ was re-
instated in service. Later, when the bonus was paid to other employees, the employers refuse to pay bonus to
‘X’, even though he has worked for the remaining ten months in the year. Examine the validity of employer’s
refusal?
46. An employee working in an establishment commits fraud during the accounting year 2009-2010, but continues
to work during the subsequent accounting years 2010-2011 and 2011-2012, and has a clean record during the
subsequent years. On the basis of the fraud committed in 2009-2010, the employee is dismissed from service
at the end of the accounting year 2011-2012. In this case, does he lose the bonus for the accounting year of
misconduct i.e. 2009-2010 or for all 3 accounting years ending with 2011-2012?
Discuss in the light of the provisions of the Payment of Bonus Act, 1965.
47. ABC Textiles Ltd. employed 20 full-time and 5 part-time employees who were drawing salary less than Rs.
10,000 per month. After completing service of 28 days, in an accounting year, 10 full-time employees
submitted their resignations and left the service of the company. The Board of directors of this company
decided not to give the bonus to the employees, who resigned, to the remaining full-time employees and to the
part-time employees. Against the decision, all the employees applied to the court for relief. Decide, stating the
provisions for the Payment of Bonus Act, 1965, whether the employees who resigned, remaining full-time
employees and part-time employees will get relief.
48. Skypark Wooden Toys Limited was established at Kolkota in the year 2005 employing 100 workmen. Since
then, the company suffered losses, but minimum bonus was paid in the accounting years of 2006 and 2007. In
the accounting year 2008 the company earned huge profits. After mitigating the previous losses the company
is having surplus profits and wants to pay the bonus to its workmen. Skypark Wooden Toys Limited wants
legal advice on the following issues:
a) How much minimum and maximum bonus may be paid to the workmen?
b) Whether the company may adjust the puja bonus already paid to the workmen while calculating the
amount of bonus payable to workmen for that accounting year.
c) Company wants to give wooden toys as bonus instead of cash. Whether the company can do so?
d) Advise Skylark Wooden Toys Limited, stating the provisions of the Payment of Bonus Act, 1965.
49. X was an employee of Universal Limited. He retired from the company on 31st March, 2010 and died after few
months. Y, the heir of X, applied within the prescribed time to the company for payment of due bonus of X. The
company refused to pay the bonus. Examine the validity of the company's refusal and also state the procedure
to recover the bonus under the provisions of the Payment of Bonus Act, 1965.
50. In 2009, the Electronics Corporation, a Public Sector establishment under the Department of Science and
Technology, Government of Rajasthan starts to sell mobile sets manufactured by it, in addition to T.V. sets, so
as to compete with private sector establishments of mobile sets in the market. The income from sale of mobile
sets is 30 percent of the gross income of the Corporation. The employees of the corporation went to strike for
demand of Bonus.
Decide, whether the demand of the employees is tenable under the provisions of the Payment of Bonus Act;
1965. Would your answer be different if the income from sale of mobile sets is only 10 percent of the gross
income of the Corporation.
51. Rajesh is working as a salesman in a company on salary basis. The following payments were made to him by the
company during the previous financial year (a) Overtime Allowance, (b) Dearness Allowance, (c) Commission on
Sales, (d) Employer’s Contribution towards Pension Fund, and (e) Value of Free Food. Examine as to which of the
above payments form part of “Salary” of Rajesh, under the payment of Bonus Act.
NEGOTIABLE INSTRUMENTS ACT, 1881
THEORY QUESTIONS:
52. State the characteristics of a negotiable instrument?
53. What is a promissory note? State the essential features of a promissory note?
54. What is meant by bill of exchange? State its essential feature.
55. Write down the provisions relating to maturity and days of grace for negotiable instruments?
56. What is meant by cheque? State the essential features of a valid cheque? (Or) “All cheques are bills of
exchanges but all bills of exchanges are not cheques”. Explain.
57. What is meant by crossing of cheque? Write about different types of crossing.
58. Who is a holder in due course? State the privileges available to a holder in due course?
59. State the provisions relating to material alteration.
60. Discuss the ‘Capacity’ and ‘Authority’ of a person to be a party to a negotiable instrument.
61. State the liability of a banker for wrongful dishonour of a cheque?
62. A Bill is drawn payable at No. A-17, CA apartments, Mayur Vihar, New Delhi, but does not contain drawee’s
name. Mr.Vinay who resides at the above address accepts the bill. Is it a valid Bill?
63. Bharat executed a promissory note in favour of Bhushan for Rs.5 crores. The said amount was payable three
days after sight. Bhushan, on maturity, presented the promissory note on 1st January, 2008 to Bharat. Bharat
made the payments on 4th January, 2008. Bhushan wants to recover interest for one day from Bharat. Advise
Bharat, in the light of provisions of the Negotiable Instruments Act, 1881, whether he is liable to pay the
interest for one day?
64. Discuss with reasons, whether the following persons can be called as a ‘holder’ under the Negotiable
Instruments Act, 1881:
a) X who obtains a cheque drawn by Y by way of gift.
b) A, the payee of the cheque, who is prohibited by a court order from receiving the amount of the
cheque.
c) M, who finds a cheque payable to bearer, on the road and retains it.
d) B, the agent of C, is entrusted with an instrument without endorsement by C, who is the payee.
e) B, who steals a blank cheque of A and forges A’s signature.
65. J accepted a bill of exchange and gave it to K for the purpose of getting it discounted and handing over the
proceeds to J. K having failed to discount it, returned the bill to J. J tore the bill in two pieces with the intention
of cancelling it and threw the pieces in the street. K picked up the pieces and pasted the two pieces together,
in such manner that the bill seemed to have been folded for safe custody, rather than cancelled. K put it into
circulation and it ultimately reached L, who took it in good faith and for value. Is J liable to pay for the bill under
the provisions of the Negotiable Instruments Act, 1881?
66. A issues a cheque for Rs.25,000/- in favour of B. A has sufficient amount in his account with the Bank. The
cheque was not presented within reasonable time to the Bank for payment and the Bank, in the meantime,
became bankrupt. Decide under the provisions of Negotiable Instruments Act, 1881, whether B can recover
the money from A?
NOTE: All the above Questions are from MM Material 34th edition.
THE END

MASTER MINDS 98851 25025 / 26 www.mastermindsindia.com
BUSINESS COMMUNICATION
1. ESSENTIALS OF COMMUNICATION
1. Define the term Communication. Also state its importance? (Or) what are the factors responsible for growing
importance of communication?
2. Write about the process of Communication?
3. What are the different dimensions or directions in which communication may happen in an organization? (or)
“State the various forms of formal communication along with their potential benefits in any organization.”
4. What is meant by Formal Channels of Communication? What are the advantages and limitations of it?
5. What is meant by Informal Channels of Communication? (Or) Why Informal Channel is called ‘The
Grapevine’? And state the factors that are responsible for growth of Grapevine.
6. What is meant by Informal Channels of Communication? (Or) Why Informal Channel is called ‘The
Grapevine’? And state the factors that are responsible for growth of Grapevine.
7. How many types of “Grapevine Chains” have been identified? How do they function?
8. what do you mean by ‘Barrier’ to Communication? State different barriers for effective Communication.
9. What do you mean by the barrier of Noise and the sources contributing towards noise?
10. Give a brief note on socio – psychological barriers.
2. INTER PERSONAL COMMUNICATION SKILLS

11. Explain the concept of Active Listening? What are the guidelines for Active Listening?
12. Explain the concept of Emotional Intelligence?
13. What are the competencies (Personal and social) associated with emotional intelligence?
3. GROUP DYNAMICS
14. What are Group Conflicts? Bring out the nature of Group Conflicts.
15. Define Consensus Building. Describe the techniques used in Consensus Building.
16. What are the steps in Negotiation Process?
4. COMMUNICATING CORPORATE CULTURE, CHANGE & INNOVATIVE SPIRITS

17. Define Corporate Culture. State its main elements?
18. What are the reasons for resisting the change?
19. What are the reasons for acceptance of change?
20. How to build an innovative organization?
5. COMMUNICATION ETHICS
21. Explain the Meaning of Communication Ethics.
22. Explain Ethical dilemmas in Communication.
23. Explain Guidelines to handle Communication Ethics Dilemma.
24. Describe Organization values and Communication Ethics?
6. COMMUNICATION IN BUSINESS ENVIRONMENT

25. Draft a notice for ABC’s Annual General Meeting with four ordinary businesses.
26. Board of Directors of Prakash Traders Private Limited proposes to convene an Extraordinary General Meeting for
changing the name of the company to Prakash International Private Limited. Draft the notice for calling the
Extraordinary General Meeting of the Members.
IPCC |Guess Questions– May 2016 – B. Ethics & Communication 62

27. Third Annual General Meeting of ABC Limited was held on 28th September, 2007.Several business was
transacted at the meeting including the adoption of annual accounts for the year ended 31st March, 2007. The
meeting was attended by 30 members in person and 5 members in proxy. Draft the minutes of the Annual
General meeting indicating how shall the adoption of accounts being one of the business transacted at' the
meeting, be recorded.
28. Draft a circular for employees insisting on punctuality.
29. What are different types of press releases?
30. Mr. X issued a cheque to Mr. Y for the payment on the account of purchase of the goods. Due to certain
exigency in the business, X withdraws certain amount from his bank account. In order to avoid the dishonor of
the cheque, he decides to stop the payment of cheque. Write a letter requesting the Bank to stop payment of a
cheque.
31. Draft a notice to the defaulter for making the payment of due amount. In case of failure to pay, initiation of legal
action against him.
7. BASIC UNDERSTANDING OF LEGAL DEEDS AND DOCUMENTS

32. State various components which are required to draft a partnership deed.
33. A partnership firm was constituted by A, B and C. A, the partner of the firm, expressed his desire to retire from
the partnership firm by Mutual consent. Draft a "Partnership Retirement Deed".
34. M/s. Assure Investments, a firm of partners A and B, appoint and authorize Mr. X giving powers to sell and
sign transfer deeds for transfer of shares and debentures by executing an instrument of the "Power of
Attorney". Draft such instrument of the "Power of Attorney" of the firm.
35. Draft a power of attorney in favor of K. Kishore to attend proceedings in front of income tax authorities.
36. Draft a lease deed for giving a building on lease.
37. P wanted to file an ITR of its company, but due to incompletion of audit, he wanted the extension of time to
submit the same. He wrote an application to Income Tax Officer for the extension of time for the filing of an
ITR. Draft an affidavit supporting the application before the Income tax officer for grant of extension of time to
submit ITR.
38. Mr. A has not received a dividend warrant of Rs 1,500 for 150 shares of XYZ Ltd. Draft an indemnity bond, to
be given to the company for seeing release of Dividend.
39. Draft the specimen of a bond for a loan repayable in installments.
40. A person desires to gift a house to his nephew out of natural love and affection. Draft a gift deed.
THE END

BUSINESS ETHICS
1. THE BASIC PRINCIPLES OF ETHICS & BUSINESS ETHICS
41. Explain the social sins, listed by Gandhiji? (Or) Knowledge without morality is a social sin Explain.
42. Distinguish ethics from morals. (Or) How are ethics different from morals. (Or) ethics and morals are
synonymous. (Or) There is no difference between ethics and morals.
43. Explain the fundamental principles relating to ethics.
44. To pay proper attention to business ethics is certainly beneficial in the interest of business. Describe four such
benefits which may be obtained by paying attention to business ethics.
45. Define the term ethical dilemmas. (Or) What do you mean by ethical dilemmas?
2. CORPORATE GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITY

46. Define the term stakeholders. (Or) What is meant by stakeholders? Describe those stakeholders, who are
being affected by or can affect the organisation.
47. Define corporate governance. State the importance of corporate governance? (Or) Write short notes on the
Corporate Governance (Or) What is meant by Corporate Governance?
48. What is corporate governance? Explain the role played by different committees in regulating the ‘Corporate
Governance’.
49. Explain the major characteristic features of good Corporate Governance. (Or) What do you mean by ‘good
Corporate Governance’? (Or) Explain the benefits of good Corporate Governance. (Or) A good Corporate
Governance is always an asset for the business entity – comment. (Or) What are the fundamental principles of
Corporate Governance
50. The Company should not concentrate only on its own activities – Comment. (Or) The Company should fulfill
the social obligations - Comment. (Or) Describe CSR. (Or) Define corporate social responsibility (CSR). (Or)
Write short notes on the social responsibility of business.
51. Briefly explain the key developments that have taken place, in shaping the direction of corporate social
responsibility (CSR) (Or) Account for the increasing focus on social responsibility of corporation. (Or) Explain
briefly the key strategies which can be used at the time of implementation of corporate social responsibility
policies and practices in a company.
52. What is the need of ‘Corporate Social Responsibility? (Or) What is Corporate Social Responsibility? Why it is
needed in Indian Business Environment? (Or) Explain the meaning of the “Iron Law of Responsibility”
53. State the strategies in the implementation of corporate social responsibility (CSR). (Or) What are the steps of
CSR implementation? (Or) how can CSR be implemented? (Or) State the “Common Corporate Social
Responsibility” (CSR) policies for business organizations.
3. ETHICS IN WORK PLACE

54. Outline the importance of ethical behavior at the work place. (Or) How important is ethical behavior at the work
place. (Or) Explain the importance of ethical behavior at the work place. (Or) Ethical behavior is not essential to
work environment at the work place - comment.
55. Promotion Policies Based on Individual Merit and not purely on the basis of Seniority is Discriminatory -
Comment.
56. List the commonly recognized employment discrimination practices.
57. Write a short note on ‘Harassment’, in the context of work place ethics. (Or) Write a note on Harassment at
work place.
58. Explain a few guidelines for managing ethics in the work place. (Or) How can be the ethical principles
managed at the work place. (Or) Explain in brief, the measure to ensure ethics in the work place. (Or) State in
brief the guidelines for managing ethics and to prevent the need for whistle - blowing in the work place.

4. ENVIRONMENT AND ETHICS
59. What are the main forms of pollution and resource depletion? What are their effects? (Or) water pollution is
also a kind of resource depletion - explain.
60. Write a short note on ozone layer depletion. (Or) Depletion of ozone layer will have adverse effects on human
beings and not on vegetation - comment.
61. Write a short note on ‘Environmental Ethics’. (Or) Explain the concept of ‘Environmental Ethics’ (Or) What is
meant by ‘environmental ethics’? (or) How does Environmental Ethics’ non – adoption leads to 3 PS viz.,
polluter, pay and principles. Explain.
62. Write a short note on Ecological Ethics. (Or) Business is a part of the ecological system - Elaborate.
63. Explain the concept of eco-friendly business practices. What are the benefits of environment friendly business
practices? (or) Write short notes on ‘Environment Friendly behavior of Business Enterprises’. (Or) “Business
does not sub – serve environmental ethics” - discuss.
64. Explain the concept of green accounting system.
5. ETHICS IN MARKETING AND CONSUMER PROTECTION

65. What are the initiatives, which have been taken in the Indian context, towards maintaining and promoting
healthy competition? (Or) Bring out the objectives of ‘the competition act, 2002’. (Or) Enumerate the role of
‘the competition act, 2002’ in promoting healthy competition in Indian markets. (Or) Competition act, 2002
protects the interest of consumers – elaborate. (Or) Which are the parameters, which are applicable in relation
to competition law in India?
66. Define the term “consumer" under the competition act, 2002. (Or) Who is a consumer? Is there any distinction
between consumer for personal use and consumer for commercial use? (Or) a consumer is a person, who
purchases goods and health services for personal purposes only – comment. (Or) “Consumer for personal use
and consumer for commercial use are synonymous” – discuss.
67. Write a short note on the consumer protection council in India. (Or) what is the structure of the consumer
protection council in India? What are its duties and functions? (Or) State the objectives of the central consumer
protection council in India.
6. ETHICS IN ACCOUNTING AND FINANCE

68. What are the general reasons for unethical behaviour in the context of accounts and finance.
69. What are the fundamental principles of ethics in the context of finance and accounts. (Or) What are the
principles which should be adhered to by the finance and accounting professionals?
70. What are the various threats, which can be faced by a finance and accounting professional, while working as
an auditor, consultant or an employee in an organisation? (Or) What kinds of threats could finance and
accounting employee expect, while working as an auditor, consultant or an employee in an organization? The
finance and accounting professional has to work under severe pressures of various threats. – elaborate.
71. Give examples for self-interest threats, which can be faced by a finance and accounting professional, while
working as (A) auditor or consultant and (B) employee in a company. (Or) Self interest threats may occur as a
result of financial or other interests of finance and accounting professional. Give three examples each of such
threats when the accounting professional is working as
(i). An auditor or consultant
(ii). An employee in a company.
72. What are the various safeguards, which have to be adopted by a finance and accounting professional, to
counter/overcome threats.
73. Discuss briefly, ‘the ethical conflict resolution’, in the context of finance and accounting.
THE END
COMPANY LAW
1. COMPANY BASIC CONCEPTS
THEORY QUESTIONS:
1. What are the circumstances under which corporate entity will be disregarded or exceptions to the doctrine/rule
of ‘veil of incorporation’?
2. Definitions as per Companies Act, 2013.
2. CLASSES OF COMPANIES
THEORY QUESTIONS:
3. Write about classification of companies on the 5. What is an “Associate company”?
basis of its members (or) Explain the meaning of 6. Explain what is (1) Government company (2)
‘Private’ and ‘Public’ company. Foreign company (3) Finance company (4)
4. Under what circumstances a company becomes Small Company (5) Dormant company (6) Nidhi
subsidiary of another company under the Company.
provisions of the Companies Act, 2013? (Or) 7. Can a non-profit making organization can be
Define Holding Company and Subsidiary registered as a company under the Companies
company. Act? If so, what procedure does it has to adopt?
3. PROMOTION & INCORPORATION OF A COMPANY
THEORY QUESTIONS:
8. Who is a promoter?
9. Explain the legal validity of Preliminary Contracts entered into by a company?
10. What is the procedure for incorporation or registration of a Co.?
11. What is a One person company? What is the law with respect to formation of OPC as per Companies Act,
2013?
12. Write about Certificate of Commencement of Business. (Or) The ‘Certificate of Incorporation’ is not sufficient to
commence business of a Co. (Or) Can a company commence business after issuing a prospectus?
13. XYZ Co. Ltd. was in the process of incorporation. Promoters of the Company signed an agreement for the
purchase of certain furniture for the Company and payment was to be made to the suppliers of furniture by the
Company after incorporation. The Company was incorporated and the furniture was used by it. Shortly after
incorporation, the Company went into liquidation and the debt could not be paid by the Company for the
purchase of above furniture. As a result suppliers sued the promoters of the Company for the recovery of
money. Examine whether promoters can be held liable for payment in the following cases:
a) When the company has already adopted the contract after incorporation?
b) When the Company makes a fresh contract with the suppliers in terms of pre-incorporation contract?
14. Mars Ltd. was in the process of incorporation. Promoters of the company signed an agreement for the
purchase of certain furniture for the company and payment was to be made to the suppliers of furniture by the
company after incorporation. The company was incorporated and the furniture was used by it. Shortly a State
the procedure and limitations as regard to the alteration of the AOA. (Or) A company does not have unlimited
powers to alter its AOA.fter incorporation, the company went into liquidation and the debt could not he paid by
the company for the purchase of above furniture. As a result suppliers sued the promoters of the company for
the recovery of money.
Examine whether promoters can he held liable for payment under the following situations:
i) When the company has already adopted the contract after incorporation?
ii) When the company makes a fresh contract with the suppliers in terms of pre incorporation contract?
IPCC | Guess Questions – May 2016 – Company Law 66

4. MEMORANDUM & ARTICLES OF ASSOCIATION
THEORY QUESTIONS:
15. State the procedure for alteration of “Name 19. State the procedure and limitations as regard to
Clause” of MOA? the alteration of the AOA. (Or) A company does
not have unlimited powers to alter its AOA.
16. What is the procedure for alteration of “Objects”
clause of a Company? 20. Write about Doctrine of Indoor Management?
(Or) Turquand rule.
17. State the procedure for alteration of “Capital
Clause” of MOA? (Sec.61 of the Companies 21. Write about doctrine of ultra vires & its effects.
Act, 2013) (Or) The doctrine of ultra vires is the protection
to S.H’S and a pitfall (danger) to outsiders?
18. Write about doctrine of constructive notice?
22. M/s India Computers Ltd. was registered as a Public Company on 1st July, 2005 in the State of Maharashtra.
Another company by name M/s All India Computers Ltd. was registered in Delhi on 15th July, 2005. The
promoters of India Computers Ltd. have failed to persuade the management of All India Computers Ltd. to
change the company’s name, as it closely resembles with the name of the first registered company. Advise the
Management of India Computers Ltd. about the remedies available to them under the provisions of the
Companies Act, 2013. (Or)
XYZ (P) Ltd. was incorporated on January 20, 2009. A similar company with identical name and similar objects
was inadvertently incorporated on September 20, 2009. On account of similarity in name and objects, XYZ (P)
Ltd filed a petition on January 25, 2010 that the Central Government should direct the company incorporated
at a latter date to change its name so that its business interest are protected. State in this connection whether
the company incorporated at a later date can be directed by the Central Government to change its name.
23. The Articles of a Public Company clearly stated that Mr. A will be the solicitor of the company and he shall not
be removed except on ground of misconduct. Now the company in its general meeting of the shareholders
resolved unanimously to appoint B in place of A as the solicitor of the company by altering the articles of
association. Examine, whether the company can do so? State the reasons clearly.
5. PROSPECTUS
THEORY QUESTIONS:
24. Explain the meaning and role of the Prospectus.
25. Describe the procedure for private placement of securities by a Company as per the provisions of the
Companies Act, 2013. (Or) State the conditions subject to which invitation for subscription of securities on
private placement can be made by a company as per companies Act, 2013.
26. Discuss about abridged prospectus. (Or) When and in what manner a company be permitted to furnish an
abridged form of prospectus? Under what circumstances such abridged prospectus is not required to be
accompanied with the share application form?
27. What are the liabilities for misstatements in prospectus?
28. Who is an expert? When is he liable for any mis-statement in the prospectus? When is he not liable?
29. Explain the concept of “Shelf Prospectus” in the light of Companies Act, 2013. What is the law relating to
issuing and filing of such prospectus? (Or) When is a company required to issue a ‘shelf prospectus’ under the
provisions of the Companies Act, 2013? Explain the provisions of the Act relating to the issue of ‘shelf
prospectus’ and filing it with the Registrar of Companies.
30. Write about red herring prospectus. [Sec 32 of the Companies Act, 2013]

31. All statements in a prospectus issued by X & Co. Ltd. were literally true, but it failed to disclose that the
dividends stated in it as paid were not paid out of revenue profits, but out of realised capital profits. The
statement that the Company had paid dividends for a number of years was true. But the Company had
incurred losses for all those years, however, no disclosure of this was made in the prospectus. An allottee of
shares wanted to avoid the allotment on the ground that the prospectus did not disclose this fact which, in his
opinion, was very material. Would he succeed? (or)
XYZ Ltd issued a prospectus inviting the public for subscription of its equity shares stating in it that the
company possess good financial health and paying dividends to its equity SH’s consistently and regularly @
20% over the last five years. The fact was, company was running in losses since the last three years and it
was paying dividends to its SH’s out of accumulated profits. Mr.Amit read the prospectus and bought 500
shares from the company. Discovering the misstatement made by the company in the prospectus, he wants to
rescind the contract and claim the damages from the company.
Referring the provisions of companies Act, 2013 decide whether Mr.Amit will succeed?
32. With a view to issue shares to the general public a prospectus containing some false information was issued
by a company. Mr. X received a copy of the prospectus from the company, but did not apply for allotment of
any shares. The allotment of shares to the general public was completed by the company within the stipulated
period. A few months later, Mr. X bought 2000 shares through the stock exchange at a higher price which later
on fell sharply, X sold these shares at a heavy loss. Mr. X claims damages from the company for the loss
suffered on the ground the prospectus issued by the company contained a false statement. Referring to the
provisions of the Companies Act, 2013 examine whether X's claim for damages is justified.
33. An allottee of shares in the Company has brought an action against director Q in the Company in respect of
false statements in the prospectus. The director has contended that the statements were prepared by
promoters and he had relied on them. Is the director liable?
6. ALLOTMENT OF SECURITIES & UNDERWRITING
THEORY QUESTIONS:
34. What are the requisites of a valid allotment of securities by a Company. (Or) Define Minimum Subscription.
When it is liable to be refunded? Can share application money be deposited in any bank?
35. What is a Depositary receipt? Discuss the provisions of the Companies Act, 2013 and rules relating to issue of
global depositary receipts by an Indian Company.
7. DEPOSITS
THEORY QUESTIONS:
36. Discuss the provisions of the Companies Act, 2013 with respect to acceptance of deposits from public by
certain companies having high net worth or high turnover as may be prescribed [Sec 76 of the Companies Act,
2013]
8. MEMBERSHIP
THEORY QUESTIONS:
37. State the circumstances under which a member may not be a shareholder or a shareholder may not be a
member. (Or) “Every shareholder of a company is also known as a member, while every member may not be
known as a shareholder.” Examine the validity of the statement and point out the distinction between a
‘member’ and a ‘shareholder’.
38. How far can a minor become a member of a company under the Companies Act, 2013? (Or) Explain the position of
a minor in relation to obtaining membership in a company under the provisions of the Companies Act, 2013
39. Can a public ltd. Co. become a member of another public Ltd. Co.?
40. A company wants to close its register of members for a period of 60 days at a time. Discuss according to
provisions of the Companies Act, 2013 and related rules whether the Company can do so?
41. Discuss the rules with respect to “maintenance” of the Register of members as per Companies (Management
and Administration) Rules, 2014.
42. X had applied for the allotment of 1,000 shares in a Company. No allotment of Shares was made to him by the
company. Later on, without any further application from X, the Company transferred 1,000 partly-paid shares
to him and placed his name in the Register of members. X, knowing that his name was placed in the Register
of Members, took no steps to get his name removed from the Register of Members. The company later on
made the final call. X refuses to pay for this call. Examine whether his (X’s) refusal to pay for the call is tenable
and whether he can escape himself from the liability as a member of the company.
43. RSP Limited, allotted 500 fully paid-up shares of Rs.100 each to Z, a minor, in response to his application
without knowing that he was a minor and entered his name in the Register of Members. Later on, the company
came to know of this fact. The company cancelled the allotment and struck-off his name from the Register of
Members and also forfeited his entire share money. Z filed a suit against the action of the company. Decide
whether Z would be given any relief by the court under the provisions of the Companies Act, 2013.
9. SHARE CAPITAL
THEORY QUESTIONS:
44. What are the conditions that needs to be satisfied for issue of Equity shares with differential rights?
45. Write about issue of shares at a premium.
46. Write the provisions regarding the issue of shares at a discount (Sec 53 of the Companies Act, 2013).
47. What is meant by sweat equity shares? What are the conditions to be fulfilled by a co. proposing to issue
sweat equity shares. (Sec 54 of the Companies Act, 2013)
48. Write a short note on the powers of Government with regard to the conversion of debentures into shares of the
company? (Or)
Write a note on the powers of the central government in regard to conversion of debentures and loans into
shares of the company under the following heads:
i) When terms of issue of such debenture or terms of loan do not include term providing for an option of conversion;
ii) Matters considered in determining the terms and conditions of such conversion.
iii) Remedy available to the company if conversion or terms of conversion is not acceptable to it.
49. State the provisions of the Companies Act prohibiting Buy back of shares.
50. State the sources of funds that can be utilised by the company for purchasing its own shares and requirements
to be complied with before and after the shares are so purchased.
10. CALLS & FORFEITURE / SURRENDER OF SHARES

THEORY QUESTIONS:
51. What conditions as required under the Companies Act, 2013 must be satisfied by a company for the forfeiture of
shares of a member, who has defaulted the payment of calls? What are the consequences of such forfeiture?
52. “Moon star Ltd” is authorised by its articles to accept the whole or any part of the amount of remaining unpaid
calls from any member although no part of that amount has been called up. ‘A’, a shareholder of the Moon star
Ltd., deposits in advance the remaining amount due on his shares without any calls made by “Moon star Ltd”.
Referring to the provisions of the Companies Act, 2013, state the rights and liabilities of Mr.A, which will arise
on the payment of calls made in advance.
11. TRANSFER & TRANSMISSION OF SHARES

THEORY QUESTIONS:
53. Explain the meaning of “transmission of Shares” under the Companies Act, 2013. (Or) How nomination facility
shall operate in case of transmission of shares under the provisions of the Companies Act, 2013?
54. What is a forged transfer?
55. Mr. ‘Y’ the transferee, acquired 250 equity shares of BRS Limited from Mr, ‘X’, the transferor. But the signature
of Mr. ‘X’, the transferor, on the transfer deed was forged. Mr. ‘Y’ after getting the shares registered by the
company in his name, sold 150 equity shares to Mr. ‘Z’ on the basis of the share certificate issued by BRS
Limited. Mr. ‘Y’ and ‘Z’ were not aware of the forgery. State the rights of Mr.’X’, ‘Y’ and ‘Z’ against the company
with reference to the aforesaid shares.
500 equity shares in 'XYZ' Limited were acquired by Mr. 'B'. But the signature of Mr. 'A', the transferor, on the
transfer deed was forged. Mr. 'B'. After getting the shares registered by the Company in his name, sold 200
equity shares to Mr. 'C' were not aware of the forgery. What are the rights of Mr. 'A', 'B' and 'C' against the
Company with reference to the aforesaid shares?
12. DEBENTURES
THEORY QUESTIONS:
56. Elaborately discuss the provisions relating appointment of debenture trustee as per Companies Act, 2013. (Or) What
are the provisions of the Companies Act, 2013 relating to the appointment of ‘Debenture Trustee’ by a company?
13. CHARGE
THEORY QUESTIONS:
57. Discuss the statutory limitations to the rights arising out of floating charge. (Or) What is crystallization of
floating charge? And state the circumstances under which floating charge becomes fixed charge.
58. A Company makes a default in filling with the ROC, particulars of a charge created on the assets of the
company. Explain the provisions with regard to the condonation of such delay.
59. Explain briefly the provisions relating to modification of charge.
14. GENERAL MEETINGS – I
THEORY QUESTIONS:
60. Explain the provisions of the Act, with regard to holding of an AGM by a Company.
61. Who is entitled to get notice for the general meeting called by a public limited company registered under the
Act? Does the non-receipt of a notice of the meeting by any one, who is entitled to such notice, invalidates the
meeting and the resolutions passed thereat? What would be your answer in case the omission to give notice to
a member is only accidental omission?
62. What are rules relating to service of notice in electronic mode?
63. Write a short note on “Report on Annual General Meeting”. Also discuss the rules relating the Report on
Annual General Meeting.
64. Write a short note on “Report on Annual General Meeting”. Also discuss the rules relating the Report on
65. M/s Low Esteem InfoTech Ltd. was incorporated on 1.4.2008. No General Meeting of the company has been
held so far. Explain the provisions of the Companies Act, 2013 regarding the time limit for holding the first
annual general meeting of the Company and the power of the Registrar to grant extension of time for the First
66. Following data pertains to X LTD.
10,000 shares of Rs.10 each Rs.8 called up 80,000
Less: Calls in arrears on 1000 shares @ Rs.2 2,000
Paid up capital 78,000
State the minimum number of members entitled to make requisition in each of the following alternative cases:
Case i. Where Articles are silent

Case ii. Where Articles provide that no member shall be entitled to vote at any general meeting unless all calls
or other sums presently payable by him in respect of shares in the company have been paid.
Case iii. Where articles provides that all members whose names appear in the register of members are
entitled to vote at general meeting.
67. To remove the Managing Director, 40% members of Global Ltd. submitted requisition for holding extra-ordinary
general meeting. The company failed to call the said meeting and hence the requisitionists held the meeting.
Since the Managing Director did not allow the holding of meeting at the registered office of the Company, the
said meeting was held at some other place and a resolution for removal of the Managing Director was passed.
Examine the validity of the said meeting and resolution passed therein in the light of the companies Act, 2013.
15. GENERAL MEETINGS – II
THEORY QUESTIONS:
68. Write about “Resolution requiring special notice” 70. What are the statutory provisions as regards
[Sec 115 of the Companies Act, 2013]. quorum for calling general meeting?
69. Write a note on “Circulation of Members 71. What is the meaning of ‘Proxy’? Discuss the law
Resolution”- Section 111 of the Companies Act, related to proxy in brief.
2013
72. What is postal ballot? Discuss the procedure for ascertaining the views of members by postal ballot.
73. What ‘Rules’ relating to minutes of proceedings of general meeting, meeting of Board of Directors and other
meetings and resolutions passed by postal ballot under the Companies (Management and administration)
rules, 2014?
74. At a general meeting of a Company a matter was to be passed by a special resolution. Out of 40 members of the
Company 20 voted in favour of the resolution, 5 voted against it and 5 votes are cancelled. The remaining 10
members abstained from voting. The chairman declared the special resolution as passed. Is the decision valid?
75. The Articles of Association of X ltd., require the personal presence of six members to constitute of General
Meetings. The following persons were present at the time of commencement of an extraordinary general
meeting to consider the appointment of Managing Director.
Mr. G. the representative of Governor of Gujarat.
Mr. A and Mr. B shareholders of Preference shares.
Mr. L., representing M Ltd N Ltd and X Ltd.,
Mr. P, Mr. Q, Mr. R and Mr. S who were proxies of shareholders.
Can it be said that quorum was present? Discuss.
76. The quorum for a General meeting of a public company is 15 members personally present according to the
provisions of the articles of association of the company. Examine with reference to the provisions ¬of the
Companies Act, 2013 whether there is proper quorum at a General meeting of the company which was
attended by the following persons 13 members personally present, 2 members represented by proxies who
are not members of the company, One person representing two member companies.
77. Happy Homes Ltd had sent Notices to all its Members about the holding of the Fifth AGM to be held 15th October
at 4.00 p.m. As per the Notice, the Members who are unable to attend the meeting in person can appoint a Proxy
and the Proxy forms duly filled should be sent so as to reach, atleast 48 hours before the meeting.
A, a Member of the company appoints P as his proxy and the proxy form dated 10th Oct was deposited by P
with the company at its Registered office on 11th Oct. However, A changes his mind and on 12th Oct gives
another Proxy to Q and it was deposited on the same day with the company.
Similarly another Member B also gives two separate Proxies to 2 Individuals named R and S. In the case of R,
the proxy dated 12th October was deposited with the company on the same day and the proxy in favour of S
was deposited on 14th October.
All the proxiesvix, P, Q, R and S were present in the Meeting. State with reasons the persons who would be
allowed to represent as Proxies for A and B respectively.
78. How is Minutes Book maintained? Is it compulsory to maintain Minutes Book? The Minutes of the Meeting
must contain fair and correct summary of the proceedings thereat. Can the Chairman direct exclusion of any
matter from the Minutes? Some of the Shareholders insist on inclusion of certain matters which are regarded
as defamatory of a Director of the Company. The Chairman declines to do so. State how the matter can be
resolved.
(Or)
In a General Meeting of PQR Limited, the Chairman directed to exclude certain matters detrimental to the
interest of the company from the minutes. M, a shareholder contended that the minutes of the meeting must
contain fair and correct summary of the proceedings thereat. Decide, whether the contention of the M is
maintainable under the provisions of the Companies Act, 2013?
16. MISCELLANEOUS MATTERS IN COMPANY LAW

79. Explain the provisions relating to the service of documents on a company, the registrar of companies and the
members of the company. (OR) Explain the provisions of the companies act, 2013 relating to the ‘service of
documents’ on a company and the members of the company. when is service of document deemed to be
effective in case the document is sent by post? Explain.
80. What are the steps for offline e-filing?
81. What is “Annual Return”? Discuss the provisions of the Companies Act, 2013 relating to same.
NOTE: All Questions are from MM material 34th edition
THE END

COSTING
THEORY
1. BASIC CONCEPTS OF COSTING
1) Methods of costing
2) Techniques of costing.
3) What are the objectives of cost accounting?
4) Cost control vs. Cost reduction.
5) Enumerate the factors which are to be considered before installing a system of cost accounting in a
manufacturing organisation.
6) Discuss essential features of a good cost accounting system (or) what are the characteristics of good cost
accounting system.
7) State the method of costing and the suggestive unit of cost for the following industries.
a) Transport n) Sugar company having its own sugarcane
b) Power field
c) Hotel o) Toy Making
d) Hospital p) Cement
e) Steel q) Radio assembling
f) Coal r) Ship Building
g) Bicycles s) Automobile
h) Bridge Construction t) Education
i) Interior Decoration u) ice cream
j) Advertising v) dry cleaning
k) Furniture w) Pharmaceuticals
l) Brick Works x) Carpet
m) Oil refining mill y) Aircraft

z) Beer
8) State the types of cost in the following cases:
a) Interest paid on own capital not involving any cash outflow
b) Withdrawing money from bank deposit for the purpose of purchasing new machine for expansion purpose
c) Rent paid for the factory building which is temporarily closed
d) Cost associated with the acquisition and conversion of material into finished product
9) DEFINITIONS / MEANINGS.
a) Cost f) Cost centres
b) Costing g) Cost objects
c) Cost accounting h) Profit centre
d) Cost accountancy i) Investment centre
e) Cost unit j) Explicit costs
IPCC | Guess Questions– May 2016 – Costing (Theory) 73

k) Discretionary costs m) Period cost

l) Training costs n) Product cost
10) Classification of Costs.
2. MATERIALS
11) DEFINITIONS / MEANINGS
a. Material Requisition Note j. Re-order level
b. Purchase Requisition Note k. Maximum stock level
c. Goods Received Note l. Minimum stock level
d. Material Received Note m. Average Inventory Level
e. Bin card n. Danger level
f. Stock Control Card o. Safety Stock
g. Stores Ledger p. Two Bin System
h. Economic Order Quantity q. Establishment of Systems of Budgets
i. Re-order quantity r. Control Ratios
12) Distinguish between bill of materials and material requisition note.
13) Explain the concept of "ABC ANALYSIS" as a technique of inventory controls.
14) Write short note on perpetual inventory control. (Or) what are the factors on which success of perpetual
inventory system depends? (Or) what are the advantages of perpetual inventory system?
15) How normal and abnormal loss of material arising during storage treated in cost accounts?
16) Discuss the accounting treatment of defectives in cost accounts.
17) What is material handling cost? How will you deal it in cost account?
18) Discuss the accounting treatment of spoilage and defectives in cost accounting?
3. OPERATING COSTING
19) Define absolute tonnes–kms and commercial tonnes – kms.
20) Distinguish between operation cost and operating cost.
4. LABOUR
a) Labour cost f) Abnormal idle time
b) Direct labour cost g) Time keeping
c) Indirect labour cost h) Time booking
d) Idle time i) Overtime
e) Normal idle time j) Overtime premium
22) Discuss the objectives of time keeping and time booking.
23) Explain the reasons for normal idle time and discuss its treatment in cost accounting.
24) Discuss the treatment of overtime premium in cost accounting.
25) Enumerate the causes of labour turnover
26) Enumerate the various methods of time booking.

