RTP Gr1 Nov2022

FINAL COURSE
GROUP – I
REVISION TEST PAPERS

NOVEMBER, 2022
BOARD OF STUDIES
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
New Delhi
© The Institute of Chartered Accountants of India

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Contents
Page Nos.
Objective & Approach ......................................................................................... i – vii
Objective of RTP .......................................................................................................... i
Planning & Preparing for Examination ........................................................................... ii

Subject-wise Guidance – An Overview ......................................................................... iii
Paper-wise
Paper 1: Financial Reporting ............................................................................1 – 35

Part – I : Academic Update .................................................................. 1 – 4
Part – II : Questions and Answers........................................................5 – 35
Paper 2: Strategic Financial Management........................................................ 36 – 51
Paper 3: Advanced Auditing and Professional Ethics ........................................ 52 – 84

Part – I : Academic Update ............................................................... 52 – 57
Part – II : Questions and Answers...................................................... 58 – 84
Paper 4: Corporate and Economic Laws ....................................................... 85 – 110
Part – I : Relevant Amendments ....................................................... 85 – 96

Part – II : Questions and Answers.................................................... 96 – 110
Applicability of Standards/Guidance Notes/Legislative Amendments etc.
for November, 2022 – Final Examination ...................................................... 111 – 119

REVISION TEST PAPER, NOVEMBER, 2022 – OBJECTIVE & APPROACH
(Students are advised to go through the following paragraphs carefully to derive
maximum benefit out of this RTP)
I. Objective of Revision Test Paper
Revision Test Papers are one among the many educational inputs provided by the Board
of Studies (BOS) to its students. Popularly referred to as RTP by the students, it is one
of the very old publications of the BOS whose significance and relevance from th e
examination perspective has stood the test of time.
RTPs provide glimpses of not only the desirable ways in which examination questions
are to be answered but also of the professional quality and standard of the answers
expected of students in the examination. Further, aspirants can assess their level of
preparation for the examination by answering various questions given in the RTP and
can also update themselves with the latest developments in the various subjects relevant
from the examination point of view.
The primary objectives of the RTP are:
• To help students get an insight of their preparedness for the forthcoming examination;
• To provide an opportunity for a student to find all the latest developments relevant for
the forthcoming examination at one place;
• To supplement earlier studies;
• To enhance the confidence level of the students adequately; and
• To leverage the preparation of the students by giving guidance on how to approach the
examinations.
RTPs contain the following:
(i) Planning and preparing for examination
(ii) Subject-wise guidance – An overview
(iii) Updates applicable for a particular exam in the relevant subjects
(iv) Topic-wise questions and detailed answers thereof in respect of each paper
(v) Relevant announcement applicable for the particular examination
Students must bear in mind that the RTP contains a variety of questions based on
different sections of the syllabi and thus a comprehensive study of the entire syllabus is a
pre-requisite before answering the questions of the RTP. In other words, in order to
derive maximum benefit out of the RTPs, it is advised that before proceeding to solve the
questions given in the RTP, students ought to have thoroughly read the Study Materials.

REVISION TEST PAPER ii
The topics on which the questions are set herein have been carefully se lected and
meticulous attention has been paid in framing different types of questions. Detailed
answers are provided to enable the students to do a self-assessment and have a focused
approach for effective preparation.
Students are welcome to send their suggestions for fine tuning the RTP to the Director,
Board of Studies, The Institute of Chartered Accountants of India, A-29, Sector-62, Noida
201 309 (Uttar Pradesh). RTP is also available on the Institute’s website www.icai.org
under the BOS knowledge portal in students section for downloading.
II. Planning and preparing for examination
Ideally, when the RTP reaches your hand, you must have finished reading the relevant
Study Materials of all the subjects. Make sure that you have read the Study Materi als
thoroughly as they cover the syllabus comprehensively. Get a good grasp of the
concepts/ provisions discussed therein. Solve each and every question/illustration given
therein to understand the application of the concepts and provisions.
After reading the Study Materials thoroughly, you should go through the Updates
provided in the RTP and then proceed to solve the questions given in the RTP on your
own. RTP is in an effective tool to revise and refresh the concepts and provisions
discussed in the Study Material. RTPs are provided to you to help you assess your level
of preparation. Hence you must solve the questions given therein on your own and
thereafter compare your answers with the answers given therein.
Examination tips
How well a student fares in the examination depends upon the level and depth of his
preparation. However, there are certain important points which can help a student better
his performance in the examination. These useful tips are given below:
 Reach the examination hall well in time.
 As soon as you get the question paper, read it carefully and thoroughly. You are
given separate 15 minutes for reading the question paper.
 Plan your time so that appropriate time is awarded for each question. Keep
sometime for checking the answers as well.
 First impression is the last impression. The question which you can answer in the
best manner should be attempted first.
 Always attempt to do all questions. Therefore, it is important that you must finish
each question within allocated time.
 Read the question carefully more than once before starting the answer to
understand very clearly as to what is required.

iii FINAL EXAMINATION: NOVEMBER, 2022
 Answer all parts of a question one after the other; do not answer different parts of
the same question at different places.
 Write in a neat and legible hand-writing.
 Always be concise and write to the point and do not try to fill pages unnecessarily.
 There must be logical expression of the answer.
 In case a question is not clear, you may state your assumptions and then answer
the question.
 Check your answers carefully and underline important points before leaving the
examination hall.
III. Subject-wise Guidance – An Overview
PAPER 1: FINANCIAL REPORTING
For Paper 1 : Financial Reporting Revised October, 2021 edition of the study material is
applicable. The syllabus of Financial Reporting primarily focuses on Ind AS with two
contemporary topics. The Study Material has been divided into four modules for ease of
handling by students.
For understanding the coverage of syllabus, it is important to read the Study Material
along with the reference to Study Guidelines. It contains the detailed topic -wise
exclusions from the syllabus. The Study Guidelines is given as part of “Applicability of
Standards/Guidance Notes/Legislative Amendments etc. for November, 2022 – Final
Examination” appended at the end of this Revision Test Paper.
You have to read the Study Material thoroughly to attain conceptual clarity. Tables,
diagrams and flow charts have been extensively used to facilitate easy understanding of
concepts. Examples and Illustrations given in the Study Material would help you
understand the application of concepts. Thereafter, work out the questions at the end of
each chapter to hone your problem-solving skills. Compare your answers with the
answers given to test your level of understanding.
Thereafter, solve the questions given in this RTP independently and compare the same
with the answers given to assess your level of preparedness for the examination. The
Revisionary Test Paper (RTP) of Financial Reporting contains twenty questions and their
answers.
Answers to the questions have been given in detail along with the working notes for easy
understanding and comprehending the steps in solving the problems. The answers to
the questions have been presented in the manner which is expected from the students in

REVISION TEST PAPER iv
the examination. The students are expected to solve the questions under examination
conditions and then compare their solutions with the solutions given in the Revisionary
Test Paper and further strategize their preparation for scoring more marks in the
examination.
PAPER 2: STRATEGIC FINANCIAL MANAGEMENT

Basically, the subject of Strategic Financial Management is to acquire the ability to apply
financial management theories and techniques in strategic decision making. The major
topics from which numerical questions are normally asked are as follows:
• Risk Management
• Security Analysis & Valuation
• Portfolio Management
• Mutual Funds
• Derivatives
• Foreign Exchange Exposure and Risk Management
• International Financial Management
• Interest Rate Risk Management
• Corporate Valuation
• Mergers and Acquisitions
Accordingly, the detail of the topics, on which questions in this Revisionary Test Paper
are based, is as follows:
Question No. Topic
1 Security Valuation
2 Security Valuation
3 Portfolio Management
4 Portfolio Management
5 Mutual Funds
6 Derivatives Analysis & Valuation
7 Derivatives Analysis & Valuation
8 Foreign Exchange Exposure and Risk Management
9 Foreign Exchange Exposure and Risk Management

v FINAL EXAMINATION: NOVEMBER, 2022
10 International Financial Management

11 Interest Rate Risk Management
12 Corporate Valuation
13 Mergers and Acquisitions & Corporate Restructuring
14 A theoretical Question.
15 A theoretical Question.
PAPER 3: ADVANCED AUDITING AND PROFESSIONAL ETHICS

RTP is a tool to refresh your knowledge which you have acquired while doing conceptual
study from Study Material and other modes of knowledge like student journal, bare acts
etc.
This RTP of Advanced Auditing and Professional Ethics is relevant for November 2022
Examination. Total 25 Questions consisting of integrated case scenario based multiple
choice questions, independent multiple choice questions and descriptive questions have
been taken from the entire syllabus divided into eighteen chapters along with
Engagement and Quality Control Standards, Statements, Guidance Notes, etc.
These 25 questions are taken from different topics like Engagement and Quality Control
Standards, Statements and Guidance Notes, Company Audit, Audit Reports, Audit of
Consolidated Financial Statements, Audit of Banks and Insurance Companies, Audit of
NBFCs, Audit under Fiscal Laws, Audit of PSUs, Due Diligence, Investigation and
Forensic Audit, Professional Ethics, Peer Review and Quality Review etc. of different
level. Some of the questions given in the RTP are descriptive i.e. direct theory questions
(knowledge and Comprehension) based whereas some of them are practical case
studies based i.e., application-oriented theory question (Application and Analysis /
Evaluation and Synthesis). The name of the chapter is clearly indicated before each
question.
The relevant notified sections of the Companies Act, 2013 and legislative amendments
including relevant Notifications / Circulars / Rules / Guidelines issued by Regulating
Authority up to 30 th April 2022 are applicable for November 2022 Examination. The
questions have been answered in this RTP keeping in view latest amendments as per
above mentioned dates.
PAPER 4: CORPORATE AND ECONOMIC LAWS

In the paper of Corporate and Economic Laws, students should be able to emphasise on
the legal point or issue involved in any problem and synchronize the same with the
relevant legal provisions in a clear and logical manner. Students needs to focus on the
presentation of answer to enhance the quality of the answer. This can be improved by