27) Explain the reasons for abnormal idle time and discuss its treatment in cost accounting
28) Discuss the effect of overtime payment on productivity
29) Explain the methods for calculating labour turnover.
30) Discuss The Two Types Of Cost Associated With Labour Turnover.
31) Describe briefly, how wages may be calculated under the following systems
32) What do you mean by time and motion study? Why it is so important to management?
5. OVERHEADS
a) overhead d) blanket overhead rate
b) cost allocation e) departmental overhead rate
c) cost absorption f) multiple overhead rate
34) Indicate the base or bases that you recommended to apportioning overhead costs to production department?
a. Supplies g. Fire insurance
b. Repair h. Indirect labour
c. Maintenance of building i. Lighting expenses
d. Executive salaries j. Material Handling/stores overhead
e. Rent k. General Overheads
f. Electric Power
35) Discuss briefly three main methods of allocating support departments costs to operating departments. Out of
these, which method is conceptually preferable?
36) Explain the treatment of over and under absorption of overheads in cost accounting?
37) How would you treat the idle capacity costs in cost accounts
38) Define selling and distribution expenses. Discuss the accounting for selling & distribution expenses
39) Explain the methods of accounting of administrative overheads.
6. RECONCILIATION AND BOOK KEEPING

40) What is an integrated accounting system? State its advantages?
41) What are the reasons for disagreement of profits as per cost and financial accounts? Discuss.
42) Why is it necessary to reconcile the profits between the cost accounts and financial accounts?
i) List the financial expenses which are not included in cost
ii) When is the reconciliation statement of cost and financial accounts not required?
7. JOB & BATCH COSTING

43) In batch costing, how economic batch quantity is determined.
8. JOINT PRODUCTS AND BY- PRODUCTS
44) Describe briefly, how joint costs up to the point of separation may be Apportioned amongst the joint products
under the following methods:
a) Average unit cost method: d) Market value after further processing:
b) Contribution margin method: e) Net realisable value method:
c) Market value at the time of separation:
45) Distinguish between joint products and by-products.

46) What are the methods of apportioning joint costs over by-products?
9. PROCESS AND OPERATION COSTING

47) Operation costing is defined as refinement of process costing –explain it.
48) Explain briefly the treatment of losses in process costing.
49) Explain equivalent units.
10. CONTRACT COSTING

50) State the advantages of cost plus contracts.
51) Describe the main features of cost plus contract.
52) Discuss briefly the principles to be followed while taking credit for Profits on incomplete contracts.
53) Write short notes on escalation clause?
11. MARGINAL COSTING

54) DEFINITIONS/MEANINGS.
a) Marginal Cost h) Breakeven Point
b) Marginal Costing i) Cash Break-Even Point
c) Absorption Costing j) Cost Break-Even Point
d) Direct Costing k) Margin of Safety
e) Differential Costing l) P/V Ratio
f) Marginal contribution m) Angle of Incidence
g) Break-even chart
55) Distinction between marginal costing and absorption costing.
56) Discuss the basic assumptions of cost volume profit analysis.
57) Elaborate the practical application of marginal costing.
58) What is meaning of MARGIN OF SAFETY (MOS)? State the relationship between operating leverage and
margin of safety ratio.
59) What is meant by direct costing?
60) Explain and illustrate cash breakeven chart.
61) Elaborate the practical application of marginal costing.
12. STANDARD COSTING

62) Describe the three distinct groups of variances that arise in standard Costing.
63) Explain the types of standards?
64) Define the term standard costing and outline the steps involved therein.
THE END

COSTING
PROBLEMS
1. MATERIALS
1) A company manufactures a product from a raw material, which is purchased at Rs.60 per kg. The company
incurs a handling cost of Rs.360 plus freight of Rs.390 per order. The carrying cost of inventory of raw material
is Re.0.50 per kg. per month. In addition, the cost of working capital finance on the investment in inventory of
raw material is Rs.9 per kg. per annum. The annual production of the product is 1,00,000 units and 2.5 units
are obtained from one kg of raw material.
a) Calculate the economic order quantity of raw materials.
b) Advice, how frequently should orders for procurement be placed.
c) If the company proposes to rationalize placement of orders on quarterly basis, what percentage of
discount in the price of raw materials should be negotiated.
2) ZED Company supplies plastic crockery to fast food restaurants in metropolitan city. One of its products is a
special bowl, disposable after initial use, for serving soups to its customers. Bowls are sold in pack 10 pieces
at a price of 50 per pack.
The demand for plastic bowl has been forecasted at a fairly steady rate of 40,000 packs every year. The
company purchases the bowl direct from manufacturer at 40 per pack within a three days lead time. The
ordering and related cost is 8 per order. The storage cost is 10% per cent per annum of average inventory
investment.
Required:
a) Calculate Economic Order Quantity.
b) Calculate number of orders needed every year.
c) Calculate the total cost of ordering and storage bowls for the year.
d) Determine when the next order should be placed. (Assuming that the company does maintain a safety
stock and that the present inventory level is 333 packs with a year of 360 working days.
3) M/s Tubes Ltd. are the manufactures of picture tubes for T.V. The following are the details of their operation
during 2011
Average monthly market demand 2,000 Tubes
Ordering cost Rs.100 per order
Inventory carrying cost 20% per annum
Cost of tubes Rs.500 per tube
Normal usage 100 tubes per week
Minimum usage 50 tubes per week
Maximum usage 200 tubes per week
Lead time to supply 6-8 weeks
Compute from the above:
1. Economic order quantity. If the supplier is willing to supply quarterly 1,500 units at a discount of 5%, is it
worth accepting?
2. Maximum level of stock.
3. Minimum level of stock
4. Re-order level
IPCC |Guess Questions– May 2016 – Costing (Problems) 77

4) A Manufacturer of Surat purchased the Chemicals A, B and C from Mumbai.

Chemical A: 3,000 kg. @ Rs 4.20 per kg. 12,600
Chemical B: 5,000 kg. @ Rs 3.80 per kg. 19,000
Chemical C: 2,000 kg. @ Rs 4.75 per kg. 9,500
Sales Tax 2,055
Railway Freight 1,000
Total cost 44,155
A shortage of 200 kgs in chemical A, of 280 kgs in chemical B and of 100 kgs in Chemical C was noticed due
to breakages (Assume as normal loss). At Surat, the manufacturer paid Octroi duty @ Rs.0.10 per kg. He also
paid cartage Rs.22 for chemical A, Rs.63.12 for Chemical B and Rs.31.80 for Chemical C. Calculate the stock
rate that you would suggest for pricing issue for chemicals assuming a provision of 5% towards further
deterioration.
5) Raw materials ‘AXE’ costing Rs. 150 per kg. and ‘BXE’ costing Rs. 90 per kg. are mixed in equal proportions
for making product ‘A’. The loss of material in processing works out to 25% of the product. The production
expenses are allocated at 40% of direct material cost. The end product is priced with a margin of 20% over the
total cost.
Material ‘BXE’ is not easily available and substitute raw material ‘CXE’ has been found for ‘BXE’ costing Rs. 75
per kg. It is required to keep the proportion of this substitute material in the mixture as low as possible and at
the same time maintain the selling price of the end product at existing level and ensure the same quantum of
profit as at present.
You are required to compute the ratio of the mix of the raw materials ‘AXE’ and ‘CXE.
6) P Ltd. has a capacity of 4,800 tonnes per annum to manufacture a product which passes through two
Production Departments A and B. The sales forecast for the next financial year envisages full utilisation of
production capacity in the following customer mix.
Customer P 3,000 tonnes @ Rs.1.50 lakhs/ tonne
Customer Q 1,800 tonnes @ Rs.2.00 lakhs/ tonne
Over the years the Company has established three possible sources of raw material supplies:
Supplier X Prepared to supply 3,600 tonnes of input materials @ Rs.0.60 lakh/tonne
Supplier Y Offers to supply 4,000 tonnes of input materials @ Rs.0.55 lakh/tonne
Agrees to supply @ Rs.0.65 lakhs tonne only if the entire input requirement is
Supplier Z
taken from him but offers a discount of 5%.
The cost of transport for bringing the input materials from supplier’s point is as under:
Supplier X Rs.0.02 lakh / tonne to be spent by P Ltd.
Supplier Y Rs.0.03 lakh/tonne to be spent by P Ltd.
Supplier Z The transport cost is to be paid by the supplier.
The average level of scrap arising from the two production departments A and B are 5% and 10% on the final
output. The realisable value of scrap sold out is Rs.0.15 lakh / tonne for Department A and Rs.0.20 lakh / tonne for
Department B.
You are required to work out the following:
a) Gross quantity of input material required to be procured.
b) Selection of the source of procurement and the price at which inputs are to be procured.

7) PQR limited produces a product which has a monthly demand of 52,000 units. The product requires a
component X which is purchased at Rs.15 per unit. For every finished product, 2 units of component X are
required. The ordering cost is ‘350 per order and the carrying cost is 12% p.a.
Required:
a) Calculate the economic order quantity for component X.
b) If the minimum lot size to be supplied is 52,000 units, what is the extra cost, the company has to incur?
c) What is the minimum carrying cost, the company has to incur?
8) Assume that the following quantity discount schedule for a particular bearing is available to a
Retail store:
Order size (unit) Discount
0 - 49 0%
50 - 99 5%
100 - 199 10%
200 and above 12%
The cost of a single bearing with no discount is Rs. 30. The annual demand is 250 units. Ordering cost is Rs.
20 per order and annual inventory carrying cost is Rs. 4 per unit. Determine the optimal order quantity and the
associated minimal total cost of inventory and purchasing costs, if shortages are not allowed.
9) A company uses three raw materials A, B and C for a particular product for which the following data apply:
Weekly production varies from 175 to 225 units, averaging 200 units of the said product.
What would be the following quantities:–
(i) Minimum Stock of A?
(ii) Maximum Stock of B?
(iii) Re-order level of C?
(iv) Average stock level of A?
2. OPERATING COSTING
10) SRMT Automobiles distributes its goods to a regional dealer using a single Lorry. The dealer’s premises are 40
kilometers away by road. The lorry has a capacity of 10 tonnes and makes the journey twice a day fully loaded on
the outward journeys and empty on return journeys. The following information is available for a four weekly period
during the year 1990:
Petrol consumption 8 kilometers per litre
Petrol cost Rs.13 per litre
Oil Rs.100 per week
Driver’s wages Rs.400 per week
Repairs Rs.100 per week
Garage rent Rs.150 per week
Cost of Lorry (excluding tyres) Rs.4,50,000
Life of Lorry 80,000 kilometers
Insurance Rs.6,500 per annum
Cost of Tyres Rs.6,250
Life of Tyres Rs.25,000 kilometers

Estimated sale value of Lorry at the end of its life Rs.50,000

Vehicle License Cost Rs.1,300 per annum
Other overhead cost Rs.41,600 per annum
The Lorry operates on a five-day week.
Required:
a) A statement to show the total cost of operating the vehicle for the four weekly period analyzed into
variable costs and fixed costs.
b) Calculate the vehicle cost per kilometer and per absolute tonne kilometer.
11) Voyager Cabs Pvt. Ltd. is a New Delhi based cab renting company, provides cab facility on rent for cities
Delhi, Agra and Jaipur to the tourists. To attract more tourists it has launched a new three days tour package
for Delhi-Jaipur-Agra-Delhi. Following are the relevant information regarding the package:
Distance between Delhi to Jaipur (Km.) 274
Distance between Delhi to Agra (Km.) 242
Distance between Agra to Jaipur (Km.) 238
Price of diesel in Delhi Rs. 54 per litre
Price of diesel in Jaipur Rs. 56 per litre
Price of diesel in Agra Rs. 58 per litre
Mileage of cab per litre of diesel (Km.) 16
Chauffeur’s salary Rs. 12,000 per month
Cost of the cab Rs. 12,00,000
Expected life of the cab 24,00,000 kms.
Servicing cost Rs. 30,000 after every 50,000 kilometres run.
Chauffeur’s meal allowance Rs. 50 for every 200 kilometres of completed
Journey
Other set up and office cost Rs. 2,400 per month.
Voyager Cabs has made tie-up with fuel service centres at Agra, Jaipur and Delhi to fill diesel to its cabs on
production of fuel passbook to the fuel centre. Company has a policy to get fuel filled up sufficient to reach
next destination only.
You are required to calculate the price inclusive of service tax @ 12.36% to be quoted for the package if
company wants to earn profit of 25% on its net takings i.e. excluding service tax.
12) EPS is a Public School having 25 buses each plying in different directions for the transport of its school
students. In view of large number of students availing of the bus service, the buses work two shifts daily both
in the morning and in the afternoon. The buses are garaged in the school. The workload of the students has
been so arranged that in the morning, the first trip picks up senior students and the second trip plying an hour
later picks up junior students.
Similarly, in the afternoon, the first trip takes the junior students and an hour later the second trip takes the
senior students home.
The distance travelled by each bus, one way is 16 kms. The school works 24 days in a month and remains
closed for vacation in May and June. The bus fee, however, is payable by the students for all the 12 months in
a year.
The details of expenses for the year 2003-2004 are as under:
Driver's salary – payable for all the 12 in month. Rs. 5,000 per month per drive.
Cleaner's salary payable for all the 12 months Rs.3,000 per month per cleaner.
(one cleaner has been employed for every five buses).
Licence Fees, Taxes etc. Rs. 2,300 per bus per annum
Insurance Premium Rs. 15,600 per bus per annum.
Repairs and Maintenance Rs. 16,400 per bus per annum.
Purchase price of the bus Rs. 16,50,000 each.
Life of the bus 16 years
Scrap value Rs. 1,50,000
Diesel Cost Rs. 18.50 per litre
Each bus gives an average of 10 kms per litre of diesel. The seating capacity of each bus is 60 students. The
seating capacity is fully occupied during the whole year.
The school follows differential bus fees based on distance traveled as under:
Students picked up and dropped within Bus fee Percentage of students availing
the range of distance from the school this facility
4 kms 25% of Full 15%
8 kms 50% of Full 30%
16 kms Full 55%
Ignore interest. Since the bus fees has to be based on average cost, you are required to
a) Prepare a statement showing the expenses of operating a single bus and the fleet of 25 buses for a year.
b) Work out average cost per student per month in respect of:
i) Students coming from a distance of upto 4 kms from the school.
ii) Students coming from a distance of upto 8 kms from the school; and
iii) Students coming from a distance of upto 16 kms from the school
13) Venkata Ramana travels owns a bus and operates a tourist service on daily basis. The bus starts from Guntur
to Tirupathi and returns to Guntur the same day for 10 days. Distance between Guntur and Tirupathi is 250
Kms. This trip operates for 10 days between Guntur and Kalahasthi and returns to Guntur the same day.
Distance between these two places is 200 Kms. The bus makes local sight seeing trips for 5 days in a month,
covering a total distance of 60 Kms. per day. Normal capacity 50 persons.
Cost of Bus - Rs.3,50,000 Diesel consumption 4 kms per litre @ - Rs.8 per
Depreciation - 25% P.A. litre.
Driver’s Salary - Rs.1,200 p. m. Token tax - Rs.2,400 p. a.,
Conductor’s Salary - Rs.1,000 p .m Permit fee - Rs.1,000p. m.
Part-time clerk’s salary - Rs.400 p. m Lubricant oil Rs.100 for every 200 kms.
Insurance - Rs.1,800 p.a Repairs and maintenance-Rs.1,500 p.m
While traveling between Guntur and Tirupathi (Both ways) the bus occupies 90% of the capacity and 80%
when it travels between Guntur to Kalahasthi (Both ways). In the city the bus runs to full capacity. Passenger
Tax is 20% of total takings of the firm. Calculate the rate to be charged to Tirupathi & Kalahasthi from Guntur
per passenger if the profit required is 33.33% of total takings.
14) Mr. X owns a bus which runs according to the following schedule:
(PM,SM)

3. LABOUR-I
15) You are given the following information of a worker:
a) Name of worker : ‘X’ f) Work done and approved : 2000 units
b) Ticket No. : 002 g) Time and units allowed : 40 units per hour
c) Work started : 1-4-11 at 8 a.m. h) Wage rate : Rs. 25 per hour
d) Work finished : 5-4-11 at 12 noon i) Worker X worked 9 hours a day.
e) Work allotted : Production of 2,160 units
You are required to calculate the remuneration of the worker on the following basis:
i) Halsey plan and ii) Rowan plan
16) ‘A’ an employee of XYZ co. gets the following cash and benefits.
a) Salary : Rs.250 per month
b) Dearness allowance: On 1 Rs.100 of Salary - Rs.400, On next Rs.100 of Salary - Rs.100 & On balance
st
of every Rs.100 - Rs. 50 or part thereof

c) Employer’s Contribution to Provident Fund 8% salary and D.A.
d) E.S.I. : 4% of Salary and D.A.
e) Bonus : 20% of Salary and D.A.
f) Other Allowances : Rs. 2,725 per annum.
A works for 2,400 hours p.a., out of which 400 hours are non-productive but treated as normal idle time. Find
out:
1. Effective hourly cost of A.
2. A worked for 18 effective hours on Job ‘13’, where the cost of direct material equal A’s earnings and the
overhead applied is 100% of prime cost. The sale value of the job is quoted to earn a profit of 10% on
such value. What is the sale value?
17) Calculate the earnings of A and B from the following particulars for a month and allocate the labour cost to
each job X, Y and Z:
Particulars A B
i. Basic Wages 100 160
ii. Dearness Allowance 50% 50%
iii. Contribution to provident Fund (on basic wages) 8% 8%
iv. Contribution to Employee’s State Insurance (on basic wages) 2% 2%
v. Overtime 10 hours

The normal working hours for the month are 200. Overtime is paid at double the total of normal wages and
dearness allowance. Employer’s contribution to state Insurance and Provident Fund are at equal rates with
employees contributions. The two workers were employed on jobs X, Y and Z in the following proportions:
Jobs
Particulars X Y Z
Worker A 40% 30% 30%
Worker B 50% 20% 30%
Overtime was done on job Y.
18) The finishing shop of a company employs 60 direct workers. Each worker is paid 400 as wages per week of 40
hours. When necessary, overtime is worked up to a maximum of 15 hours per week per worker at time rate
plus one-half as premium. The current output on an average is 6 units per man hour which may be regarded
as standard output. If bonus scheme is introduced, it is expected that the output will increase to 8 units per
man hour. The workers will, if necessary, continue to work Overtime up to the specified limit although no
premium on incentives will be paid.
The company is considering introduction of either Halsey Scheme or Rowan Scheme of WageIncentive
system. The budgeted weekly output is 19,200 units. The selling price is 11 per unit and the direct Material
Cost is 8 per unit. The variable overheads amount to 0.50 per direct labour hour and the fixed overhead is
9,000 per week.
Prepare a Statement to show the effect on the Company’s weekly Profit of the proposal to introduce (a) Halsey
Scheme, and (b) Rowan Scheme.
19) A, B and C are three industrial workers working in Sports industry and are experts in making cricket pads. A, B
and C are working in Mahi Sports, Virat Sports and Sikhar Sports companies respectively. Workers are paid
under different incentive schemes. Company wise incentive schemes are as follows:
Company Incentive scheme
Mahi Sports Emerson’s efficiency system
Virat Sports Merrick differential piece rate system
Sikhar Sports Taylor’s differential piece work system
The relevant information for the industry is as under:
Standard working hours 8 hours a day
Standard output per hour (in units) 2
Daily wages rate Rs. 360
No. of working days in a week 6 days
Actual outputs for the week are as follows:
A B C
132 units 108 units 96 units
You are required to calculate effective wages rate and weekly earnings of all the three workers.
4. LABOUR-II
20) An article passes through five hand operations as follows:
Operation Time per article Wage rate
Grade of Worker
no. (in minutes) per hour
1 15 A 0.65
2 25 B 0.50

3 10 C 0.40
4 30 D 0.35
5 20 E 0.30
The factory works 40 hours a week and the production target is 600 dozens per week. Prepare a statement
showing for each operation and in total the no. of operators required, the labour cost per dozen and the total
cost per week to produce the total targeted output.
21) From the following information, calculate Labour turnover rate
No. of workers as on 01.01.2000 = 7,600
No. of workers as on 31.12.2000 = 8,400
During the year, 80 workers left while 320 workers were discharged 1,500 workers were recruited during the
year of these, 300 workers were recruited because of exits and the rest were recruited in accordance with
expansion plans.
22) X Ltd. has an average of 42 workers employed in one of its factories in a period during which seven workers
left and were replaced. The company pays a basic rate of Rs.4.60 per hour to all its direct personnel. This is
used as the standard rate. In addition a factory wide bonus scheme is in operation. A bonus of half of the
efficiency ratio in excess of 100% is added as a percentage to the basic hourly rate like if the efficiency ratio is
110% then the hourly rate is Rs.4.83 [i.e. 4.60+ (4.60 *5%)]. During the period 114,268 units of the company’s
single product were manufactured in 4900 hours. The standard production is 22 units per hour. Calculate the
labour turnover percentage for the period & Bonus.
5. OVERHEADS-I
23) Master Minds Ltd., has three production departments X, Y and Z and two service departments A and B. The
following estimated figures for a certain period have been made available:
Rent and Rates 10,000
Lighting and Electricity 1,200
Indirect wages 3,000
Power 3,000
Depreciation of Machinery 20,000
Other expenses and Sundries 20,000
Following further details are available:
Particulars Total X Y Z A B
Space (Sq. mts.) 10,000 2,000 2,500 3,000 2,000 500
Light points (No’s) 120 20 30 40 20 10
Direct wages (Rs.) 20,000 6,000 4,000 6,000 3,000 1,000
H.P. of the machine 310 120 60 100 20 10
Cost of Machinery 1,00,000 24,000 32,000 40,000 2,000 2,000
Working hours 4,760 3,020 3,050 1,000 500
The expenses of the service departments A and B are to be apportioned as follows:
Particulars X Y Z A B
A (%) 20 30 40 - 10
B (%) 40 20 30 10 -
a) Calculate the overhead absorption rate per hour in respect of the three production departments using
Simultaneous Equation method, Repeated Distribution method, Trial & error method.
b) What will be the total cost of an article with material cost of Rs.80 and direct labour cost of Rs.40 which
passes through X,Y and Z for 2, 3 and 4 hours respectively?
IPCC | Guess Questions– May 2016 – Costing (Problems) 84

24) Deccan Manufacturing Ltd., have three departments which are regarded as production departments. ‘Service
departments’ costs are distributed to these production departments using the “Step Ladder Method” of
distribution. Estimates of factory overhead costs to be incurred by each department in the forthcoming year are
as follows. Data required for distribution is also shown against each department:
Factory Direct labour No. of
Department Area in sq.m.
overhead Rs. hours employees
Production:
X 1,93,000 4,000 100 3,000
Y 64,000 3,000 125 1,500
Z 83,000 4,000 85 1,500
Service:
P 45,000 1,000 10 500
Q 75,000 5,000 50 1,500
R 1,05,000 6,000 40 1,000
S 30,000 3,000 50 1,000
The overhead costs of the 4 service departments are distributed in the same order, viz., P, Q, R & S
respectively on the following basis.
Department Basis
P Number of employees
Q Direct labour hours
R Area in square meter’s
S Direct labour hours
a) Prepare a schedule showing the distribution of overhead costs of the four service departments to the three
production departments; and
b) Calculate overhead recovery rate per direct labour hour for each of 3 production departments.
25) In an engineering company, the factory overheads are recovered on a fixed percentage basis on direct wages
and the administrative overheads are absorbed on a fixed percentage basis on factory cost. The company has
furnished the following data relating to two jobs undertaken by it in a period.
Particulars Job 101 Job 102
Direct materials 54,000 37,500
Direct wages 42,000 30,000
Selling price 1,66,650 1,28,250
Profit percentage on total cost 10% 20%
Required:
a) Computation of percentage recovery rates of factory overheads and administrative overheads.
b) Calculation of the amount of factory overheads, administrative overheads and profit for ach job.
c) Using the above recovery rates fix the selling price of job 103. The additional data being:
Direct materials Rs. 24,000, Direct wages Rs. 20,000
Profit percentage on selling price 12-½%
26) A company which sells four products, some of them unprofitable, proposes discontinuing the sale of one of
them. The following information is available regarding income, costs and activity for the year ended 31st
March, 2012.
Products
A B C D
Sales (Rs.) 3,00,000 5,00,000 2,50,000 4,50,000
Cost of sales (Rs.) 2,00,000 4,50,000 2,10,000 2,25,000
Area of storage (Sq.ft.) 50,000 40,000 80,000 30,000

Number of parcels sent 1,00,000 1,50,000 75,000 1,75,000

Number of invoices sent 80,000 1,40,000 60,000 1,20,000
Selling and Distribution overheads and the basis of allocation are:
Basis of allocation to products
Fixed Costs (Rs.)
Rent & Insurance 30,000 Sq.Ft.
Depreciation 10,000 Parcel
Salesmen’s salaries & expenses 60,000 Sales Volume
Administrative wages and salaries 50,000 No. of invoices
Packing wages & materials RS. 0.20 per parcel

Commission 4% of sales
Stationery Rs. 0.10 per invoice
You are required to prepare Profit & Loss Statement, showing the percentage of profit or loss to sales for each
product.
27) Arnav Ltd. has three production departments M, N and O and two service departments P and Q. The following
particulars are available for the month of September, 2013:
5. OVERHEADS-II
28) ABC ltd has calculated a predetermined overhead rate of Rs 22 per machine hour for its Testing department.
This rate has been calculated for the budgeted level of activity and is considered as appropriate for absorbing
overheads. The following overhead expenditures at various activity levels had been estimated.
Total overheads Number of machine hours
3,38,875 14,500
3,47,625 15,500
3,56,375 16,500

a) Calculate the variable overhead absorption rate per machine hour.
b) Calculate the estimated total fixed overheads.
c) Calculate the budgeted level of activity in machine hours.
Calculate the amount of under/over-recovery of overheads if the actual machine hours were 15,850 and actual
overheads were Rs 3,55,050.
29) PQR manufacturers – a small scale enterprise produces a single product and has adopted a policy to recover
the production overheads of the factory by adopting a single blanket rate based on machine hours. The
budgeted production overheads of the factory are Rs.10,08,000 and budgeted machine hours are 96,000.
For a period of first six months of the financial year 2007, 2008 following information were extracted from the
books:
Actual production overheads Rs.6,79,000
Amount included in the production overheads:
Paid as per court’s order Rs.45,000
Expenses of previous year booked in current year Rs.10,000
Paid to workers for strike period under an award Rs.42,000
Obsolete stores written off Rs.18,000
Production and sales data of the concern for the first six months are as under:
Production:
Finished goods 22,000 units
Works-in-progress (50% complete in every respect) 16,000 units
Sale: Finished goods 18,000 units
The actual machine hours worked during the period were 48,000 hours. It is revealed from the analysis of
information that ¼ of the under-absorption was due to defective production policies and the balance was
attributable to increase in costs.
You are required:
i) To determine the amount of under absorption of production overheads for the period,
ii) To show the accounting treatment of under-absorption of production overheads, and
iii) To apportion the unabsorbed overheads over the items.
30) A light engineering factory fabricates machine parts to customers. The factory commenced fabrication of 12
Nos. machine parts to customers’ specifications and the expenditure incurred on the job for the week ending
21st August, 2002 is given below:
Direct Materials (all items) 78.00
Direct Labour (Manual) 20 hours @ Rs. 1.50 per hour 30.00
Machine facilities:
Machine No.I: 4 hours @ Rs. 4.50 18.00
Machine No.II: 6 hours @ Rs. 6.50 39.00 57.00
Total 165.00
Overheads @ Rs. 0.80 per hour on 20 manual hours 16.00
Total 181.00
The overhead rate of Re. 0.80 per hour is based on 3,000 man hours per week; similarly, the machine hour
rates are based on the normal working of Machine No’s.I and II for 40 hours out of 45 hours per week. After
the close of each week, the factory levies a supplementary rate for the recovery of full overhead expenses on
the basis of actual hours worked during the week. During the week ending 21st August, 2002, the total labour
hours worked was 2,400 and Machine Nos. I and II had worked for 30 hours and 32 ½ hours respectively.
Prepare a Cost Sheet for the job for the fabrication of 12 Nos. machine parts duly levying the supplementary
rates.

7. BOOK KEEPING IN COSTING

31) Acme Manufacturing Co. Ltd. has the balances as on 1st July, 2012 as follows:
Stores Control A/c 1,24,000
Work-in-Progress A/c 62,500
Finished Goods A/c 1,24,000
Production Overhead A/c 8,400
Administration Overhead A/c 12,000
Selling and Distribution Overhead A/c 6,250
General Ledger Control A/c 3,13,150
The following are the transactions for the quarter ended 30th September, 2012:
Materials purchased 4,80,100 Administration overheads 74,000
Materials issued to jobs 4,77,400 Administration allocated to
Materials to works maintenance 41,200 production 52,900
Materials to administration office 3,400 Administration allocated to
Materials to selling department 7,200 sales 14,800
Wages-direct 1,49,300 Sales overheads 64,200
Wages-indirect 65,000 Sales overheads absorbed 82,000
Transportation for incoming materials Finished goods produced 9,58,400
Production overheads 8,400 Finished goods sold 9,77,300
Production overheads – Absorbed 2,42,250 Sales Realisation 14,43,000
3,59,100
Make the various accounts & prepare a Trial Balance as at 30th September, 2012.
32) A company operates on historic job cost accounting system, which is not integrated with the financial accounts. At
the beginning of a month, the opening balances (in lakhs) were:
Stores Ledger Control Account 80
Work-in-Progress Control Account 20
Finishing Goods Control Account 430
Building construction Account 10
Cost Ledger Control Account 540
Transactions during the month:
Materials:
Purchase 40
Issued to production 50
Issued to general maintenance 6
Issued to building construction 4
Wages:
Gross wages paid 150
Indirect wages 40
For building construction 10
Works Overheads:
Actual amount incurred (Excluding items shown above) 160
Absorbed in building construction 20
Under absorbed 8
Royalty paid 5
Selling & distribution and administration overheads 25
Sales 450

At the end of the month, the stock of raw materials and work-in progress was Rs.55 lakhs & 25 Lakhs
respectively. The loss arising in the raw material account is treated as factory overheads. The building under
construction was completed during the month. Company’s gross profit margin is 20% on sales. Prepare the
relevant control accounts to record the above transactions.
33) The following incomplete accounts for the month ended 31st October, 2002.
Stores Control Account
1.10.02 To Balance 54,000
Work in Progress Control Account
1.10.02 To Balance 6,000
Finished Goods Control Account
1.10.02 To Balance 75,000
Factory Overheads Control Account
Total debits for October, 2002 45,000
Factory Overheads Applied Account
Cost of Goods Sold Account
Creditors for Purchases Account

1.10.02 By Balance 30,000
a) The factory overheads are applied by using a budgeted rate based on Direct Labour Hours. The budget
for overheads for 2002 is Rs. 6,75,000 and the budget of direct labour hours is 4,50,000.
b) The balance in the account of creditors for purchases on 31.10.02 is Rs. 15,000 and the payment made to
creditors in October, 2002 amount to Rs. 1,05,000.
c) The finished goods inventory as on 31st October, 2002 is Rs. 66,000.
d) The cost of goods sold during the month was Rs. 1,95,000.
e) On 31st October, 2002, there was only one unfinished job in the factory. The cost records show that Rs.
3,000 (1,200 direct labour hours) of Direct Labour Cost and Rs. 6,000 of Direct Material Cost had been
charged.
f) A total of 28,200 direct labour hours were worked in October, 2002. All factory workers earn same rate of
pay.
g) All actual factory overheads incurred in October, 2002 have been posted.
You are required to find:
a) Materials purchased during October.
b) Cost of goods completed in October.
c) Overheads applied to production in Oct.
d) Balance of WIP on 31st Oct.
e) D.M. consumed during October, 2002.
f) Balance of Stores A/c on 31st October.
g) Over or under-absorbed overheads for October, 2002.
34) In the course of physical verification of stores as on 31st March 2004, following differences are revealed in
case of AB Ltd. Prepare journal entries in the Cost Ledger to give effect to the following:

Materials Unit Rate Physical Ledger Remarks

A Nos. 7 600 680 Wrong counting.
B Liters 12 1100 1155 Normal evaporation loss.
C Nos. 6 350 400 Material issued not accounted for.
D Kgs. 22 390 900 Shortage due to pilferage and theft
E Nos. 15 1475 1325 150 nos. received but not entered in

ledger.
F Mts. 10 291 291 Obsolete materials. Realised sale
value Rs. 1,650, awaiting dispatch.
35) A fire destroyed some accounting records of a company. You have been able to collect the following from the
spoilt papers/records and as a result of consultation with accounting staff in respect of January, 2013:
i) Incomplete Ledger Entries:
Raw Materials A/c
Particulars (Rs.) Particulars (Rs.)
Beginning Inventory 32,000
Work-in-Progress A/c
Beginning Inventory 9,200 Finished Stock 1,51,000
Creditors A/c
Opening Balance 16,400
Closing Balance 19,200
Manufacturing Overheads A/c
Amount Spent 29,600
Finished Goods A/c
Opening Inventory 24,000
Closing Inventory 30,000
ii) Additional Information:
a) The cash-book showed that Rs. 89,200 have been paid to creditors for raw-material.
b) Ending inventory of work-in-progress included material Rs. 5,000 on which 300 direct labour hours
have been booked against wages and overheads.
c) The job card showed that workers have worked for 7,000 hours. The wage rate is Rs. 10 per labour
hour.
d) Overhead recovery rate was Rs. 4 per direct labour hour. You are required to complete the above
accounts in the cost ledger of the company
IPCC | Guess Questions– May 2016 – Costing (Problems) 90

8. RECONCILIATION
36) The following figures have been extracted from the cost records of a manufacturing company:
Rs.
Stores : Opening Balance 63,000
Purchases 3,36,000
Transfer from Work-in-progress 1,68,000
Issues to Work-in-progress 3,36,000
Issues to Repairs and Maintenance 42,000
Deficiencies found in Stock taking 12,600
Work-in-progress:
Opening Balance 1,26,000
Direct Wages applied 1,26,000
Overhead Applied 5,04,000
Closing Balance 84,000
Finished Products:
Entire output is sold at a Profit of 10% on actual cost from work-in-progress.
Others: Wages incurred Rs.1,47,000; Overhead incurred Rs. 5,25,000.
Income from investment Rs. 21,000; Loss on sale of Fixed Assets Rs. 42,000.
Draw the stores control account, work-in-progress control account, costing profit and loss account, profit and
loss account and reconciliation statement.
37) The financial books of a company reveal the following data for the year ended 31st March, 2013:
Rs.
Opening Stock:
Finished goods 625 units 53,125
Work-in-process 46,000
01.04.2012 to 31.03.2013
Raw materials consumed 8,40,000
Direct Labour 6,10,000
Factory overheads 4,22,000
Administration overheads 1,98,000
Dividend paid 1,22,000
Bad Debts 18,000
Selling and Distribution Overheads 72,000
Interest received 38,000
Rent received 46,000
Sales 12,615 units 22,80,000
Closing Stock: Finished goods 415 units 45,650
Work-in-process 41,200
The cost records provide as under:
a) Factory overheads are absorbed at 70% of direct wages.
b) Administration overheads are recovered at 15% of factory cost.
c) Selling and distribution overheads are charged at Rs. 3 per unit sold.
d) Opening Stock of finished goods is valued at Rs. 120 per unit.
The company values work-in-process at factory cost for both Financial and Cost Profit Reporting.