REVISION TEST PAPER vi
writing the answers under examination conditions and also undertaking self-assessment
by going through Revision Test Papers (RTP).
RTP is divided into two parts:
Part I : Relevant amendments applicable for November 2022 examinations.
Part II : Multiple Choice Questions with their correct options and Descriptive
Questions with detailed answers.
Part I talks about the applicability of relevant amendments made vide Circulars,
Notifications, Regulations issued by concerned departments for November 2022
examinations.
The relevant legislative amendments including relevant Notifications / Circulars / Rules /
Guidelines issued by Regulating Authority up to 30 th April, 2022 are applicable for
November 2022 Examination. The questions have been answered in this RTP keeping in
view latest amendments as per above mentioned dates.
Part II contains 25 Questions (Including Case Scenario / Independent MCQs and
Descriptive) with their answers. Case Scenario are followed by the Multiple Choice
Questions. Whereas independent Multiple Choice Questions are of Analysis and
Application (A&A) or Comprehensive and Knowledge(C&K) in nature. Some descriptive
questions are divided into sub parts in order to meet up the expected level of this paper.
Nature of questions in the descriptive types comprises of Evaluation and synthesis
based, Analysis and Application based and knowledge and Comprehensive based. The
topics amongst which these questions are divided are as follows:
Question No. Topic
1 The Insolvency and Bankruptcy Code, 2016
6 The Companies Act, 2013
10 Foreign Contribution Regulation Act, 2010
11 The Foreign Management Exchange Act, 1999
12 The Prevention of Money Laundering Act, 2002
13 The Arbitration and Conciliation Act, 1996

vii FINAL EXAMINATION: NOVEMBER, 2022

19 Securities and Exchange Board of India (Listing Obligations and
Disclosure Requirements) Regulations, 2015
21 The Foreign Management Exchange Act, 1999
22 Foreign Contribution Regulation Act, 2010
23 The Prevention of Money Laundering Act, 2002
24 The Arbitration and Conciliation Act, 1996
Guidance on Sections and Case Laws: It is imperative for Final students to remember
major section numbers and relevant case laws. Extra efforts are to be made in this
direction. If by any chance, students do not remember the Section numbers and Case
Law while answering any question in the examination paper on the subject, they may not
lose heart on this score. They may otherwise strengthen their answer by appropriate
reasoning and examples. However, they may desist from citing wrong Section numbers
or irrelevant Case laws.

PAPER –1: FINANCIAL REPORTING
PART – I
Amendments applicable from November, 2022 examination
Companies (Indian Accounting Standards) (Amendment) Rules, 2022
MCA has issued Companies (Indian Accounting Standards) (Amendment) Rules, 2022 to
amend Companies (Indian Accounting Standards) Rules, 2015 vide notification G.S.R. 255(E)
dated 23rd March, 2022. These amendments are generally brought by MCA to keep uniformity
between Ind AS and IFRS. However, this time MCA has come out with a carve out in Ind AS
16. These amendments come into effect from 1 st April, 2022 and is applicable for the financial
year 2022-2023 onwards for the financial statements prepared on the basis of Ind AS.
Following are the areas in which the amendments have been brought in by the MCA through
this notification:
 Amendment to Ind AS 16 ‘Property, Plant and Equipment’ on accounting of proceeds from
selling of items produced during testing and carve out in this regard from IAS 16 .
 Amendment to Ind AS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’ on
determination of cost of fulfilling a contract for measurement of provision for an onerous
contract.
 Amendments to Ind AS 103 ‘Business Combinations’ with reference to Conceptual
Framework for Financial Reporting and insertion of certain paragraphs under exceptions
to recognition principle on liabilities, contingent liabilities and contingent assets
 Annual improvements to Ind AS (2021) in Ind AS 101 ‘First Time Adoption of Indian
Accounting Standards’, Ind AS 109 ‘Financial Instruments’ and Ind AS 41 ‘Agriculture’.
The key amendments to Ind AS pursuant to the Companies (Indian Accounting Standards)
(Amendments) Rules, 2022 are explained below:
Ind AS Significant amendment made in 2022

Ind AS 16, ‘Property, Para 17(e) of Ind AS 16 has been amended by adding a
Plant and Equipment’ clarification that the excess of net proceeds from sale of items
produced during testing will not be credited to Profit or loss i.e. it
will be deducted from the cost of an item of property, plant and
equipment.

2 FINAL EXAMINATION: NOVEMBER, 2022

However, amendment made in IAS 16 by IASB prohibited
deduction of proceeds of items produced during testing from cost
of an item of property, plant and equipment.
This differential treatment in IAS 16 and Ind AS 16 has led to a
carve out, which will have consequential impact on depreciation,
impairment and deferred tax.
Ind AS 37 Paragraph 68A has been inserted which clarifies which cost
‘Provisions, needs to be considered in the costs to fulfil a contract while
Contingent Liabilities determining whether the contract as onerous.
and Contingent As per the amendment made in 2022, both the incremental costs
Assets’ to fulfil a contract and allocation of directly attributable costs will
form part of the cost used for determination of onerous contract.
Para 69 has been amended by replacing ‘assets dedicated to
the contract’ to ‘assets used in fulfilling the contract’. This
amendment requires to take into consideration the impairment
loss on all the assets whose cost will be considered in assessing
the contract as onerous.
These amendments are prospective from 1 st April, 2022 with
cumulative effect recognised in the opening balance of retained
earnings or other component of equity, as appropriate on
1 st April, 2022. Comparative period financials not to be restated.
Ind AS 103 ‘Business In March, 2018, IASB revised Conceptual Framework for
Combinations’ Financial Reporting.
Accordingly, ICAI in August, 2020 came out with the revised
Conceptual Framework for Financial Reporting (the Conceptual
Framework) under Ind AS.
The amendments made in Ind AS 103 is due to change in
reference to Conceptual Framework without change in the
accounting requirements for business combinations.
Due to revision in the Conceptual Framework, there were certain
accounting implications to contingent liabilities and levies within
the scope of Ind AS 37 and Appendix C ‘Levies’.
As per it, the assets and liabilities in a business combination are
recognised if they meet the definition of an asset or liability as per

PAPER – 1 : FINANCIAL REPORTING 3

the Conceptual Framework. The timing of recognition of a levy
may sometimes be different due to specific guidance given in
Appendix C. Therefore, while recognizing levies at the acquisition
date, an acquirer might recognise at the acquisition date a liability
to pay a levy that it would not recognise subsequently when
applying Appendix C ‘Levies’. This difference would arise
because an entity might recognise a liability earlier by applying
the Conceptual Framework. This liability would be derecognized
immediately afterwards when principles of Appendix C are
applied, and the entity would recognise a so-called Day 2 gain.
Therefore, to resolve this implication, Ind AS 103 has been
amended with regards to recognition exception for contingent
liabilities and levies by inserting para 21A to 21C. An exception
has been added to the requirements of para 11 of Ind AS 103 for
liabilities and contingent liabilities that would be within the scope
of Ind AS 37 or Appendix C if incurred separately, rather than
assumed in a business combination.
Further, Ind AS 103 prohibited the recognition of contingent
assets even prior to the 2022 amendments. However, prohibition
was not stated explicitly in Ind AS 103 itself. Therefore, para 23A
has been inserted in Ind AS 103 to explicitly prohibit recognition
of contingent asset.
Ind AS 101 ‘First time Para D13 of Ind AS 101 provides an exemption to a first-time
adoption of Indian adopter of Ind AS with regard to cumulative translation differences
Accounting on the date of transition to Ind AS. According to it, first time
Standards’ adopter of Ind AS are permitted to deem all cumulative translation
differences for all foreign operations to be zero on the date of
transition to Ind AS.
Para D13A has been inserted in Ind AS 101 which removes the
conflict between the requirements of paragraph D16(a) of
Ind AS 101 which provides exemption where a subsidiary adopts
Ind AS later than its parents and the exemptions on cumulative
translation differences at the carrying amount included in the
parent’s consolidated financial statements. Similar exemption is
available to joint venture and an associate that uses the
exemption in para D16(a) of Ind AS 101. Para D16(a) of


Ind AS 101 provides that a subsidiary can measure its assets and
liabilities at the carrying amounts in parent’s consolidated
financial statements.
Ind AS 109 ‘Financial As per Ind AS 109, a financial liability is derecognised when it is
Instruments’ extinguished, which includes exchange between an existing
borrower and lender due to different or substantial modification in
terms of the contract.
Further, Ind AS 109 clarified that terms are considered to have
been substantially modified when the net present value of the
cash flows under the new terms (including any fees paid net of
any fees received) and discounted using the original EIR differs
by atleast 10% from the present value of the remaining cash flows
under the original terms.
Earlier what is to be included in the fees paid and fees received
was not mentioned in the standard.
Now the amendment has been made in 2022 by substituting para
B3.3.6 and inserting para B3.3.6A in Ind AS 109 which clarify that
the fees paid (for the above purpose) includes amount paid by
the borrower to or on behalf of the lender and fees received
includes fees amounts paid by the lender to or on behalf of the
borrower.
The above amendment will be applied prospectively to
modifications and exchanges that occur on or after the date the
entity first applies the amendment.
Ind AS 41 Earlier para 22 of Ind AS 41 prescribed certain cash flows that
‘Agriculture’ would not be considered for the purpose of assessing the fair
values.
Out of those cash flows, the amendment made in 2022 deleted
the cash flows for taxation from the exclusion list for measurement
of fair value.
This implies that tax cash flows must be included in the fair value
measurement of biological assets as per Ind AS 41.