Required:
i) Prepare statements for the year ended 31st March, 2013 show
1. The profit as per financial records
2. The profit as per costing records.
ii) Present a statement reconciling the profit as per costing records with the profit as per Financial Records.
38) The following figures have been extracted from the cost records of a manufacturing unit:
Particulars (Rs.)
Stores: Opening balance 32,000
Purchases of material 1,58,000
Transfer from work-in-progress 80,000
Issues to work-in-progress 1,60,000
Issues to repair and maintenance 20,000
Deficiencies found in stock taking 6,000
Work-in-progress: Opening balance 60,000
Direct wages applied 65,000
Overheads applied 2,40,000
Closing balance of W.I.P. 45,000
Finish products: Entire output is sold at a profit of 10% on actual cost from work-in-progress.
Wages incurred Rs. 70,000, overhead incurred Rs. 2,50,000.
Items not included in cost records: Income from investment Rs. 10,000, Loss on sale of capital assets Rs.
20,000.
Draw up Store Control account, Work-in-progress Control account, Costing Profit and Loss account, Profit and
Loss account and Reconciliation statement.
9. JOB COSTING & BATCH COSTING

39) From the records of a manufacturing Company, the following budgeted details are available.
Particulars Rs.
Direct Materials 1,99,000
Direct Wages Machine Shop 12,000 hours 63,000
Assembly Shop 10,000 hours 48,000 1,11,000
Works Overheads Machine Shop 12,000 hours 88,200
Assembly Shop 10,000 hours 51,800 1,40,000
Administrative Overheads 90,000
Selling Overheads 81,000
Distribution Overheads 62,100
The Company follows Absorption Costing method. You are required to prepare –
a) Schedule of OH Rates from the data available stating the basis of OH Recovery Rates used under the
given circumstances.
b) A Cost estimate for the following job based on the overhead rates so computed.
i) Direct Materials 25 kg at Rs. 16.80 per kg, and 15 kg at Rs. 20.00 per kg
ii) Direct Labour - Machine Shop 30 hours, Assembly Shop 42 hours
40) A customer has been ordering 5,000 special design metal columns at the rate of 1,000 per order during the past
year. The production cost is Rs 12 a unit - Rs 8 for materials and labour and Rs 4 for overheads (fixed) cost. It
costs Rs 1,500 to set up for one run of 1,000 columns, and inventory carrying cost is 20 per cent. Since this
customer may buy at least 5,000 columns this year, the company would like to avoid making five different
production runs. Find the most economic production run.

41) What to do Ltd has just received an enquiry for the supply of a part. Annual supply would be 3,60,000 pieces. The
Company ascertains the following information for decision making:
a) Cost of material for each component: Rs.6
b) Direct Labour: 6 minutes per unit. Labourers are paid at Rs.50 per hour.
c) However, for machinery set-up time, labourers are paid only Rs.40 per hour.
d) Machine set-up time: 2 1/2 hours, Machine Hour Rate (OH rate): Rs.100 per machine hour.
e) Average Cost of stock holding = Rs.700 per annum for every 100 units.
The company has approached you for the following consultations.

a) What should be the economic batch size?
b) What is the S.P. if OH is accounted for at Rs.4 per unit and one third margin on cost is desired?
c) What would be the annual profit after estimated share of Head Office Expenses is Rs.12 lakhs?
10. JOINT & BY PRODUCTS

42) ABC Ltd. operates a simple chemical process to convert a single material into three separate items, referred to
here as X, Y and Z. All three end products are separated simultaneously at a single split-off point.
Product X and Y are ready for sale immediately upon split off without further processing or any other additional
costs. Product Z, however, is processed further before being sold. There is no available market price for Z at
the split-off point.
The selling prices quoted here are expected to remain the same in the coming year. During 2013-14, the
selling prices of the items and the total amounts sold were:
X – 186 tons sold for Rs. 1,500 per ton
Y – 527 tons sold for Rs. 1,125 per ton
Z – 736 tons sold for Rs. 750 per ton
The total joint manufacturing costs for the year were Rs. 6,25,000. An additional Rs. 3,10,000 was spent to
finish product Z.
There were no opening inventories of X, Y or Z at the end of the year. The following inventories of complete
units were on hand:
X 180 tons
Y 60 Tons
Z 25 tons
There was no opening or closing work-in-progress.
Required:
a) Compute the cost of inventories of X, Y and Z for Balance Sheet purposes and cost of goods sold for
income statement purpose as of March 31, 2014, using:
(i) Net realizable value (NRV) method of joint cost allocation
(ii) Constant gross-margin percentage NRV method of joint-cost allocation.
b) Compare the gross-margin percentages for X, Y and Z using two methods given in requirement (a)
43) The Sunshine Oil Company purchases crude vegetables oil. It does refining of the same. The refining process
results in four products at the split off point: M, N, O and P. Product O is fully processed at the split off point.
Product M, N and P can be individually further refined into ‘Super M’, ‘Super N’ and ‘Super P’. In the most
recent month (March, 2014), the output at split off point was:
Product M 3,00,000 gallons
Product N 1,00,000 gallons
Product O 50,000 gallons
Product P 50,000 gallons

The joint cost of purchasing the crude vegetables oil and processing it were Rs. 40,00,000. Sunshine had no
beginning or ending inventories. Sales of Product O in March, 2014 were Rs. 20,00,000. Total
output of products M, N and P was further refined and then sold. Data related to March, 2014 are as follows:
Further Processing Costs to Sales
Make Super Products
Super M’ Rs. 80,00,000 Rs. 1,20,00,000
Super N’ Rs. 32,00,000 Rs. 40,00,000
Super P’ Rs. 36,00,000 Rs. 48,00,000
Sunshine had the option of selling products M, N and P at the split off point. This alternative would have
yielded the following sales for the March, 2014 production:
Product M Rs. 20,00,000
Product N Rs. 12,00,000
Product P Rs. 28,00,000
You are required to answer:
a) How the joint cost of Rs. 40,00,000 would be allocated between each product under each of the following
methods (i) sales value at split off; (ii) physical output (gallons); and (iii) estimated net realizable value?
b) Could Sunshine have increased its March, 2014 operating profits by making different decisions about the
further refining of product M, N or P? Show the effect of any change you recommend on operating profits.
44) P ltd. Chocolates manufactures and distributes chocolate products. It purchases Cocoa beans and processes
them into two intermediate products:
Chocolate powder liquor base
Milk-chocolate liquor base
These two intermediate products become separately identifiable at a single split off point.
Every 500 pounds of cocoa beans yields 20 gallons of chocolate – powder liquor base and 30 gallons of milk-
chocolate liquor base.
The chocolate powder liquor base is further processed into chocolate powder. Every 20 gallons of chocolate-
powder liquor base yields 200 pounds of chocolate powder. The milk chocolate liquor base is further
processed into milk-chocolate. Every 30 gallons of milk chocolate liquor base yields 340 pounds of milk
chocolate.
Production and sales data for October, 2013 are:
Cocoa beans processed 7,500 pounds
Costs of processing Cocoa beans to split off point Rs. 7,12,500
(including purchase of beans)
Production Sales Selling price

Chocolate powder 3,000 pounds 3,000 pounds Rs. 190 per pound
Milk chocolate 5,100 Pounds 5,100 Pounds Rs. 237.50 per
pound
The October, 2013 separable costs of processing chocolate-powder liquor into chocolate powder are Rs.
3,02,812.50. The October 2013 separable costs of processing milk-chocolate liquor base into milk-chocolate
are Rs. 6,23,437.50.
P ltd. full processes both of its intermediate products into chocolate powder or milk chocolate.
There is an active market for these intermediate products. In October, 2013, P ltd.could have sold the
chocolate powder liquor base for Rs. 997.50 a gallon and the milk-chocolate liquor base for Rs. 1,235 a gallon.
Required:
a) Calculate how the joint cost of Rs. 7,12,500 would be allocated between the chocolate powder and milk-
chocolate liquor bases under the following methods:

i) Sales value at split off point
ii) Physical measure (gallons)
iii) Estimated net realizable value, (NRV) and
iv) Constant gross-margin percentage NRV.
b) What is the gross-margin percentage of the chocolate powder and milk-chocolate liquor bases under each
of the methods in requirements (a) above?
c) Could P ltd. have increased its operating income by a change in its decision to fully process both of its
intermediate products? Show your computations.
45) CPPL plant processes 1,50,000 kgs of raw material in a month to produce 2 products viz, P & Q. The cost of
raw material is Rs.12 per kg. The process costs for the month are:
Direct Materials 90,000
Direct Wages 1,20,000
Variable OH 1,00,000
Fixed OH 1,00,000
The loss in process is 5% of input. The output ratio of P&Q which emerge simultaneously is 1:2. The selling
prices of the two products at the point of split off are: P Rs.12 per kg and Q Rs.20 per kg. A proposal is
available to process p further by mixing it with other purchased materials. The entire current output of the
plant can be so processed further to obtain a new product S. The price per Kg of S is Rs.15 and each Kg of
output of S will require one kg of input P. The cost of processing of P into S (including other materials) is
Rs.1,85,000 p.m. Prepare a statement showing the monthly profitability based on both the existing
manufacturing operations and on further processing.
46) Oleum Refinery Ltd. refines crude oil and produces two joint product Gasoline and HSD in the ratio of 4:6. The
refining is done in three processes. Crude oil is first fed in Process-A, from where the two products Gasoline
and HSD are get separated. After separation from Process-A, Gasoline and HSD are further processed in
Process- B and Process- C respectively. During the month of July, 2014, 4,50,000 Ltr. of crude oil were
processed in Process-A at a total cost of Rs. 1,71,99,775.
In Process-B, Gasoline is further processed at a cost of Rs. 10,80,000.
In Process- C, HSD is further processed at a cost of Rs. 1,35,000.
The Input output ratio for the each process is as follows:
Process- A 1 : 0.80
Process- B 1 : 0.95
Process- C 1 : 0.90
The details of sales during the month are:
Gasoline HSD
Quantity sold (Ltr.) 1,32,000 1,88,000
Sales price per Ltr.(Rs.) 68 46
There were no opening stocks. If these products were sold at split-off point, the selling price of Gasoline and
HSD would be Rs. 64 and Rs. 41 per Ltr. respectively.
Required:
a) Prepare a statement showing the apportionment of joint cost to Gasoline and HSD in proportion of sales
value at split off point.
b) Prepare a statement showing the cost per Ltr. of each product indicating joint cost, processing cost and
total cost separately.
c) Prepare a statement showing the product wise profit or loss for the month.

11. PROCESS COSTING

47) Following information is available regarding process A for the month of Feb., 02:
Production Records:
Units in process as on 1.2.02. 4,000
[All materials used, 25% complete for labour & OH]
New units introduced 16,000
Units completed 14,000
Units in process as on 28.2.02. 6,000
[All materials used, 33-1/3% complete for Labour & OH]
Work-in-process as on 1.2.02. Rs.
Materials 6,000
Labour 1,000
Overhead 1,000
8,000
Cost during the month: 25,600
Materials 15,000
Labour 15,000
Overhead 55,600
Prepare Statement of equivalent production, Statement showing cost for each element, Statement of
apportionment of cost & Process cost a/c for process ‘A’ using FIFO.
48) The following details are available of Process X for August 2013:
1) Opening work-in-progress 8,000 units
Degree of completion and cost:
Material (100%) Rs. 63,900
Labour (60%) Rs. 10,800
Overheads (60%) Rs. 5,400
2) Input 1,82,000 units at Rs. 7,56,900
3) Labour paid Rs. 3,28,000
4) Over heads incurred Rs. 1,64,000
5) Units scrapped 14,000
Degree of completion:
Material 100%
Labour and overhead 80%
6) Closing work-in-process 18000 units
Material 100%
Labour and overhead 70%
7) 1,58,000 units were completed and transferred to next process.
8) Normal loss is 8% of total input including opening work-in-process
9) Scrap value is Rs. 8 per unit to be adjusted in direct material cost
You are required to compute, assuming that average method of inventory is used:
a) Equivalent production, and
b) Cost per unit
49) From the following information for the month of January, 2013, prepare Process-III cost accounts under FIFO
method.
Opening WIP in Process-III 1,600 units at Rs. 24,000
Transfer from Process-II 55,400 units at Rs. 6,23,250
Transferred to warehouse 52,200 units
Closing WIP of Process-III 4,200 units
Units Scrapped 600 units
Direct material added in Process-III Rs. 2,12,400
Direct wages Rs. 96,420
Production overheads Rs. 56,400
Opening Stock Closing Stock Scrap
Material 80% 70% 100%
Labour 60% 50% 70%
Overheads 60% 50% 70%
The normal loss in the process was 5% of the production and scrap was sold @ Rs. 5 per unit.
(Students may treat material transferred from Process – II as Material – A and fresh material used in Process –
III as Material B)
50) A Company produces a component, which passes through two processes. During the month of April, 2006,
materials for 40,000 components were put into Process I of which 30,000 were completed and transferred to
Process II. Those not transferred to Process II were 100% complete as to materials cost and 50% complete as
to labour and overheads cost. The Process I costs incurred were as follows:
Direct Materials Rs. 15,000
Direct Wages Rs. 18,000
Factory Overheads Rs. 12,000
Of those transferred to Process II, 28,000 units were completed and transferred to finished goods stores.
There was a normal loss with no salvage value of 200 units in Process II. There were 1,800 units, remained
unfinished in the process with 100% complete as to materials and 25% complete as regard to wages and
overheads.
No further process material costs occur after introduction at the first process until the end of the second
process, when protective packing is applied to the completed components. The process and packing costs
incurred at the end of the Process II were:
Packing Materials Rs. 4,000
Direct Wages Rs. 3,500
Factory Overheads Rs. 4,500
Required:
i) Prepare Statement of Equivalent Production, Cost per unit and Process I A/c.
ii) Prepare statement of Equivalent Production, Cost per unit and Process II A/c.
51) Pharma Limited produces product ‘Gluco-G’ which passes through two processes before it is completed and
transferred to finished stock. The following data relates to March, 2014:
Process-I Process-II Finished Stock
(Rs.) (Rs.) (Rs.)
Opening Stock 1,50,000 1,80,000 4,50,000
Direct materials 3,00,000 3,15,000 -
Direct Wages 2,24,000 2,25,000 -

Factory Overheads 2,10,000 90,000 -

Closing Stock 74,000 90,000 2,25,000
Inter process profit NIL 30,000 1,65,000
included in Opening
stock
Output of process I is transferred to process II at 25 percent profit on the transfer price, whereas output of
process II is transferred to finished stock at 20 percent on transfer price. Stock in processes are valued at
prime cost. Finished stock is valued at the price at which it is received from process II. Sales for the month is
Rs. 28,00,000. You are required to prepare Process-I A/c, Process-II A/c, and Finished Stock A/c showing the
profit element at each stage.
52) Star Ltd. manufactures chemical solutions for the food processing industry. The manufacturing takes place in a
number of processes and the company uses a FIFO process costing system to value work-in-process and
finished goods. At the end of the last month, a fire occurred in the factory and destroyed some of the paper
files containing records of the process operations for the month.
Star Ltd. needs your help to prepare the process accounts for the month during which the fire occurred. You
have been able to gather some information about the month’s operating activities but some of the information
could not be retrieved due to the damage.
The following information was salvaged: (RTP NOV-15)
a) Opening work-in-process at the beginning of the month was 800 litres, 70% complete for labour and 60%
complete for overheads. Opening work-in-process was valued at
Rs. 26,640.
b) Closing work-in-process at the end of the month was 160 litres, 30% complete for labour and 20%
complete for overheads.
c) Normal loss is 10% of input and total losses during the month were 1,800 litres partly due to the fire
damage.
d) Output sent to finished goods warehouse was 4,200 litres.
e) Losses have a scrap value of Rs.15 per litre.
f) All raw materials are added at the commencement of the process.
g) The cost per equivalent unit (litre) is Rs.39 for the month made up as follows:
Rs.
Raw Material 23
Labour 7
Overheads 9
39
Required:
i) Calculate the quantity (in litres) of raw material inputs during the month.
ii) Calculate the quantity (in litres) of normal loss expected from the process and the quantity (in litres) of
abnormal loss / gain experienced in the month.
iii) Calculate the values of raw material, labour and overheads added to the process during the month.
iv) Prepare the process account for the month.
12. CONTRACT COSTING
53) A contractor commenced a contract on 1-7-2013. The costing records concerning the said contract reveal the
following information as on 31-3-2014.
Particulars Amount (Rs.)
Material sent to site 7,74,300
Labour paid 10,79,000
Labour outstanding as on 31-3-2014 1,02,500

Salary to Engineer 20,500 per month
Cost of plant sent to site (1-7-2013) 7,71,000
Salary to Supervisor (3/4 time devoted to contract) 9,000 per month
Administration & other expenses 4,60,600
Prepaid Administration expenses 10,000
Material in hand at site as on 31-3-2014 75,800
Plant used for the contract has an estimated life of 7 years with residual value at the end of life Rs. 50,000.
Some of material costing Rs.13,500 was found unsuitable and sold for Rs.10,000. Contract price was
Rs.45,00,000. On 31-3-2014 two third of the contract was completed. The architect issued certificate covering
50% of the contract price and contractor has been paid Rs.20,00,000 on account. Depreciation on plant is
charged on straight line basis.
Prepare Contract Account.
54) A loan Construction Company Ltd. commenced its business of construction on 1-1-2006. The trial balance as
on 31-12-2006 showed the following balances:
Particulars Dr. Cr.
Paid-up Share capital 1,00,000
Cash received on a/c of contract
(80% of work certified) 1,20,000
Land and Building 30,000
Machinery at cost (75% at site) 40,000
Bank 4,000
Materials issued to site 40,000
Direct Labour 55,000
Expenses at site 2,000
Lorries and Vehicles 30,000
Furniture 1,000
Office Equipment 10,000
Postage and Telegrams 500
Office Expenses 2,000
Rate and Taxes 3,000
Fuel and Power 2,500
2,20,000 2,20,000
The contract Price is Rs. 3,00,000 and work certified is Rs.1,50,000. the work completed since certification is
estimated at Rs. 1,000(at cost). Machinery costing Rs. 2,000 was returned to stores at the end of the year.
Stock of material at site on 31-12-2006 was of the value of Rs.5,000. Wages outstanding were Rs. 200.
Depreciation on Machinery at 10%. You are required to calculate the profit from the contract and show how the
work-in-progress will appear in the balance sheet as on 31-12-2006.
55) Modern Constructions Ltd obtained a contract No.B-37 for Rs.40 Lakhs. The following balances and
information relates to the contract for the year just ended-
At the beginning of At the end of the
Particulars
the year Rs. year Rs.
Work-in-Progress: Work Certificate 9,40,000 30,00,000
Work Uncertified 11,200 32,000
Materials at site 8,000 20,000
Accrued Wages 5,000 3,000


Materials issued from Stores Rs.4,00,000 Indirect Expenses Rs.10,000
Materials directly purchased Rs.1,50,000 Share of General Overheads for B-37 Rs.18,000
Wages paid Rs,6,00,000 Materials returned to Supplier Rs,15,000
Architect’s Fees Rs.51,000 Fines and Penalties paid Rs.12,000
Plant Hire Charges Rs.50,000 Materials returned to Stores Rs.25,000
The Contractee pays 80% of Work Certified in cash. You are required to prepare-
• Contract Account showing clearly the amount of profits transferred to Profit and Loss Account,
• Contractee’s Account, and
• Balance Sheet
56) A contractor commenced a building contract on October 1, 2010. The contract price is Rs. 4,40,000. The
following data pertaining to the contract for the year 2011-2012 has been compiled from his books and is as
under :
The cash received represents 80% of work certified. It has been estimated that further costs to complete the
contract will be Rs. 23,000 including the materials at site as on March 31, 2012.
Required :
Determine the profit on the contract for the year 2011-12 on prudent basis, which has to be credited to Costing
P/L A/c. (PM,SM)
14. MARGINAL COSTING

57) Following information’s are available for the year 2013 and 2014 of PIX Limited:
Year 2013 2014
Sales Rs.32, 00,000 Rs.57, 00,000
Profit/ (Loss) (Rs.3,00,000) Rs.7, 00,000
Calculate – (a) P/V ratio, (b) Total fixed cost, and (c) Sales required to earn a Profit of Rs. 12,00,000
58) PQR Ltd. has furnished the following data for the two years:
2011 2012
Sales Rs.8,00,000 ?
Profit/Volume Ratio (P/V ratio) 50% 37.5%
Margin of Safety sales as a % of total sales 40% 21.875%

There has been substantial savings in the fixed cost in the year 2012 due to the restructuring process. The
company could maintain its sales quantity level of 2011 in 2012 by reducing selling price.
You are required to calculate the following:
i) Sales for 2012 in Rs.
ii) Fixed cost for 2012
iii) Break-even sales for 2012 in Rupees.
59) MNP Ltd sold 2,75,000 units of its product at Rs. 37.50 per unit. Variable costs are Rs. 17.50 per unit
(manufacturing costs of Rs. 14 and selling cost Rs. 3.50 per unit). Fixed costs are incurred uniformly
throughout the year and amount to Rs. 35,00,000 (including depreciation of Rs.15,00,000). there are no
beginning or ending inventories.
Required:
i) Estimate breakeven sales level quantity and cash breakeven sales level quantity.
ii) Estimate the P/V ratio.
iii) Estimate the number of units that must be sold to earn an income (EBIT) of Rs. 2,50,000.
Estimate the sales level achieve an after-tax income (PAT) of Rs. 2,50,000. Assume 40% corporate Income
Tax rate.
60) A Company sells two products, J and K. The sales mix is 4 units of J and 3 units of K. The contribution
margins per unit are Rs. 40 for J and Rs.20 for K. Fixed costs are Rs. 6,16,000 per month. Compute the break-
even point.
61) T Ltd produces a single product ‘T-10’ and sells it at a fixed price of Rs. 2,050 per unit. The production and
sales data for first quarter of the year 2014-15 are as follows:
Actual/budget information for each month was as follows:

Direct materials 4 kilograms at Rs.120 per kilogram
Direct labour 6 hours at Rs.60 per hour
Variable production overheads 150% of direct labour
Sales commission 15% of sales value
Fixed production overheads Rs. 5,00,000
Fixed selling overheads Rs. 95,000
There was no opening inventory at the start of the quarter. Fixed production overheads are budgeted at Rs.
60,00,000 per annum and are absorbed into products based on a budgeted normal output of 60,000 units per
annum.
Required:
a) Prepare a profit statement for each of the three months using absorption costing principles.
b) Prepare a profit statement for each of the three months using marginal costing principles.
c) Present a reconciliation of the profit or loss figures given in your answer to (a) and (b).
(PM, SM, RTP- Nov 15)
15. STANDARD COSTING
62) The standard cost of a chemical mixture is as follows:
40% material A at Rs. 20 per kg.
60% material B at Rs. 30 per kg.
A standard loss of 10% of input is expected in production. The cost records for a period showed the following
usage :
90 kg material A at a cost of Rs. 18 per kg.

110 kg material B at a cost of Rs. 34 per kg.

The quantity produced was 182 kg. of good product.
Calculate all material variances.
63) SV Ltd. manufactures product BXE by mixing three raw materials. For every batch of 100 kgs. of BXE 125 Kgs of
the raw materials are used. During April 60 batches were prepared to produce 5,600 Kgs of BXE. The standard
and actual particulars for the month are:
Raw Standard Actual Quantity of
materials Mix % Price / Kg Rs. Mix % Price / Kg Rs. Raw materials purchase
A 50 20 60 21 5,000
B 30 10 20 8 2,000
C 20 5 20 6 1,250
Calculate relevant material variances.
64) Following are the details of the product Phomex for the month of April 2013:
Standard quantity of material required per unit 5 Kg
Actual output 1000 units
Actual cost of materials used Rs.7,14,000
Material price variance Rs.51,000 (Fav)
Actual price per kg of material is found to be less than standard price per kg of material by Rs. 10. You are
required to calculate:
i) Actual quantity and Actual price of materials used.
ii) Material Usage Variance
iii) Material Cost Variance
65) The budgeted labour force for producing 1000 articles of X is:
a) 30 Men @ Rs.4 per hour for 50 hours
b) 20 Women @ Rs.3 per hour for 30 hours
c) 10 Boys @ Rs.2 per hour for 20 hours
The actual data for producing 2000 articles are:
a) 50 Men @ Rs.4.5 per hour for 50 hours
b) 60 Women @ Rs.3 per hour for 30 hours
c) 20 Boys @ Rs.2 per hour for 15 hours
Calculate labour variances.
66) The standard labour employment and the actual labour engaged in a 40 hours week for a job are as under:
Standard Actual
Category of Workers No. of Wage Rate No. of Wage Rate
workers per hour (Rs.) workers per hour (Rs.)
Skilled 65 45 50 50
Semi-skilled 20 30 30 35
Unskilled 15 15 20 10
Standard output: 2000 units; Actual output: 1800 units
Abnormal Idle time 2 hours in the week
Calculate:
(i) Labour Cost Variance

(ii) Labour Efficiency Variance
(iii) Labour Idle Time Variance.
67) KPR Limited operates a system of standard costing in respect of one of its products which is manufactured
within a single cost centre. The Standard Cost Card of a product is as under:
Standard Unit cost (Rs.)
Direct material 5 kgs @Rs.4.20 21.00
Direct labour 3 hours @Rs.3.00 9.00
Factory overhead Rs.1.20 per labour hour 3.60
Total manufacturing cost 33.60
The production schedule for the month of June, 2007 required completion of 40,000 units. However, 40,960
units were completed during the month without opening and closing work-in process inventories.
Purchases during the month of June, 2007, 2,25,000 kgs of material at the rate of Rs.4.50 per kg. Production
and Sales records for the month showed the following actual results.
Material used 2,05,600 kgs.
Direct labour cost (1,21,200 hours) Rs. 3,87,840
Total factory overhead cost incurred Rs. 1,00,000
Sales 40,000 units
Selling price to be so fixed as to allow a mark-up of 20 per cent on selling price.
Required:
a) Calculate material variances based on consumption of material.
b) Calculate labour variances and the total variance for factory overhead.
c) Prepare Income statement for June, 2007 showing actual gross margin.
An incentive scheme is in operation in the company whereby employees are paid a bonus of 50% of direct
labour hour saved at standard direct labour hour rate. Calculate the Bonus amount.
68) The following standards have been set to manufacture a product:
The company manufactured and sold 6,000 units of the product during the year.
Direct material costs were as follows:
12,500 units of P at Rs. 4.40 per unit
18,000 units of Q at Rs. 2.80 per unit
88,500 units of R at Rs. 1.20 per unit
The company worked 17,500 direct labour hours during the year. For 2,500 of these hours the company paid
at Rs. 12 per hour while for the remaining the wages were paid at the standard rate.
Calculate material price, usage variances, labour rate, and efficiency variances.
BUDGETARY CONTROL
69) S Ltd., manufactures and sells 2 products, S1 and S2. The following data is relevant for drawing budget 1997.
a) Projected Sales:

Product Units Price (Rs.)

S1 60,000 140
S2 40,000 200
b) To produce one unit of S1 and S2 the following raw materials are used :
Raw Material Unit Amount used per unit
S1 S2
A Kgs 4 5
B Kgs 2 3
C kgs 2 1
c) Inventories in Units:
Product Expected January 1, 1997 Target December 31, 1997
S1 20,000 25,000
S2 8,000 9,000
Raw Material
A 32,000 Kgs 36,000 Kgs
B 29,000 Kgs 32,000 Kgs
C 6,000 Kgs 7,000 Kgs
d) The anticipated purchase price of raw material A, B and C are Rs.12, Rs.5 and Rs.3 per Kg. respectively.
e) Projected direct labour requirements for 1997, and rates of pay are:
Product Hours per Unit Rate per hour
S1 2 12
S2 3 16
f) Overhead is applied at the rate of Rs.20 per direct labour hour.
Based on the above projections & budget requirements for 1997, prepare the following budgets:
i) Sales budget in Rupees;
ii) Production budget in units;
iii) Raw material purchase budget in quantities;
iv) Raw material purchase budget in Rupees;
v) Direct labour budget in Rupees;
vi) Budgeted finished goods at 31/12 in Rupees;
vii) Profit and Loss Budget.
70) P Ltd., manufactures two products using one type of material and one grade of labour. Shown below is an
extract from the company’s working papers for the next period’s budget:
Particulars Product A Product B
Budgeted Sales (units) 3,600 4,800
Budgeted material consumption
Per-product (kg.) 5 3
Standard hours allowed per product 5 4
Budgeted material cost Rs.12 per Kg. And Budgeted wage rate Rs.8/- per hour.

Overtime premium is 50% and is payable, if a worker works for more than 40 hours a week. There are 90
direct workers. The target productivity ratio for the productive hours worked by the direct workers in actually
manufacturing the products is 80%, in addition the non-productive downtime is budgeted at 20 % of the
productive hours worked.
There are twelve 5 day weeks in the budget period and it is anticipated that sales and production will occur
evenly throughout the whole period. The stock at the beginning of the period will be:
Product A B Raw material
Units 1020 2400 4300 Kg.
The target closing stocks, expressed in terms of anticipated activity during the budget period are: Product A – 15
days sales, Product B – 20 days sales, Raw material – 10 days consumption.
Calculate the material purchases budget and the wages budget for the direct workers, showing the quantities
and values, for the next period.
71) Jigyasa Ltd. is drawing a production plan for its two products Minimax (MM) and Heavyhigh (HH) for the year
2013-14. The company’s policy is to hold closing stock of finished goods at 25% of the anticipated volume of
sales of the succeeding month. The following are the estimated data for two products:
Minimax (MM) Heavyhigh (HH)
Budgeted Production units 1,80,000 1,20,000
(Rs.) (Rs.)
Direct material cost per unit 220 280
Direct labour cost per unit 130 120
Manufacturing overhead 4,00,000 5,00,000
The estimated units to be sold in the first four months of the year 2013-14 are as under
April May June July
Minimax 8,000 10,000 12,000 16,000
Heavy high 6,000 8,000 9,000 14,000
Prepare production budget for the first quarter in month wise.
72) Pentax Limited has prepared its expense budget for 20,000 units in its factory for the year 2013 as detailed
below:
(Rs. per unit)
Direct Materials 50
Direct Labour 20
Variable Overhead 15
Direct Expenses 6
Selling Expenses (20% fixed) 15
Factory Expenses (100% fixed) 7
Administration expenses (100% fixed) 4
Distribution expenses (85% variable) 12
Total 129
Prepare an expense budget for the production of 15,000 units and 18,000 units
73) M/s NNSG Ltd, specialized in manufacturing of piston rings for motor vehicle. It has prepared budget for 8,000
units per annum at budgeted cost of Rs. 21,64,400 as detailed below:
(Rs.) (Rs.)
Fixed cost (Manufacturing) 2,28,000
Variable costs:
Power 18,000
Repairs, etc. 16,000

Other variable cost 6,400

Direct material 6,16,000
Direct labour 12,80,000 19,36,400
21,64,400
Considering the possible impact on sales turnover by market trends, the company decides to prepare flexible
budget with a production target of 4,000 and 6,000 units. On behalf of the company you are required to
prepare a flexible budget for production levels at 50% and 75%. Assuming the selling price per unit is
maintained at Rs. 400 as at present, indicate the effect on net profit. Administration, selling and distribution
overheads continue at Rs. 72,000.
74) A fruit juice manufacturer is in the process of preparing budgets for the next few months, and the following
draft figures are available:Rs. (PM,MTPOCT 15)
Sales forecast
June 6,000 Litres
July 7,500 Litres
August 8,500 Litres
September 7,000 Litres
October 6,500 Litres
A litre of fruit juice has a standard cost of Rs. 75 and a standard selling price of Rs. 105.
Each litre of juice uses 3.5 kg. of fruits and it is policy to have stocks of fruits at the end of each month to cover
50 per cent of next month’s production. There are 5,800 kg in stock on 1st June.
There are 750 litres of finished fruit juice in stock on 1st June and it is policy to have stocks at the end of each
month to cover 10% of the next month’s sales.
Requirements:
a) Prepare a production budget (in litres) for June, July, August and September.
b) Prepare a fruits purchase budget (in kg.) for the months of June, July and August.
c) Calculate the budgeted gross profit for the quarter June to August.
NOTE: All the above Questions are from MM Material 34th edition unless otherwise specified.
THE END

FINANCIAL MANAGEMENT
THEORY
1. TIME VALUE OF MONEY
1) Explain the relevance of time value of money in financial decisions (or) reasons why money in the future is
worth less than similar money today.
2. CAPITAL BUDGETING
2) Distinguish between NPV and IRR.
3) Define Modified IRR.
4) Explain the concept of discontinued Payback period.
5) Explain the concept of Multiple IRR.
6) Specify reasons for “capital budgeting decisions are important, crucial and critical business decisions”.
3. ADVANCED CONCEPTS IN CAPITAL BUDGETING
Nil
4. COST OF CAPITAL
7) Write short notes on significance of cost of capital.
8) What is meant by WACC?
9) Write short notes on CAPM approach.
5. CAPITAL STRUCTURE
10) What is optimum capital structure? Explain.
11) Explain in brief the assumptions of Modigliani-Miller theory.
12) Explain the principles of “Trading on equity”.
13) Discuss financial break-even and EBIT-EPS indifference analysis.
14) Discuss the major considerations in capital structure planning.
15) What is over capitalization? State its causes and consequences.
16) Explain in brief the assumptions of Net Operating income approach.
6. LEVERAGES
17) Differentiate between business risk and financial risk.
18) Explain the concept of leveraged lease.
19) “Operating risk is associated with cost structure whereas financial risk is associated with capital structure of a
business concern”. Critically examine this statement.
7. WORKING CAPITAL MANAGEMENT
20) Discuss the factors to be taken into consideration while determining the requirement of working capital.
21) Discuss the estimation of working capital need based on operating cycle process.
22) Explain the cash management models.
23) What is virtual banking? State its advantages.
24) Write short note on different kinds of float with reference to management of cash.
25) “Management of marketable securities is an integral part of investment of cash”. Comment.
26) Explain the Aging schedule in the context of monitoring of receivables.
27) Write short note on factoring.
28) Explain briefly the functions of treasury department.
IPCC |Guess Questions– May 2016 – Financial Management(Theory) 107
8. RATIO ANALYSIS
29) Diagrammatically present the DU PONT CHART to calculate return on equity.
30) Explain briefly the limitations of financial ratios.
9. FUNDS FLOW STATEMENT

31) Distinguish between cash flow and fund flow statement.
10. SOURCES OF FINANCE

32) Discuss the risk-return considerations in financing of current assets.
33) Write short notes on the following
a) ADR
b) GDR
c) Bridge Finance
d) Venture capital Financing
e) Seed capital assistance
f) Packing Credit
g) Advantages of Debt Securitisation
h) Floating rate bonds
34) State the main features of Deep Discount bonds.
35) Explain the term ‘Ploughing back of Profits’.
36) Discuss the features of Secured Premium notes (SPN’s).
37) Explain the concept of Closed and Open-ended lease.
38) Distinguish between Operating and Finance lease.
39) Differentiate between Factoring and Bills discounting.
40) Write short notes on Pre shipment and post shipment of goods.
41) Discuss the meaning and features of ‘commercial paper’.
11. SCOPE AND OBJECTIVES OF FINANCIAL MANAGEMENT

42) Explain as to how the wealth maximisation objective is superior to the profit maximisation objective?
43) Discuss the functions of CFO.
44) Explain two basic functions of financial management.
45) Differentiate between financial management and Financial Accounting.
THE END
IPCC |Guess Questions– May 2016 – Financial Management(Theory) 108

FINANCIAL MANAGEMENT
PROBLEMS
1. TIME VALUE OF MONEY
1) Mr. Pinto borrowed Rs. 1,00,000 from a bank on a one-year 8% term loan, with interest compounded quarterly.
Determine the effective annual interest on the loan?
2) A person opened an account on April, 2012 with a deposit of Rs. 800. The account paid 6% interest
compounded quarterly. On October 1, 2012, he closed the account and added enough additional money to
invest in a 6-month Time Deposit for Rs. 1,000 earning 6% compounded monthly.
a) How much additional amount did the person invest on October 1?
b) What was the maturity value of his Time Deposit on April 1, 2013?
c) How much total interest was earned?
3) Z plans to receive an annuity of Rs. 5,000 semi-annually for 10 years after he retires in 18 years. Money is
worth 9% compounded semi-annually.
a) How much amount is required to finance the annuity?
b) What amount of single deposit made now would provide the funds for the annuity?
c) How much will Mr. Z receive from the annuity?
4) Mr. Sanyukta has bought a new car and has taken a 20 month car loan of 6, 00,000. The rate of interest is 12
per cent per annum. You are required to compute the amount of monthly loan amortization for Mr. Shankar?
5) You need a sum of Rs. 1,00,000 at the end of 10 years. You know that the best you can do is to deposit some
lump sum amount today at 6% rate of interest or to make equal payments into a bank account, starting a year
from now on which you can earn 6%interest. Find out (SM,RTP NOV 15)
i) What amount to be deposited today or
ii) What amount must be deposited annually?
2. CAPITAL BUDGETING
6) Cello Limited is considering buying a new machine which would have a useful economic life of five years, at a
cost of Rs.1,25,000 and a scrap value of Rs.30,000, with 80 percent of the cost being payable at the start of the
project and 20 percent at the end of the first year. The machine would produce 50,000 units per annum of a new
project with an estimated selling price of Rs.3 per unit. Direct costs would be Rs.1.75 per unit and annual fixed
costs, including depreciation calculated on a straight-line basis, would be Rs.40,000 per annum.
In the first year and the second year, special sales promotion expenditure, not included in the above costs,
would be incurred, amounting to Rs.10,000 and Rs.15,000 respectively.
Evaluate the project using the NPV method of investment appraisal, assuming the company’s cost of capital to
be 10 percent.
7) Elite Cooker Company is evaluating three investment situations: (1) Produce a new line of aluminum skillets,
(2) Expand its existing cooker line to include several new sizes, and (3) develop a new, higher-quality line of
cookers. If only the project in question is undertaken, the expected present values and the amounts of
investment required are:
Project Investment required (Rs.) Present value of Future Cash-Flows (Rs.)