PART – II
QUESTIONS
Ind AS 101, Ind AS 102 and Ind AS 8

1. On 1st April 20X1, Nuogen Ltd. had granted 1,20,000 share options to its employees with
the vesting condition being a service condition as follows:
• Vesting date : 31 st March 20X2 - 80,000 share options (1-year vesting period since
grant date)
• Vesting date : 31 st March 20X5 - 40,000 share options (4-year vesting period since
grant date)
Each option can be converted into one equity share of Nuogen Ltd. The fair value of the
options on grant date, i.e., on 1 st April 20X1 was ` 20.
Nuogen Ltd. is required to prepare financial statements in Ind AS for the financial year
ending 31 st March 20X4. The transition date for Ind AS being 1 st April 20X2.
The entity has disclosed publicly the fair value of both these equity instruments as
determined at the measurement date, as defined in Ind AS 102.
The previous applicable GAAP for the entity was IGAAP (AS) and therein, the entity had
not adopted intrinsic method of valuation.
The share options have not been yet exercised by the employees of Nuogen Ltd.
How the share based payment should be reflected in, the books of Nuogen Ltd. as on
31st March 20X4, assuming that the entity has erred by not passing any entry for the
aforementioned transactions in the books of Nuogen Ltd. on grant date, i.e.
1 st April 20X1?
Ind AS 116
2. A company manufactures specialised machinery. The company offers customers the
choice of either buying or leasing the machinery. A customer chooses to lease the
machinery. Details of the arrangement are as follows:
(i) The lease commences on 1 st April, 20X1 and lasts for three years.
(ii) The lessee is required to make three annual rentals payable in arrears of
` 57,500.
(iii) The leased machinery is returned to the lessor at the end of the lease.
(iv) The fair value of the machinery is ` 1,50,000, which is equivalent to the selling price
of the machinery
(v) The machinery cost ` 1,00,000 to manufacture. The lessor incurred costs of
` 2,500 to negotiate and arrange the lease.

(vi) The expected useful life of the machinery is 3 years. The machinery has an
expected residual value of ` 10,000 at the end of year three. The estimated residual
value does not change over the term of the lease.
(vii) The interest rate implicit in the lease is 10.19%.
The lessor classifies the lease as a finance lease.
How should the Lessor account for the same in its books of accounts? Pass necessary
journal entries.
Ind AS 20
3. To encourage entities to expand their operations in a specified development zone, the
government provides interest-free loans to fund the purchase of manufacturing
equipment.
In accordance with the development scheme, an entity receives an interest -free loan of
` 5,00,000 from the government for a period of three years. The market rate of interest
for similar loans for 3 years is 5% per year.
There are no future performance conditions attached to the interest -free loan.
Discuss how to account for the above loan. Pass necessary journal entries in the entity’s
books of accounts from year 1 to year 3, as per relevant Ind AS.
Ind AS 1
4. As per the statutory requirements, exceptional items are required to be disclosed
whereas Ind AS 1 requires separate disclosures of material items and how these are to
be presented in the financial statements. Does that imply that ‘exceptional’ means
‘material’? Give examples. How should these be presented in the financial statements?
Ind AS 12
5. Following is the summarized statement of profit and loss of EARTH Limited as per
Ind AS for the year ended 31 st March 20X1:
Particulars ` in Crore
Revenue from operations 1,160.00
Other income 56.00
Total Income (A) 1,216.00
Purchase of stock-in-trade 40.00
Changes in inventories of stock-in-trade 6.00
Employee benefits expense 116.00
Finance costs 130.00
Depreciation and amortization expense 30.00

Other expenses 300.00

Total Expenses (B) 622.00
Profit Before Tax (A-B) 594.00
Current tax 165.40
Deferred tax 1.50
Tax Expenses 166.90
Profit after Tax 427.10
Additional information:
• Corporate income tax rate applicable to EARTH Limited is 30%.
• Other income includes long-term capital gains of ` 10 crore which are taxable at
the rate of 10%.
• Other expenses include the following items which are not deductible for income tax
purposes:
Item ` in Crore
Penalties 1.00
Impairment of goodwill 44.00
Corporate Social Responsibility expense 6.00
• Other expenses include research and development (R & D) expenditure of

` 8 crore in respect of which a 200% weighted deduction is available under income
tax laws.
• Other income includes dividends of ` 4 crore, which is exempt from tax.
• Profit before tax of ` 594 crore includes (i) agriculture income of ` 55 crore which
is exempt from tax; and (ii) profit of ` 60 crore earned in the USA on which
EARTH Limited is required to pay tax at the rate of 20%.
• Depreciation as per income tax laws is ` 25.0 crore.
During review of the financial statements of EARTH Limited, the CFO multipl ied profit
before tax by the income tax rate and arrived at ` 178.2 crore as the tax expense
(` 594 crore x 30% = ` 178.2 crore). However, actual income tax expense appearing in
the summarized statement of profit and loss is ` 166.9 crore.
The CFO has sought your help in reconciling the difference between the two tax expense
amounts. Prepare a reconciliation containing the disclosure as required under the
relevant Ind AS.

Ind AS 34
6. PQR Ltd. is preparing its interim financial statements for quarter 3 of the year. How the
following transactions and events should be dealt with while preparing its interim
financials:
(i) It makes employer contributions to government-sponsored insurance funds that are
assessed on an annual basis. During Quarter 1 and Quarter 2 larger amount of
payments for this contribution were made, while during the Quarter 3 minor
payments were made (since contribution is made upto a certain maximum level of
earnings per employee and hence for higher income employees, the maximum
income reaches before year end).
(ii) The entity intends to incur major repair and renovation expense for the office
building. For this purpose, it has started seeking quotations from vendors. It also
has tentatively identified a vendor and expected costs that will be incurred for this
work.
(iii) The company has a practice of declaring bonus of 10% of its annual operating
profits every year. It has a history of doing so.
Ind AS 41
7. ABC Ltd. is in the business of manufacturing an apple beverage and requires large
quantity of apples to manufacture such beverage. In order to satisfy its requirement of
apples, it enters into 3 years lease contracts with owners of apple orchards. The lea se
contracts are mainly of two types:
(1) Contract 1: The owner of the apple orchard (i.e. the lessor) raises the apple trees
to produce apples. ABC Ltd. (i.e. lessee) makes a fixed annual payment to the
owner of the apple orchard who is required to cultivate the produce as per the
specifications of ABC Ltd. ABC Ltd. harvests the apples itself for fulfilling its
requirement of apples.
(2) Contract 2: ABC Ltd. obtains the apple orchard from owner (i.e. the lessor) to raise
the apple trees for subsequent harvest of the apples to ensure that the apples are
as per the requirements of ABC Ltd. ABC Ltd. makes a fixed annual payment to
the owner of the apple orchards (i.e. the lessor).
Explain whether ABC Ltd. is engaged in agricultural activity as per Ind AS 41 in both of
the cases?
Ind AS 23
8. Harish Construction Company is constructing a huge building project consisting of four
phases. It is expected that the full building will be constructed over several years but
Phase I and Phase II of the building will be operational as soon as they are completed.

Following is the detail of the work done on different phases of the building during the
current year:
(` in lakh)
Phase I Phase II Phase III Phase IV
` ` ` `
Cash expenditure 10 30 25 30
Building purchased 24 34 30 38
Total expenditure 34 64 55 68
Total expenditure of all phases 221
Loan taken @ 15% at the beginning 200
of the year
After taking substantial period of construction, at the mid of the current year, Phase I
and Phase II have become operational. Find out the total amount to be capitalized and
to be expensed during the year.
Ind AS 103
9. How should contingent consideration payable in relation to a business combination be
accounted for on initial recognition and at the subsequent measurement in the following
cases:
(a) On 1 st April 20X1, A Ltd. acquires 100% interest in B Ltd. As per the terms of
agreement the purchase consideration is payable in the following 2 tranches:
• an immediate issuance of 10 lakhs shares of A Ltd. having face value of
` 10 per share;
• a further issuance of 2 lakhs shares after one year if the profit before interest
and tax of B Ltd. for the first year following acquisition exceeds ` 1 crore.
The fair value of the shares of A Ltd. on the date of acquisition is ` 20 per share.
Further, the management has estimated that on the date of acquisition, the fair
value of contingent consideration is ` 25 lakhs.
During the year ended 31 st March, 20X2, the profit before interest and tax of B Ltd.
exceeded ` 1 crore. As on 31 st March, 20X2, the fair value of shares of A Ltd. is
` 25 per share.
(b) Continuing with the fact pattern in (a) above except for:
• The number of shares to be issued after one year is not fixed.

• Rather, A Ltd. agreed to issue variable number of shares having a fair value
equal to ` 40 lakhs after one year, if the profit before interest and tax for the
first year following acquisition exceeds ` 1 crore.
Ind AS 102
10. The following particulars in respect of stock options granted by a company are available:
No. of Employees covered 400 Nominal Value per share ` 100
No. of options per Employee 60 Exercise price per share ` 125
Shares offered were put in three groups. Group 1 was for 20% of shares offered with
vesting period one-year. Group II was for 40% of shares offered with vesting period two -
years. Group III was for 40% of shares offered with vesting period three -years. Fair value
of option per share on grant date was ` 10 for Group I, ` 12.50 for Group II and ` 14 for
Group III.
Position on 1st Year Position on 2nd Year Position on 3rd Year
- No. of employees left - Employees left = 35 - Employees left = 28
= 40
- Estimate of employees - Estimate of employees - Employees exercising
to leave in Year 2 = 36 to leave in Year 3 = 30 Options in Group III =
295
- Estimate of employees - Employees exercising
to leave in Year 3 = 34 Options in Group II = 319
- Employees exercising
Options in Group I
= 350
Options not exercised immediately on vesting, were forfeited. Compute expenses to
recognise in each year and show important accounts in the books of the company.
Ind AS 7
11. What will be the classification for following items in the statement of cash flows of both
(i) Banks / Financial institutions and (ii) Other Entities?
S. Particulars
No.
1. Interest received on loans and advances given
2. Interest paid on deposits and other borrowings
3. Interest and dividend received on investments in subsidiaries, associates and
in other entities

4. Dividend paid on preference and equity shares, including tax on dividend paid
on preference and equity shares by other entities
5. Finance charges paid by lessee under finance lease
6. Payment towards reduction of outstanding finance lease liability
7. Interest paid to vendor for acquiring fixed asset under deferred payment basis
8. Principal sum payment under deferred payment basis for acquisition of fixed
assets
9 Penal interest received from customers for late payments
10. Penal interest paid to suppliers for late payments
11. Interest paid on delayed tax payments
12. Interest received on tax refunds
Ind AS 38
12. An entity has an intangible asset in the form of a product protected by patented
technology which is expected to be a source of net cash inflows for at least 15 years. It
has been recognised in the books on initial date at ` 12,00,000. The entity has a
commitment from a third party to purchase that patent in five years for 60 per cent of the
fair value of the patent at the date it was acquired, and the entity intends to sell the
patent in five years. Company is amortising the asset in 15 years considering its residual
value to be Zero. Annual amortization charged to Profit and Loss is ` 80,000. State,
whether the accounting treatment done by the Company is in accordance with
Ind AS 38? If not, then calculate the annual amortization of the intangible asset and also
the amount at which it will be reflected in the balance sheet.
Ind AS 115
13. A Ltd. owns 20 resorts across India. Every customer who stays in any of the resorts
owned by A Ltd. is entitled to get points on the basis of total amount paid by him. Under
this scheme, 1 point is granted for every ` 100 spent for stay in the resort. As per the
past experience of A Ltd., the likelihood of exercise of the points is 100% and the
standalone price of each such point is ` 5. Customer X spends ` 10,000 in one of the
resorts of A Ltd. What is the accounting treatment for the points granted b y A Ltd.?
Ind AS 105
14. Company A has financial year ending 31 st March, 20X0. On 1 st June, 20X0, the Company
has classified its Division B as held for sale in accordance with Ind AS 105. How
property, plant and equipment (PPE) for which the company has adopted cost model
shall be measured immediately before the classification as held for sale on
1 st June, 20X0?

Ind AS 37
15. HVCL manufactures heavy equipment for construction industry. An order for supply of
90 equipment was received from ABIL. The unit price of the equipment was agreed at
` 190 lakhs each. 64 equipment was supplied during the year 20X1-20X2 and balance
quantity remaining to be supplied as on 31.3.20X2. HVCL has 5 equipment in its
inventory as on 31.3.20X2. HVCL considered that the contract was an onerous contract
and therefore, the net realisable value of inventory has been taken as value of inventory
as on 31.3.20X2.
The management of HVCL contends that costs incurred towards administrative
overheads, finance charges, R & D expenses, sales overhead, head quarter expenditure
etc., are considered as period cost and hence not considered for creation of provision.
Hence, the same have not been included in the computation of unavoidable cost.
The management of HVCL has submitted the details of costs that have been considered
for creation of provision towards onerous contract:
o Material cost - includes cost of material procured, cost of freight & insurance
incurred for material procurement and handling, loading and unloading charges
incurred.
o Labour cost/ Factory Overheads - includes salaries and other expenses of direct
production department, and also expenses allocated from indirect departments to
direct department.
o Material Overheads - Includes salaries and other expenses (including expenses
allocated from other departments) booked under departments linked with materials
like purchases, stores and quality control.
Accordingly, provision has been made considering the above costs only. The value of
provision created for 21 remaining equipment to be produced is as per the working shown
below:
Particulars Value (` in lakh)
(i) Cost of production (which includes material cost, labour 199.00
cost/factory overhead and material overhead)
(ii) Selling price (190.00)
(iii) Differential cost per equipment 9.00
(iv) Differential cost of ` 9 Lakh per equipment for 21 189.00
equipment
Whether the company's accounting treatment of cost for creation of provision towards
onerous contracts is in line with the provisions of Ind AS 37?

Ind AS 2 and Ind AS 16

16. (i) A retailer company imported goods at a cost of ` 1,30,000 including ` 20,000
non-refundable import duties and ` 10,000 refundable purchase taxes. The risks
and rewards of ownership of the imported goods were transferred to the retailer
company upon collection of the goods from the harbour warehouse. The retailer
company was required to pay for the goods upon collection. The retailer company
incurred ` 5,000 to transport the goods to its retail outlet and a further ` 2,000 in
delivering the goods to its customer. Further selling costs of ` 3,000 were incurred
in selling the goods.
State whether delivery charges and selling expenses will form part of the cost of
inventory. If not, then why? Also calculate the cost of inventory.
(ii) Company A incurred ` 20,000 as cost for restoring the site on which the item of
PPE was located. This item was used for manufacturing of goods and the
requirement for restoring will arise due to manufacturing of goods.
What will the treatment of this ` 20,000 in the books of Company A? Analyse on
the basis of the provisions of relevant Ind AS.
Ind AS 33
17. Company S is a subsidiary of Company P.
Following facts are in respect of Company S:
• Company S has 10,000 ordinary shares and 1,000 options outstanding, of which
Company P owns 9,000 shares and 500 options, respectively.
• The options have an exercise price of ` 40.
• The average market price of Company S’s ordinary share was ` 50 in 20X1.
• In 20X1, Company S’s profit was ` 30,000.
Following facts are in respect of Company P:
• Company P has 5,000 ordinary shares outstanding.
• In 20X1, Company P’s profit (excluding any distributed and undistributed earnings
of subsidiaries) was ` 7,000.
• The options outstanding are dilutive at P’s level.
Determine the diluted EPS of Company P for the year 20X1. Ignore income tax.
18. On 1st April, 20X1 an entity granted an interest-free loan of ` 5,00,000 to an employee
for a period of three years. The market rate of interest for similar loans is 5% per year.

On 31st March, 20X3, because of financial difficulties, the employee asked to extend the
interest-free loan for further three years. The entity agreed. Under the restructured
terms, repayment will take place on 31 st March, 20X7. However, the entity only expects
to receive a payment of ` 2,50,000, given the financial difficulty of the employee.
Explain the accounting treatment on initial recognition of loan and after giving effect of
the changes in the terms of the loan as per Ind AS 109. Support your answer with Journal
entries and amortised cost calculation, as on the date of initial recognition and on the
date of change in terms of loan.
19. An entity owns a two-storey building. Floor 1 is rented out to independent third parties
under operating leases. Floor 2 is occupied by the entity’s administration and
maintenance staff. The entity can measure reliably the fair value of each floor of the
building without undue cost or effort. How the same will be classified / presented in the
balance sheet as per relevant Ind AS. What will be the accounting treatment as per
relevant Ind AS on initial and subsequent date?
20. While preparing interim financial statements for the half-year ended
30th September, 20X1, an entity notes that there has been an under-accrual of certain
expenses in the interim financial statements for the first quarter ended 30 th June, 20X1.
The amount of under accrual is assessed to be material in the context of interim financial
statements. However, it is expected that the amount would be immaterial in the context
of the annual financial statements. The management is of the view that there is no ne ed
to correct the error in the interim financial statements considering that the amount is
expected to be immaterial from the point of view of the annual financial statements.
Whether the management’s view is acceptable?
ANSWERS
1. For 80,000 share-based options vested before transition date:

Ind AS 101 provides that a first-time adopter is encouraged, but not required, to apply
Ind AS 102 on ‘Share-based Payment’ to equity instruments that vested before the date
of transition to Ind AS. Hence, Nuogen Ltd. may opt for the exemption given in
Ind AS 101 for 80,000 share options vested before the transition date. However, since
no earlier accounting was done for these share-based options under previous GAAP too,
therefore this led to an error on the transition date, as detected on the reporting date i.e.
31st March, 20X4. Hence, being an error, no exemption could be availed by Nuogen Ltd.
on transition date with respect to Ind AS 102.

While preparing the financial statements for the financial year 20X3 -20X4, an error has
been discovered which occurred in the year 20X1-20X2, i.e., for the period which was
earlier than earliest prior period presented. The error should be corrected by restating
the opening balances of relevant assets and/or liabilities and relevant component of
equity for the year 20X2-20X3. This will result in consequential restatement of balances
as at 1 st April, 20X2 (i.e, opening balance sheet as at 1st April, 20X2).
Accordingly, on retrospective calculation of Share based options with respect to 80,000
options, Nuogen Ltd. will create ‘Share based payment reserve (equity)’ by ` 16,00,000
and correspondingly adjust the same though Retained earnings.
For 40,000 share based options to be vested on 31 st March, 20X5:
Since share-based options have not been vested before transition date, no option as per
Ind AS 101 is available to Nuogen Ltd. The entity will apply Ind AS 102 retrospectively.
However, Nuogen Ltd. did not account for the same at the grant date. This will result in
consequential restatement of balances as at 1 st April, 20X2 (i.e, opening balance sheet
as at 1st April, 20X2). Adjustment is to be made by recognising the ‘Share based
payment reserve (equity)’ and adjusting the retained earnings by ` 2,00,000.
Further, expenses for the year ended 31 st March, 20X3 and share based payment
reserve (equity) as at 31 st March, 20X3 were understated because of non-recognition of
‘employee benefits expense’ and related reserve. To correct the above errors in the
annual financial statements for the year ended 31 st March, 20X4, the entity should
restate the comparative amounts (i.e., those for the year ended 31 st March, 20X3) in the
statement of profit and loss. In the given case, ‘Share based payment reserve (equity)’
would be credited by ` 2,00,000 and ‘employee benefits expense’ would be debited by
` 2,00,000
For the year ending 31 st March, 20X4, ‘Share based payment reserve (equity)’ would be
credited by ` 2,00,000 and ‘employee benefits expense’ would be debited by ` 2,00,000.
Working Note:
Period Lot Proportion Fair value Cumulative Expenses
expenses
a b d= b x a e = d-
previous
period d
20X1-20X2 1 (1-year 1/1 16,00,000 16,00,000 16,00,000
vesting period)
20X1-20X2 2 (4-year 1/4 8,00,000 2,00,000 2,00,000
vesting period)
20X2-20X3 2 (4-year 2/4 8,00,000 4,00,000 2,00,000
vesting period)