1 2,00,000 2,90,000
2 1,15,000 1,85,000
3 2,70,000 4,00,000
IPCC |Guess Questions– May 2016 – Financial Management (Problems) 109

If projects 1 and 2 are jointly undertaken, there will be no economies; the investments required and present
values will simply be the sum of the parts. With projects 1 and 3, economies are possible in investment
because one of the machines acquired can be used in both the production processes. The total investment
required for projects 1 and 3 combined is Rs.4,40,000. If projects 2 and 3 are undertaken, there are economies
to be achieved in marketing and producing the products but not in investment. The expected present value of
future cash flows for projects 2 and 3 is Rs.6,20,000. If all the three projects are undertaken simultaneously,
the economies noted will still hold. However, a Rs.1,25,000 extension on the plant will be necessary, as space
is not available for all the three projects. Which project or projects should be chosen?
8) A company wants to invest in a machinery that would cost Rs.50,000 at the beginning of year 1. It is estimated
that the net cash inflows from operations will be Rs.18,000 per annum for 3 years, if the company opts to
service a part of the machine at the end of year 1 at Rs.10,000. In such a case, the scrap value at the end of
year 3 will be Rs.12,500. However, if the company decides not to service the part, then it will have to be
replaced at the end of year 2 at Rs.15,400. But in this case, the machine will work for the 4th year also and get
operational cash inflow of Rs.18,000 for the 4th year. It will have to be scrapped at the end of year 4 at
Rs.9,000. Assuming cost of capital at 10% and ignoring taxes, will you recommend the purchase of this
machine based on the Net Present Value of its cash flows?
If the supplier gives a discount of Rs.5,000 for purchase, what would be your decision? (The present value
factors at the end of years 0, 1, 2, 3, 4, 5 and 6 are respectively 1, 0.9091, 0.8264, 0.7513, 0.6830, 0.6209 and
0.5644).
9) APZ Limited is considering to select a machine between two machines 'A' and 'B'. The two machines have
identical capacity, do exactly the same job, but designed differently.
Machine 'A' costs Rs. 8,00,000, having useful life of three years. It costs Rs. 1,30,000 per year to run.
Machine 'B' is an economy model costing Rs. 6,00,000, having useful life of two years. It costs Rs. 2,50,000
per year to run.
The cash flows of machine 'A' and 'B' are real cash flows. The costs are forecasted in rupees of constant
purchasing power. Ignore taxes.
The opportunity cost of capital is 10%.
Which machine would you recommend the company to buy?
10) Shiva Limited is planning its capital investment programme for next year. It has five projects all of which give a
positive NPV at the company cut-off rate of 15 percent, the investment outflows and present values being as
follows:
Project Investment NPV @ 15%
Rs.‘000 Rs.‘000
A (50) 15.4
B (40) 18.7
C (25) 10.1
D (30) 11.2
E (35) 19.3
The company is limited to a capital spending of Rs.1,20,000.
You are required to optimize the returns from a package of projects within the capital spending limit. The
projects are independent of each other and are divisible (i.e. part-project is also possible).
11) PR Engineering Ltd. is considering the purchase of a new machine which will carry out some operations which
are at present performed by manual labour. The following information related to the two alternative models -
Rs.MX’ and Rs.MY’ are available:
Machine Rs.MX’ Machine Rs.MY’
Cost of Machine Rs. 8,00,000 Rs. 10,20,000
Expected Life 6 years 6 years
Scrap Value Rs.20,000 Rs.30,000

Estimated net income before depreciation and tax:
Year Rs. Rs.
1 2,50,000 2,70,000
2 2,30,000 3,60,000
3 1,80,000 3,80,000
4 2,00,000 2,80,000
5 1,80,000 2,60,000
6 1,60,000 1,85,000
Corporate tax rate for this company is 30 percent and company’s required rate of return on investment
proposals is 10%. Depreciation will be charged on straight line basis.
a) Calculate the pay-back period of each proposal.
b) Calculate the Net Present Value of each proposal, if the P.V.factors at 10% are – 0.909, 0.826, 0.751,
0.683, 0.621 and 0.564.
c) Which proposal would you recommend and why?
12) Following are the data on a capital project of X Ltd.
Particulars Project M
Annual cost saving Rs.40,000
Useful life 4 years
Internal rate of return 15%
Profitability index 1.064
Net present value ?
Cost of capital ?
Payback period ?
Salvage value 0
Find the missing values.
13) A hospital is considering to purchase a diagnostic machine costing Rs.80,000. The projected life of the
machine is 8 years and has an expected salvage value of Rs.6,000 at the end of 8 years. The annual
operating cost of the machine is Rs.7,500. It is expected to generate revenues of Rs.40,000 per year for eight
years. Presently, the hospital is outsourcing the diagnostic work and is earning commission income of
Rs.12,000 per annum (net of taxes).
Required: Whether it would be profitable for the hospital to purchase the machine? Give your
recommendation under:
(i) Net Present Value method
(ii) Profitability Index method.
PV factors at 10% are given below:
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467
14) A Ltd. is considering the purchase of a machine which will perform some operations which are at present
performed by workers. Machines X and Y are alternative models. The following details are available:
Machine X (Rs.) Machine Y (Rs.)
Cost of machine 1,50,000 2,40,000
Estimated life of machine 5 years 6 years
Estimated cost of maintenance p.a. 7,000 11,000
Estimated cost of indirect material, p.a. 6,000 8,000
Estimated savings in scrap p.a. 10,000 15,000
Estimated cost of supervision p.a. 12,000 16,000
Estimated savings in wages pa. 90,000 1,20,000
Depreciation will be charged on straight line basis. The tax rate is 30%. Evaluate the alternatives according to:
a) Average Rate Of Return method, and
b) Present Value Index method assuming cost of capital being 10%.
(The present value of Rs.1.00 @ 10% p.a. for 5 years is 3.79 and for 6 years is 4.354)
15) BT Pathology Lab Ltd. is using a X-ray machines which reached at the end of their useful lives. Following new
X-ray machines of two different brands with same features are available for the purchase.
Residual Value of both of above machines shall be dropped by 1/3 of Purchase price in the first year and
thereafter shall be depreciated at the rate mentioned above.
Alternatively, the machine of Brand ABC can also be taken on rent to be returned back to the owner after use
on the following terms and conditions:
• Annual Rent shall be paid in the beginning of each year and for first year it shall be Rs. 1,02,000.
• Annual Rent for the subsequent 4 years shall be Rs. 1,02,500.
• Annual Rent for the final 5 years shall be Rs. 1,09,950.
• The Rent Agreement can be terminated by BT Labs by making a payment of Rs. 1,00,000 as penalty. This
penalty would be reduced by Rs. 10,000 each year of the period of rental agreement.
a) Advise which brand of X-ray machine should be acquired assuming that the use of machine shall be
continued for a period of 20 years.
b) Which of the option is most economical if machine is likely to be used for a period of5 years?
The cost of capital of BT Labs is 12%. (RTP NOV 15)
3. ADVANCED CONCEPTS IN CAPITAL BUDGETING

16) The cash flows of projects C and D are reproduced below:
Cash Flow
Project NPV at 10% IRR
C0 C1 C2 C3
C - Rs. 10,000 +2,000 +4,000 +12,000 + Rs. 4,139 26.5%
D - Rs. 10,000 +10,000 +3,000 +3,000 +Rs. 3,823 37.6%
a) Why there is a conflict of rankings?
b) Why should you recommend project C inspite of lower internal rate of return?
Period
Time
1 2 3
PVIF0.10, t 0.9090 0.8264 0.7513
PVIF0.14, t 0.8772 0.7695 0.6750
PVIF0.15, t 0.8696 0.7561 0.6575
PVIF0.30, t 0.7692 0.5917 0.4552
PVIF0.40, t 0.7143 0.5102 0.3644

17) ABC Company Ltd. has been producing a chemical product by using machine Z for the last two years. Now the
management of the company is thinking to replace this machine either by X or by Y machine. The following
details are furnished to you:
Z X Y
Book value (Rs.) 1,00,000 - -
Resale value now (Rs.) 1,10,000 - -
Purchase price (Rs.) - 1,80,000 2,00,000
Annual fixed costs (including depreciation) (Rs.) 92,000 1,08,000 1,32,000
Variable running cost per unit (Rs.) 3 1.50 2.50
(including labour cost)
Production per hour (units) 8 8 12
You are also provided the following details
Selling price per unit (Rs.) 20
Cost of materials per unit (Rs.) 10
Annual operating hours 2,000
Working life of each of the three machines (as from now) - 5 years
Salvage value of machines Z is Rs. 10,000, X is Rs. 15,000 and Y is Rs. 18,000
The company charges depreciation using straight line method. It is anticipated that an additional cost of Rs.
8,000 per annum would be incurred on special advertising to sell the extra output of machine Y. Assume tax
rate of 50% and cost of capital 10%. The present value of Rs. 1 to be received at the end of the year at 10% is
as under:
Year 1 2 3 4 5
Present value 0.909 0.826 0.751 0.683 0.621
Required: Using NPV method, you are required to analyse the feasibility of the proposal and make
recommendations.
18) A machine purchased six years back for Rs.1,50,000 has been depreciated to a book value of Rs.90,000. It
originally had a projected life of fifteen years and zero salvage value. A new machine will cost Rs.2,50,000 and
result in a reduced operating cost of Rs.30,000 per year for the next nine years. The older machine could be
sold for Rs.50,000. The new machine shall also be depreciated on a straight-line method on nine-year life with
salvage value of Rs.25,000. The company's tax rate is 50% and cost of capital is 10%.
Determine whether the old machine should be replaced.
Given: Present Value of Re. 1 at 10% on 9th year = 0.424; and Present Value of an annuity of Re. 1 at 10% for
8 years = 5.335.
19) Nine Gems Ltd. has just installed Machine-R at a cost of Rs. 2,00,000. The machine has a five year life with no
residual value. The annual volume of production is estimated at 1,50,000 units, which can be sold at Rs. 6 per
unit. Annual operating costs are estimated at Rs. 2,00,000 (excluding depreciation) at this output level. Fixed
costs are estimated at Rs. 3 per unit for the same level of production.
Nine Gems Ltd. has just come across another model called Machine-S capable of giving the same output at an
annual operating cost of Rs. 1,80,000 (exclusive of depreciation). There will be no change in fixed costs.
Capital cost of this machine is Rs. 2,50,000 and the estimated life is for five years with nil residual value.
The company has an offer for sale of Machine-R at Rs. 1,00,000. But the cost of dismantling and removal will
amount to Rs. 30,000. As the company has not yet commenced operations, it wants to sell Machine-R and
purchase Machine-S.
Nine Gems Ltd. will be a zero-tax company for seven years in view of several incentives and allowances
available.
The cost of capital may be assumed at 14%. P.V. factors for five years are as follows:
Year 1 2 3 4 5
P.V. Factor @ 14% 0.877 0.769 0.675 0.592 0.519

a) Advise whether the company should opt for the replacement.
Will there be any change in your view if Machine-R has not been installed but the company is in the process of
selecting one or the other machine?
Support your view with necessary workings.
20) MNP Limited is thinking of replacing its existing machine by a new machine which would cost Rs.60 lakhs. The
company’s current production is 80,000 units, and is expected to increase to 1,00,000 units, if the new
machine is bought. The selling price of the product would remain unchanged at Rs.200 per unit. The following
is the cost of producing one unit of product using both the existing and new machine:
Unit Cost
Existing Machine New Machine
Difference
(80,000 units) (1,00,000 units)
Materials 75.00 63.75 -11.25

Wages and Salaries 51.25 37.50 -13.75
Supervision 20.00 25.00 5.00
Repairs and Maintenance 11.25 7.50 -3.75
Power and Fuel 15.50 14.25 -1.25
Depreciation 0.25 5.00 4.75
Allocated Corporate
Overheads 10.00 12.50 2.50
Total 183.25 165.50 -17.75
The existing machine has an accounting book value of Rs.1,00,000, and it has been fully depreciated for tax
purpose. It is estimated that machine will be useful for 5 years. The supplier of the new machine has offered to
accept the old machine for Rs. 2,50,000. However, the market price of old machine today is Rs.1,50,000 and it is
expected to be Rs. 35,000 after 5 years. The new machine has a life of 5 years and a salvage value of Rs.
2,50,000 at the end of its economic life. Assume corporate Income tax rate at 40%, and depreciation is charged
on straight line basis for Income-tax purposes. Further assume that book profit is treated as ordinary income for
tax purpose. The opportunity cost of capital of the Company is 15%.
Required:
i) Estimate net present value of the replacement decision.
ii) Estimate the internal rate of return of the replacement decision.
iii) Should Company go ahead with the replacement decision? Suggest.
4. COST OF CAPITAL
21) A company issued 10,000, 10% debentures of Rs.100 each on 1.4.2010 to be matured on 1.4.2015. The
company wants to know the current cost of its existing debt and the market price of the debentures is Rs.80.
Compute the cost of existing debentures assuming 35% tax rate.
22) Reserve Bank of India is proposing to sell a 5-year bond of Rs.5,000 at 8 percent rate of interest p.a. The bond
amount will be amortized equally over its life. What is the bond’s present value for an investor if he expects
minimum rate of return of 6 percent?
23) D Ltd. is foreseeing a growth rate of 12% per annum in the next two years. The growth rate is likely to be 10%
for the third and fourth year. After that the growth rate is expected to stabilize at 8% per annum. If the last
dividend was Rs.1.50 per share and the investor’s required rate of return is 16%, determine the current value
of equity share of the company.
The PV factors at 16%
Year 1 2 3 4
PV Factor 0.862 0.743 0.641 0.552

24) Y Ltd. retains Rs.7,50,000 out of its current earnings. The expected rate of return to the shareholders, if they
had invested the funds elsewhere is 10%. The brokerage is 3% and the shareholders come in 30% tax
bracket. Calculate the cost of retained earnings.
25) Aries Limited wishes to raise additional finance of Rs.10 lakhs for meeting its investment plans. It has
Rs.2,10,000 in the form of retained earnings available for investment purposes. Following are further details:
Debt/equity mix 30% - 70%
Cost of Debt:
Up to Rs. 1,80,000 10% [before tax]
Beyond Rs. 1,80,000 16% [before tax]
Earnings per share Rs. 4
Dividend pay out 50% of earnings
Expected growth rate in dividend 10%
Current market price per share Rs. 44
Tax rate 50%
You are required:
a) To determine the pattern for raising the additional finance.
b) To determine the post-tax average cost of additional debt.
c) To determine the cost of retained earnings and cost of equity, and
d) Compute the overall weighted average after tax cost of additional Finance.
26) You are required to determine the weighted average cost of capital of a firm using (i) book value weights and
(ii) market value weights. The following information is available for your perusal:
Present book value of the firm’s capital structure is:
Rs.
Debentures of Rs.100/- each 8,00,000
Preference Shares of Rs.100/- each 2,00,000
Equity Shares of Rs.10/- each 10,00,000
20,00,000
All these securities are traded in the capital markets. Recent prices are:
Debentures @ Rs.110, Preference shares @ Rs.120 and Equity shares @ Rs.22.
Anticipated external financing opportunities are as follows:
i) Rs.100 per debenture redeemable at par : 20 years maturity 8% coupon rate, 4% floatation costs, sale
price Rs.100.
ii) Rs.100 preference share redeemable at par: 15 years maturity, 10% dividend rate, 5% floatation costs,
sale price Rs.100.
iii) Equity shares: Rs.2 per share floatation costs, sale price Rs.22.
In addition, the dividend expected on the equity share at the end of the year is Rs.2 per share; the anticipated
growth rate in dividends is 5% and the firm has the practice of paying all its earnings in the form of dividend.
The corporate tax rate is 50%.
27) The Following is the capital structure of a company.
Sources Book Value (Rs.) Market Value (Rs.)
Equity shares @ Rs.100/- each 80,00,000 1,60,00,000
9% Cumulative Preference Shares@ 100/- each 20,00,000 24,00,000
11% Debentures 60,00,000 66,00,000
Retained Earnings 40,00,000 -
2,00,00,000 2,50,00,000

The current Market price of the company’s equity share is Rs.200/-.For the last year the company had paid
equity dividend at 25% and its dividend is likely to grow 5% every year. The corporate tax rate is 30% and
shareholders personal income tax rate is 20%.
You are required to calculate:
a) Cost of capital for each source of capital.
b) WACC on the basis of book value weights.
c) WACC on the basis of Market value weights.
28) Three companies A, B & C are in the same type of business and hence have similar operating risks. However,
the capital structure of each of them is different and the following are the details:
A B C
Equity share capital Rs.4,00,000 Rs.2,50,000 5,00,000
[face value Rs.10/- per share ]
Market Value per share 15 20 12
Dividend per share 2.70 4 2.88
Debentures Nil 1,00,000 2,50,000
[face value per debenture]
Market value per debenture - 125 80
Interest rate - 10% 8%
Assume that the current levels if dividends are generally expected to continue indefinitely and the income tax
rate at 50%.
You are required to compute Weighted Average Cost of Capital.
5. CAPITAL STRUCTURE
29) A Company earns a profit of Rs. 3,00,000 per annum after meeting its interest liability of Rs. 1,20,000 on 12%
debentures. The Tax rate is 50%. The number of Equity Shares of Rs. 10 each are 80,000 and the retained
earnings amount to Rs. 12,00,000. The company proposes to take up an expansion scheme for which a sum
of Rs. 4,00,000 is required. It is anticipated that after expansion, the company will be able to achieve the same
return on investment as at present. The funds required for expansion can be raised either through debt at the
rate of 12% or by issuing Equity Shares at par.
Required:
a) Compute the Earnings Per Share (EPS), if:
i) The additional funds were raised as debt
ii) The additional funds were raised by issue of equity shares.
b) Advise the company as to which source of finance is preferable.
30) Excel Limited is considering three financing plans. The key information is as follows:
a) Total funds to be raised, Rs.2,00,000.
b) Financing plans
Plans Equity (%) Debt (%) Preference (%)
A 100  
B 50 50 
C 50  50
c) Cost of debt 8 per cent; cost of preference shares 8 per cent.
d) Tax rate, 35 per cent.
e) Equity shares of the face value of Rs.10 each will be issued at a premium of Rs.10 per share.

f) Expected EBIT Rs.80,000.
Determine for each plan:
i) Earnings per share (EPS) and financial break-even point.
ii) Indicate if any of the plans dominate and compute the EBIT range among the plans for indifference.
31) X Ltd is considering the following two alternatives
Plan I Plan II
Amount (Rs) Amount (Rs)
Equity Shares of Rs.10 /- each 4,00,000 4,00,000
12 % Debentures 2,00,000 -
Preference Shares of Rs.100/- each - 2,00,000
6,00,000 6,00,000
The indifference point between the plans is Rs.2,40,000 .Corporate Tax rate is 30% .Calculate the rate of
Dividend of Preference Shares.
32) There are two firms P and Q which are identical except P does not use any debt in its capital structure while Q
has Rs.8,00,000, 9% debentures in its capital structure. Both the firms have Earnings Before Interest And Tax
of Rs.2,60,000 p.a. and the capitalization rate is 10%. Assuming the corporate tax rate of 30%, calculate the
value of these firms according to MM Hypothesis.
33) There are two firms N and M, having same earnings before interest and taxes i.e. EBIT of Rs. 20,000. Firm M
is levered company having a debt of Rs. 1,00,000 @ 7% rate of interest. The cost of equity of N company is
10% and of M company is 11.50%. Find out how arbitrage process will be carried on?
34) Company P and Q are identical in all respects including risk factors except for debt/equity, company P having
issued 10% debentures of Rs. 18 lakhs while company Q is unlevered. Both the companies earn 20% before
interest and taxes on their total assets of Rs. 30 lakhs. (RTP NOV 15)
Assuming a tax rate of 50% and capitalization rate of 15% from an all-equity company. Compute the value of
companies P and Q using (i) Net Income Approach and (ii) Net Operating Income Approach.
6. LEVERAGES
35) X Corporation has estimated that for a new product its break-even point is 2,000 units if the item is sold for
Rs.14 per unit; the cost accounting department has currently identified variable cost of Rs.9 per unit. Calculate
the degree of operating leverage for sales volume of 2,500 units and 3,000 units. What do you infer from the
degree of operating leverage at the sales volumes of 2,500 units and 3,000 units and their difference if any?
36) A company operates at a production level of 5,000 units. The contribution is Rs.60 per unit, operating leverage
is 6, combined leverage is 24. If tax rate is 30%, what would be its earnings after tax?
37) From the following financial data of Company A and Company B: Prepare their Income Statements.
Company A Company B
Rs. Rs.
Variable Cost 56,000 60% of sales
Fixed Cost 20,000 -
Interest Expenses 12,000 9,000
Financial Leverage 5:1 -
Operating Leverage - 4:1
Income Tax Rate 30% 30%
Sales - 1,05,000
38) The following details of RST Limited for the year ended 31March, 2013 are given below:
Operating leverage 1.4
Combined leverage 2.8
Fixed Cost (Excluding interest) Rs. 2.04 lakhs
Sales Rs. 30.00 lakhs
12% Debentures of Rs. 100 each Rs. 21.25 lakhs
Equity Share Capital of Rs. 10 each Rs. 17.00 lakhs
Income tax rate 30 per cent
Required:
a) Calculate financial leverage
b) Calculate p/v ratio and earning per share (EPS)
c) If the company belongs to an industry, whose assets turnover is 1.5, does it have a high or low assets
leverage?
d) At what level of sales the earning before tax (EBT) of the company will be equal to zero?
39) The capital structure of JCPL ltd is as follows.
Rs.
Equity Share Capital of Rs.10/- each 8,00,000
8% Preference Share capital of Rs.10/- each 6,25,000
10% Debentures of Rs.100/- each 4,00,000
18,25,000
Profit after tax (tax rate 30%) Rs.1,82,000
Operating expenses (including depreciation Rs.90,000) being 1.50 times of EBIT
Equity Share dividend paid 15%
Market Price per equity share Rs.20/-
Required to calculate:
i) Operating and Financial Leverage
ii) Cover for the preference and Equity share of dividends.
iii) The earning yield and price earnings ratio.
iv) The net fund flow.
40) Alpha Ltd. has furnished the following Balance Sheet as on March 31, 2011:

Equity Share Capital (1,00,000 10,00,000 Fixed Assets 30,00,000
equity shares of Rs. 10 each) Current Assets 18,00,000
15% Debentures 28,00,000
Current Liabilities 8,00,000
48,00,000 48,00,000
1. Annual Fixed Cost other than Interest 28,00,000
2. Variable Cost Ratio 60%
3. Total Assets Turnover Ratio 2.5
4. Tax Rate 30%
i) Earnings per Share (EPS), and
ii) Combined Leverage.

7. WORKING CAPITAL MANAGEMENT

41) Aneja Limited, a newly formed company, has applied to the commercial bank for the first time for financing its
working capital requirements. The following information is available about the projections for the current year.
Estimated level of activity: 1,04,000 completed units of production plus 4,000 units of work-in-progress Based
on the above activity, estimated cost per unit is:
Raw material Rs.80 per unit
Direct wages Rs.30 per unit
Overheads (exclusive of depreciation) Rs.60 per unit
Total cost Rs.170 per unit
Selling price Rs.200 per unit
Raw materials in stock: Average 4 weeks consumption, work-in-progress (assume 50% completion stage in
respect of conversion cost) (materials issued at the start of the processing)
Finished goods in stock 8,000 units
Credit allowed by suppliers Average 4 weeks
Credit allowed to debtors receivables Average 8 weeks
Lag in payment of wages Average 1 ½ weeks
Cash at banks (for smooth operations) is expected to be Rs.25,000
Assume that production is carried on evenly throughout the year (52 weeks) and wages and overheads accrue
similarly. All sales-are on credit basis only.
You are required to calculate the net working capital required.
42) PQ Ltd., a company newly commencing business in 2013 has the under mentioned projected Profit and Loss
Account:
Rs. Rs.
Sales 2,10,000
Cost of goods sold 1,53,000
Gross Profit 57,000
Administrative Expenses 14,000
Selling Expenses 13,000 27,000
Profit before tax 30,000
Provision for taxation 10,000
Profit after tax 20,000
The cost of goods sold has been arrived at as under:
Materials used 84,000
Wages and manufacturing Expenses 62,500
Depreciation 23,500
1,70,000
Less: Stock of Finished goods 17,000
(10% of goods produced not yet sold) 1,53,000
The figure given above relate only to finished goods and not to work-in-progress. Goods equal to 15% of the
year’s production (in terms of physical units) will be in process on the average requiring full materials but only
IPCC | Guess Questions– May 2016 – Financial Management (Problems) 119

40% of the other expenses. The company believes in keeping materials equal to two month’s consumption in
stock. All expenses are paid one month in Advance. Suppliers of materials will extend 1- 1/2 months credit.
Sales will be 20% for cash and the rest at two months’ credit. 70% of the Income tax will be paid in advance in
quarterly installments. The company wishes to keep Rs.8,000 in cash. 10% has to be added to the estimated
figure for unforeseen contingencies. Prepare an estimate of working capital.
Note: All workings should form part of the answer.
43) Samreen Enterprises has been operating its manufacturing facilities till 31.3.2013 on a single shift working with
the following cost structure
Per unit Rs.
Cost of Materials 6.00
Wages (out of which 40% fixed) 5.00
Overheads (out of which 80% fixed) 5.00
Profit 2.00
Selling Price 18.00
Sales during 2012-13 is Rs.4,32,000/-
As at 31.03.13 the Company held the following balances : Rs.
Stock of raw materials (at cost) 36,000
Work-in-progress (valued at prime cost) 22,000
Finished goods (valued at total cost) 72,000
Sundry debtors 1,08,000
In view of increased market demand, it is proposed to double production by working an extra shift. It is
expected that a 10% discount will be available from suppliers of raw materials in view of increased volume of
business. Selling price will remain the same. The credit period allowed to customers will remain unaltered.
Credit availed of from suppliers will continue to remain at the present level i.e., 2 months. Lag in payment of
wages and expenses will continue to remain half a month.
You are required to assess the additional working capital requirements, if the policy to increase output is
implemented.
44) Alpha Limited has forecasted the following information for the year ending 31st March, 2012:
Balance as at Balance as at
Particulars 1st April, 31st March,
2011 (Rs.) 2012 (Rs.)
Raw Material 45,000 65,356
Work-in-progress 35,000 51,300
Finished goods 60,181 70,175
Debtors 1,12,123 1,35,000
Creditors 50,079 70,469
Annual purchases of raw material (all 4,00,000
credit) 7,50,000
Annual cost of production 9,15,000
Annual cost of goods sold 9,50,000
Annual operating cost 11,00,000
Annual sales (all credit)
You may take one year as equal to 365 days.
i) Net operating cycle period.
ii) Number of operating cycles in the year.
iii) Amount of working capital requirement.

45) A Ltd. has a total sales of Rs.3.2 crores and its average collection period is 90 days. The past experience
indicates that bad-debt losses are 1.5% on sales. The expenditure incurred by the firm in administering its
receivable collection efforts are Rs.5,00,000. A factor is prepared to buy the firm’s receivables by charging 2%
commission. The factor will pay advance on receivables to the firm at an interest rate of 18% p.a. after
withholding 10% as reserve.
Calculate the effective cost of factoring to the Firm.
46) The Megatherm Corporation has just acquired a large account. As a result, it needs an additional
Rs.75,000 in working capital immediately. It has been determined that there are three feasible sources of
funds:
a) Trade credit: The company buys about Rs.50,000 of materials per month on terms of 3/30, net 90.
Discounts are taken.
b) Bank loan: The firm’s bank will lend Rs.1,00,000 at 13 per cent. A 10 per cent compensating
balance will be required, which otherwise would not be maintained by the company.
c) A factor will buy the company’s receivables (Rs.1,00,000 per month), which have a collection period
of 60 days. The factor will advance up to 75 per cent of the face value of the receivables at 12 per
cent on an annual basis. The factor will also charge a 2 per cent fee on all receivables purchased. It
has been estimated that the factor’s services will save the company a credit department expense and
bad-debts expenses of Rs.1,500 per month.
On the basis of annual percentage cost, which alternative should the company select?
47) XYZ Co. Ltd. is a pipe manufacturing company. Its production cycle indicates that materials are
introduced in the beginning of the production cycle; wages and overhead accrue evenly throughout the
period of the cycle. Wages are paid in the next month following the month of accrual. Work in process
includes full units of raw materials used in the beginning of the production process and 50% of wages
and overheads are supposed to be conversion costs. Details of production process and the components
of working capital are as follows:
Production of pipes 12,00,000 units
Duration of the production cycle One month
Raw materials inventory held One month consumption
Finished goods inventory held for Two months
Credit allowed by creditors One month
Credit given to debtors Two months
Cost price of raw materials Rs.60 per unit
Direct wages Rs.10 per unit
Overheads Rs.20 per unit
Selling price of finished pipes Rs.100 per unit
Required to calculate the amount of working capital required for the company.
48) Satyam Sundaram Ltd.’s Profit and Loss A/c and Balance Sheet for the year ended 31.12.2000 are given
below. You are required to calculate working capital requirement & operating cycle period.
Trading and profit & loss a/c for the year ended 31.12.2000
To Opening Stock: By Credit Sales 1,00,000
Raw materials 10,000 By Closing Stock:
Work-in-progress 30,000 Raw materials 11,000
Finished goods 5,000 Work-in-progress 30,500
To Credit Purchase 35,000 Finished goods 8,500
To Wages & Manufacturing exp. 15,000

To Gross profit c/d 55,000
To Administrative exp. By Gross profit b/d

To Selling and Dist. Exp.
To Net Profit
1,50,000 1,50,000
15,000 55,000
10,000
30,000
55,000 55,000
Balance sheet as at 31.12.2000

Share Capital (16,000 equity Fixed assets 1,00,000
Shares of Rs.10 each) 1,60,000 Closing Stock:
Profit and Loss Account 30,000 Raw materials 11,000
Creditors 10,000 Work in Progress 30,500
Finished goods 8,500
Debtors 30,000
Cash and Bank 20,000
2,00,000 2,00,000
Opening debtors and opening creditors were Rs.6,500 and Rs.5,000 respectively.
49) Misha Limited presently gives Terms of net 30 days. It has Rs.6 crores in sales, and its average collection
period is 45 days. To stimulate demand ,the company may give terms of net 60 days .If it does instigate these
terms ,sales are expected to be 75days ,with no difference in habits between old and new customers .Variable
costs are 0.80 for every Rs.1. of sales ,and the company’s required rate of return on investment in receivables
is 20 percent .Should the company extend its credit period?(Assume 360 days year)
50) Sonachandi Limited has present annual sales of 10,000 units at Rs. 300 per unit. The variable cost is Rs. 200
per unit and the fixed costs amount to Rs. 3,00,000 per annum. The present credit period allowed by the
company is 1 month. The company is considering a proposal to increase the credit period to 2 months and 3
months and has made the following estimates:
Existing Proposed
Credit Policy 1 month 2 months 3 months
Increase in sales - 15% 30%
% of Bad Debts 1% 3% 5%
There will be increase in fixed cost by Rs. 50,000 on account of increase of sales beyond 25% of present level.
The company plans on a pre-tax return of 20% on investment in receivables. You are required to calculate the
most paying credit policy for the company.
51) A new customer with 10% risk of non-payment desires to establish business connections with you. He would
require 1.5 month of credit and is likely to increase your sales by Rs.1,20,000 p.a. Cost of sales amounted to
85% of sales. The tax rate is 30%. Should you accept the offer if the required rate of return is 40% (after tax)?