20X3-20X4 2 (4-year 3/4 8,00,000 6,00,000 2,00,000

vesting period)
2. The cost to the lessor for providing the machinery on lease consists of the book value of
the machinery (` 1,00,000), plus the initial direct costs associated with entering into the
lease (` 2,500), less the future income expected from disposing of the machinery at the
end of the lease (the present value of the unguaranteed residual value of
` 10,000 discounted @ 10.19%, being ` 7,470). This gives a cost of sale of
` 95,030.
The lessor records the following entries at the commencement of the lease:
` `
Lease receivable Dr. 1,50,000
Cost of sales Dr. 95,030
To Inventory 1,00,000
To Revenue 1,42,530
To Creditors/Cash 2,500
The sales profit recognised by the lessor at the commencement of the lease is therefore
` 47,500 (` 1,42,530 - ` 95,030). This is equal to the fair value of the machinery of
` 1,50,000, less the book value of the machinery (` 1,00,000) and the initial direct costs
of entering into the lease (` 2,500). Revenue is equal to the lease receivable
(` 1,50,000), less the present value of the unguaranteed residual value (` 7,470).
Year Lease Lease Interest Decrease Lease
receivable at payments Income In lease receivable at
the beginning (`) (10.19% per receivable the end of
of year (`) (b) annum) (`) (`) year (`)
(a) (c) (d)=(b)-(c) (e)=(a)-(d)
1 1,50,000 57,500 15,285 42,215 1,07,785
2 1,07,785 57,500 10,983 46,517 61,268
3 61,268 57,500 6,232* 51,268 10,000
*Difference is due to approximation
The lessor will record the following entries:
` `
Year 1 Cash/Bank Dr. 57,500
To Lease receivable 42,215
To Interest income 15,285


At the end of the three-year lease term, the leased machinery will be returned to the
lessor, who will record the following entries:
` `
Inventory Dr. 10,000
3. The entity measures the loan on initial recognition at ` 4,32,000, which is the present
value of the loan (financial liability) — ` 5,00,000/(1.05) 3. ` 68,000, the difference
between the loan proceeds received ` 5,00,000 (the loan’s face value) and present value
of the loan ` 4,32,000, is a government grant and is recognised immediately as there
are no specified future performance conditions.
The amount recognised on day one will accrete to ` 5,00,000 over the three-year term
using the effective interest method.
Journal Entries
On initial recognition:
` `
Cash/Bank (financial asset) Dr. 5,00,000
To Loan (financial liability) 4,32,000
To Income (profit or loss) 68,000
(Being interest-free loan recognised at fair value and the
receipt of a government grant)
At the end of
Year 1:
` `
Finance cost (profit or loss) Dr. 21,600
To Loan (financial liability) 21,600
(Being accretion of time value recognised on the financial
liability)

Year 2
` `
liability)
Year 3
` `
liability)
Immediately after all the accretions are recognised, the carrying amount of the loan is
equal to its face value of ` 5,00,000, which is also the amount payable to the government.
` `
Loan (financial liability) Dr. 5,00,000
To Cash/Bank 5,00,000
(Being loan repaid to the government)
Working Note:
Calculation of Amortised Cost
Year Opening balance Interest at 5% Cash flow Closing balance
(A) (B) = (A) x 5% (C) (A) + (B) – (C)
1 4,32,000 21,600 – 4,53,600
2 4,53,600 22,680 – 4,76,280
3 4,76,280 23,720* (5,00,000) –
* Difference is due to approximation.
4. Exceptional items have not been defined in Indian Accounting Standards (Ind AS ).
However, paragraph 97 of Ind AS 1 requires that when items of income or expense are
material, an entity shall disclose their nature and amount separately.
As per Ind AS 1, information is material if omitting, misstating or obscuring it could
reasonably be expected to influence decisions that the primary users of general purpose

financial statements make on the basis of those financial statements, which provi de
financial information about a specific reporting entity. Materiality depends on the nature
or magnitude of information, or both and it could be the determining factor.
When items of income and expense within profit or loss from ordinary activities are of
such size, nature or incidence that their disclosure is relevant to explain the performance
of the enterprise for the period, the nature and amount of such items should be disclosed
separately.
Generally, items of income or expense fulfilling the abovementioned criteria are
classified as exceptional items and are disclosed separately.
From the above, it appears that all material items are not exceptional items. In other
words, exceptional items are those items which meet the test of ‘materiality’ (si ze and
nature) and the test of ‘incidence’.
Following are some examples which may give rise to a separate disclosure of items as
an ‘exceptional item’ in financial statements if they meet the test of ‘materiality’ and
‘incidence’:
(a) write-downs of inventories to net realisable value or of property, plant and
equipment to recoverable amount, as well as reversals of such write-downs;
(b) restructurings of the activities of an entity and reversals of any provisions for the
costs of restructuring;
(c) disposals of items of property, plant and equipment;
(d) disposals of investments;
(e) discontinued operations;
(f) litigation settlements; and
(g) other reversals of provisions.
5. Reconciliation of income tax expense and current tax as per accounting profit
for the year ended 31 st March, 20X1
Particulars ` in crore
Accounting profit 594.00
Tax at the applicable tax rate of 30% 178.20
Tax effect of expenses that are not deductible in determining
taxable profits:
Penalties (1.00 x 30%) 0.30
Impairment of goodwill (44.00 x 30%) 13.20
Corporate social responsibility expense (6.00 x 30%) 1.80 15.30

Tax effect of expenses that are deductible in determining

taxable profits:
Research and development expenses (8.00 x 30%) (2.40)
Tax effect of income that are exempted in determining
taxable profits:
Dividend income (Exempt) (4.00 x 30%) 1.20
Agriculture income (Exempt) (55.00 x 30%) 16.50 (17.70)
Tax effect of income on which different tax rates are used for
determining taxable profits:
Differential income tax on long term capital gain [10.00 x 2.00
(30% - 10%)]
Foreign income in USA [60.00 x (30%-20%)] 6.00 (8.00)
Income tax expense (Current) reported in the Statement of
Profit and Loss for the current year 165.40
Reconciliation of deferred tax:
Particulars ` in crore
Deferred tax in relation to depreciation and amortization [(30 – 25)
x 30%] 1.50
Tax expense (deferred) reported in the Statement of Profit or Loss
for the current year 1.50
6. Paragraph 28 of Ind AS 34, Interim Financial Reporting states that an entity shall apply
the same accounting recognition and measurement principles in its interim financial
statements as are applied in its annual financial statements.
Further, paragraphs 32 and 33 of Ind AS 34, Interim Financial Reporting state that for
assets, the same tests of future economic benefits apply at interim dates and at the end
of an entity’s financial year. Costs that, by their nature, would not qualify as assets at
financial year-end would not qualify at interim dates either. Similarly, a liability at the
end of an interim reporting period must represent an existing obligation at that date, just
as it must at the end of an annual reporting period.
An essential characteristic of income (revenue) and expenses is that the related inflows
and outflows of assets and liabilities have already taken place. If those inflows or
outflows have taken place, the related revenue and expense are recognised otherwise
not. The Conceptual Framework does not allow the recognition of items in the balance
sheet which do not meet the definition of assets or liabilities.

Considering the above guidance, while preparing its interim financials, the transactions
and events of the given case should be dealt with as follows:
(i) If employer contributions to government-sponsored insurance funds are assessed
on an annual basis, the employer’s related expense is recognised using an
estimated average annual effective contribution rate in its interim financial
statements, even though a large portion of the payments have been made early in
the financial year. Accordingly, it should work out an average effective contribution
rate and account for the same accordingly, in its interim financials.
(ii) The cost of a planned overhaul expenditure that is expected to occur in later part
of the year is not anticipated for interim reporting purposes unless an event has
caused the entity to have a legal or constructive obligation. The mere intention or
necessity to incur expenditure related to the future is not sufficient to give rise to
an obligation.
(iii) A bonus is anticipated for interim reporting purposes, if and only if,
(a) the bonus is a legal obligation or past practice would make the bonus a
constructive obligation for which the entity has no realistic alternative but to
make the payments, and
(b) a reliable estimate of the obligation can be made. Ind AS 19, Employee
Benefits provides guidance in this regard.
A liability for bonus may arise out of legal agreement or constructive obligation
because of which it has no alternative but to pay the bonus and accordingly, needs
to be accrued in the annual financial statements.
Bonus liability is accrued in interim financial statements on the same basis as they
are accrued for annual financial statements. In the instant case, bonus liability of
10% of operating profit for the year to date may be accrued.
In the given case, since the company has past record of declaring annual bonus
every year, the same may be accrued using a reasonable estimate (applying the
principles of Ind AS 19, Employee Benefits) while preparing its interim results.
7. Paragraph 5 of Ind AS 41, Agriculture defines agricultural activity and biological
transformation as follows:
“Agricultural activity is the management by an entity of the biological transformation and
harvest of biological assets for sale or for conversion into agricultural produce or into
additional biological assets.”
“Biological transformation comprises the processes of growth, degeneration, production,
and procreation that cause qualitative or quantitative changes in a biological asset.”
Contract 1:
As per contract 1, during the 3 years of the contract, ABC Ltd. only harvests apples from
the apple orchards whereas biological transformation is managed by the owners of the

apple orchards (i.e. the lessor). Since ABC Ltd. is not involved in the biological
transformation of the apple orchards and is only harvesting biological assets , it cannot
be said to be an agricultural activity as per Ind AS 41. Hence, ABC Ltd. is not engaged
in agricultural activity as per Ind AS 41.
Contract 2:
As per contract 2, ABC Ltd. obtains the apple orchards and is actively involved in the
raising of apple trees in order to ensure that the apples are as per its requirements.
Since, it is actively managing the biological transformation and harvest of biological
asset, Hence, ABC Ltd. is engaged in agricultural activity as per Ind AS 41.
8.
Particulars `
1. Interest expense on loan ` 2,00,00,000 at 15% 30,00,000
2 Total cost of Phases I and II (` 34,00,000 +64,00,000) 98,00,000
3. Total cost of Phases III and IV (` 55,00,000 + ` 68,00,000) 1,23,00,000
4. Total cost of all 4 phases 2,21,00,000
5. Total loan 2,00,00,000
6. Interest on loan used for Phases I & II, based on proportionate 13,30,317
30,00,000 (approx.)
 98,00,000
2
Loan amount = ,21,00,000
7. Interest on loan used for Phases III & IV, based on 16,69,683
30,00,000 (approx.)
 1,23,00,00 0
proportionate Loan amount= 2,21,00,000
Accounting treatment:
1. For Phase I and Phase II
Since Phase I and Phase II have become operational at mid of the year, half of the
interest amount of ` 6,65,158.50 (i.e. ` 13,30,317/2) relating to Phase I and
Phase II should be capitalized (in the ratio of asset costs 34:64) and added to
respective assets in Phase I and Phase II and remaining half of the interest amount
of ` 6,65,158.50 (i.e. ` 13,30,317/2) relating to Phase I and Phase II should be
expensed off during the year.
2. For Phase III and Phase IV
Interest of ` 16,69,683 relating to Phase III and Phase IV should be held in Capital
Work-in-Progress till assets construction work is completed, and thereafter
capitalized in the ratio of cost of assets. No part of this interest amount should be
charged/expensed off during the year since the work on these phases has not been
completed yet.