8. RATIO ANALYSIS
52) Given below are the Profit and Loss Statement of Om Limited for the year ended 31st March, 2014 and
Balance Sheet as on that date: (MM, SM)
Profit and Loss Statement
Rs. Rs.
in lakhs in lakhs
Sales 7,850
Less: Cost of goods sold 5,232
Gross Profit 2,618
Less: Administrative Expenses 240
Selling & Distribution Expenses 545
Finance Charge 280
Depreciation 540 1,605
Profit Before Tax 1,013
Less: Tax Provision 500
Net Profit 513
Less: Proposed dividend 400
Retained Earnings 113
Balance Sheet
Rs. Rs. Rs. Rs.
Liabilities Assets
in lakhs in lakhs in lakhs in lakhs
Share Capital
4,000 Gross Block 6,550
(Rs.10 each)
Reserve & i) Less: Accumulated
2,000 1,540 5,010
Surplus depreciation.
Add: Retained
113 2,113
Earnings
Secured loans 2,500
Unsecured loans 1,500 Investments 2,500
Current liabilities
Stock 1,500
and provisions:
Sundry Creditors 550 Debtors 1,800
Tax Provision 500 Cash at bank 700
Proposed
400 1,450 Cash in hand 53 4,053
dividend
Total 11563 Total 11563
11,563
You are required to show the following ratios:
1. Gross yield percentage
2. Market value to book value per share
3. Price-earnings ratio
4. Market price to cash flow
Market price per share may be taken as Rs.30 which was arrived at by taking average share price for the
month of March, 2014.

53) Given below is the Balance Sheet of Ahuja Company as on 31.12.2013
Rs.(’000) Rs.(’000)
Share Capital Net Block 180
Equity shares of Rs.10 each 100 Inventories 100
General Reserve 10 Sundry Debtors 40
Capital Reserve 15 Cash and Bank Balances 40
Capital Redemption Reserve 50 Profit & Loss A/c 20
12% Convertible Debentures 55
(convertible into equity shares by
31.3.2013 at a 10% premium)
14% Debentures 50
(25% Redeemable by 31.3.2013)
Current Liabilities 100
Total 380 Total 380
The company plans to issue 14% fresh debentures at the debt-equity ratio of 2:1 excluding capital redemption
reserve and capital reserve for which it has no cash backing. Tanuja Co. Ltd. wants to subscribe fully the fresh
debentures of Ahuja Co. Ltd. You are asked to calculate the amount needed to be set aside for this purpose.
Also you are asked by Ahuja Co Ltd. to determine the proprietary ratio after conversion of debentures and
fresh issue.
54) Using the following information, complete this balance sheet:
Long-term debt to net worth 0.5 to 1

Total asset turnover 2.5 times
Average collection period* 18 days
Inventory turnover 9 times
Gross profit margin 10%
Acid-test ratio 1 to 1
* Assume a 360-day year and all sales on credit.
Rs. Rs.
Cash ? Notes and payables 1,00,000
Accounts receivable ? Long-term debt ?
Inventory ? Common stock 1,00,000
Plant and equipment ? Retained earnings 1,00,000
Total assets ? Total liabilities and equity ?
55) The following figure and ratios are related to company:
Sales for the year (all credit) Rs.30,00,000
Gross profit ratio 25%
Fixed assets turnover (basis on cost of goods sold) 1.5
Stock turnover (basis on cost of goods sold) 6
Liquid ratio 1:1
Current ratio 1.5:1
Debtor’s collection period 2 months
Reserves and surplus to share capital 0.6:1
Capital gearing ratio 0.5
Fixed assets to net worth 1.20:1
You required to prepare
Balance sheet of the company on the basis of above details.
The statement showing working capital requirement, if the company wants to make a provision for
contingencies @ 10% of net working capital including such provision.
56) X Co. has made plans for the next year. It is estimated that the company will employ total assets of
Rs.8,00,000; 50 per cent of the assets being financed by borrowed capital at an interest cost of 8 per cent per
year. The direct costs for the year are estimated at Rs.4,80,000 and all other operating expenses are
estimated at Rs.80,000. The goods will be sold to customers at 150 per cent of the direct costs. Tax rate is
assumed to be 50 per cent.
You are required to calculate; (i) net profit margin; (ii) return on assets; (iii) asset turnover and (iv) return on
owner’ s equity.
57) The capital structure of beta limited is as follows:
Equity share capital of Rs.10/- each 8,00,000
9% Preference Share capital of Rs.10/- each 3,00,000
Additional information: Profit (after tax at 35 per cent), Rs.2,70,000; Depreciation, Rs.60,000; Equity dividend
paid, 20 per cent; Market price of equity shares, Rs.40.
You are required to compute the following, showing the necessary workings:
a) Dividend yield on the equity shares
b) Cover for the preference and equity dividends
c) Earnings per shares
d) Price – earnings ratio.
58) The following information and financial ratios of PQR Ltd. relate to the year ended 31st December, 2006:
S.NO Particulars 2006
I. Accounting Information:
Gross Profit 15% of Sales
Net profit 8% of sales
Raw materials consumed 20% of works cost
Direct wages 10% of works cost
Stock of raw materials 3 months’ usage
Stock of finished goods 6% of works cost
Debt collection period 60 days
All sales are on credit
II. Financial Ratios:
Fixed assets to sales 1:3
Fixed assets to Current assets 13:11
Current ratio 2:1
Long-term loans to Current liabilities 2:1
Capital to Reserves and Surplus 1:4
st
If value of fixed assets as on 31 December, 2005 amounted to Rs.26 lakhs, prepare a summarized profit and
Loss Account of the company for the year ended 31st December, 2006 and also the Balance Sheet as on 31st
December, 2006.
59) using following data complete balance sheet given below:
Gross profit Rs.54,000
Shareholder funds Rs.6, 00,000
Gross profit margin 20%
Credit sales to total sales 80%
Total asset turn over 0.3 times

Inventory turnover 4 times
Average collection period (360 days per a year) 20 days
Current ratio 1.8
Long-term debt of equity 40%
Balance sheet
Creditors ? Cash ?
long term debts ? debtors ?
shareholders fund ? inventory ?
fixed assets ?
60) MN Limited gives you the following information related for the year ending 31st March, 2009:
1. Current Ratio 2.5 : 1
2. Debt-Equity Ratio 1 : 1.5
3. Return on Total Assets 15%
4. Total Assets Turnover Ratio 2
5. Gross Profit Ratio 20%
6. Stock Turnover Ratio 7
7. Current Market Price per Equity Share Rs.16
8. Net Working Capital Rs.4,50,000
9. Fixed Assets Rs.10,00,000
10. 60,000 Equity Shares of Rs.10 each
11. 20,000, 9% Preference Shares of Rs.10 each
12. Opening Stock Rs.3,80,000
a) Quick Ratio d) Earnings per Share
e) Price-Earning Ratio.
b) Fixed Assets Turnover Ratio
c) Proprietary Ratio
61) The following accounting information and financial ratios of M Limited relate to the year ended 31st March,
2012:
Inventory Turnover Ratio 6 Times
Creditors Turnover Ratio 10 Times
Debtors Turnover Ratio 8 Times
Current Ratio 2.4
Gross Profit Ratio 25%
Total sales Rs.30,00,000; cash sales 25% of credit sales; cash purchases Rs.2,30,000; working capital
Rs.2,80,000; closing inventory is Rs.80,000 more than opening inventory.
a) Average Inventory e) Average Payment Period
b) Purchases f) Average Collection Period
c) Average Debtors g) Current Assets
d) Average Creditors h) Current Liabilities.

62) From the following information, prepare a summarized balance sheet as at 31st march, 2002
Working capital 2,40,000
Bank overdraft 40,000
Fixed assets to proprietary ratio 0.75
Reserves and surplus 1,60,000
Current ratio 2.5
Liquid ratio 1.5
9. FUNDS FLOW STATEMENT
63) Following are the financial statements of Zed Ltd.:
Balance Sheet as on
Particulars 31.3.2007 31.3.2006
Capital and liabilities
Share capital 1,67,500 1,50,000
Share premium 3,35,000 2,37,500
Reserves & surplus 1,74,300 1,23,250
Debentures 2,40,000 -
Long-term loans 40,000 50,000
Creditors 28,800 27,100
Bank O.D 7500 6,250
Accursed expenses 4,350 4,600
Income Tax payable 48,250 16,850
10,45,700 6,15,550
Assets
Land 3600 3600
Building net of depreciation 6,01,800 1,78,400
Machinery net of Dep. 1,10,850 1,07,050
Investments in A ltd. 75,000 -
Stock 58,800 46,150
Debtors 76,350 77,150
Trade investments 40,000 1,05,000
Cash 77,400 95,900
10,45,700 6,15,550
Income Statement
For the year ended March 31, 2007
Particulars Amount
Net Sales 13,50,000
Less: Cost of goods sold and operating expenses (including depreciation on buildings
of Rs.6,600 and depreciation on machinery of Rs.11,400) 12,58,950
Net operating profit 91,050
Gain on sale of trade investments 6,400
Gain on sale of machinery 1,850
Profits before tax 99,300

Income-tax 48,250
Profits after tax 51,050
i) Machinery with a net book value of Rs.9,150 was sold during the year.
ii) The shares of ‘A’ Ltd. were acquired by issue of debentures
Required: Prepare a Funds Flow Statement (Statement of changes in financial position on Working capital
basis) for the year ended March 31, 2007.
64) Given below are the balance sheets of Spark Company for the years ending 31st July, 2013 and 31st July,
2014.
Balance Sheet for the year ending on 31st July
Rs. Rs.
2013 2014
Capital and Liabilities
Share capital 3,00,000 3,50,000
General reserve 1,00,000 1,25,000
Capital reserve (profit on sale of investment) - 5,000
Profit and loss account 50,000 1,00,000
15% Debentures 1,50,000 1,00,000
Accrued expenses 5,000 6,000
Creditors 80,000 1,25,000
Provision for dividend 15,000 17,000
Provision for dividend 35,000 38,000
Total 7,35,000 8,66,000
Assets
Fixed Assets 5,00,000 6,00,000
Less: Accumulated depreciation 1,00,000 1,25,000
Net fixed assets 4,00,000 4,75,000
Long-term investments (at cost) 90,000 90,000
Stock (at cost) 1,00,000 1,35,000
Debtors (net of provisions for doubtful debts of Rs. 20,000 1,12,500 1,22,500
and Rs. 25,000 respectively for 2013 and 2014)
Bills receivables 20,000 32,500
Miscellaneous expenditure 7,500 5,000
Total 7,35,000 8,66,000
1. During the year 2014, fixed asset with a net book value of Rs. 5,000 (accumulated depreciation Rs.
15,000) was sold for Rs. 4,000.
2. During the year 2014, investments costing Rs. 40,000 were sold, and also investments costing Rs. 40,000
were purchased.
3. Debentures were retired at a premium of 10 percent.
4. Tax of Rs. 27,500 was paid for 2013.
5. During 2014, bad debts of Rs. 7,000 were written off against the provision for doubtful debt account.
6. The proposed dividend for 2013 was paid in 2014.
You are required to prepare a funds flow statement (i.e. statement of changes in financial position on working
capital basis) for the year ended 31st July, 2014.

65) Balance sheets of KP Babu Ltd. as on 31st March 2011, &2012 and additional information are as under. Prepare
(a) schedule of changes in working capital, (b) Funds flow from operations for the year ended 31st March 2012.
Balance sheets
Liabilities 31.03.11 31.03.12 Assets 31.03.11 31.03.12
Equity share 40,00,000 40,00,000 Land & building 30,00,000 28,00,000
Capital 8,00,000 9,00,000 Plant & machinery 36,00,000 35,00,000
General reserve 5,00,000 7,20,000 Investments
Profit & loss A/c 20,00,000 16,00,000 ( long term) 8,00,000 7,44,000
10% debentures 10,00,000 12,00,000 Stock 9,60,000 17,00,000
Bank loan (long Debtors 12,00,000 15,96,000
term) Prepaid expenses 1,00,000 80,0000
Creditors 8,00,000 11,60,000 Cash and bank 2,80,000 1,70,000
Outstanding
expenses 40,000 50,000
Proposed
dividend 6,00,000 7,20,000
Provision for
taxation 2,00,000 2,40,000
99,40,000 1,05,90,000 99,40,000 1,05,90,000
a) New machinery for Rs. 6,00,000 was purchased but an old machinery costing Rs. 2,90,000 was sold for Rs.
1,00,000 and accumulated depreciation there on was Rs. 1,50,000.
b) 10% debentures were redeemed at 20 % premium.
c) Investments (long term) were sold for Rs. 90,000 and its profit was transferred to general reserve.
d) Income tax paid during the year 2011-2012 was Rs. 1,60,000.
e) An interim dividend of Rs. 2,40,000 has been paid during the year 2011-2012.
f) Assume provision for taxation as a current liability and proposed dividend as a Non-current liability.
g) Investments (long term) are Non- trade investments.
66) The following are the financial statements of Noah Limited.
Noah Limited
Balance Sheets
31st March 2014 31st March 2013
Assets
Cash 3,49,600 4,83,600
Trade Investments 1,60,000 4,20,000
Debtors 3,05,400 3,08,600
Stock 2,35,200 1,84,600
Prepaid Expenses 7,600 9,200
Investment in A Ltd. 3,00,000 -
Land 14,400 14,400
Buildings, Net of Depreciation 24,07,200 7,13,600
Machinery, Net of Depreciation 4,43,400 4,28,200
Total Assets 42,22,800 25,62,200
Liabilities
Creditors 1,15,200 1,08,400
Bank Overdraft 30,000 25,000
Accrued Expenses 17,400 18,400
Income-Tax Payable 1,93,000 67,400
Current Installment due on Long-
Term Loans 40,000 -
Long-Term Loans 1,60,000 2,00,000
Debentures, Net of Discount 9,60,000 -
Share Capital, Rs. 10 par value 6,70,000 6,00,000
Share Premium 13,40,000 9,50,000
Reserves and Surplus 6,97,200 4,93,000
Total Liabilities 42,22,800 25,62,200
Noah Limited
Income Statement for the year ended 31st March, 2014
(Rs.)
Sales 16,92,400
Cost of goods sold and operating expenses including depreciation on
buildings of Rs. 26,400 and depreciation on machinery of Rs. 45,600 11,91,200
Operating Profit 5,01,200
Gain on Sale of Trade Investments 25,600
Gain on Sale of Machinery 7,400
Profit before Taxes 5,34,200
Income Taxes 2,09,400
Net Profit 3,24,800
a) Machinery with a net book value of Rs. 36,600 was sold during the year.
b) The shares of A Ltd. were acquired upon a payment of Rs. 1,20,000 in cash and the issuance of 3,000
shares of Noah limited. The share of Noah Limited was selling for Rs. 60 a share at that time.
c) A new building was purchased at a cost of Rs. 17,20,000.
d) Debentures having a face value of Rs. 100 each were issued in January 2014, at 96.
e) The cost of trade investments sold was Rs. 2,60,000.
f) The company issued 4,000 shares for Rs. 2,80,000.
g) Cash dividends of Rs. 1.80 a share were paid on 67,000 outstanding shares.
You are required to prepare a statement of changes in financial position on working capital basis of Noah
limited for the year ended 31st March, 2014.
67) From the following summarized Balance Sheet of a Company, as at 31st March, you are required to prepare
funds flow statement. All workings should form part of your answer.
Liabilities 1995 1996 Assets 1995 1996
Equity share Capital 75,000 1,20,000 Fixed Assets at 2,40,070 2,53,730
10% Redeemable cost
Preference Share Capital 1,00,000 80,000 Less: Depreciation
Reserve for Replacement 90,020 98,480
of Machinery 15,000 10,000 1,50,050 1,55,250
Long Term Loans --- 40,000 Investments
Bank Overdraft 22,000 --- Stocks 61,000 76,000
Trade Creditors 84,450 75,550 Trade Debtors 98,000 1,04,000
Proposed Dividends on: Bank 88,000 85,000
Equity Shares 12,000 24,000 11,750 32,000
Profit and Loss Account 1,00,350 1,02,700

a) During the year, additional equity capital was issued to the extent of Rs.25,000 by way of bonus shares
fully paid up.
b) Final dividend on preference shares and an interim dividend of Rs.4,000 on equity shares were paid on
31st March, 1996.
c) Proposed dividends for the year ended 31st March, 1995 were paid in October, 1995.
d) Movement in Reserve for replacement of machinery account represents transfer to Profits and Loss
Account.
e) During the year, one item of plant was up valued by Rs.3,000 and credit of this was taken in the Profit and
Loss Account.
f) Rs.1,700 being expenditure on fixed assets of the year ended 31st March, 1995 wrongly debited to Sundry
Debtors then, was corrected in the next year.
g) Fixed assets costing Rs.6,000 ( accumulated depreciation Rs.4,800) were sold for Rs.250. Loss arising
there from was written off.
h) Preference share redeemed in the year (June, 1995) were out of a fresh issue of equity shares. Premium
paid on redemption was 10%.
10. CASH FLOW STATEMENT

68) The following is the income statement XYZ Company for the year 2004: (PM)
(Rs.)
Sales 1,62,700
Add.: Equity In ABC Company’s earning 6,000
1,68,700
Expenses (Rs.)
Cost of goods sold 89,300
Salaries 34,400
Depreciation 7,450
Insurance 500
Research and development 1,250
Patent amortization 900
Interest 10,650
Bad debts 2,050
Income tax:
Current 6,600
Deferred 1,550 8,150
Total expenses 1,54,650
Net income 14,050
Additional information’s are:
i) 70% of gross revenue from sales were on credit.
ii) Merchandise purchases amounting to Rs.92,000 were on credit.
iii) Salaries payable totaled Rs.1,600 at the end of the year.
iv) Amortisation of premium on bonds payable was Rs.1,350.
v) No dividends were received from the other company.
vi) XYZ Company declared cash dividend of Rs.4,000.
vii) Changes in Current Assets and Current Liabilities were as follows:

Prepare a statement showing the amount of cash flow from operations.

69) The Balance Sheet of JK Limited as on 31st March, 2005 and 31st March, 2006 are given below:
Additional Information: (PM, MTP SEP 15)

i) During the year 2005-2006, Fixed Assets with a book value of Rs. 2,40,000 (accumulated depreciation
Rs. 84,000) was sold for Rs.1,20,000.
ii) Provided Rs.4,20,000 as depreciation.
iii) Some investments are sold at a profit of Rs. 48,000 and Profit was credited to Capital Reserve.
iv) It decided that stocks be valued at cost, whereas previously the practice was to value stock at cost less 10
per cent. The stock was Rs. 2,59,200 as on 31.03.05. The stock as on 31.03.06 was correctly valued at
Rs. 3,60,000.
v) It decided to write off Fixed Assets costing Rs. 60,000 on which depreciation amounting to Rs. 48,000 has
been provided.
vi) Debentures are redeemed at Rs. 105.
Required:
Prepare a Cash Flow Statement.
70) The Balance Sheet of X Ltd. as on 31st March, 2007 is as follows: (PM)
The following additional information is available:

i) The stock turnover ratio based on cost of goods sold would be 6 times.
ii) The cost of fixed assets to sales ratio would be 1.4.
iii) Fixed assets costing Rs. 30,00,000 to be installed on 1st April, 2007, payment would be made on March
31, 2008.
iv) In March, 2008, a dividend of 7 per cent on equity capital would be paid.
v) Rs. 5,50,000, 11% Debentures would be issued on 1st April, 2007.
vi) Rs. 30,00,000, Equity shares would be issued on 31st March, 2008.
vii) Creditors would be 25% of materials consumed.
viii) Debtors would be 10% of sales.
ix) The cost of goods sold would be 90 per cent of sales including material 40 per cent and depreciation 5 per
cent of sales.
x) The profit is subject to debenture interest and taxation @ 30 per cent.
Required:
i) Prepare the projected Balance Sheet as on 31st March, 2008.
ii) Prepare projected Cash Flow Statement in accordance with AS-3.
NOTE: All the Questions are from MM Material 34th edition unless otherwise specified.
THE END

DIRECT TAX
1. BASIC CONCEPTS
THEORY:
1. Tax Rates applicable for the Assessment year 2016-17 (MM Amendments Material)
2. State any four instances where the income of the previous year is assessable in the previous year itself
instead of the assessment year. (PM,SM)
3. Compute the tax liability of X Ltd., a domestic company, assuming that the total income of X Ltd. is Rs.
1,01,00,000 and the total income does not include any income in the nature of capital gains.
(MM Amendments Material)
4. Compute the tax liability of X Ltd., a domestic company, assuming that the total income of X Ltd. is Rs.
10,01,00,000 and the total income does not include any income in the nature of capital gains.
(MM Amendments Material)
2. RESIDENTIAL STATUS
THEORY:
5. Discuss the correctness or otherwise of the statement - “Income deemed to accrue or arise in India to a non-
resident by way of interest, royalty and fees for technical services is to be taxed irrespective of territorial nexus”.
(PM,SM)
6. State the activities and operations, income from which is not deemed to accrue or arise in India. (PM, SM)
PROBLEMS:
7. Determination of Residential Status of Crew Member of a Ship.
In the Previous Year 2015-2016, Mr.Krishnan, Indian Citizen, is vessel Manager in Blue Ocean Transits Ltd
which operates Freight voyage from Cochin Port (India) to Colombo Port (Srilanka) on regular basis. It does
not involve in transit of passengers.
Mr. Krishnan, being a Crew Member of Ship, provides you the following information about his voyage during
the FY 2015-16:
a) Date entered into the Continuous Discharge Certificate (For Joining the ship) – 03.08.2015
b) Date entered into the Continuous Discharge Certificate (signing off) – 31.12.2015
c) On 01.01.2016, he reached his native place of Cochin and resigned his job.
Is he a Resident or not for the AY 2016-2017? Comment. (MM Amendments Material)
8. The business of a HUF is transacted from Australia and all the policy decisions are taken there. Mr. E, the
karta of the HUF, who was born in Kolkata, visits India during the P.Y. 2014-15 after 15 years. He comes to
India on 1-4-2014 and leaves for Australia on 1-12-2014. Determine the residential status of Mr. E and the
HUF for A.Y. 2015-16.
9. Determine the taxability of income of US based company Heli Ltd., in India on entering into the following
transactions during the financial year 2015-16: (PM,SM)
(i) Rs. 5 lacs received from an Indian domestic company for providing technical knowhow in India.
(ii) Rs. 6 lacs from an Indian firm for conducting the feasibility study for the new project in Finland. The
payment for the same was made in Finland.
(iii) Rs. 4 lacs from a non-resident for use of patent for a business in India.
(iv) Rs. 8 lacs from a non-resident Indian for use of know-how for a business in Singapore. Such amount was
received in U.S.
(v) Rs. 10 lacs for supply of manuals and designs for the business to be established in Singapore. No
payment for the same was made in India.
IPCC | Guess Questions – May 2016 – Direct Tax 134

10. Mr. Ramesh & Mr. Suresh are brothers and they earned the following incomes during the financial year 2015-
16. Mr. Ramesh settled in Canada in the year 1995 and Mr. Suresh settled in Delhi. Compute the total income
for the assessment year 2016-17. (PM,SM)
3. INCOME FROM SALARIES

THEORY:
11. Profits In Lieu of Salary - Sec.17(3)
PROBLEMS:
12. Mr. Khanna, an employee of IOL, New Delhi, a private sector company, received the following for the financial
year 2014-15:
Sl. No. Particulars Amount

1 Basic pay 1,20,000
2 House rent allowance 1,00,000
3 Special allowance 30,000
Mr. Khanna was residing at New Delhi and was paying a rent of Rs.10,000 a month. Compute the eligible
exemption under section 10(13A) of the Income-tax Act, 1961, in respect of house rent allowance received.
If Mr. Khanna opts for Concessional rent accommodation whereby IOL would be paying a rent of Rs.10,000
per month to the landlord and recovers a sum of Rs.2,500 per month from Mr. Khanna which was in excess of
his entitlement, what will be the perquisite value in respect of such concessional rent accommodation? Which
of the above would be beneficial to Mr. Khanna i.e., HRA or CRA?
13. Mr. Gupta retired on 1.12.2014 after 20 years 10 months of service, receiving leave salary of Rs.5,00,000.
Other details of his salary income are:
Basic Salary : Rs.5,000 p.m. (Rs.1,000 was increased w.e.f. 1.4.2014)
Dearness Allowance : Rs.3,000 p.m. (60% of which is for retirement benefits)
Commission : Rs.500 p.m.
Bonus : Rs.1,000 p.m.
Leave availed during service : 480 days
He was entitled to 30 days leave every year.
You are required to compute his taxable leave salary assuming:
a) He is a government employee.
b) He is a non - government employee.

14. Mr. Mohit is employed with XY Ltd. on a basic salary of Rs.10,000 p.m. He is also entitled to dearness
allowance @ 100% of basic salary, 50% of which is included in salary as per terms of employment. The
company gives him house rent allowance of Rs.6,000 p.m. which was increased to Rs.7,000 p.m. with effect
from 1.01.2015. He also got an increment of Rs.1,000 p.m. in his basic salary with effect from 1.02.2015. Rent
paid by him during the previous year 2014-15 is as under:
April and May, 2014 - Nil, as he stayed with his parents
June to October, 2014 - Rs.6,000 p.m. for an accommodation in Ghaziabad
November, 2014 to March, 2015 - Rs.8,000 p.m. for an accommodation in Delhi.
Compute his gross salary for assessment year 2015-16.
15. Mr. X retired from the services of M/s Y Ltd. on 31.01.2015 after completing service of 30 years and one
month. He received the following on his retirement: (PM,MM)
a) Gratuity Rs.6,00,000. He was covered under the Payment of Gratuity Act, 1972.
b) Leave encashment of Rs.3,30,000 for 330 days leave balance in his account. He was credited 30 days
leave for each completed year of service.
c) As per the scheme of the company, he was offered a car which was purchased on 01.02.2012 by the
company for Rs.5,00,000. Company has recovered Rs.2,00,000 from him for the car. Company
depreciates the vehicles at the rate of 15% on Straight Line Method.
d) An amount of Rs.3,00,000 as commutation of pension for 2/3 of his pension commutation.
e) Company presented him a gift voucher worth Rs.6,000 on his retirement.
f) His colleagues also gifted him a Television (LCD) worth Rs.50,000 from their own contribution.
Following are the other particulars:
a) He has drawn a basic salary of Rs.20,000 and 50% dearness allowance per month for the period from
01.04.2014 to 31.01.2015.
b) Received pension of Rs.5,000 per month for the period 01.02.2015 to 31.03.2016 after commutation of
pension.
Compute his gross total income from the above for Assessment Year 2015-16.
16. Mr. Harish, aged 52 years, is the Production Manager of XYZ Ltd. From the following details, compute the
taxable income for the assessment year 2015-16. (PM,MM)
Basic salary Rs.50,000 per month
Dearness allowance 40% of basic salary
Transport allowance (for commuting between place of residence and office) Rs.3,000 per month
Motor car running and maintenance charges fully paid by employer (The Rs.60,000
motor car is owned by the company and driven by the employee. The
engine cubic capacity is above 1.60 litres. The motor car is used for both
official and personal purpose by the employee.)
Expenditure on accommodation in hotels while touring on official duties met Rs.80,000
by the employer
Loan from recognized provident fund (maintained by the employer) Rs.60,000
Lunch provided by the employer during office hours.
Cost to the employer Rs.24,000
Computer (cost Rs.35,000) kept by the employer in the residence of Mr.
Harish from 1.06.2014
Mr. Harish made the following payments:
Medical insurance premium: Paid in Cash Rs.4,800
Paid by account payee crossed cheque Rs.15,200

17. Ms. Rakhi is an employee in a private company. She receives the following medical benefits from the company
during the previous year 2014-15:
S.No. Particulars Amount(Rs.)
1. Reimbursement of following medical expenses incurred by Ms. Rakhi
(A) On treatment of her self employed daughter in a private clinic 4,000
(B) On treatment of herself by family doctor 8,000
(C) On treatment of her mother-in-law dependent on her, in a nursing 5,000
Home
2. Payment of premium on Mediclaim Policy taken on her health 7,500
3. Medical Allowance 2,000 per month
4. Medical expenses reimbursed on her son's treatment in a government 5,000
Hospital
5. Expenses incurred by company on the treatment of her minor son 1,05,000
Abroad
6. Expenses in relation to foreign travel and stay of Rakhi and her son 1,20,000
abroad for medical treatment
(Limit prescribed by RBI for this is Rs.2,00,000)
Discuss about the taxability of above benefits and allowances in the hands of Rakhi.
18. Mr. Rishi, employed in CD Ltd at Chennai, furnishes you the following information for the year ended
31.03.2015:
a) Basic salary Rs.50,000 per month.
b) Dearness allowance @ 40% of basic salary (eligible for retirement benefits).
c) Motor car (engine cubic capacity above 1.6 litres) owned by CD Ltd. was given to Mr. Rishi for both official
and personal use, for the whole year. Running expenses for personal use was fully met by Mr. Rishi.
Actual expenses Rs.32,400. The car was self-driven by Mr. Rishi.
d) Cost of laptop Rs.40,000 acquired by CD Ltd. in August, 2014 given to Mr. Rishi for Rs.5,000 immediately.
e) Accommodation taken on lease by CD Ltd. given to Mr. Rishi from 01.04.2014 at a concessional monthly
rent of Rs.5,000. The annual lease rent paid to the landlord by the company is Rs.3,00,000.
f) Leave travel concession given to employee, his wife and three children (one daughter aged 7 and twin
sons aged 3). Cost of air tickets (economy class) reimbursed by the employer Rs.30,000 for adults and
Rs.45,000 for three children. Rishi is eligible for availing exemption this year to the extent it is permissible
in law.
g) Contribution of employer to PF was 15% of the basic salary. Equal amount was contributed by Mr. Rishi.
h) Professional tax paid is Rs.3,000, of which Rs.2,000 was paid by the employer.
Compute the total income of Mr. Rishi for the assessment year 2015-16.
19. From the following details, find out the salary chargeable to tax of Mr. Anand for the assessment year 2015-16:
Mr. Anand is a regular employee of Malpani Ltd. in Mumbai. He was appointed on 01-03-2014 in the scale of
25,000-2,500-35,000. He is paid dearness allowance (which forms part of salary for retirement benefits) @
15% of basic pay and bonus equivalent to one and a half month’s basic pay as at the end of the year. He
contributes 18% of his salary (basic pay plus dearness allowance) towards recognized provident fund and the
Company contributes the same amount. He is provided free housing facility which has been taken on rent by
the Company at Rs.15,000 per month. He is also provided with following facilities:
a) The Company reimbursed the medical treatment bill of Rs.40,000 of his daughter, who is dependent on him.
b) The monthly salary of Rs.2,000 of a house keeper is reimbursed by the Company.
c) He is getting telephone allowance @ Rs.1,000 per month.
d) A gift voucher of Rs.4,700 was given on the occasion of his marriage anniversary.
e) The Company pays medical insurance premium to effect an insurance on the health of Mr. Anand
Rs.12,000.

f) Motor car running and maintenance charges fully paid by employer of Rs.36,600. (The motor car is owned
and driven by Mr. Anand. The engine cubic capacity is below 1.60 litres. The motor car is used for both
official and personal purpose by the employee.)
g) Value of free lunch provided during office hours is Rs.2,200 p.a. (PM)
20. Mr. Madhav is the Finance Head of Gamma Ltd. at Ahmedabad. From the following details, compute his total
income for the Assessment Year 2015-16:
Basic salary Rs.22,500 per month
Dearness allowance 1/4th of basic salary
Transport allowance (for commuting between place of residence and office) Rs.2,000 per month
Cost of laptop facility provided for both official and personal use Rs.40,000
Conveyance allowance (out of the said amount Rs.10,000 was Rs.12,000
incurred on conveyance for his official duties)
Expenditure on accommodation in hotels while touring on official duties met Rs.45,000
by the employer
Lunch provided by the employer during office hours.Cost to the Employer Rs.13,500
Gamma Ltd. had taken a house on lease for which it paid a rent of Rs.3,500 p.m. The said
accommodation was provided to Mr. Madhav, who pays rent @ Rs.1,000 p.m to the company. Gamma
Ltd. also hired furniture @ Rs.500 p.m and provided the same to Mr. Madhav free of cost. In addition,
the company provided a television owned by it (Cost Rs.20,000) to Mr. Madhav, free of cost.
Mr. Madhav made the following payments:
Medical insurance premium : Paid in cash Rs.1,500
Paid by cheque Rs.4,500
Contribution to Public Provident Fund (PPF) Rs.1,00,000
4. INCOME FROM HOUSE PROPERTY

THEORY:
21. Explain the concept of Deemed Ownership. (Sec.27)
22. Taxability of Recovery of Unrealised Rent & Arrears of Rent Received.(Sec. 25AA & Sec. 25B)
23. Explain briefly the applicability of section 22 for chargeability of income-tax for: (PM,SM)
i) House property situated in foreign country and
ii) House property with disputed ownership.
24. Mr. Kalpesh borrowed a sum of Rs.30 lakhs from the National Housing Bank towards purchase of a residential
flat. The loan amount was disbursed directly to the flat promoter by the bank. Though the construction was
completed in May, 2016, repayments towards principal and interest had been made during the year ended
31.3.2016. (PM)
In the light of the above facts, state:
i) Whether Mr. Kalpesh can claim deduction under section 24 in respect of interest for the assessment year
2016-17?
ii) Whether deduction under Section 80C can be claimed for the above assessment year, even though the
construction was completed only after the closure of the year?
25. Ganesh has two houses, both of which are self-occupied. The particulars of the houses for the P.Y. 2014-15
are as under.
Particulars House I House II
Municipal valuation p.a. 1,00,000 1,50,000
Fair rent p.a. 75,000 1,75,000
Standard rent p.a. 90,000 1,60,000
Date of completion 31-3-1999 31-3-2001

Municipal taxes paid during the year 12% 8%

Interest on money borrowed for repair of property during the
current year - 55,000
Compute Ganesh’s income from house property for A.Y. 2015-16 and suggest which house should be opted
by Ganesh to be assessed as self-occupied so that his tax liability is minimum.
26. Mr. Krishna owns a residential house in Delhi. The house is having two identical units. First unit of the house is
self-occupied by Mr. Krishna and another unit is rented for Rs. 12,000 p.m. The rented unit was vacant for
three months during the year. The particulars of the house for the previous year 2014-15 are as under:
Standard Rent Rs. 2,20,000 p.a.
Municipal Valuation Rs. 2,44,000 p.a.
Fair Rent Rs. 2,35,000 p.a.
Municipal tax paid by Mr. Krishna 12% of the Municipal Valuation
Light and water charges Rs. 800 p.m.
Interest on borrowed capital Rs. 2,000 p.m.
Insurance charges Rs. 3,500 p.a.
Painting expenses Rs. 16,000 p.a.
Compute income from house property of Mr. Krishna for the A.Y.2015-16.
27. Two brothers Arun and Bimal are co-owners of a house property with equal share. The property was
constructed during the financial year 1999-2000. The property consists of eight identical units and is situated at
Cochin.
During the financial year 2014-15, each co-owner occupied one unit for residence and the balance of six units
were let out at a rent of Rs. 12,000 per month per unit. The municipal value of the house property is Rs.
9,00,000 and the municipal taxes are 20% of municipal value, which were paid during the year. The other
expenses were as follows:
Rs.
i) Repairs 40,000
ii) Insurance premium (paid) 15,000
iii) Interest payable on loan taken for construction of house 3,00,000
One of the let out units remained vacant for four months during the year.
Arun could not occupy his unit for six months as he was transferred to Chennai. He does not own any other
house.
The other income of Mr. Arun and Mr. Bimal are Rs. 2,90,000 and Rs. 1,80,000 respectively, for the financial
year 2014-15.
Compute the income under the head ‘Income from House Property’ and the total income of two brothers for
the assessment year 2015-16.
28. Mrs. Indu, a resident individual, owns a house in U.S.A. She receives rent @ $ 2,000 per month. She paid
municipal taxes of $ 1,500 during the financial year 2014-15. She also owns a two storied house in Mumbai,
ground floor is used for her residence and first floor is let out at a monthly rent of Rs. 10,000. Standard rent for
each floor is Rs. 11,000 per month and fair rent is Rs. 10,000 per month. Municipal taxes paid for the house
amounts to Rs. 7,500. Mrs. Indu had constructed the house by taking a loan from a nationalized bank on 20-6-
2009. She repaid the loan of Rs. 54,000 including interest of Rs. 24,000. The value of one dollar is to be taken
as Rs. 45. Compute total income from house property of Mrs. Indu.

29. Mrs. Rohini Ravi, a citizen of the U.S.A., is a resident and ordinarily resident in India during the financial year
2014-15. She owns a house property at Los Angeles, U.S.A., which is used as her residence. The annual
value of the house is $20,000. The value of one USD ($) may be taken as Rs. 60. She took ownership and
possession of a flat in Chennai on 1.7.2014, which is used for self occupation, while she is in India. The flat
was used by her for 7 months only during the year ended 31.3.2015. The municipal valuation is Rs. 32,000
p.m. and the fair rent is Rs. 4,20,000 p.a. She paid the following to Corporation of Chennai :
Property Tax Rs. 16,200
Sewerage Tax Rs. 1,800
She had taken a loan from Standard Chartered Bank for purchasing this flat. Interest on loan was as under:
Rs.
Period prior to 1.4.2014 49,200
1.4.2014 to 30.6.2014 50,800
1.7.2014 to 31.3.2015 1,31,300
She had a house property in Bangalore, which was sold in March, 2012. In respect of this house, she received
arrears of rent of Rs. 60,000 in March, 2015. This amount has not been charged to tax earlier.
Compute the income chargeable from house property of Mrs. Rohini Ravi for the assessment year 2015-16,
exercising the most beneficial option available.
30. Rajesh, a British national, is a resident and ordinarily resident in India during the P.Y.2014-15. He owns a
house in London, which he has let out at £ 10,000 p.m. The municipal taxes paid to the Municipal Corporation
of London is £ 8,000 during the P.Y.2014-15. The value of one £ in Indian rupee to be taken at Rs. 82.50.
Compute Rajesh’s taxable income for the A.Y. 2015-16.
5. INCOME FROM BUSINESS OR PROFESSION

THEORY:
31. Deduction Based on Actual Payment - Sec.43B
32. Cash Payments > 20,000 - Sec.40A(3)
33. Maintenance of books of accounts - Sec.44AA
34. Tax audit - Sec.44AB
35. Expenditure on Scientific Research - Sec.35
36. Deduction of capital Exp. of Specified Business – Sec.35AD
37. Determination of consideration in the case of transfer of immovable Property -Sec 43CA
38. Investment in new Plant and Machinery in notified backward areas of Specified States- Section 32AD
PROBLEMS:
39. Mr. A commenced operations of the business of setting up a warehouse facility for storage of food grains,
sugar and edible oil on 1-4-2014. He incurred capital expenditure of Rs.80 lakh, Rs.60 lakh and Rs.50 lakh,
respectively, on purchase of land and building during the period January, 2014 to March, 2014 exclusively of
the above businesses, and capitalized the same in its books of account as on 1st April, 2014. The cost of land
included in the above figures are Rs.50 lakhs, Rs.40 lakh and Rs.30 lakh, respectively. Further, during the
P.Y.2014-15, it incurred capital expenditure of Rs.20 lakh, Rs.15 lakh and Rs.10 lakh, respectively, for
extension / reconstruction of the building purchased and used exclusively for the above businesses. Compute
the income under the head “Profits and gains of business or profession” for the A.Y.2015-16 and the loss to be
carried forward, assuming that Mr. A has fulfilled all the conditions specified for claim of deduction under
section 35AD and has not claimed any deduction under Chapter VI-A under the heading “C” – deductions in
respect of certain incomes”. The profits from the business of setting up a warehousing facility (before claiming
deduction under section 35AD and section 32) for the A.Y.2014-15 is Rs.16 lakhs, Rs.14 lakhs and Rs.31
lakhs, respectively.
40. Isac limited is a company engaged in the business of biotechnology. The net profit of the company for the
financial year ended 31-3-2015 is Rs.15,25,890 after debiting the following items:
S.No. Particulars Rs.
1. Purchase price of raw material used for the purpose of in-house research 1,80,000
and development
2. Purchase price of asset used for in-house research and development
wrongly debited to profit and loss account:
a) Land 5,00,000
b) Building 3,00,000
3. Expenditure incurred on notified agricultural extension project 1,50,000
4. Expenditure on notified skill development project:
a) Purchase of land 2,00,000
b) Expenditure on training for skill development 2,50,000
5. Expenditure incurred on advertisement in the souvenir published by a 75,000
political party
Compute the income under the head “Profits and gains of business or profession” for the A.Y.2015-16 of Isac
Ltd.
41. X & Co. a partnership firm, furnishes the following P&L A/c for the previous year ending 31st March, 2015.
To Cost of Goods Sold 2,80,000 By Sales 2,92,000
To Other Expenses 91,000 By Net Loss 1,72,000
To Interest to Partners 25,000
To Remuneration to Partners 68,000
4,64,000 4,64,000
The other expenses debited include Rs.13,600 not allowable. Interest to partners is in excess by Rs.7,100 (not
statutorily allowable). You are required to compute:
a) Book profits of the firm.
b) Permissible remuneration to partners under Sec.40(b).
c) The income of the firm.
42. X Ltd. is a manufacturing company. The profit and loss account of X Ltd. for the year ending March 31, 2015 is
given below:
Rs. Rs.
Sales tax 50,000 Sales 20,10,000
Other expenses 14,15,000
Net profit 5,45,000
20,10,000 20,10,000
Other information:
1. Out of sales tax of Rs. 50,000, only Rs.47,000 is paid. The payment is made as follows:
a) Rs. 40,000 on Sep 2, 2014;
b) Rs. 4,000 on Sep 5, 2015;
c) Rs. 3,000 on Oct 1, 2015.
2. Return of income is submitted on Oct 10, 2015 and evidence of sales tax payment as stated in (b) and (c)
above is submitted along with the return of income.

3. During the previous year 2014-15, the following payments are made in respect of expenses pertaining to
earlier years:
a) Bonus to employees pertaining to the P.Y.2012-13 paid on 30.4.14 - Rs.15,000.
b) Customs duty pertaining to the previous year 2012-13 paid on Dec 1st, 2014: 25,000.
c) Electricity bill pertaining to previous year 2012-13 paid on May 3, 14; Rs.35,000.
d) Excise duty pertaining to the previous year 2013-14 paid on May 20, 2014: 40,000.
e) Leave salary payable to employees pertaining to the previous year 2013-14 paid on December 2,
2014: Rs. 45,000.
These payments do not pertain to the previous year 2014-15. Consequently, these are not recorded in the
profit and loss account given above. Find out the net income of X Ltd.
43. Mr. P submits before you the following details of his business. Compute his taxable business Income for the
A.Y.2015-2016.
Profit & Loss Account for the year ended 31st March 2015
To Office Salaries 1,98,000 By Gross Profit 4,25,000
To Proprietors Salary 60,000 By Profit on Sale of residential 90,000
house (long-term)
To General Expenses 45,000 By Bad debts recovered 24,000
(disallowed in earlier years
assessment)
To Bad Debts 11,500 By Interest from Govt. Securities 14,000
To Advertisement 8,400 By Dividends received 6,000
from agricultural companies
To Fire Insurance Premium 1,500 By Interest from Bank A/c 2,000
To Depreciation 11,700 By Income from Horse Racing 10,000
(Gross)
To Motor Car Expenses 8,500
To Legal charges for defending suit 4,000
for alleged breach of a trading
contract.
To Donation to Delhi University for 10,000
Social Research
To Interest on Proprietors Capital 15,000
To Reserve for future losses 4,000
To Income tax paid on last 7,100
Assessment
To Life Insurance Premium 6,000
To Advance Income tax 4,000
To Net Profit 1,76,300
a) General expenses include 30,000 paid as compensation to an old employee whose services were
terminated as his continuance in service was considered detrimental to the conduct of the business and
Rs.1,000 as help to a poor university student.
b) A sum of 5,000, cost of a small machine has also been included in General Expenses.
c) The advertisement cost includes expenditure of Rs.6,000 on one wooden show case & Rs.1,800 on
calendars.
d) One-fourth of Motor Car Expenses are for personal use of the car.
e) The depreciation is found to be excess by Rs.2,000 compared to the amount allowable under I.T. Rules.
f) Reserve for future losses represents a demand for Sales-tax under dispute.

44. Mr.S furnishes the following income for the assessment year 2015-16.
Profit and Loss Account for the year ending 31-3-2015
Particulars Amount Particulars Amount
To Office expenses 12,400 By Gross Profit 1,98,000
To Audit Fees 12,000 By Sundry Receipts 19,000
To Legal Expenses 8,000 By Customs duty recovered back form 15,300
Govt. (earlier not allowed as deduction)
To Depreciation on Machinery 11,000 By bad debts recovered 3,000
(earlier allowed as deduction)
To Staff Salary 21,000 By Gift from son 40,000
To Bonus to staff 15,000
To Contribution to approved 16,000
Gratuity Fund
To O/S liability for Excise Duties 18,000
To General Expenses 21,000

Other relevant particulars:
a) Bonus to employee according to the Payment of Bonus Act, comes to Rs.4,200.
b) Depreciation on machinery shown in the profit and loss account is calculated according to the income-tax
provisions.
c) General expenses include payment of Rs. 9,000 to an approved educational institute for the purpose of carrying
on scientific research in natural science. The research is, however, unrelated to the business of assessee.
d) During the previous year Mr. S also made a capital expenditure of Rs. 5,000 for the purpose of carrying on a
scientific research related to his business. This expenditure is, however, not recorded in the profit and loss
account.
e) Outstanding liability in respect of excise duty amounting to Rs. 10,500 was paid on 10-4-2015; Rs.1,000
on 10-5-2015; Rs.2,000 on 30-6-2015; Rs.1,000 on 10-7-2015 and Rs. 3,500 is still outstanding. The
return is furnished on 31-7-2015 (last date).
Determine the taxable income of Mr.S for the assessment year 2015-16.
45. X, a leading tax consultant, who maintains books of account on cash basis furnishes the following:
Receipts and Payments Account for the year ending March 31, 2014
Balance brought down 12,400 Purchase of a typewriter 6,000
Fees from clients: Car expenses 18,000
of 2015-16 1,30,500 Office expenses 40,000
of 2014-15 11,500 Salary to staff:
of 2016-17 13,000 of 2015-16 32,000
Presents from clients 24,000 of 2016-17 11,000
Interest-free loan from a client 2,38,000 Expenses in respect of let out 6,000
for purchase of a car property [municipal tax: Rs.2,000,
Winnings from lottery (Gross) 46,000 Repairs -1,000, insurance -3,000]
Dividend from UTI (received on Car purchased on 10.12.2014 2,40,000
September 11, 2014) 12,000 Repairs of office 12,000
Rent of let out property 60,000 Interest on loan 10,000
Share of income from a firm 15,000 Income-tax payment 2,000
Life insurance premium 8,000
Balance carried down 1,77,400

Car is partly for official purposes (40%) and partly for private purposes (60%). Determine the taxable income
and tax liability of X for the assessment year 2015-16.
46. Mr. Tiwari, a non-resident, operates an aircraft between Bangkok and Mumbai. He received the following
amounts in the course of the business of operation of aircraft during the year ending 31.3.2015:
a) Rs.3 crore in India on account of carriage of passengers from Mumbai.
b) Rs.2 crore in India on account of carriage of goods from Mumbai.
c) Rs.1 crore in India on account of carriage of passengers from Bangkok.
d) Rs.2 crore in Bangkok on account of carriage of passengers from Mumbai.
The total expenditure incurred by Mr. Tiwari for the purposes of the business during the year ending 31.3.2015
was Rs. 1.8 crore.
Compute the income of Mr. Tiwari chargeable to tax in India under the head “Profits and gains of business or
profession” for the assessment year 2015-16.
47. Following is the profit and loss account of Mr. Q for the year ended 31-03-2015:
To Repairs on Building 1,81,000 By Gross Profit 6,01,000
To Amount paid to IIT, Mumbai for an 8,100
1,00,000 By I.T. Refund
approved scientific research programme
To Interest 1,10,000 By Interest on Company Deposits 6,400
To Travelling 1,30,550
To Net Profit 93,950
6,15,500 6,15,500
Following additional information is furnished:
a) Repairs on building includes Rs.1,00,000 being cost of building a new toilet.
b) Interest payments include Rs.50,000 on which tax has not been deducted and penalty for contravention of
Central Sales Tax Act of Rs.24,000.
Compute the income chargeable under the head "Profits and gains of Business or Profession" of Mr. Q for the
year ended 31-03-2015 ignoring depreciation.
48. Mr. Raju, a manufacturer at Chennai, gives the following Manufacturing, Trading and Profit & Loss Account for
the year ended 31.03.2015:
Manufacturing, Trading and Profit & Loss Account for the year ended 31.03.2015
To Opening Stock 71,000 By Sales 32,00,000
To Purchase of Raw Materials 16,99,000 By Closing stock 2,00,000
To Manufacturing Wages &
5,70,000
Expenses
To Gross Profit 10,60,000
34,00,000 34,00,000
To Administrative charges 3,26,000 By Gross Profit 10,60,000
By Dividend from domestic
To State VAT penalty 5,000 15,000
companies
To State VAT paid 1,10,000 By Income from agriculture (net) 1,80,000
To General Expenses 54,000
To Interest to Bank
60,000
(On machinery term loan)
To Depreciation 2,00,000
12,55,000 12,55,000

Following are the further information relating to the financial year 2014-15:
i) Administrative charges include Rs.46,000 paid as commission to brother of the assessee. The
commission amount at the market rate is Rs.36,000.
ii) The assessee paid Rs.33,000 in cash to a transport carrier on 29.12.2014. This amount is included in
manufacturing expenses (Assume that the provisions relating to TDS are not applicable to this payment.)
iii) A sum of Rs. 4,000 per month was paid as salary to a staff throughout the year and this has not been
recorded in the books of account.
iv) Bank term loan interest actually paid up to 31.03.2015 was Rs.20,000 and the balance was paid in
October 2015.
v) Housing loan principal repaid during the year was Rs.50,000 and it relates to residential property occupied
by him. Interest on housing loan was Rs.23,000. Housing loan was taken from Canara Bank. These
amounts were not dealt with in the profit and loss account given above.
vi) Depreciation allowable under the Act is to be computed on the basis of following information:
Plant & Machinery (Depreciation rate @ 15%) Rs.
Opening WDV (as on 01.04.2014) 12,00,000
Additions during the year (used for more than 180 days) 2,00,000
Total additions during the year 4,00,000
Note: Ignore additional depreciation under section 32(1)(iia)
Compute the total income of Mr. Raju for the assessment year 2015-16.
49. Mr. Praveen engaged in retail trade, reports a turnover of Rs. 58,50,000 for the financial year 2014-15. His
income from the said business as per books of account is computed at Rs. 3,90,000. Retail trade is the only
source of income for Mr. Praveen.
i) Is Mr. Praveen eligible to opt for presumptive determination of his income chargeable to tax for the
assessment year 2015-16?
ii) If so, determine his income from retail trade as per the applicable presumptive provision.
iii) In case Mr. Praveen does not opt for presumptive taxation of income from retail trade, what are his
obligations under the Income-tax Act, 1961?
What is the due date for filing his return of income under both the options?
50. XYZ ltd., a manufacturing concern, furnishes the following particulars:
S.No Particulars Rs.
1. Opening WDV of plant and machinery as on 1.4.2015 30,00,000
2. New plant and machinery purchased and put to use on 08.06.2015 20,00,000
3. New plant and machinery acquired and put to use on 15.12.2015 8,00,000
4. Computer acquired and installed in the office premises on 2.1.2016 3,00,000
Compute the amount of depreciation and additional depreciation as per the income tax Act, 1961 for the A.Y.
2016-17. (MM AMENDMENTS MATERIAL)
51. X ltd set up a manufacturing unit in notified backward area in the state of Telangana on 01.06.2015. It invested
Rs.30 core in new plant and machinery on 1.6.2015. Further, it invested Rs.25 core in the plant and machinery
on 01.11.2015, out of which Rs.5 core was second hand plant and machinery. Compute the depreciation
under sec:32, is X ltd entitled for any other benefit in respect of such investment? If so, what i9s the benefit
available? (MM AMENDMENTS MATERIAL)
Would your answer change where such manufacturing unit set up by a firm?
6. CAPITAL GAINS
THEORY:
52. Sec.51 - Forfeiture of Advance (Not Applicable From 01.04.2014)
53. Sec.10 (37)-Exemption of C.G. on compulsory Acquisition of urban Agriculture land

54. Sec.45(2) - Conversion of A Capital Asset into Stock in Trade

55. Sec.45(5) - Compulsory Acquisition
56. Sec.50 - Computation of C.G’s In Case of Depreciable Asset’s
57. Sec.50C - Special Provisions for Computation of Consideration
58. Sec.54, Sec.54EC, 54F
PROBLEMS:
59. Mr. X & sons, HUF, purchased a land for Rs. 40,000 in 1991-92. In 1995-96, a partition takes place when Mr.
A, a coparcener, is allotted this plot valued at Rs. 80,000. In 1996-97, he had incurred expenses of Rs.
1,85,000 towards fencing of the plot. Mr. A sells this plot of land for Rs. 15,00,000 in 2014-15 after incurring
expenses to the extent of Rs. 20,000. You are required to compute the capital gain for the A.Y. 2015-16.
60. Mr. k purchases a house property on April 10, 1978 for Rs. 35,000. The fair market value of the house property
on April 1, 1981 was Rs. 70,000. On August 31, 1984, Mr. Kay enters into an agreement with Mr. Jay for sale of
such property for Rs. 1,20,000 and received an amount of Rs. 10,000 as advance. However, as Mr. Jay did not
pay the balance amount, Mr. Kay forfeited the advance. In May 1987, Mr. Kay constructed the first floor by
incurring a cost of Rs. 50,000. Subsequently, in September 1987, Mr. Kay gifted the house to his friend Mr. Dee.
On February 10, 2015, Mr. Dee sold the house for Rs. 10,00,000. CII for F.Y. 1984-85 : 125; 1987- 88: 150;
2014-15:1024. Compute the capital gains in the hands of Mr. Dee for A.Y.2015-16.
61. Ms.Usha purchases 1,000 equity shares in X Ltd. at a cost of Rs. 15 per share (brokerage 1%) in January
1978. She gets 100 bonus shares in August 1980. She again gets 1100 bonus shares by virtue of her holding
on February 1985. Fair market value of the shares of X Ltd. on April 1, 1981 is Rs. 25. In January 2015, she
transfers all her shares @ Rs. 150 per share (brokerage 2%).
Compute the capital gains taxable in the hands of Ms. Usha for the A.Y. 2015-16 assuming:
a) X Ltd is an unlisted company and securities transaction tax was not applicable at the time of sale.
b) X ltd is a listed company and the shares are sold in a recognised stock exchange and securities
transaction tax was paid at the time of sale.
Cost Inflation Index for F.Y. 1981-82 : 100, F.Y.1984-85 : 125 & F.Y.2014-15 :1024.
62. Mr.A, is an individual carrying on business. His stock and machinery were damaged and destroyed in a fire
accident. The value of stock lost (totally damaged) was Rs.6,50,000. The opening WDV of the block as on 1-4-
2014 was Rs.10,80,000.
During the process of safeguarding machinery and in the firefighting operations, Mr.A lost his gold chain and a
diamond ring, which he had purchased in April, 2003 for Rs.1,20,000. The market value of these two items as
on the date of fire accident was Rs.1,80,000.
Mr. A received the following amount from the insurance company:
a) Towards loss of stock Rs.4,80,000
b) Towards damage of Machinery Rs.6,00,000
c) Towards gold chain and diamond ring Rs.1,80,000
You are requested to briefly comment on the tax treatment of the above three items under the provisions of the
income-tax Act, 1961.
63. X acquired a house for Rs. 20,000 in 1980-81. On his death in October 1995 the house was acquired by his
son Y. The market value of the house as on 1-4-1981 was Rs. 80,000. This house was acquired by the
Government on 15-3-2013 for Rs.3,00,000 and a compensation of Rs. 2,20,000 is paid to him on 25-3-2014
and the balance Rs. 80,000 on 15-4-2014. Y filed a suit against the Government challenging the quantum of
compensation and the court ordered for giving of additional compensation of Rs.1,00,000. He incurred an
expenditure of Rs. 2,000 in connection with the suit. The additional compensation is received on 14-3-2015.
Compute the capital gains chargeable to tax.
64. Singhania & Co. own six machines, put in use for business in March, 2014. The depreciation on these
machines is charged @ 15%. The written down value of these machines as on 1st April, 2014 was Rs.
8,50,000. Three of the old machines were sold on 10th June, 2014 for Rs. 11,00,000. A new plant was bought
for Rs. 8,50,000 on 30th November, 2014.

a) Determine the claim of depreciation for Assessment Year 2015-16.
b) Compute the capital gains liable to tax for Assessment Year 2015-16.
c) If Singhania & Co. had sold the three machines in June, 2014 for Rs. 21,00,000, will there be any
difference in your above workings? Explain.
65. Mr. A is a proprietor of Akash Enterprises having 2 units. He transferred on 1.4.2014 his Unit 1 by way of
slump sale for a total consideration of Rs.25 lacs. Unit 1 was started in the year 2003-04. The expenses
incurred for this transfer were Rs.28,000. His Balance Sheet as on 31.3.2014 is as under:
Unit 1 Unit 2
Liabilities Total (Rs.) Assets Total (Rs.)
(Rs.) (Rs.)
Own Capital 15,00,000 Building 12,00,000 2,00,000 14,00,000
Revaluation Reserve (for
3,00,000 Machinery 3,00,000 1,00,000 4,00,000
building of unit 1)
Bank loan (70% for unit 1) 2,00,000 Debtors 1,00,000 40,000 1,40,000
Trade creditors (25% for unit
1,50,000 Other assets 1,50,000 60,000 2,10,000
1)
Total 21,50,000 Total 17,50,000 4,00,000 21,50,000
Other information:
a) Revaluation reserve is created by revising upward the value of the building of Unit 1.
b) No individual value of any asset is considered in the transfer deed.
c) Other assets of Unit 1 include patents acquired on 1.7.2012 for Rs.50,000 on which no depreciation has
been charged.
Compute the capital gain for the assessment year 2015-16.
66. G sold a residential house on 28-6-2014 for Rs.10,00,000. He had purchased this house on 1-10-1992 for
Rs.1,20,000 and he spend Rs. 70,000 on improvement of the house during the year 1994-95. He purchased a new
house on 21-10-2014 for Rs. 3,00,000. This house was also sold by him on 16-7-2015 for Rs. 6,00,000. He
purchased another house on 21-11-2015 for Rs.8,00,000. Compute the C.G.’s for the A.Y.15-16 and 16-17.
67. Mr. Chandru transferred a vacant site on 28-10-2014 for Rs.100 lakhs. The site was acquired for Rs.9,99,300
on 30-6-2000. He invested Rs.50 lakhs in eligible bonds issued by Rural Electrification Corporation Ltd.
(RECL) on 20-3-2015.
Again, he invested Rs.20 lakhs in eligible bonds issued by National Highways Authority of India (NHAI) on 16-
4-2015.
Compute the chargeable capital gain in the hands of Chandru for the year A.Y.2015-16.
68. Mr. ‘X’ furnishes the following data for the previous year ending 31.3.2015:
1. Unlisted Equity Shares of AB Ltd., 10,000 in number were sold on 31.5.2014, at Rs. 500 for each share.
2. The above shares of 10,000 were acquired by ‘X’ in the following manner:
a) Received as gift from his father on 1.6.1980 (5, 000 shares) the market price on 1.4.81 Rs.50 per share.
b) Bonus shares received from AB Ltd. on 21.7.1985 (2,000 shares)
c) Purchased on 1.2.1994 at the price of Rs.125 per share (3,000 shares)
3. Purchased one residential house at Rs.25 lakhs, on 1.5.2015 from the sale proceeds of shares.
4. ‘X’ is already owning a residential house, even before the purchase of above house.
You are required to compute the taxable capital gain. He has no other source of income chargeable to tax.
69. Mr. Raj kumar sold a house to his friend Mr. Dhuruv on 1st November, 2014 for a consideration of
Rs.25,00,000. The sub-registrar refused to register the document for the said value, as according to him,
stamp duty had to be paid on Rs.45,00,000, which was the Government guideline value. Mr. Raj kumar
preferred an appeal to the revenue divisional officer, who fixed the value of the house as Rs.32,00,000
(Rs.22,00,000 for land and the balance for building portion). The differential stamp duty was paid, accepting

the said value determined. what are the tax implications in the hands of Mr. Raj kumar and Mr. Dhuruv for the
assessment year 2015-16? Mr. Raj kumar had purchased the land on 1st June, 2010 for Rs.5,19,000 and
completed the construction of house on 1st October, 2012 for Rs.14,00,000.
Cost inflation indices may be taken as 711 for the financial year 2010-11, 785 for the financial year 2011-12,
and 1024 for the financial year 2014-15.
70. Mr. Akash sold his residential property on 2nd February, 2015 for Rs. 90 lakh and paid brokerage@1% of sale
price. He had purchased the said property in May 2000 for Rs. 24,36,000. In June, 2015, he invested Rs. 75
lakh in equity of A (P) Ltd., a newly incorporated SME manufacturing company, which constituted 63% of
share capital of the said company. A (P) Ltd. utilized the said sum for the following purposes-
a) Purchase of new plant and machinery during July 2014 – Rs. 65 lakh
b) Included in (a) above are Rs. 6 lakh for purchase of computers and Rs. 8 lakh for purchase of cars.
c) Air-conditioners purchased for Rs. 1 lakh, included in the (a) above, were installed at the residence of Mr.
Akash.
d) Amount deposited in specified bank on 28.9.2015 – Rs. 10 lakh
Compute the chargeable capital gain for the A.Y.2015-16. Assume that Mr. Akash is liable to file his return of
income on or before 30th September, 2015 and he files his return on 29.09.2015.
71. Ms. Vasumathi purchased 10,000 equity shares of ABC Co. Pvt. Ltd. on 28-2-05 for Rs.1,20,000. The
company was wound up on 31.7.2014:
60,000 equity shares 6,00,000 Agricultural lands 42,00,000

General reserve 40,00,000 Cash at bank 6,50,000
Provision for taxation 2,50,000
48,50,000 48,50,000
The tax liability (towards dividend distribution tax) was ascertained at Rs.3,00,000 after considering refund due
to the company. The remaining assets were distributed to the shareholders in the proportion of their
shareholding. The market value of 6 acres of agricultural land (in an urban area) as on 31.7.2014 is 10,00,000
per acre.
The agricultural land received above was sold by Ms. Vasumathi on 28-2-2015 for Rs.15,00,000
Discuss the tax consequences in the hands of the company and Ms. Vasumathi
72. Ms. Gunjan purchased a land at a cost of Rs. 50 lakh in the financial year 2000-01 and held the same as her
capital asset till 31st August, 2012. She started her real estate business on 1st September, 2012 and
converted the said land into stock-in-trade of her business on the said date, when the fair market value of the
land was Rs. 320 lakh.
She constructed 8 flats of equal size, quality and dimension. Cost of construction of each flat is Rs. 36 lakh.
Construction was completed in January, 2015. She sold 5 flats at Rs. 90 lakh per flat in February, 2015.
She invested Rs. 70 lakh in bonds issued by National Highways Authority of India on 31st March, 2015.
Compute the capital gains and business income arising from the above transactions in the hands of Ms.
Gunjan for Assessment Year 2015-16 indicating clearly the reasons for treatment for each item.
7. INCOME FROM OTHER SOURCES

73. Mr. A, a dealer in shares, received the following without consideration during the P.Y.2014-15 from his friend
Mr. B, -
a) Cash gift of Rs. 75,000 on his anniversary, 15th April, 2014.
b) Bullion, the fair market value of which was Rs. 60,000, on his birthday, 19th June, 2014.

c) A plot of land at Faridabad on 1st July, 2014, the stamp value of which is Rs. 5 lakh on that date. Mr. B
had purchased the land in April, 2008. Mr. A purchased from his friend Mr. C, who is also a dealer in
shares, 1000 shares of X Ltd. @ Rs. 400 each on 19th June, 2014, the fair market value of which was Rs.
600 each on that date. Mr. A sold these shares in the course of his business on 23rd June, 2014. Further,
on 1st November, 2014, Mr. A took possession of property (building) booked by him two years back at Rs.
20 lakh. The stamp duty value of the property as on 1st November, 2014 was Rs. 32 lakh and on the date
of booking was Rs. 23 lakh. He had paid Rs. 1 lakh by cheque as down payment on the date of booking.
On 1st March, 2015, he sold the plot of land at Faridabad for Rs. 7 lakh. Compute the income of Mr. A
chargeable under the head “Income from other sources” and “Capital Gains” for A.Y.2015-16.
74. Discuss the taxability or otherwise of the following in the hands of the recipient under section 56(2)(vii) the
Income-tax Act, 1961 -
a) Akhil HUF received Rs. 75,000 in cash from niece of Akhil (i.e., daughter of Akhil’s sister).Akhil is the
Karta of the HUF.
b) Nitisha, a member of her father’s HUF, transferred a house property to the HUF without consideration.
The stamp duty value of the house property is Rs. 9,00,000
c) Mr. Akshat received 100 shares of A Ltd. from his friend as a gift on occasion of his 25th marriage
anniversary. The fair market value on that date was Rs. 100 per share. He also received jewellery worth
Rs. 45,000 (FMV) from his nephew on the same day.
d) Kishan HUF gifted a car to son of Karta for achieving good marks in XII board examination. The fair
market value of the car is Rs. 5,25,000.
75. X holds the following securities on April 1, 2014:
a) 6.5% central government loan (date of payment of interest : July 10 every year) - Rs.10,000
b) 8% debentures (non-listed of PQR Ltd. (dates of payment of interest : May 15 and November 15 every
year) - Rs.40,000
c) 9% relief bonds (tax-free) - Rs.10,000
A part from the afore said securities, X invests in (non-listed) UP Government loan, Bihar Government loan
and debentures of ABC Ltd. (non-listed) on June 30, 2014 and receives Rs.4,000, Rs.8,000 and Rs.18,000,
respectively, as interest on December 31, 2014. His rental (taxable) income is Rs.11,52,000. He pays 2
percent commission to bank for collecting interest (net) on securities. Determine the taxable income of X for
the assessment year 2015-16.
76. Discuss the tax implications under section 56(2) in respect of each of the following transactions -
a) Mr. Tejpal received a painting by M. F. Hussain worth Rs.2 lakh from his nephew on his 10th wedding
anniversary.
b) Verma’s son transferred shares of D Ltd. to Verma HUF without any consideration. The fair market value
of the shares is Rs. 2.5 lakh.
c) Sunshine (P) Ltd. purchased 9,500 equity shares of Saturn (P) Ltd. at Rs. 86 per share. The fair market
value of the share on the date of transaction is Rs. 105.
d) Bijali (P) Ltd. issued 28,000 equity shares of Rs. 10 each at a premium of Rs. 8. The fair market value of
each share on the date of issue is Rs.15.
e) Mr. Sharan’s land was acquired by the Government in August 2010. He received interest of Rs.5,40,000
on enhanced compensation in January, 2015, out of which Rs.1,20,000 related to the year 2010-11,
Rs.1,60,000 related to the year 2011-12, Rs. 2,00,000 related to the year 2012-13 and 60,000 related to
the year 2013-14.
77. Mr. Suraj, a Sales Manager with Moon Ltd., sold a building to his friend Mr. Rohan, who is engaged in the
business of artificial jewellery, for Rs.80 lakh on 01.01.2015, when the stamp duty value was Rs.220 lakh. The
agreement was, however, entered into on 04.06.2014 when the stamp duty value was Rs.150 lakh. Mr. Suraj
had received a down payment of Rs. 30 lakh by cheque from Mr. Rohan on the date of agreement. Discuss
the tax implications in the hands of Mr. Suraj and Mr. Rohan, assuming that Mr. Suraj had purchased the
building for Rs. 61 lakh on 20th October, 2011.

Would your answer be different if Mr. Suraj was a property dealer and he sold the building to Mr. Rohan
in the course of his business?
78. Mr. Sunil sold his house property in Hyderabad as well as his rural agricultural land for a consideration of Rs.
70 lakh and Rs. 20 lakh, respectively, to his friend Mr. Ravi on 1.10.2014. He has purchased the house
property and the land in the year 2012 for Rs. 45 lakh and Rs. 12 lakh, respectively. The stamp duty value on
the date of transfer, i.e., 1.10.2014, is Rs. 78 lakh and Rs. 22 lakh for the house property and rural agricultural
land, respectively. Determine the tax implications in the hands of Mr. Sunil.
8. SET OFF AND CARRY FORWARD OF LOSSES
THEORY:
79. Reconstitution Of The Firm And Succession Of Any Person - Sec.78
80. Losses incurred by a co., in which public are not substantially interested - sec.79
PROBLEMS:
81. The total income of Mr. Krishna for the assessment year 2015-16 from the following particulars:
Particulars Amount(Rs.)
Income from business before adjusting the following items: 1,75,000
a) Business loss brought forward from assessment year 2012-13 70,000
b) Current depreciation 40,000
c) Unabsorbed depreciation of earlier year 1,55,000
Income from house property (Gross Annual Value) 4,32,000
Municipal taxes paid 32,000
Mr. Krishna sold a plot at Noida on 12th September, 2014 for a consideration of Rs.
6,40,000, which had been purchased by him on 20th December, 2011 at a cost of
Rs.4,10,000
Long-term capital loss on sale of shares sold through recognized stock 75,000
exchange (STT paid)
Long-term capital gain on sale of debentures 60,000
Dividend on shares held as stock in trade 22,000
Dividend from a company carrying on agri business 10,000
During the previous year 2014-15, Mr. Krishna has repaid Rs.1,67,000 towards housing loan from a
scheduled bank. Out of Rs.1,67,000, Rs.97,000 was towards payment of interest and rest towards
principal payments.
Cost inflation indices: F.Y. 2011-12: 785 & F.Y.2014-15: 1024.
82. M/s. Vivitha & Co., a partnership firm, with four partners A, B, C and D having equal shares, furnishes the
following details, summarized from the valid returns of income filed by it:
Assessment year Item eligible for carry forward and set off
2013-14 Unabsorbed business loss Rs. 1,20,000
2014-15 Unabsorbed business loss Rs. 1,90,000
2014-15 Unabsorbed depreciation Rs. 1,20,000
2014-15 Unabsorbed long-term capital losses:
- from shares Rs. 1,10,000
- from building Rs. 1,90,000
C who was a partner during the last three years, retired from the firm with effect from 1.4.2014.