9. Paragraph 39 of Ind AS 103 provides that the consideration the acquirer transfers in
exchange for the acquiree includes any asset or liability resulting from a contingent
consideration arrangement. The acquirer shall recognise the acquisition-date fair value
of contingent consideration as part of the consideration transferred in exchange for the
acquiree.
With respect to contingent consideration, obligations of an acquirer under contingent
consideration arrangements are classified as equity or a liability in accordance with
Ind AS 32
Paragraph 58 of Ind AS 103 provides guidance on the subsequent accounting for
contingent consideration.
(a) (i) In the given case, the amount of purchase consideration to be recognized
on initial recognition shall as follows:
Fair value shares issued (10,00,000 x ` 20) ` 2,00,00,000
Fair value of contingent consideration ` 25,00,000
Total purchase consideration ` 2,25,00,000
(ii) Subsequent measurement of contingent consideration payable for
business combination
In the given case, given that the acquirer has an obligation to issue fixed
number of shares on fulfillment of the contingency, the contingent
consideration will be classified as equity as per the requirements of Ind AS 32.
As per paragraph 58 of Ind AS 103, contingent consideration classified as
equity should not be re-measured and its subsequent settlement should be
accounted for within equity.
In the given case, the obligation to pay contingent consideration amounting to
` 25,00,000 is recognised as a part of equity and therefore not be re-measured
subsequently or on issuance of shares.
(b) (i) In the given case, the amount of purchase consideration to be recognized
on initial recognition is as follows:
Fair value shares issued (10,00,000 x ` 20) ` 2,00,00,000
Fair value of contingent consideration ` 25,00,000
Total purchase consideration ` 2,25,00,000
(ii) Subsequent measurement of contingent consideration payable for
business combination
In the given case, the contingent consideration will be classified as liability as
per Ind AS 32.

As per paragraph 58 of Ind AS 103, contingent consideration not class ified as

equity should be measured at fair value at each reporting date and changes in
fair value should be recognised in profit or loss.
As at 31 st March, 20X2 (being the date of settlement of contingent
consideration), the liability would be measured at its fair value and the
resulting loss of ` 15,00,000 (` 40,00,000 – ` 25,00,000) should be
recognised in the profit or loss for the period. A Ltd. would recognize issuance
of 1,60,000 (` 40,00,000 / 25) shares at a premium of ` 15 per share.
10. Total number of Options per employee = 60
Group I - 20% vesting in Year 1 Group II - 40% vesting Group III - 40%
in Year 2 vesting in Yr. 3
= 12 options, Vesting period = 24 options, Vesting = 24 options, Vesting
= 1 Yr. period = 2 Yrs. period = 3 Yrs.
Computation of Expenses for all the years
Group = No. of Group I = Group II = 24 Options Group III = 24 Options
Options 12 Options
Year 1 Year 1 Year 2 Year 1 Year 2 Year 3
(a) Employees at 400 - 40 = 400 - 40 = 360 - 35 = 400 - 40 = 360 - 35 = 325 - 28 =
year end =
[Opening
No. of 360 360 325 360 325 297
Employees -
Forfeiture]
(b) Expected to NA 36 NA 36 + 34 = 30 NA
leave in future 70
(c) No. of 360 324 325 290 295 297
employees
eligible (a - b)
(d) Options (360 x 12 (324 x 24 (325 x 24 (290 x 24 (295 x 24 (297 x 24
expected to sh.) sh.) sh.) sh.) sh.) sh.)
Vest =
[(c) x No. of 4,320 7,776 7,800 6,960 7,080 7,128
Shares]
(e) FV per option ` 10 ` 12.50 ` 12.50 ` 14 ` 14 ` 14
=

(f) Value of Total ` 43,200 ` 97,200 ` 97,500 ` 97,440 ` 99,120 ` 99,792

Options = [d x
e]
(g) Total [(f) x 1/2] [(f) x 2/2] [(f) x 1/3] [(f) x 2/3] [(f) x 3/3]
Cumulative
Cost of
Options
= [(f) x ` 43,200 ` 48,600 ` 97,500 `32,480 `66,080 ` 99,792
Completed
Yrs/ Total Yrs)
(h) Less: 0 0 ` 48,600 0 `32,480 ` 66,080
Recognized in
last years
(i) Expenses to ` 43,200 ` 48,600 ` 48,900 `32,480 `33,600 ` 33,712
be
recognized
(j) Employees 10 325 - 319 = 6 Employees 297 - 295 = 2 Employees
not Employees
exercising
ESOP
(k) Total
Expenses
for-
Year 1 ` 43,200 (Gr. 1) + ` 48,600 (Gr. 2) + ` 32,480 (Gr. 3) = ` 1,24,280
Year 2 ` 48,900 (Gr. 2) + ` 33,600 (Gr. 3) = ` 82,500
Year 3 ` 33,712 (Gr. 3 only)
Employees Benefit Expenses A/c

Year 1
` `
To Share-based Payment Reserve A/c 1,24,280 By Profit and Loss A/c 1,24,280
1,24,280 1,24,280
Year 2
To Share-based Payment Reserve A/c 82,500 By Profit and Loss A/c 82,500
82,500 82,500

Year 3
To Share-based Payment Reserve A/c 33,712 By Profit and Loss A/c 33,712
33,712 33,712
Share-based Payment Reserve A/c

Year 1
` `
To Retained Earnings 1,200 By Employees Benefit 1,24,280
[(360 - 350) Emp x 12 Expenses A/c
Options x ` 10]
To Share Capital (350 Emp x By Bank A/c (350 Emp x
12 Options x ` 100) 4,20,000 12 Options x ` 125) 5,25,000
To Securities Premium (350
Emp x 12 Options x ` 35) 1,47,000
To Balance c/d 81,080
6,49,280 6,49,280
Year 2
To Retained Earnings 1,800 By Balance b/d 81,080
[(325 - 319) Emp x 24 By Employees Benefit
Options x ` 12.50] Expenses A/c 82,500
To Securities Premium 2,87,100
(319 Emp x 24 Options x
` 37.50)
To Balance c/d 66,080
11,20,580 11,20,580
Year 3
To Retained Earnings 672 By Balance b/d 66,080
[(297 - 295) Emp x 24 By Employees Benefit
Options x ` 14] Expenses A/c 33,712


To Securities Premium (295
Emp x 24 Options x ` 39) 2,76,120
9,84,792 9,84,792
Working Note:
Calculation of Securities Premium
Group I Group II Group III
Year 1 Year 2 Year 3
Exercise Price received per share 125.00 125.00 125.00
Value of service received per share, being the FV
of the Options 10.00 12.50 14.00
Total Consideration received per share 135.00 137.50 139.00
Less: Nominal Value per share (100.00) (100.00) (100.00)
Securities Premium per share 35.00 37.50 39.00
11. The following are the classification of various activities in the Statement of Cash Flows:
S. Particulars Classification for reporting cash flows
No. Banks / financial Other entities
institutions
1. Interest received on loans Operating Activities Investing activities
and advances given
2. Interest paid on deposits and Operating Activities Financing activities
other borrowings
3. Interest and dividend Investing activities Investing activities
received on investments in
subsidiaries, associates and
in other entities
4. Dividend paid on preference Financing activities Financing activities
and equity shares, including
tax on dividend paid on
preference and equity shares
by other entities
5. Finance charges paid by Financing activities Financing activities
lessee under finance lease

6. Payment towards reduction of Financing activities Financing activities

outstanding finance lease
liability
7. Interest paid to vendor for Financing activities Financing activities
acquiring fixed asset under
deferred payment basis
8. Principal sum payment under Investing activities Investing activities
deferred payment basis for
acquisition of fixed assets
9. Penal interest received from Operating Activities Operating Activities
customers for late payments
10. Penal interest paid to Operating Activities Operating Activities
suppliers for late payments
11. Interest paid on delayed tax Operating Activities Operating Activities
payments
12. Interest received on tax Operating Activities Operating Activities
refunds
12. For determination of amortisation of the intangible asset, which has finite useful life, two
elements need to be determined: useful life and residual value.
Useful life is defined as:
(a) the period over which an asset is expected to be available for use by an entity; or
(b) the number of production or similar units expected to be obtained from the asset by
an entity.
In the instant case, since the entity expects that the asset will be available for use by it
for the period of 5 years and thereafter it will be transferred, the us eful life of the asset
is 5 years.
For residual value, paragraphs 100-102 of Ind AS 38 states that the residual value of an
intangible asset with a finite useful life shall be assumed to be zero unless:
(a) there is a commitment by a third party to purchase the asset at the end of its useful
life; or
(b) there is an active market (as defined in Ind AS 113) for the asset and:
(i) residual value can be determined by reference to that market; and
(ii) it is probable that such a market will exist at the end of the asset’s useful life.
The depreciable amount of an asset with a finite useful life is determined after deducting
its residual value. A residual value other than zero implies that an entity expects to
dispose of the intangible asset before the end of its economic life.

An estimate of an asset’s residual value is based on the amount recoverable from

disposal using prices prevailing at the date of the estimate for the sale of a similar asset
that has reached the end of its useful life and has operated under conditions similar to
those in which the asset will be used.
On application of above paragraphs, the depreciable amount of the patent will be
determined after deducting the residual value, which is 60% of its fair value at the date
of its acquisition. Accordingly, the patent will be amortised over its useful life of 5 years,
with a residual value equal to 60% of its fair value at the date of its acquisition. The
patent will also be reviewed for impairment in accordance with Ind AS 36. Therefore,
the accounting policy of amortising the asset over a period of 15 years considering its
residual value of Zero is not in accordance with Ind AS 38.
Computation of correct amount of residual value and annual amortization:
`
Cost of Intangible asset 12,00,000
Residual value (60% of ` 12,00,000) 7,20,000
Depreciable value of intangible asset (12,00,000 – 7,20,000) 4,80,000
Useful life 5 years
Annual amortisation (4,80,000 / 5) ` 96,000 p.a.
13. Paragraph B40 of Ind AS 115, inter alia, states that, “if in a contract, an entity grants a
customer the option to acquire additional goods or services, that option gives rise to a
separate performance obligation only if the option provides a material right to the
customer that it would not receive without entering into that contract”.
Further, paragraph B41 states that if a customer has the option to acquire an additional
good or service at a price that would reflect the stand-alone selling price for that good or
service, that option does not provide the customer with a material right even if the option
can be exercised only by entering into a previous contract. In those cases, the entity has
made a marketing offer that it shall account for in accordance with this Standard only
when the customer exercises the option to purchase the additional goods or services .
In the given case, the customer does get a material right by way of a discount of ` 500
for every 100 points that he would not receive without the previous stay in that resort.
Thus, the customer in effect pays the entity in advance for future goods and the entity
recognises revenue when the goods are transferred.
According to paragraph B42, paragraph 74 requires an entity to allocate the transaction
price to performance obligations on a relative stand-alone selling price basis. If the
standalone selling price for a customer’s option to acquire additional goods or services
is not directly observable, an entity shall estimate it on the basis of percentage discount

the customer may obtain upon exercising the option and the likelihood of the option
getting exercised.
In accordance with above, an entity shall account for award credit as a separate
performance obligation of the sales transactions in which they are initially granted. The
value of the consideration the entity expects to be entitled in respect of the initial sale
shall be allocated between the award credits and the other components of the sale.
In the current case, the standalone selling price of the 100 points is ` 500. A Ltd. should
allocate the fair value of the consideration (i.e. ` 10,000) between the points and the
other components of the sale as ` 476 (500/10,500 x 10,000) and ` 9,524
(10,000/10,500 x 10,000) respectively in proportion of their standalone selli ng price.
Since A Ltd. supplies the awards itself (i.e. it acts as a principal), it should recognise
` 476 as revenue when points are redeemed.
14. Paragraph 18 of Ind AS 105 provides that immediately before the initial classification of
the asset (or disposal group) as held for sale, the carrying amounts of the asset (or all
the assets and liabilities in the group) shall be measured in accordance with applicable
Ind AS.
In the instant case, Company A should measure the property, plant and equipment (for
which it has adopted cost model), in accordance with Ind AS 16, Property, Plant and
Equipment. Hence, depreciation should be provided upto 31 st May, 20X0.
15. As per para 68 of Ind AS 37, onerous contract is a contract in which the unavoidable
costs of meeting the obligations under the contract exceed the economic benefits
expected to be received under it. The unavoidable cost under a contract reflects the
least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and
any compensation for penalties arising from failure to fulfilling it.
Ind AS 37 provides that the amount recognised shall be the best estimate of the
expenditure required to settle the present obligation, which is the amount that an entity
would rationally pay to settle the obligation at the end of the reporting period or to transfer
it to a third party at that time. In case of onerous contracts, an amount that an entity
would rationally pay to settle the obligation would be the lower of the compensation or
penalties arising from failure to fulfil the contacts and excess of unavoidable cost of
meeting the obligations under the contract from the economic benefits expected to be
received under it.
As per para 68 of Ind AS 37, the cost of fulfilling a contract comprises the costs that
relate directly to the contract. Costs that relate directly to a contract consist of both -
(a) the incremental costs of fulfilling that contract—for example, direct labour and
materials; and

(b) an allocation of other costs that relate directly to fulfilling contracts — for example,
an allocation of the depreciation charge for an item of property, plant and equipment
used in fulfilling that contract among others.
The unavoidable costs of meeting the obligations under the contract are only costs that:
• "are directly variable with the contract and therefore incremental to the performance
of the contract;"
• do not include allocated or shared costs that will be incurred regardless of whether
the entity fulfils the contract or not; and
• cannot be avoided by the entity's future actions.
Accordingly, HVCL has correctly measured the cost for creation of provision for onerous
contracts by considering material cost, labour cost (to the extent it relates directly to
production) and material overheads (to the extent it relates directly to production).
Further, HVCL is correct that the period cost will not be considered for measurement of
cost for the purpose of creation of provision on onerous contracts as they do not relate
directly to fulfilling the contracts.
16. (i) Calculation of Inventory cost:
Particulars Amount (`)
Purchase Price (1,30,000 – 20,000 – 10,000) 1,00,000
Non-refundable import duties 20,000
Transport cost 5,000
Total 1,25,000
Note: The cost of purchase excludes the refundable purchase taxes paid on
acquisition of the goods as the ` 10,000 paid will be refunded to the retailer.
Ind AS 2 specifically exclude selling cost from forming part of cost of inventory .
However, selling and distribution costs are generally used as single term because
both are related, as selling costs are incurred to effect the sale and the distribution
costs are incurred by the seller to complete a sale transaction by making the goods
available to the buyer from the point of sale to the point at which the buyer takes
possession. Since these costs are not related to bringing the goods to their present
location and condition, the same are not included in the cost of inventories.
Accordingly, though the word ‘distribution costs’ is not specifically mentioned in Ind
AS 2, these costs would continue to be excluded from the cost of inventories.
Therefore, it excludes the selling expenses incurred (i.e., ` 2,000 delivery costs
and ` 3,000 other selling costs).

(ii) Paragraph 16 of Ind AS 16, Property, Plant and Equipment, inter alia states that the
cost of an item of property, plant and equipment comprises the initial estimate of
the costs of dismantling and removing the item and restoring the site on which it is
located, the obligation for which an entity incurs either when the item is acquired or
as a consequence of having used the item during a particular period for purposes
other than to produce inventories during that period.
Further, paragraph 18 of Ind AS 16 states that an entity applies Ind AS 2 to the
costs of obligations for dismantling, removing and restoring the site on which an
item is located that are incurred during a particular period as a consequence of
having used the item to produce inventories during that period. The obligations for
costs accounted for in accordance with Ind AS 2 or Ind AS 16 are recognised and
measured in accordance with Ind AS 37, Provisions, Contingent Liabilities and
Contingent Assets.
Paragraph 16 of Ind AS 16 clarifies that decommissioning costs that meet the
recognition criteria under Ind AS 37, Provisions, Contingent Liabilities and Contingent
Assets, for a provision are added to the cost of an item of property, plant and
equipment if such costs are not incurred through the asset’s use to produce
inventories. Paragraph 18 fills the gap by clarifying where such costs are incurred
through the asset’s use to produce inventories, they are added to the cost of
inventories.
Where the obligation to restore the asset arises due to the use of the asset to
produce inventories but not due to the asset’s installation, construction or
acquisition, the costs are added to the costs of inventories.
Based on the above provisions and discussion, cost of restoring the site ` 20,000
incurred during the period of production as a consequence of having used the item
to produce inventories during that period should be added to the cost of inventories.
However, later the inventories are measured at the lower of cost and net realisable
value in accordance with paragraph 9 of Ind AS 2.
17. To determine the diluted EPS of Company P, the diluted EPS of Company S has to be
calculated first.
Calculation of Company S’s diluted EPS:
Company S’s earnings for the period ` 30,000
Weighted average ordinary shares 10,000
Incremental shares (refer W.N.) 200
Company S’s diluted EPS ` 30,000/ (10,000 + 200)
` 2.94

Calculation of Company P’s diluted EPS:

Company P’s earning for the period ` 7,000
Company P’s share of Company S’s earning attributable to ordinary shares ` 26,460
[(9,000 /10,000) x (2.94 x 10,000)]
Company P’s share of Company S’s earning attributable to options ` 294
[(500 /1,000) x (2.94 x 200)]
Company P’s weighted average ordinary shares outstanding 5,000
Company P’s diluted EPS = (7,000 + 26,460 + 294) / 5,000 ` 6.75
Working Note:
Computation of Incremental shares related to weighted average options
outstanding:
All options are dilutive because their exercise price is below the average market price of
Company S’s ordinary shares for the period.
The incremental shares are calculated as follows:
Shares issued on assumed exercise of options 1,000
Less: Shares that would be issued at average market Price [(40 x 1,000)/50] (800)
Incremental shares 200
18. As the loan is not at a market interest rate, hence it is not recorded at the transaction price
of ` 5,00,000. Instead, the entity measures the loan receivable at the present value of the
future cash inflows discounted at a market rate of interest available for a similar loan.
The present value of the loan receivable (financial asset) discounted at 5% per year is
` 5,00,000 ÷ (1.05) 3 = ` 4,32,000. Therefore, ` 4,32,000 is recorded on initial
measurement of the loan receivable. This amount will accrete to ` 5,00,000 over the
three-year term using the effective interest method.
The difference between ` 5,00,000 and ` 4,32,000 i.e., ` 68,000 is accounted for as
prepaid employee cost in accordance with Ind AS 19 ‘Employee Benefits’, which will be
deferred and amortised over the period of loan on straight line basis.
The journal entries on initial recognition are:
` `
Loan receivable (financial asset) Dr. 4,32,000
Prepaid employee cost (asset) Dr. 68,000
To Cash / Bank (financial asset) 5,00,000
(Being loan granted to the employee recognised)