The summarized results of the firm for the assessment year 2015-16 are as under:
Particulars Rs.
Income from house property 70,000
Income from business:
Speculation 2,20,000
Non-speculation (-) 50,000
Capital gains
Short-term (from sale of shares) 40,000
Long-term (from sale of building) 2,10,000
Income from other sources 60,000
Briefly discuss, how the items brought forward from earlier years can be set off in the hands of the firm for the
assessment year 2015-16, in the manner most beneficial to the assessee. Also show the items to be carried
forward.
83. Ms. Geeta, a resident individual, provides the following details of her income / losses for the year ended
31.3.2015:
i) Salary received as a partner from a partnership firm Rs.7,50,000. The same was allowed to the firm.
ii) Loss on sale of shares listed in BSE Rs.3,00,000. Shares were held for 15 months and STT paid on sale.
iii) Long-term capital gain on sale of land Rs.5,00,000.
iv) Rs.51,000 received in cash from friends in party.
v) Rs.55,000, received towards dividend on listed equity shares of domestic companies.
vi) Brought forward business loss of assessment year 2014-15 Rs.12,50,000.
The return for assessment year 2014-15 was filed in time.
Compute gross total income of Ms. Geeta for the Assessment Year 2015-16 and ascertain the amount of loss
that can be carried forward.
84. The following are the details relating to Mr. Sitaraman, a resident Indian, aged 57, relating to the year ended
31.3.2015:
Particulars Rs.
Income from salaries 3,22,000
Loss from house property 1,65,000
Loss from retail business 2,25,000
Income from speculation business 26,000
Loss from specified business covered by section 35AD 31,000
Long-term capital gains from sale of residential house 3,60,000
Long-term capital loss from sale of listed shares in recognized stock exchange (STT paid) 1,21,000
Loss from card games 33,000
Income from betting (Gross) 51,000
Life Insurance Premium paid (policy taken on 10th August 2012 for actual capital sum 1,00,000
assured of Rs. 9 lakh)
Compute the total income and show the items eligible for carry forward.
85. Mr. Alok furnishes the following details for year ended 31.03.2015:
Particulars Rs.
Short term capital gain 1,65,000
Loss from speculative business 58,000
Long term capital gain on sale of land 27,000
Long term capital loss on sale of shares (securities transaction tax not paid) 1,06,000
Income from business of textile (after allowing current year depreciation) 73,000
Income from activity of owning and maintaining race horses 21,000

Income from salary 1,38,000
Loss from house property 66,000
Following are the brought forward losses:
i) Losses from activity of owning and maintaining race horses-pertaining to A.Y.2012-13 Rs. 7,000.
ii) Brought forward loss from business of textile Rs. 82,000 - Loss pertains to A.Y.2007-08.
Compute gross total income of Mr. Alok for the Assessment Year 2015-16. Also state the losses which are
eligible for carry forward to the Assessment Year 2016-17.
9. CLUBBING PROVISIONS
THEORY:
86. Remuneration to Spouse - Sec.64 (1)(ii)
87. Gift to Spouse - Sec.64 (1)(iv)
88. Income of Minor Child - Sec.64(1A)
89. Conversion of Self acquired Property Into Joint Property- Sec. 64(2)
PROBLEMS:
90. During the previous year 2014-15, the following transactions occurred in respect of Mr. A.
a) Mr. A had a fixed deposit of Rs. 5,00,000 in Bank of India. He instructed the bank to credit the interest on
the deposit @ 9% from 1-4-2014 to 31-3-2015 to the savings bank account of Mr. B, son of his brother, to
help him in his education.
b) Mr. A holds 75% share in a partnership firm. Mrs. A received a commission of Rs.25,000 from the firm for
promoting the sales of the firm. Mrs. A possesses no technical or professional qualification.
c) Mr. A gifted a flat to Mrs. A on April 1, 2014. During the previous year 2014-15, Mrs. A’s “Income from
house property” (computed) was Rs. 52,000.
d) Mr. A gifted Rs.2,00,000 to his minor son who invested the same in a business and he derived income of
Rs.20,000 from the investment.
e) Mr. A’s minor son derived an income of Rs. 20,000 through a business activity involving application of his
skill and talent.
During the year, Mr. A got a monthly pension of Rs.10,000. He had no other income. Mrs. A received salary of
Rs. 20,000 per month from a part time job.
Discuss the tax implications of each transaction and compute the total income of Mr. A, Mrs. A and their minor
child.
91. Mr. Dhaval and his wife Mrs. Hetal furnish the following information:
i) Salary income (computed) of Mrs. Hetal 4,60,000
ii) Income of minor son ‘B’ who suffers from disability specified in Section 80U 1,08,000
iii) Income of minor daughter ‘C' from singing 86,000
iv) Income from profession of Mr. Dhaval 7,50,000
v) Cash gift received by 'C' on 2.10.2014 from friend of Mrs. Hetal on winning of 48,000
singing competition
vi) Income of minor married daughter ‘A’ from company deposit 30,000
Compute the total income of Mr. Dhaval and Mrs. Hetal for the Assessment Year 2015-16.
92. Determine the Gross Total Income of Mr. Ram and his wife:
a) Ram & his wife are partners in a firm, their shares of profit - 45,000 & 50,000.
b) Their 17 years old son has been admitted to the benefits of another firm, from which he received
Rs.26,000 as his share of profit and Rs.24,000 as interest on capital. The capital was invested out of the
minor's own funds amounting to Rs.2,50,000.

c) A house property in the name of Ram was transferred to his wife on Nov. 30, 2014 for adequate
consideration. The property has been let at a rent of Rs.4,000 per month.
d) 14% Debentures of Rs.2,00,000 & Rs.1,00,000 purchased 2 years ago are in the names of Ram & his
wife. His wife had in the past transferred Rs.1,00,000 out of her income to Ram for the purchase of the
debentures in Ram's name.
e) Ram had transferred Rs.60,000 to his wife in 2000 without any consideration which was given as a loan
by her to Sumitra. She earned Rs.15,000 as interest during the earlier years which was also given on loan
to Sumitra. During the previous year 2014-2015, she received interest at 10% p.a. on Rs.75,000.
f) Ram transferred Rs.60,000 to a trust, the income accruing from its investment amounted to Rs.9,000, out
of which Rs.6,000 shall be utilised for the benefit of his son's wife and Rs.3,000 for the benefit of his son's
minor Child.
g) Ram transferred to his wife 2,400 shares in 1996 without consideration. The co. issued 600 bonus shares
to Mrs. Ram in 1997. On 1-1-15 the co. paid dividend @ 5 per share. Mrs. Ram sold entire holdings on 1-
3-2015 and made a gain of 50,000 & 90,000 on original & bonus shares.
93. On 21-3-2014, Mr. Janak gifted to his wife Mrs. Thilagam 200 listed shares, which had been bought by him on
19-4-2013 at Rs. 2,000 per share. On 1-6-2014, bonus shares were allotted in the ratio of 1:1. All these shares
were sold by Mrs. Thilagam as under:
No. of Net sales Value
Date of sale Manner of sale
Shres (Rs.)
Sold in recognized stock exchange, STT
21.5.2014 100 2,20,000
paid
21.7.2014 Private sale to an outsider All bonus shares 1,25,000
Private sale to her friend Mrs. Hema
28.2.2015 (Market value on this date was 100 1,70,000
Rs.2,10,000)
Briefly state the income-tax consequences in respect of the sale of the shares by Mrs. Thilagam, showing
clearly the person in whose hands the same is chargeable, the quantum and the head of income in respect of
the above transactions. Detailed computation of total income is NOT required.
Net sales value represents the amount credited after all taxes, levies, brokerage, etc., and the same may be
adopted for computing the capital gains
94. A proprietary business was started by Smt. Rani in the year 2012. As on 1.4.2013 her capital in business was
Rs. 3,00,000.
Her husband gifted Rs.2,00,000 on 10.4.2013, which amount Smt. Rani invested in her business on the same
date. Smt. Rani earned profits from her proprietory business for the Financial year 2013-2014, Rs.1,50,000 and
Financial year 2014-15 Rs.3,90,000. Compute the income, to be clubbed in the hands of Rani’s husband for the
Assessment year 2015-16 with reasons.
10. DEDUCTIONS
THEORY:
95. Deduction In Respect of Certain Payments - Sec.80C
96. Contribution To Certain Pension Funds (Section 80CCC)
97. Contribution To Pension Scheme of Central Government (Section 80CCD)
98. Deduction In Respect of Health Insurance Premia (Section 80D)
99. Maintenance & medical treat. of handicapped dependent - sec.80DD
100. Medical Treatment For Certain Specified Diseases - Sec.80DDB
101. Repayment of Loan Taken For Higher Education - Sec.80E
102. Deductions In Respect of Donations - Sec.80G
103. Deduction In Respect of Investment Made Under An Equity Savings Scheme [Section 80CCG]
104. Deduction in respect of interest on deposits in savings accounts [section 80TTA]

105. Sec. 80JJAA (MM AMENDMENTS MATERIAL)
PROBLEMS
106. The following are the particulars of investments and payments made by Mr. A, employed with ABC Ltd., during
the previous year 2015-16: (MM AMENDMENTS MATERIAL)
a) Deposited Rs.1,20,000 in public provident fund
b) Paid life insurance premium of Rs.15,000 on the policy taken on 1.5.2012 to insure his life (Sum assured
– Rs.1,20,000).
c) Deposited Rs.30,000 in a five year term deposit with bank.
d) Contributed Rs.1,80,000, being 15% of his salary, to the NPS of the Central Government. A matching
contribution was made by ABC Ltd.
i) Compute the deduction available to Mr. A under Chapter VI-A for A.Y.2016-17.
ii) Would your answer be different, if Mr. A contributed Rs.1,20,000 (being, 10% of his salary) towards
NPS of the Central Government?
107. Mr. Arjun (52 years old) furnishes the following particulars in respect of the following payments:
S.No. Particulars Amount
(Rs.)
Premium paid for insuring the health of –
Self 10,000
1 spouse 8,000
dependant son 4,000
mother 18,000
Paid for Preventive Health Check up of
himself 2,000
2
spouse 1,500
mother 4,000
Incurred medical expenditure of Rs.25,000 and Rs.15,000 for his mother, aged 80
3
years and father, aged 85 years. Both mother and father are resident in India.
Compute the deduction available to Mr. Arjun under section 80D for the A.Y. 2016-17.
(MM AMENDMENTS MATERIAL)
108. Mr. A has commenced the operations of manufacture of goods in a factory on 1.4.2015. He employed 125 new
workmen during the P.Y.2015-16, which included –
i) 15 casual workmen;
ii) 15 workmen employed through contract labour;
iii) 25 regular workmen employed on 1.4.2015;
iv) 55 regular workmen employed on 1.5.2015; and
v) 15 regular workmen employed on 1.7.2015
Compute the deduction, if any, available to Mr. A for A.Y.2016-17, if wages @ Rs.5,000 per month is paid to
each workman and the profits and gains derived from manufacture of goods in the factory for the A.Y.2016-17
is Rs.4.75 lakhs.
11. TOTAL INCOME
109. Ms. Vaishali, employed in a private sector company, furnishes following information for the year ended
31.03.2015.
Particulars Rs.
Income from salary (computed) 3,45,000
Bank interest (Fixed Deposit) 15,000
Tax on non-monetary perquisite paid by employer 20,000

Amount contributed by her during the year are given below:

Contribution to recognized provident fund 60,000
Health insurance premium-on self (paid by crossed cheque) 7,000
Medical expenditure for dependent sister with disability 20,000
Compute the total income of Ms. Vaishali for the assessment year 2015-16.
110. Mrs. Deepali (aged 40 years), working with M/s Good Company Ltd., a manufacturer of tyres based at
Mumbai, has received the following payments during the financial year 2014-15 from her employer:
Basic salary Rs. 60,000 per month.
Dearness allowance 40% of basic salary.
Her employer has taken on rent her own house on a monthly rent of Rs. 15,000 and the same has been
provided for residence of Mrs. Deepali. Company is recovering Rs. 2,000 per month as rent of house.
Mrs. Deepali has further furnished the following details:
i) She has paid professional tax of Rs. 6,000 during financial year 2014-15.
ii) She is owning only one house and payment of interest of Rs. 1,75,000 and principal of Rs. 1,00,000 was
made for housing loan taken for purchase of house.
iii) She has also taken a loan of Rs. 2,00,000 from her employer for study of her son. SBI rate for such loan is
10%. Her employer has recovered Rs. 10,000 as interest from her salary for such loan during the year.
Compute taxable income and tax liability for assessment year 2015-16.
111. Ms. Rachna was gifted a land by her father in December, 2001 at the occasion of her marriage. The land was
allotted to her father in November, 1991 at cost of Rs. 6 lac by DDA for commercial purpose. She set up a
nursery on land, earns profit of Rs. 4 lacs during the year 2014-15 from seedlings grown in nursery. She sold
the nursery to her friend at Rs. 50 lacs in October, 2014. Her friend paid Rs. 20 lacs in cash and Rs. 30 lacs in
the form of shares. Market value of land on date of sale was Rs. 90 lacs and shares Rs. 70 lacs. Rachna, with
an intention to earn profit, invested Rs. 20 lacs in shares by purchasing shares for Rs. 15 lacs from National
Stock Exchange and Rs. 5 lacs in subscription to equity shares forming part of eligible issue of capital by a
public company. She spent Rs. 60,000 on purchase of computers, Rs. 20,000 on net connectivity and Rs. 2
lacs toward salary and other expenses. She paid monthly rent Rs. 2,500 for a shop which was taken in
October 2014, for trading in shares. Depreciation rate on computers is 60%.
The value of shares purchased and sold during the year are as follows:
Purchases including received from friend Rs. 80,00,000
Sales Rs. 1,00,00,000
The market value of shares remains unsold as on 31.03.2015 is Rs. 40 lakhs. Ms. Rachna
a) Made contribution of Rs. 20,000 to approved pension fund.
b) Paid Rs. 25,000 to LIC for medical insurance premium of self and spouse.
c) Repaid loan Rs. 1,00,000 and interest Rs. 20,000 to SBI taken in February, 2015 for her son’s admission
in Sri Ram College of Commerce B.Com.
d) Contributed Rs. 25,000 to a research association, which has as its object undertaking of scientific research.
Rachna did not earn any short term capital gain during the year. Rachna has not celebrated her 40th birthday
yet. Compute the total income of Ms. Rachna and tax thereon payable by her for the Assessment Year 2015-
16. Cost inflation index for financial year 1991-92 is 199, 2001-02 is 426 and 2014-15 is 1024.
112. Dr. Shuba is a medical practitioner. Her age is 64 as on 1st January, 2015. The receipts and payments
account of 2014-15 of her is as under:
To Rs. By Rs.
Balance B/f 10,000 Purchase of commercial vehicle 4,00,000
before 30 Sep. 2014
Receipts from sale of medicine 2,50,000 Drawings 2,50,000
Consultation fee 50,000 Deposit in bank for 5 years 1,50,000

Visiting fee 2,00,000 Surgical instrument purchased 50,000

before 30 Sep. 2014
Lecture fees 5,000 Installment of loan paid (including 1,21,000
interest Rs. 22,333)
Family pension 2,80,000 Medical insurance premium 32,000
Savings bank interest 1,000 Installment of housing loan 1,08,000

(Principal component Rs. 48,000)
Loan from bank 3,00,000 Advance tax paid 20,000
Share from HUF 50,000 Purchase of medicine 47,000
Agricultural income 1,00,000 Payment for medical journal 5,000
Income from lottery 35,000 Vehicle expenses 50,000
(net after deduction of TDS
@30%)
Balance C/f 48,000
12,81,000 12,81,000
Other relevant information is as under:
i) She resides in her own house which was constructed in 1998 with a loan from LIC Housing of Rs.
10,00,000 out of which Rs. 6,00,000 was still due. She got it refinanced from SBI on 01-04-2014 at the
rate of 10%. One-fourth portion of the house is used for clinic purposes.
ii) She invested in term deposit Rs. 1,50,000 in Bank of Baroda on 01-07-2014 for a period of 5 years in the
name of her minor daughter at 9% interest p.a.
iii) She purchased a commercial vehicle on 1st July 2014 at Rs. 4,00,000. A loan of Rs. 3,00,000 was taken
to buy the vehicle. One fourth use of vehicle is estimated to be personal.
iv) She paid medical insurance premium for herself of Rs. 16,000 and for mother Rs. 16,000. Her mother is
dependent on her.
v) She got her share from HUF’s income of Rs. 50,000.
Compute total income of Dr. Shuba, ignoring depreciation on building.
113. Mr. Mahesh, a production manager working in ABC Ltd., New Delhi, receives the following emoluments during
the previous year 2014-15:
Rs. Rs.
Basic salary 1,75,000 Bonus 8,000
D.A. (not forming part of salary) 1,40,000 Medical allowance 5,000
Commission on extra production 12,000 Special allowance 18,000
Education Allowance (including allowance for hostel expenditure) for two sons who are engineering students at
Mumbai - Rs. 16,000.
i) His employer has provided rent free house to him in New Delhi. The house is owned by the employer.
ii) Electricity bills paid by ABC Ltd. for him during the previous year are of Rs. 11,500.
iii) On 1.1.2015, his employer company has given him a CD player for domestic use and a laptop for office
and personal use. Ownership of both the assets have not been transferred. The cost of CD player is Rs.
20,000 and that of laptop is Rs. 40,000.
iv) His investments during the previous year are:
1. Notified mutual fund Rs. 25,000
2. PPF Rs. 15,000
v) He has paid tuition fees of his sons on 17.12.2014 of Rs. 60,000.
vi) He has deposited Rs. 10,000 in Five Year Time Deposit Scheme in Post Office on 25.3.2015.
vii) His agricultural income during the year is Rs. 45,000.

viii) He has received gift of Rs. 25,000 from his grandfather on 10.6.2014.
ix) He has gifted his car to his wife on 15.5.2014. She has earned income of Rs. 30,000 from the business of
hiring the same during the previous year.
Compute the total income and tax payable of Mr. Mahesh for the A.Y. 2015-16.
114. From the following details compute the total income of Kamal, a resident individual aged 54 years for the year
ended 31-3-2015. Tax payable need not be calculated.
1. Salary including dearness allowance 5,00,000
2. Bonus 15,000
3. Salary to servant provided by employer 12,000
4. Bill paid by employer for gas, electricity and water provided free of cost at his flat 14,500
5. Cost of laptop provided by the employer (Used both for official and personal 40,000
purposes)
Following additional information is provided:
1. Kamal purchased a flat in a Cooperative Housing Society in Delhi for Rs. 10,75,000 in April, 2011 by
taking loan from State Bank of India amounting to Rs. 5,00,000 @ 15% per annum interest, Rs. 65,000
from his own savings and a deposit from a Nationalized Bank to whom this flat was given on lease for 10
years at a monthly lease rental of Rs. 5,500. The outstanding amount of loan is Rs. 1,60,000.
2. Municipal taxes paid by Kamal Rs. 4,500 p.a.
3. Insurance in respect of the said flat Rs. 1,275
4. Kamal earned a profit of Rs. 15,000 in shares speculation business and incurred a loss of Rs. 20,200 in
speculation business of cotton.
5. In the year 2009-10, he had gifted Rs. 50,000 to his wife and Rs. 30,000 to his son who was aged 11
years then. These amounts were advance to Mr. Mohan @ 15% per annum interest.
6. Kamal received a gift of Rs. 25,000 each from his four friends on the occasion of his birthday.
7. He contributed Rs. 10,500 to Public Provident Fund and Rs. 6,000 to Unit Linked Insurance plan.
8. He deposited Rs. 60,000 in tax saver deposit with a Nationalised Bank in the name of his married son.
9. He has taken a policy on life for his married daughter on 1-4-2014 and paid a premium of Rs. 25,000. The
sum assured for policy is Rs. 2,00,000.
115. From the following particulars furnished by Mr. X for the year ended 31.3.15, you are requested to compute his
total income for the assessment year 15-16:
a) Mr. X retired on 31.12.2014 at the age of 58, after putting in 25 years and 9 months of service, from a
Private company at Mumbai.
b) He was paid a salary of Rs. 25,000 p.m. and house rent allowance of Rs. 6,000 p.m. He paid rent of Rs.
6,500 p.m. during his tenure of service.
c) On retirement, he was paid a gratuity of Rs. 3,50,000. He was not covered by the payment of Gratuity Act.
His average salary in this regard may be taken as Rs. 24,500. Mr. X had not received any other gratuity at
any point of time earlier, other than this gratuity.
d) He had accumulated leave of 15 days per annum during the period of his service; this was encashed by
Mr. X at the time of his retirement. A sum of Rs. 3,15,000 was received by him in this regard. His average
salary may be taken as Rs. 24,500.
e) After retirement, he ventured into textile business and incurred a loss of Rs. 80,000 for the period upto
31.3.2015.
f) Mr. X has invested Rs. 22,500 in RPF, Rs. 40,000 in PPF & Rs. 37,500 in Term deposit for a period of 5
years in a scheduled bank.
116. Mr. Y carries on his own business. An analysis of his trading and profit & loss for the year ended 31-3-2015
revealed the following information:

i) The net profit was Rs.11,20,000.

ii) The following incomes were credited in the profit and loss account :
a) Dividend from UTI Rs.22,000.
b) Interest on debentures Rs.17,500. c) Winnings from races Rs.15,000.
iii) It was found that some stocks were omitted to be included in both the opening and closing stocks, the
value of which were:
Opening stock Rs.8,000.
Closing stock Rs.12,000.
iv) Rs.1,00,000 was debited in the profit and loss account, being contribution to a University approved and
notified under section 35(1)(ii).
v) Salary includes Rs.20,000 paid to his brother which is unreasonable to the extent of Rs.2,500.
vi) Advertisement expenses include 15 gift packets of dry fruits costing Rs.1,000 per packet presented to
important customers.
vii) Total expenses on car was Rs.78,000. The car was used both for business and personal purposes. ¾th is
for business purposes.
viii) Miscellaneous expenses included Rs.30,000 paid to A & Co., a goods transport operator in cash on 31-1-
2015 for distribution of the company’s product to the warehouses.
ix) Depreciation debited in the books was Rs.55,000. Depreciation allowed as per Income-tax Rules, 1962
was Rs.50,000.
x) Drawings Rs.10,000. xi) Investment in NSC Rs.15,000.
Compute the total income of Mr. Y for the assessment year 2015-16.
117. Mr. Chandran (aged 38) owned 6 heavy goods vehicles as on 01.04.2014. He acquired 2 more heavy goods
vehicles on 1.7.2014. He is solely engaged in the business of plying goods vehicles on hire since financial year
2008-09.
He did not opt for presumptive provision contained in section 44AE for the financial year 2013- 14. His books
were audited under section 44AB and the return of income was filed on 5.8.2014. He has unabsorbed
depreciation of Rs.70,000 and business loss of Rs.1,00,000 for the financial year 2013-14.
Following further information is provided to you:
i) Deposited Rs.20,000 in Tax Saver Deposit with UCO Bank in the name of married son.
ii) Paid medical insurance premium of Rs.23,000 for his parents (both aged above 70) by means of bank
demand draft.
iii) Paid premium on life insurance policy of his married daughter Rs.25,000. The policy was taken on
1.04.2013 and the minimum sum assured is Rs.2,00,000.
iv) Repaid principal of Rs.40,000 and interest of Rs.15,000 to Canara Bank towards education loan of his
daughter, who completed B.E. two years ago. She is employed after completion of her studies.
Assuming that Mr. Chandran has opted for presumptive provision contained in section 44AE of the Income-tax
Act, 1961 for F.Y. 2014-15.Compute the total income of Mr. Chandran for the assessment year 2015-16.
118. Mr. Dinesh Karthik, a resident individual aged 45, furnishes the following information pertaining to the year
ended 31.3.2015:
i) He is a partner in Badrinath & Co. He has received the following amounts from the firm:
Interest on capital at 15% : Rs. 3,00,000
Salary as working partner (at 1% of firm's sales) (allowed fully to the firm) : Rs. 90,000
ii) He is engaged in a business of manufacturing wheat flour from wheat. The Profit and Loss account
pertaining to this business (summarised form) is as under:
To Rs. By Rs.
Salaries 1,20,000 Gross profit 12,50,000
Bonus 48,000 Interest on Bank FD 45,000

(Net of TDS 5,000)

Car expenses 50,000 Agricultural income 60,000
Machinery repairs 2,34,000 Pension from LIC Jeevan Dhara 24,000
Advance tax 70,000
Depreciation on:
- Car 3,00,000
- Machinery 1,25,000
Net profit 4,32,000
13,79,000 13,79,000
Opening WDV of assets are as under:
Particulars Rs.
Car 3,00,000
Machinery (Used during the year for 170 days) 6,50,000
Additions to machinery:
New purchased on 23.9.2014 2,00,000
New purchased on 12.11.2014 3,00,000
Old purchased on 12.4.2014 1,25,000
(All assets added during the year were put to use immediately after purchase)
Of the total bonus amount, Rs. 15,000 was paid on 11.10.2014.
One-fifth of the car expenses are towards estimated personal use of the assessee.
iii) In March, 2013, he had sold a house at Chennai. Arrears of rent relating to this house amounting to Rs.
75,000 was received in February, 2015.
iv) Details of his Savings and Investments are as under:
Particulars Rs.
Life insurance premium for policy in the name of his major son employed in 50,000
LMN Ltd. at a salary of Rs. 6 lacs p.a. (Sum assured Rs. 2,00,000) (Policy taken on
1.07.2013)
Contribution to Pension Fund of National Housing Bank 70,000
Medical Insurance premium for his father aged 70, who is not dependent on him 22,000
You are required to compute the total income of Mr. Dinesh Karthik for the assessment year 2015-16.
119. Mr. Hari provides the following information for the year ending 31.5.2015:
Particular Rs.
i) Rent from vacant site let on lease 1,12,000
ii) Rent from house property at Delhi 20,000 per
Month
iii) Turnover from retail trade in grains (No books of account maintained) 24,37,500
iv) Arrears of salary received from ex-employer 40,000
v) Purchase of 10,000 shares of X Co. Ltd., on 1.1.2009 1,00,000
He received a 1:1 bonus on 1.1.2010. Sale of 5,000 bonus shares in 2,20,000
September, 2014
vi) Received Rs.1,50,000 on 12.2.2015 being amount due from Mr. A
relating to goods supplied by Hari’s father, which was written off as bad
debt by his father in Assessment year 2013-14 and allowed as
deduction. Hari’s father died in July 2012.
vii) Brought forward business loss relating to discontinued textiles business 1,97,500
of Hari relating to the assessment year 2013-14.
viii) Brought forward depreciation relating to discontinued textile business of 1,50,000
Hari .
ix) Hari contributed Rs.30,000 to Prime Minister’s National Relief Fund and
Rs.40,000 to Charitable Trust enjoying exemption U/s 80G.
Compute the Total Income and tax thereon of Mr. Hari for the assessment year 2015-16.
120. Mr. Rajesh is serving in a public Limited Company as General Manager (Finance). His total emoluments for
the year ended 31st March 2015 are as follows:
Basic Salary 5,40,000
HRA (Computed) 1,80,000
Transport allowance 12,400
Apart from above, his employer has sold the following assets to him on 1st January 2014:
a) Laptop computer for Rs. 20,000 (Acquired in September 2013 for Rs. 1, 20,000).
b) Car 1800 cc for Rs. 3, 20,000 (purchased in April 2012 for Rs. 8, 50,000).
He also owns a residential house, let out for a monthly rent of Rs.15,000. The fair rental value of the property
for the let out period is Rs.1,50,000. The house was self-occupied by him from 1st January 2015 to 31st March
2015. He has a taken a loan of Rs.20 lacs for the construction of the property, and has repaid Rs.1, 05, 000
(including interest Rs. 40,000) during the year.
Mr. Rajesh sold shares of different Indian companies on 14th April 2014:
Sale value Purchase Price No. of
Name Acquired on
(Per share) (Per share) Shares
A Ltd. Rs.150 Rs.120 2nd May2008 200
B. Ltd Rs.82 Rs.65 16th April, 2013 125
Sale Proceeds were subject to brokerage of 0.1% and Securities Transaction Tax of 0.075% on the gross
consideration. He received IT refund of Rs. 5,750 (including interest Rs. 750) relating to the Asst. Year 2013-14.
Compute the total income of Mr. Rajesh for the Asst. year 2015-16.
121. Dr. Sparsh Kumar is running a clinic. His Income and Expenditure Account for the year ending 31st March,
2015 is given below:
Expenditure Rs. Income Rs.
To Staff salary 4,30,000 By Fees receipts 12,63,600
“ Consumables 9,250 “ Dividend from 9,500
“ Medicine consumed 3,64,800 Indian Co’s
“ Depreciation 91,000 “ Winning from 28,000
“ Administration Expenses 1,46,000 Lotteries Net of TDS
“ Donation to P.M.’s 15,000 (TDS Rs. 12,000)
Relief fund “ Income-tax Refund 2,750
“ Excess of Income over
expenditure 2,47,800
Total 13,03,850 Total 13,03,850
Other information:
a) Depreciation in respect of all assets has been ascertained at Rs. 50,000 as per Income-tax Rules.
b) Medicines consumed include medicine of (cost) Rs. 16,000 used for his family.
c) Fees Receipts include Rs. 14,000 honorarium for valuing medical examination answer books.
d) He has also received Rs. 90,000 on account of Agricultural Income which had not been included in the
above Income and Expenditure Account.
e) He has also received Rs. 57,860 on maturity of one LIC Policy, not included in the above Income and
Expenditure Account.
f) He received Rs. 6,000 per month as salary from a City Care Centre. This has not been included in the
‘Fees Receipts’ credited to Income and Expenditure Account.
g) He has sold Land in June 2014 for Rs.6,00,000 (valuation as per stamp valuation authority Rs. 12,
00,000). The land was acquired by him in October 1999 for Rs.4, 50,000.
h) He has paid premium of Rs.12,000 for another LIC Policy which was taken on 1.04.2013 (sum assured
Rs.50,000).
i) He has paid Rs. 2,500 for purchase of lottery tickets.
j) Donation to Prime Minister Relief Fund has been made by way of an account payee cheque.
From the above, compute the income and tax payable of Dr. Sparsh Kumar for the A.Y. 2015-16.
Cost Inflation Index: F.Y. 1999-00 – 389; F.Y. 2014-15 – 1024.
122. Mr.Ram who does not maintain books of accounts for the year ended 31.3.2015 requests you to compute his
total income and the tax payable thereon for the assessment year 2015-2016 from the following:
a) Basic Salary - Rs.20,000 p.m., CCA - Rs.1,000 p.m., HRA - Rs.5,000 p.m.
b) Ram resides in Chennai paying a rent of Rs.6,000 per month.
c) Ram is paid an Education allowance of Rs.500 per month per child for all the three of his children. Actual
expenses (tuition fees only) amounts to Rs.15,000, Rs.10,000 and Rs.5,000 respectively.
d) He bought a heavy goods vehicle on 7.6.2014 and has been letting it on hire from the same date. He
declares an income of Rs.34,900 from the same.
e) Interest from Company deposits is Rs.15,000 and bank interest from saving bank account is Rs.5,000.
f) Interest is payable on bank loans available for buying the truck and making company deposits as follows:
Purpose Date of Loan Amount Interest Rate
Truck Purchase 1.4.2014 5 lakhs 10% p.a.
Company deposit 1.10.2014 1 lakh 9% p.a.
g) Loss carried forward arising from speculating in shares during the preceding previous year and eligible for
setoff is Rs.1,00,000.
h) Ram has invested Rs.12,000 in notified equity linked saving scheme of UTI, contribution to PPF
Rs.52,000 Rs.9,000 as life insurance premium on his own life (sum assured Rs.40,000) and Rs.15,000
towards Pension fund of LIC.
123. Rajat is a Chartered Accountant in practice. He maintains his accounts on cash basis. He is a Resident and
ordinarily resident in India. His income and expenditure account for the year ended March 31, 2015 reads as
follows:
Expenditure Rs. Income Rs.
Salary to staff 5,25,000 Fees earned:
Stipend to articled assistants 18,000 Audit 6,65,800
Incentive to articled assistants 5,000 Taxation services 4,68,600
Office rent 24,000 Consultancy 3,82,000 15,16,400
Printing and stationery 6,600 Dividend on shares of Indian 9,635
companies (gross)
Meeting, seminar and 38,600 Income from Unit Trust of 6,600
conference India
Repairs, maintenance and 22,400 Profit on sale of shares (STT 15,620
petrol of car paid)
Subscription and periodicals 15,000 Honorarium received from 16,350
various institutions for
valuation of answer Papers
Postage, telegram and fax 32,500 Rent received from 84,000
residential flat let out
Depreciation 29,500

Travelling expenses 55,000

Municipal tax paid in respect 1,000
of house property
Net profit 8,76,005
16,48,605 16,48,605
Other information:
i) The total travelling expenses incurred on foreign tour was Rs.20,000 which was within the RBI norms.
ii) Incentive to articled assistants represent amount paid to two articled assistants for passing IPCC
Examination at first attempt.
iii) Repairs and maintenance of car includes Rs.1,600 for the period from 1.10.2014 to 30.09.2015.
iv) Salary include Rs.30,000 to a computer specialist in cash for assisting Mr. Rajat in one professional
assignment.
v) Rs.1,500, interest on loan paid to LIC on the security of his Life Insurance Policy and utilised for repair of
computer, has been debited to the drawing account of Mr. Rajat.
vi) Medical Insurance Premium on the health of:
Particulars Rs. Mode of payment
Self 10,000 By Cheque
Dependent brother 5,000 By Cheque
Major son dependent on him 3,000 By Cash
Minor married daughter 2,000 By Cheque
Wife dependent on assessee 6,000 By Cheque
vii) Shares sold were held for 10 months before sale.
viii) Rajat paid life membership subscription of Rs. 1,000 to Chartered Accountants Benevolent Fund. The
amount was debited to his drawings account. The Chartered Accountants Benevolent Fund is an
approved fund under section 80G of Income-tax, 1961.
ix) Depreciation debited to income and expenditure account is as per the rates of Income tax Rules, 1962.
Compute the total income and tax payable of Rajat for the Assessment year 2015-16.
124. Mr. Ashok owns a property consisting of two block of identical size. The first block is used for business purposes.
The other block has been let out from 1.4.2013 to his cousin for Rs.10,000 p.m. The cost of construction of each
block is Rs.5 lakhs (fully met from bank loan), rate of interest on bank loan is 10% p.a. The construction was
completed on 31.3.2013. During the year ended 31.3.2014, he had to pay a penal interest of Rs.2,000 in respect of
each block on account of delayed payments to the bank for the borrowings. The normal interest paid by him in
respect of each block was Rs.42,000. Principal repayment for each block was Rs.23,000 made at the end of the
year. An identical block in the same neighborhood fetches a rent of Rs.15,000 per month. Municipal tax paid in
respect of each block was Rs.12,000.
The income computed in respect of business prior to adjustment towards depreciation on any asset is
Rs.2,20,000.
Depreciation on equipments used for business is Rs.30,000.
On 23.3.2014, he sold shares of B Ltd., a listed share in BSE for Rs.2,30,000. The share had been purchased
10 months back for Rs.1,80,000. Securities transaction tax paid may be taken as Rs.220.
Brought forward business loss of a business discontinued on 12.1.2013 is Rs.80,000. This loss has been
determined in pursuance of a return of income filed in time and the current year is the seventh year.
The following payments were effected by him during the year:
i) LIP of Rs.20,000 on his life and Rs.12,000 for his son aged 22, engaged as a software engineer and
drawing salary of Rs.25,000 p.m.
ii) Mediclaim premium of Rs.6,000 for himself and Rs.5,000 for above son. The premiums were paid by
cheque.

You are required to compute the total income for the assessment year 2014-15 and the tax payable. The
various heads of income should be properly shown. Ignore the interest on bank loan for the period prior to
1.4.2013, as the bank had waived the same.
125. Total income of Mrs. Priti, aged 59, a resident of Mumbai for the financial year 2014-15 is Rs. 21,05,000. It
includes an income of Rs. 2,20,000 from the business of dealing in shares on which she has paid securities
transaction tax of Rs. 15,000. She has also deposited Rs. 1,50,000 in her PPF. account with the State Bank of
India. Compute her tax liability for the A.Y. 2015-16.
12. RETURN OF INCOME
THEORY:
126. Voluntary Return - Sec.139(1)
127. Loss Return - Sec.139(3)
128. Revised Return - Sec.139(5)
129. Belated Return-Sec. 139(4)
130. Return To Be Signed/Verified By Whom - Sec.140
131. Defective Return - Sec.139(9)
13. ADVANCE TAX AND INTEREST
THEORY:
132. Who is liable to pay advance tax? What is the procedure to compute the advance tax payable? (PM, SM)
133. Briefly discuss the provisions relating to payment of advance tax on income arising from capital gains and
casual income. (PM, SM)
PROBLEMS:
134. During the financial year 2014-15, X (35 years) pays the following 4 installments of advance tax:
Tax paid on September 15, 2014 25,530
Tax paid on December 15, 2014 92,400
Tax paid on March 15, 2015 71,150
Tax paid on March 25, 2015 5,860
X files return of income with Rs.12,40,050 (no tax is paid at the time of submission of return). Amount of
income as per assessment order is Rs.13,44,250 (date of assessment order: January 10, 2016). X is entitled
to tax credit of Rs.5,260 on account of tax deducted at source. Find out the amount of interest payable under
Sections 234B and 234C.
15.TAX DEDUCTED AT SOURCE
THEORY:
135. TDS @ 10% on premature withdrawal from employees provident fund-Section – 192A
136. Rationalization of the provisions of sec.194A-Section – 194A
137. Commission/Price > 5000 Sec-194H
138. Transfer of Immovable property-Sec.194-IA
139. Interest on certain income from units of a business trust-Section – 194LBA (MM AMENDMENTS MATERIAL)
140. Section – 194LD (MM AMENDMENTS MATERIAL)
141. What is the difference between TDS & TCS under Income Tax Act,1961 (MAY 15)
142. TDS on contracts – Sec.194 C
143. TDS on any sum under life insurance policy including bonus (Sec.194DA)
144. TDS on fee for professional or technical services (Sec.194J)

145. Responsibilities Attached To Deduction of Tax – Sec.200

146. Processing of statements of TDS – sec. 200A
147. Issue of Certificate of Tax Deduction To The Recipient – Sec.203
PROBLEMS:
148. Compute the amount of tax deduction at source on the following payments made by M/s. S Ltd. during the
financial year 2014-15 as per the provisions of the Income-tax Act, 1961.
149. Ashwin doing manufacture and wholesale trade furnishes you the following information :
Total turnover for the financial year
Particulars Rs.
2013-14 1,05,00,000
2014-15 95,00,000
State whether tax deduction at source provisions are attracted for the below said expenses incurred during the
financial year 2014-15:
150. Examine the TDS implications under section 194A in the cases mentioned hereunder –
i) On 1.10.2015, Mr. Harish made a six-month fixed deposit of Rs. 10 lakh@9% p.a. with ABC Co-operative
Bank. The fixed deposit matures on 31.3.2016.
ii) On 1.6.2015, Mr. Ganesh made three nine month fixed deposits of Rs. 1 lakh each carrying interest@9%
with Dwarka Branch, Janakpuri Branch and Rohini Branches of XYZ Bank, a bank which has adopted
CBS. The fixed deposits mature on 28.2.2016.
iii) On 1.4.2015, Mr. Rajesh started a 1 year recurring deposit of Rs. 20,000 per month@8% p.a. with PQR
Bank. The recurring deposit matures on 31.3.2016. (MM AMENDMENTS MATERIAL)
16. EXEMPTED INCOMES
THEORY:
151. Sec. 10(10D)
152. Sec. 10(23C)- Income of Specified Funds/Education/Hospitals
153. Income of a real estate investment trust (REIT), by way of renting or leasing or letting out any real estate asset
owned directly by such REIT[sec 10(23FCA) (MM AMENDMENTS MATERIAL)
154. Exemption of long term capital gain arising from sale of unit of business trust subjected to STT-Sec-10(38)
(MM AMENDMENTS MATERIAL)

PROBLEMS:
155. MNO Ltd. Has one undertaking at Special Economic Zone (SEZ) and another at Domestic Tariff Area (DTA).
Following are the details given to you for the financial year 2014-15
Particulars Rs. (in lacs)
Unit in SEZ Unit in Domestic Tariff Area (DTA)
Total Sales 200 100
Export Sales 150 80
Net Profit 40 10
Compute the quantum of eligible deduction under section 10AA for the A.Y.2015-16 in the following situations:
i) Both the units were set up and began manufacturing from 25-07-2007.
ii) Both the units were set up and began manufacturing from 10-04-2011.
17. MISCELLANEOUS TOPICS
THEORY:
156. Issues relating to Agriculture Income
PROBLEMS:
157. Mr. Tenzingh is engaged in composite business of growing and curing (further processing) coffee in Coorg,
Karnataka. The whole of coffee grown in his plantation is cured. Relevant information pertaining to the year
ended 31.3.2015 are given below:
Particulars Rs.
WDV of car as on 1.4.2014 3,00,000
WDV of machinery as on 1.4.2014 (15% rate) 15,00,000
Expenses incurred for growing coffee 3,10,000
Expenditure for curing coffee 3,00,000
Sale value of cured coffee 22,00,000
Besides being used for agricultural operations, the car is also used for personal use; disallowance for personal
use may be taken at 20%. The expenses incurred for car running and maintenance are Rs. 50,000. The
machines were used in coffee curing business operations.
Compute the income arising from the above activities for the assessment year 2015-16. Show the WDV of the
assets as on 31.3.2015.
158. Miss Vivitha, a resident and ordinarily resident in India, has derived the following income from various
operations (relating to plantations and estates owned by her) during the year ended 31-3-2015:
i) Income from sale of centrifuged latex processed from rubber plants grown in 3,00,000
Darjeeling.
ii) Income from sale of coffee grown and cured in Yercaud, Tamil Nadu. 1,00,000
iii) Income from sale of coffee grown, cured, roasted and grounded, in Colombo. 2,50,000
Sale consideration was received at Chennai.
iv) Income from sale of tea grown and manufactured in Shimla. 4,00,000
v) Income from sapling and seedling grown in a nursery at Cochin. Basic 80,000
operations were not carried out by her on land.
You are required to compute the business income and agricultural income of Miss Vivitha for the assessment
year 2015-16.
NOTE: All the above Questions are from MM Material 34th edition unless otherwise specified
THE END
INDIRECT TAXES
SERVICE TAX
1. INTRODUCTION TO SERVICE TAX
THEORY:
1) Define consideration as per Sec. 65B(44)
2) Explain to exceptions for one person to another.
3) With reference to service tax law as contained in Finance Act, 1994, discuss whether any ‘consideration’ is
involved in following cases:
a) Donations given to a charitable trust with the condition that such trust would display the name of the donor
in a fair organized by it.
b) X agrees to construct a shopping mall for Y on land owned by Y, and in return, Y agrees to provide two
shops in such mall to X.
c) Fine imposed by Traffic Police on over speeding vehicles on an expressway.
d) Services are provided by A to B. However, payment for the services is made by C, a debtor of B, on the
instructions of B.
4) XYZ & Co. is a consultancy firm based in New Delhi. It has two branch offices at Mumbai and Singapore.
Services are provided by Mumbai branch to Head Office at New Delhi and by Head Office at New Delhi to
Singapore branch. Explain which of the activities will constitute ‘service’ under service tax law.
2. POINT OF TAXATION
THEORY:
5) Determination of point of taxation in case of change in tax rate?
6) What is the procedure for payment of service tax?
7) Mr. Rajesh is engaged in providing taxable services. Service Tax was chargeable at the rate of 12.36% up to
31.05.2015. However, with effect from 01.06.2015, the rate of service tax has been increased to 14%.
Determine the point of taxation as well as consequent Applicable Rate of Service Tax in each of the following
independent cases of provision of service:
Time[Date] of Time[Date] of Issue Time[Date] of Receipt

Case
Provision of Service of Invoice of Payment
I 25.05.2015 03.06.2015 09.06.2015
II 06.06.2015 28.05.2015 07.06.2015
III 26.05.2015 28.05.2015 12.06.2015
8) Mihir of Assam received some taxable services from Freddie Enterprises of U.K on 05.10.2015 for which an
invoice was raised on 08.10.2015. Determine the point of taxation in accordance with POTR if Mihir makes the
payment for the said services on:-
Case I: 27.12.2015
Case II: 13.01.2016
IPCC |Guess Questions– May 2016 – Indirect Taxes (Problems) 166

3. VALUATION OF SERVICE TAX AND ITS RULES

THEORY:
9) What is the manner of determination of value of service portion in execution of a works contract from the total
contract?
10) Determination of value of service in relation to money changing?
11) What is the meaning of ‘Pure Agent’ in the context of valuation of taxable service?
What are the conditions to be satisfied for excluding cost or expenditure incurred by service provider in
capacity of pure agent of recipient of service for valuation of service?
12) Pure agent: Mr. Y, an architect, finds a client Mr.A, who need the services of an architect, as well as interior
decorator. Mr.A asks Mr.Y to find an interior decorator on his behalf, decide the terms of his engagement and
also his remuneration, make payment to him on his (Mr.A’s) behalf, and provide a consolidated bill, showing
relevant break-ups, to him (Mr.A). Mr.Y finds an interior decorator, Mr.Z, whose remuneration is fixed at
Rs.2,00,000 (inclusive of all taxes). Mr.Y charges Rs.8 lakhs towards the value of taxable service provided by
him. Compute the amount of the Service Tax to be charged in the bill by Mr.Y if
a) The bill amount includes an additional amount of Rs. 2,00,000, towards the cost of interior decorator ; (or)
b) The bill amount includes an additional amount of Rs. 2,50,000, towards the cost of interior decorator.
13) Rahul & Co. is a firm engaged in the business of recruitment and supply of manpower. It furnishes the
following details pertaining to the quarter ended 30.09.2015:
Particulars Rs.
Amount collected from clients for recruitment of
Permanent staff 5,00,000
Temporary staff 3,00,000
Amounts collected from clients for pre-recruitment screening 2,50,000
ii) Domestic helps arranged for friends & relative (Value of similar -
services when provided to other customers is Rs. 45,000)
v) Amount collected from a warehouse of agricultural produce for 1,75,000
labour provided for loading and unloading
Advance received from prospective employers for conducting 2,00,000
campus interviews in colleges to be held in November, 2015
(Such campus interviews could not be conducted due to student’s strike in those
colleges. Hence, the advance received was later on returned to the employers.)
None of the clients of Rahul & Co. was a body corporate during the relevant quarter. Compute the value of
taxable services rendered and the total service tax payable @ 14% for the relevant quarter assuming that
Rahul & Co. is not eligible for the small service provider’s exemption. All above amounts are inclusive of
service tax, wherever applicable.
14) Siddhi Ltd. exported some goods to Riddhi Inc. of USA. It received US $ 8,000 as consideration for the same
and sold the foreign currency @ Rs. 62 per US dollar. Compute the value of taxable service under rule 2B of
the Service Tax (Determination of Value) Rules, 2006 in the following cases:-
i) RBI reference rate for US dollar at that time is Rs. 63 per US dollar.
ii) RBI reference rate for US dollars is not available.
i) What would be the value of taxable service if US $ 8,000 are converted into UK £ 4,000. RBI reference
rate at that time for US $ is Rs. 64 per US dollar and for UK £ is Rs. 102 per UK Pound.

4. GENERAL PROCEDURES
THEORY:
15) How can an assessee adjust the excess payment of service tax against his liability of service tax for
subsequent periods Rule 6(4A&4B)? What is the basic condition for it?
16) Write a note on interest on belated payment of service tax.
17) Write a note on composition schemes for payment of service tax by an air travel agent.
18) Whether life insurer carrying on life insurance business has option to calculate service tax at different rate?
19) Compute the service tax liability of Mr. A, an air travel agent, for the quarter ended June 30, 2015 using the
following details:-
Basic air fare collected for domestic booking of tickets 50,00,000
Basic air fare collected for international booking of tickets 80,00,000
Commission received from the airlines on the sale of domestic and 5,00,000
international tickets
In the above case, would the service tax liability of Mr. A be reduced if he opts for the special provision for
payment of service tax as provided under rule 6 of the Service Tax Rules, 1994 instead of paying service tax
@14%.
Note: Mr. A is not eligible for the small service provider’s exemption under Notification No. 33/2012-ST dated
20.06.2012 and service tax has been charged separately.
20) Life Insurance Services: A life insurance company provides the following information for the month of May,
2016. Compute the service tax payable by it:
a) Variable Insurance Policies issued: Premiums collected 100 lakhs (11% of the premiums charged under
variable insurance policies are towards mortality, commission and expenses). The premium receipt issued
to policyholder shows his break-up.
b) Risk Cover Policies: Premiums collected 25 lakhs (the entire premium is only for risk cover).
c) Other policies: Premiums collected 200 lakhs (Savings Plan). The break up of amount invested is not
shown separately in the premium receipt. Out of this, 50 lakhs is towards the insurance policies issued in
the current year and balance towards insurance policies issued in earlier years.
Compute the service tax payable by the company assuming that the life insurance company has opted for
option under Rule 6(7A) of the Service Tax Rules, 1994.
21) Answer the following questions:
i) Mr. T, an architect, hires a cab from Mr. S, who is engaged in the business of renting of motor cabs. Value
of services provided by Mr. S is Rs. 2,500. Mr. S avails CENVAT credit on inputs and capital goods. Who
is liable to pay service tax in this case?
Will your answer be different if RST Ltd., a manufacturing company, hires the cab from Mr. S?
Also, compute the amount of service tax payable.
Note: Mr. T, Mr. S and RST Ltd. are located in Mumbai.
ii) PQR Ltd. a manufacturing company hires a cab from Mr. M, who is engaged in the business of renting of
motor cabs. Value of services provided by Mr. M is Rs. 2,500 and service tax payable thereon is Rs. 140.
Who is liable to pay service tax in this case?
Note: PQR Ltd and Mr. M are located in New Delhi.
5. NEGATIVE LIST
22) Determine the value of taxable services:
Services provided to Reserve Bank of India 50,000
Services by Department of Posts to the Central Government 25,000
Harvesting of crops to make them ready for retail market 75,000
Renting of agro machinery for agricultural purpose 5,00,000
Animal feed testing 1,00,000
Transportation of goods by a Goods Transportation Agency 4,00,000
Selling of time slots on Television for advertisements 1,50,000
Transportation of passengers by Railways (First Class) 25,000
23) Sarvshiksha, an Educational Trust, runs a play school, ‘Tiny Tots’ and a higher secondary school, ‘Pinnacle
Academy’. It also runs a coaching centre which provides coaching for IIT JEE entrance examinations to
meritorious students of economically weak background. It also provides coaching classes for examinations of
Certified Public Accountant, USA.
With reference to the provisions of Finance Act, 1994, examine the leviability of service tax in the above case.
24) With reference to the provisions of Finance Act, 1994, examine the validity of following statements:
i) Health care services provided by a Municipality owned hospital are not covered under negative list of
services.
ii) Postal services provided by Department of Posts to various State Governments are liable to service tax.
iii) Services provided to and by Reserve Bank of India are covered in negative list of services.
iv) Pisciculture (breeding of fish) is not liable to service tax as the same is covered under negative list of
services.
Entry to a ‘Nukkad Natak’ is not covered in negative list as the performance is not held in a theatre.
25) State whether the following services are covered in negative list of services under section 66D of Finance Act,
1994:
a) Service by the Department of Post by way of speed post, express parcel post, life insurance and agency
services provided to general public.
b) Service provided by way of supply of farm labour relating to agriculture.
c) Services by way of renting of residential dwellings for use as residence.
d) Services of funeral, burial, crematorium or mortuary and transportation of the deceased.
e) Services by way of education as a part of an approved vocational education course.
f) Service of transportation of passengers with or without accompanied belongings, by Railways in an air
conditioned coach.
g) Services by way of transportation of goods by road by a goods transportation agency.
h) Selling of space or time slots for advertisement broadcast by FM Radio.
26) Good Health Medical Centre, a clinical establishment, offers following services:
i) Reiki healing treatments. Such therapy is not a recognized system of medicine in terms of section 2(h) of
Clinical Establishments Act, 2010.
ii) Plastic surgeries. One such surgery was conducted to repair cleft lip of a new born baby.
iii) Air ambulance services to transport critically ill patients from distant locations to the Medical Centre.

iv) Palliative care for terminally ill patients. On request, such care is also provided to patients at their homes.
(Palliative care is given to improve the quality of life of patients who have a serious or life-threatening
disease but the goal of such care is not to cure the disease).
v) Alternative medical treatments by way of yoga.
Good Health Medical Centre also operates a cord blood bank which provides services in relation to
preservation of stem cells.
Good Health Medical Centre is of the view that since it is a clinical establishment, all the service provided by it
as well as all the services provided to it are exempt from payment of service tax.
You are required to examine the situation in the light of relevant statutory provisions.
27) ABC Ltd., a carrying and forwarding agency, started its operations on August 1, 2014. It utilized the services of
Big Carriers, a goods transport agency, in the month of September, 2014. Big Carriers have communicated to
ABC Ltd. that service tax on the services provided by them is required to be paid by ABC Ltd. under reverse
charge. However, ABC Ltd. Has contended to Big Carriers that it is eligible for small service provider
exemption in the year 2014-15. Consequently, it will not pay service tax under reverse charge also.
You are required to critically examine each stand of the two parties and arrive at the final conclusion.
28) Examine the validity of following statements with reference to service tax law:
i) Consultancy services provided to Government in relation to slum improvement and upgradation is exempt
from service tax.
ii) The transport of goods in a vessel attracts service tax at 40% of the gross amount charged.
iii) Both service providers and service receivers need to satisfy the condition of non-availment of CENVAT
credit for claiming abatement of 70% of gross amount charged in case of GTA service.
iv) Service provided for transport of passengers by air conditioned buses is exempt from service tax.
VALUE ADDED TAX

PART 1. INTRODUCTION OF VAT
THEORY:
29) What are the variants of VAT?
30) What are the methods for computation of VAT?
31) Compute the VAT payable at each stage using ‘invoice method’ from the particulars given below:-
Profit (as % of
Stage Particulars
cost price)
1. Lifeline Medicaids Ltd. sold the medicines manufactured by it - to the -
distributors of medicines- Healers Pharmacy – at Rs. 80,000.
2. Healers Pharmacy sold the medicines to the wholesalers- All 15%
Well Medicos.
3. All Well Medicos sold the medicines to the retailers- Cure Medicines. 20%
4. Cure Medicines sold the medicines to the ultimate consumers 25%
Assume that the VAT rate is 4% and that there was no value addition at various stages of sale except profit
margin.
32) X Co. furnishes you the following information:
Raw material purchased Rs.5,00,000 plus VAT @4%.
Manufacturing expenses (revenue nature) Rs.2,00,000.
Sale price Rs.8,00,000 plus VAT @ 4%.

Plant & machinery acquired Rs.2,50,000 plus VAT @ 4% eligible for input tax credit in the year of acquisition
itself.
Compute VAT liability under:
i) Gross product variant.
ii) Consumption variant.
State which variant is beneficial to the dealer?
PART 2. CONCEPTS OF INPUT TAX CREDIT UNDER VAT

33) Compute net VAT liability of Rishi, from the following information:
Particulars Rs. Rs.

Raw materials from foreign market 1,20,000
(Includes duty paid imports @ 20%)
Raw material purchased from local market 2,50,000
Cost of raw material 40,000
Add: Excise duty @ 16% 2,90,000
11,600
Add: VAT @ 4% 3,01,600
Raw material purchased from neighboring state (includes CST @ 2%) 51,000
Storage and transportation cost 9,000
Manufacturing expenses 30,000
Rishi sold goods to Madan and earned profit @ 12%, on the cost of production. VAT rate on sale of such
goods is 4%.
34) Mr. Rajesh is a registered dealer and gives the following information. You are required to compute the net tax
liability and total sales value, under Value Added Tax
a) Rajesh sells his products to dealers in his state and in other states.
b) The profit margin in 15% of the cost of production and VAT rate is 12.5% of sales.
c) Intra State purchases of raw material costs Rs. 2,50,000/- (excluding VAT at 4%)
d) Purchases of raw material from an unregistered dealer for a cost of Rs. 80,000/- (including VAT at 12.5%)
e) High seas purchases of raw material are for Rs.1,85,000 (excluding the custom duty, at 10% of
Rs.18,500)
f) Purchases of raw materials from other states (excluding CST at 2%) Rs. 50,000.
g) Transportation charges, wages and other manufacturing expenses, excluding tax, amounts Rs.1,45,000.
h) Interest paid on bank loan is Rs. 70,000
35) The particulars regarding sale, purchase etc. of Shubham Udyog for the last quarter of the year 2014-15 are
as under:
1. Purchases of raw material within the State
(i) taxable @ 1% 40,00,000
(ii) taxable @ 4% (Inputs were used in the manufacture of goods meant
for intra-State sale, exempted sale and inter-State sale in the ratio of 60,00,000
2:1:1)
(iii) taxable @ 12.5% 10,00,000
2. Sale of goods manufactured from raw material purchased @ 4% tax rate
(i) Sale within the State (tax rate 4%) 20,00,000
(ii) Exempted sale within the State 10,00,000
(iii) Sale in the course of Inter-State trade or commerce (CST rate 2%) 10,00,000
3. Sale of raw material purchased @ 1% tax rate 44,00,000
4. Goods manufactured from the raw material purchased @ 12.5% tax rate were
given on lease. The deemed sale price of such goods is Rs.12,00,000,
taxable @ 12.5%.
You may assume that input tax credit of tax paid on raw material used in manufacture of leased goods is
available immediately. Compute the amount of net Value Added Tax (VAT) payable by M/s Shubham Udyog
for the relevant quarter. There was no opening or closing inventory. All figures of purchases and sales given
above are exclusive of taxes.
How can he utilize the balance of input tax credit available, if any?
PART 4. VAT PROCEDURES

THEORY:
36) Explain the system of cross checking?
37) Explain The Role of Chartered Accountant In VAT and 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?
38) Strong Constructions undertakes works contracts and maintains sufficient records to quantify the labour and
other service charges. From the details given below, calculate the taxable turnover, input tax credit and net
VAT payable under the State VAT Law:
Particulars Rs.
1. Total contract price (excluding VAT) 1,80,00,000
2. Materials purchased and used for the contract taxable at 12.5% VAT (inclusive 33,75,000
of VAT)
3. Labour charges paid for execution of the contract 40,00,000
4. Other service charges paid for the execution of the contract 20,00,000
5. Cost of consumables used not involving transfer of property in goods 10,00,000
Strong Constructions also purchased a plant for use in the contract for Rs. 20,80,000 (inclusive of VAT). In the
VAT invoice relating to the same, VAT was charged at 4% separately. Assume 100% input tax credit is
available on capital goods immediately and output VAT is leviable at 12.5%. Make suitable assumptions where
required and show the workings.
39) State with reasons in brief whether the following statements are correct or incorrect with reference to the
provisions of value added tax laws:
i) It is permitted to issue ‘tax invoice’ inclusive of VAT i.e., aggregate of sale price & VAT.
ii) VAT laws of different States require a registered dealer to compulsorily get his books of accounts audited
irrespective of the quantum of his turnover.
iii) Taxpayer's Identification Number (TIN) is a 10 digit alpha numeral.
CENTRAL SALES TAX

THEORY:
40) Write the Definition of Good.
41) Exemption in respect of subsequent sale [Sec.6(2)]
42) Penultimate Sale Sec 5(3)
IPCC | Guess Questions– May 2016 – Indirect Taxes (Problems) 172

43) What are the tax rates under CST Act?
44) Returned Goods and Rejected Goods.
45) Explain list of declared goods under sec.14 of CST act 1956 and state restrictions if any, on state taxation on
such goods?
46) Briefly examine the validity of the following statements with reference to the CST Act:
i) Since goods include all materials, articles and all other kinds of movable property, newspapers would also
be considered as goods.
ii) ‘Place of business’ includes place of business of the agent.
iii) Profit motive is essential to call an activity a “business”.
iv) CST is leviable on transactions of leasing / hiring of assets for a defined period.
47) X of Kolkata sells goods to Y of Chennai and hands over the goods to MKS Transport, Kolkata for transporting
the same to Chennai. The lorry receipt is sent to Y by post. While goods are in transit, Y sells the goods to Z of
Vijayawada by endorsing the lorry receipt and goods are diverted to Vijayawada. X,Y and Z are registered
dealers. Is the second sale between Y and Z chargeable to tax?
48) Solaris India Pvt. Ltd.’s total inter-State sales @ 4 % CST for the Financial Year 2014-15 is Rs.1,50,00,000
(CST not shown separately). In this regard, following additional information is available:
i) Goods sold to Mr. A for Rs.1,50,000, on 16.07.2014 were returned by him on 12.12.2014.
ii) A buyer, Mr. B, to whom goods worth Rs.55,000 were dispatched on 16.04.2014, rejected such goods.
The said goods were received back on 15.11.2014.
iii) Goods sold to Mr. C for Rs. 5,00,000, on 16.04.2014 were returned by him on 12.12.2014.
Determine the amount of taxable turnover and tax liability of Solaris India Pvt. Ltd.
CENVAT CREDIT RULES

THEORY:
49) Define “Input service”?
50) Define “Capital Goods”?
51) Briefly explain the provisions of sub Rule 5B of rule 3 of the CENVAT credit rules, 2004 regarding the value of
input or capital goods, on which CENVAT credit has been taken, is written off fully, before being put to use.
52) What is the time limit for availment of CENVAT credit in respect of input service?
53) What are the provisions of CENVAT credit in respect of inputs & capital goods sent to a job worker?
54) ABC Co. Ltd. is engaged in the manufacture of excisable goods. It procured the following items during the
month of January, 2016. Determine the amount of CENVAT credit available by giving necessary explanations
for treatment of various items.
Excise duty
Items
paid [Rs.]
Electrical transformers falling under Chapter 85 of the Excise Tariff 52,000
Moulds and dies 1,00,000
Pollution control equipment 30,000
Trucks used for the transport of raw material falling under tariff heading 8704 10,000
Office equipment 20,000
Capital goods used outside the factory for generation of electricity for captive use 10,000
within the factory
Refractories 5,000

55) Compute the CENVAT credit available in respect of the following services billed to Krishna Motors Ltd. in the
month of January, 2016:
Service tax
S.No. Services billed
paid (Rs.)
i. Sales promotion services 1,00,000
ii. Market research for the new car launched by Krishna Motors Ltd. 2,00,000
iii. Quality control services 1,00,000
iv. Routine maintenance of the cars manufactured by Krishna Motors Ltd. 50,000
v. In-transit insurance of the cars manufactured 70,000
vi. Outdoor catering services provided to the employees 1,00,00
56) Discuss briefly the validity of the following statements with reference to rule 3 of the CCR, 2004:
(i) A manufacturer can sell the inputs on which CENVAT credit has already been availed of, as such,
provided he pays the amount equal to the credit availed.
(ii) CENVAT credit can be utilised for payment of any duty of excise on goods in respect of which the benefit
of an exemption under Notification No. 1/2011 -C.E. dated 01.03.2011 is availed.
(iii) CENVAT credit can be utilised for payment of the Clean Energy Cess leviable under section 83 of the
Finance Act, 2010.
(iv) Credit of duty paid @ 2% on inputs in pursuance of Notification No. 1/2011 C.E. dated 01.03.2011 is
available to the manufacturer as well as service provider who buys them.
57) RSL Pvt. Ltd. purchased a pollution control equipment on 20.06.2010 for Rs. 15,00,000 (including excise duty
of Rs. 1,85,400); and took the CENVAT credit of 50% of the excise duty paid in the financial year 2010-11 and
balance credit of 50% in the financial year 2011 -12.
After using such equipment, RSL Pvt. Ltd. sold it as scrap for Rs. 50,000 excluding excise duty, on 31st July,
2015. Examine whether:
(i) RSL Pvt. Ltd. was correct in availing the CENVAT credit on the said equipment in financial years 2010-11
and 2011-12?
(ii) On selling of above equipment in the financial year 2015 -16, RSL Pvt. Ltd. needs to pay the amount of
excise duty earlier availed as CENVAT credit?
Note: RSL Pvt. Ltd is not eligible for SSI exemption available under Notification No. 8/2003 CE dated
01.03.2003.
CENTRAL EXCISE ACT, 1944
2. BASIC CONCEPTS IN CENTRAL EXCISE
THEORY:
58) Define goods under Central Excise Act?
59) Define Manufacture in Central Excise Act?
60) Who is liable to pay Excise duty?
61) What is the relevant date for determining the rate of duty and tariff value under Central excise?
62) Compute the excise duty payable in the following cases:
S. Value of Date of Rate of duty on date Date of Rate of duty on date
No. goods (Rs.) manufacture of manufacture removal of removal
1. 10,000 28.02.2015 12.36% 20.03.2015 12.5%

12.5% + Additional
2. 25,000 20.06.2015 12.5% 25.09.2015 duty @ 6% imposed
w.e.f. 01.07.2015

Goods exempt from

Exemption withdrawn
duty vide an
3. 30,000 23.06.2014 25.03.2015 – Goods liable to
exemption
excise duty @ 12.5%
notification
4. 60,000 25.02.2015 12.36% 20.04.2015 15%
Also, compute the duty payable
i) In case the goods in above point (1) are valued on the basis of tariff value and such tariff value changes
from Rs. 10,000 (applicable on the date of manufacture) to Rs. 15,000 (applicable on the date of removal).
The other particulars remain the same as in point (1) above.
ii) Further, in case of point (4), goods have been removed from the factory and stored in a warehouse
without payment of duty on 25.03.2015. On 25.03.2015, the applicable rate of duty was 12.5%. Who is
liable to pay duty in this case?
3. CLASSIFICATION OF EXCISABLE GOODS

63) State the Trade Parlance Theory.
4. VALUATION OF EXCISABLE GOODS

THEORY:
64) Explain briefly the provisions of Central Excise Act, 1944 relating to Tariff Value. [sec-3(2)]
65) Write a note on Valuation with reference to retail sale price (RSP).
66) Determine the assessable value and the duty payable from the following particulars:
Particulars Amount in (Rs.)
Price of machinery excluding taxes and duties 5,50,000
Installation and erection expenses [Machinery has been fixed to the earth] 21,000
Packing charges (primary) 11,500
Cost of packing at buyers request for safety during transport 5,000
Design and engineering charges 2,000
Dharmada 500
Freight and insurance charges paid from factory to place of removal 3,000
Outward freight beyond place of removal to buyers premises 12,000
Other information:
a) Cash discount @ 2% on price of machinery was allowed as per terms of contract since full payment was
received before dispatch of machinery.
b) Bought out accessories valued at Rs. 6,000. The accessories are optional and provide ease of use of the
machinery.
c) VAT@ 5%
d) Central excise duty @ 12.5%
Make suitable assumptions as are required and provide brief reasons.
67) What will be the assessable value of the excisable goods in the following cases?
a) The price-cum-duty of excisable goods sold by ‘A’ is Rs. 200 per unit. Excise duty @ 8% has been
charged by ‘A’ on such goods. However, ‘A’ comes to know that the actual rate of duty chargeable on the
goods sold by him is 12.5% and not 8%. ‘A’ has collected only Rs. 200 per unit from the customers.

b) ‘B’ sells his excisable goods @ Rs. 200 per unit (inclusive of excise duty @ 12.5%). However, it has been
found that ‘B’ has collected Rs. 50 per piece separately.
c) The price of the excisable goods sold by ‘C’ is Rs. 500 per unit. ‘C’ does not charge any duty of excise in
his invoice on the belief that the goods sold by him are exempt from payment of duty vide an exemption
notification. However, he comes to know that the goods are not exempt from excise duty but are liable to
duty @ 12.5%.
In all the above cases education cesses have to be considered separately.
5. SSI EXEMPTION
68) Briefly state the provisions relating to exemptions available for small scale units under Central excise Act.1944.
CUSTOMS DUTY
1. BASICS IN CUSTOMS DUTY
69) What is the date for determination of rate of duty and tariff valuation in case of imported goods as well as
export goods?
70) Distinguish between section 13 and section 23(1).
71) Briefly state the provisions under section 14 of Customs Act. 1962, regarding valuation of goods for purpose of
assessment?
2. TYPES OF CUSTOMS DUTIES

THEORY:
72) Write a short note on Anti-dumping duty under customs tariff Act, 1975?
73) Kalaniketan Enterprises imported some goods from UK. The assessable value of the imported goods is Rs.
20,00,000. Compute the customs duty payable from the following additional information:
Date of bill of entry 24.10.2014 (Rate of BCD is 10%)
Date of entry inward 20.10.2014 (Rate of BCD is 8%)
C.V.D. is payable @ 12.5%
Special C.V.D. – as applicable
74) An importer imports a carton of goods containing 10,000 pieces with assesable value of Rs. 1,00,000 under
section 14 of the Customs Act, 1962. On said product, rate of basic customs duty is 10% and rate of excise
duty is 12.5% ad valorem. Similar product in India is assessable under section 4A of the Central Excise Act,
1944, after allowing an abatement of 30%. MRP printed on the package at the time of import is Rs. 25 per
piece. Calculate the countervailing duty (CVD) under section 3(1) of the Customs Tariff Act, 1975 payable on
the imported goods.
75) Sofa Enterprises imported some goods from USA for being used in manufacture of its final product. Determine
the exchange rate to be considered for computation of import duty from the following information.
Rate of exchange notified by
Date Particulars
CBEC
21.10.14 Import general manifest was submitted by master of 1 US Dollar = Rs. 64.20
vessel
25.10.14 Entry Inwards was granted by the customs officer 1 US Dollar = Rs. 64.30
27.10.14 Sofa Enterprises filed the Bill of Entry 1 US Dollar = Rs. 64.50
31.10.14 Goods were allowed to be cleared from the customs 1 US Dollar = Rs. 64.60.
port

76) Genuine Industries exported some goods to UK in a vessel. You are required to determine the rate of
exchange for the purposes of computation of export duty from the following additional information.
Exchange rate notified by Exchange rate notified by
Particulars Date
CBEC RBI
Date of presentation of 18.02.2015 Rs. 89 per UK pound Rs. 90 per UK pound
shipping bill
Date of entry outwards 20.02.2015 Rs. 85 per UK pound Rs. 87 per UK pound
77) Meaning of Bill of Entry, Entry Inwards, Transmit & Transhipment of Goods, shipping Bill, Import & Export
Manifest.
NOTE: All the Questions are from MM Material 34th edition
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DISCLAIMER: Dear students,

IPCC |Guess Questions– May 2016 – Accounts 2

ii) On 25 August, 2015.

IPCC |Guess Questions– May 2016 – Accounts 3

3. ACCOUNTING FOR BUSINESS ACQUISITION

IPCC |Guess Questions– May 2016 – Accounts 4

IPCC |Guess Questions– May 2016 – Accounts 7

Sales 2009 2010 2011 2012

IPCC |Guess Questions– May 2016 – Accounts 9

IPCC |Guess Questions– May 2016 – Accounts 10

IPCC |Guess Questions– May 2016 – Accounts 11

7. SELF BALANCING LEDGERS

IPCC |Guess Questions– May 2016 – Accounts 13

IPCC |Guess Questions– May 2016 – Accounts 14

Notes Hari Ltd Vayu Ltd

Particulars Hari ( Rs.) Vayu ( Rs.)

IPCC |Guess Questions– May 2016 – Accounts 15

(Rs.in lakhs) (Rs.in lakhs)

IPCC |Guess Questions– May 2016 – Accounts 16

IPCC |Guess Questions– May 2016 – Accounts 17

Particulars B Ltd C Ltd.

IPCC |Guess Questions– May 2016 – Accounts 18

Notes P Ltd Q Ltd

Following are the additional information:

(v) The purchase consideration is to be discharged as under:

IPCC |Guess Questions– May 2016 – Accounts 20

2) Purchase consideration will be settled by Jupiter Ltd. as under:

You are required to:

IPCC |Guess Questions– May 2016 – Accounts 21

IPCC |Guess Questions– May 2016 – Accounts 23

Liabilities Amount (Rs.) Assets Amount (Rs.)

IPCC |Guess Questions– May 2016 – Accounts 25

10. FINANCIAL STATEMENTS OF NOT FOR PROFIT ORGANISATION

Receipts Rs. Payments Rs.

IPCC |Guess Questions– May 2016 – Accounts 27

The following adjustments have been made in the above accounts:

IPCC |Guess Questions– May 2016 – Accounts 28

IPCC |Guess Questions– May 2016 – Accounts 29

IPCC |Guess Questions– May 2016 – Accounts 30

IPCC |Guess Questions– May 2016 – Accounts 32

Particulars 31.3.2010 ( Rs.) 31.3.2011 ( Rs.)

IPCC |Guess Questions– May 2016 – Accounts 33

(b) Receipts and payments during 2014:

12. HIRE PURCHASE AND INSTALLMENTS SALES TRANSACTIONS

13. PARTNERSHIP ACCOUNTS-I

IPCC |Guess Questions– May 2016 – Accounts 37

Liabilities Rs. Assets Rs.

IPCC |Guess Questions– May 2016 – Accounts 39

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IPCC |Guess Questions– May 2016 – Accounts 42

15. CASH FLOW STATEMENTS

IPCC |Guess Questions– May 2016 – Accounts 43

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IPCC |Guess Questions– May 2016 – Accounts 46

15. ACCOUNTING FOR BONUS SHARES

Issued, subscribed and paid up

Reserves & Surplus

2,500, 9% Debentures of Rs.100 each 2,50,000

IPCC |Guess Questions– May 2016 – Accounts 47

16. COMPANY FINAL ACCOUNTS