The amortised cost calculation at 1 st April, 20X1 is as follows:

Period Carrying Interest at Cash inflow Carrying
amount at 5% amount at
1 April
st 31 March
st
20X1-20X2 4,32,000 21,600 – 4,53,600

20X2-20X3 4,53,600 22,680 – 4,76,280
20X3-20X4 4,76,280 23,720* (5,00,000) –
*Difference of ` 94 (` 23,814 – ` 23,720) is due to approximation.
On 31 st March, 20X3, the carrying amount of the loan receivable is ` 4,76,280.
As a result of that modification, on 31 st March, 20X3, the present value of estimated cash
flows is recalculated to be ` 2,05,750 using the asset’s original effective interest rate of
5% (` 2,50,000 ÷ (1.05) 4).
An impairment loss of ` 2,70,530 (` 4,76,280 – ` 2,05,750) is recognised in profit or loss
in the year 20X2-20X3.
The carrying amount of the loan receivable may be reduced directly, as follows:
` `
Profit or loss - impairment loss Dr. 2,70,530
To Loan receivable 2,70,530
(Being impairment loss recognised)
In this case, the loan receivable will be measured at ` 2,05,750 at 31 st March, 20X3.
The revised amortised cost calculation at 1 st April, 20X3 is as follows:
Period Carrying Interest at 5% (the Cash Carrying
amount at original effective inflow amount at
1 st April interest rate) 31 st March
20X3-20X4 2,05,750 10,288 – 2,16,038
20X4-20X5 2,16,038 10,802 – 2,26,840
20X5-20X6 2,26,840 11,342 – 2,38,182
20X6-20X7 2,38,182 11,818 (2,50,000) –
19. Investment property is property (land or a building—or part of a building—or both) held
(by the owner or by the lessee as a right-of-use asset) to earn rentals or for capital
appreciation or both, rather than for:
a) use in the production or supply of goods or services or for administrative purposes;
or
b) sale in the ordinary course of business.

Property mentioned in (a) above would be covered under Ind AS 16 ‘Property, Plant and
Equipment’.
On applying the above provisions, Floor 1 of the building is classified as an item of
investment property by the entity (lessor) because it is held to earn rentals. Ind AS 40
is applicable in this case. An investment property should be measured initially at its cost.
After initial recognition, an entity shall measure all of its investment properties in
accordance with Ind AS 16’s requirements for cost model. However, entities are required
to measure the fair value of investment property, for the purpose of disclosure even
though they are required to follow the cost model.
Floor 2 of the building will be classified as property, plant and equipment because it is
held by administrative staff i.e. it is held for use for administrative purposes. Ind AS 16
is applicable in this case. An item of property, plant and equipment that qualifies for
recognition as an asset should be initially measured at its cost. After recognition, an
entity shall choose either the cost model or the revaluation model as its accounting policy
and shall apply that policy to an entire class of property, plant and equipment.
20. Paragraph 41 of Ind AS 8, inter alia, states that financial statements do not comply with
Ind AS if they contain either material errors or immaterial errors made intentionally to
achieve a particular presentation of an entity’s financial position, financia l performance
or cash flows.
As regards the assessment of materiality of an item in preparing interim financial
statements, paragraph 25 of Ind AS 34, Interim Financial Statements, states that while
judgement is always required in assessing materiality, this Standard bases the
recognition and disclosure decision on data for the interim period by itself for reasons of
understandability of the interim figures. Thus, for example, unusual items, changes in
accounting policies or estimates, and errors are recognised and disclosed on the basis
of materiality in relation to interim period data to avoid misleading inferences that might
result from non-disclosure. The overriding goal is to ensure that an interim financial
report includes all information that is relevant to understanding an entity’s financial
position and performance during the interim period.
As per the above, while materiality judgements always involve a degree of subjectivity,
the overriding goal is to ensure that an interim financial report includes all the information
that is relevant to an understanding of the financial position and performance of the entity
during the interim period. It is therefore not appropriate to base quantitative assessments
of materiality on projected annual figures when evaluating errors in interim financial
statements.
Accordingly, the management is required to correct the error in the interim financial
statements since it is assessed to be material in relation to interim period data.

Paper – 2: STRATEGIC FINANCIAL MANAGEMENT
QUESTIONS
Security Valuation
1. Rahul Ltd. has surplus cash of ` 100 lakhs and wants to distribute 27% of it to the
shareholders. The company decides to buy back shares. The Finance Manager of the
company estimates that its share price after re-purchase is likely to be 10% above the
buyback price-if the buyback route is taken. The number of shares outstanding at present
is 10 lakhs and the current EPS is ` 3.
You are required to determine:
(i) The price at which the shares can be re-purchased, if the market capitalization of the
company should be ` 210 lakhs after buyback,
(ii) The number of shares that can be re-purchased, and
(iii) The impact of share re-purchase on the EPS, assuming that net income is the same.
2. ABC Ltd. has ` 300 million, 12 per cent bonds outstanding with six years remaining to
maturity. Since interest rates are falling, ABC Ltd. is contemplating of refunding these
bonds with a ` 300 million issue of 6 year bonds carrying a coupon rate of 10 per cent.
Issue cost of the new bond will be ` 6 million and the call premium is 4 per cent. ` 9 million
being the unamortized portion of issue cost of old bonds can be written off no sooner the
old bonds are called off. Marginal tax rate of ABC Ltd. is 30 per cent. You are required to
analyse the bond refunding decision.
Portfolio Management
3. Amal Ltd. has been maintaining a growth rate of 12% in dividends. The company has paid
dividend @ ` 3 per share. The rate of return on market portfolio is 15% and the risk-free
rate of return in the market has been observed as10%. The beta co-efficient of the
company’s share is 1.2.
You are required to calculate the expected rate of return on the company’s shares as per
CAPM model and the equilibrium price per share by dividend growth model.
4. A Ltd. has an expected return of 22% and Standard deviation of 40%. B Ltd. has an
expected return of 24% and Standard deviation of 38%. A Ltd. has a beta of 0.86 and B
Ltd. a beta of 1.24. The correlation coefficient between the return of A Ltd. and B Ltd. is
0.72. The Standard deviation of the market return is 20%. Suggest:
(i) Is investing in B Ltd. better than investing in A Ltd.?
(ii) If you invest 30% in B Ltd. and 70% in A Ltd., what is your expected rate of return
and portfolio Standard deviation?
(iii) What is the market portfolios expected rate of return and how much is the risk-free
rate?

PAPER 2: STRATEGIC FINANCIAL MANAGEMENT 37
(iv) What is the beta of Portfolio if A Ltd.’s weight is 70% and B Ltd.’s weight is 30%?
Mutual Funds
5. On 1-4-2012 ABC Mutual Fund issued 20 lakh units at ` 10 per unit. Relevant initial
expenses involved were ` 12 lakhs. It invested the fund so raised in capital market
instruments to build a portfolio of ` 185 lakhs. During the month of April 2012 it disposed
off some of the instruments costing ` 60 lakhs for ` 63 lakhs and used the proceeds in
purchasing securities for ` 56 lakhs. Fund management expenses for the month of April
2012 was ` 8 lakhs of which 10% was in arrears. In April 2012 the fund earned dividends
amounting to ` 2 lakhs and it distributed 80% of the realized earnings. On 30-4-2012 the
market value of the portfolio was ` 198 lakhs.
Mr. Akash, an investor, subscribed to 100 units on 1-4-2012 and disposed off the same
at closing NAV on 30-4-2012. What was his annual rate of earning?
Derivatives Analysis & Valuation
6. Mr. Dayal is interested in purchasing equity shares of ABC Ltd. which are currently selling
at ` 600 each. He expects that price of share may go upto ` 780 or may go down to ` 480
in three months. The chances of occurring such variations are 60% and 40% respectively.
A call option on the shares of ABC Ltd. can be exercised at the end of three months with
a strike price of ` 630.
(i) What combination of share and option should Mr. Dayal select if he wants a perfect
hedge?
(ii) What should be the value of option today (the risk free rate is 10% p.a.)?
(iii) What is the expected rate of return on the option?
7. Ram buys 10,000 shares of X Ltd. at a price of ` 22 per share whose beta value is 1.5 and
sells 5,000 shares of A Ltd. at a price of ` 40 per share having a beta value of 2. He obtains
a complete hedge by Nifty futures at ` 1,000 each. He closes out his position at the closing
price of the next day when the share of X Ltd. dropped by 2%, share of A Ltd. appreciated
by 3% and Nifty futures dropped by 1.5%.
What is the overall profit/loss to Ram?
Foreign Exchange Exposure & Risk Management
8. A Ltd. of U.K. has imported some chemical worth of USD 3,64,897 from one of the U.S.
suppliers. The amount is payable in six months’ time. The relevant spot and forward rates
are:
Spot rate USD 1.5617-1.5673
6 months’ forward rate USD 1.5455 –1.5609
The borrowing rates in U.K. and U.S. are 7% and 6% respectively and the deposit rates
are 5.5% and 4.5% respectively.

Currency options are available under which one option contract is for GBP 12,500. The
option premium for GBP at a strike price of USD 1.70/GBP is USD 0.037 (call option) and
USD 0.096 (put option) for 6 months period.
The company has 3 choices:
(i) Forward cover
(ii) Money market cover, and
(iii) Currency option
Which of the alternatives is preferable by the company?
9. On April 3, 2016, a Bank quotes the following:
Spot exchange Rate (US $ 1) INR 66.2525 INR 67.5945
2 months’ swap points 70 90
3 months’ swap points 160 186
In a spot transaction, delivery is made after two days.
Assume spot date as April 5, 2016.
Assume 1 swap point = 0.0001,
You are required to:
(i) ascertain swap points for 2 months and 15 days. (For June 20, 2016),
(ii) determine foreign exchange rate for June 20, 2016, and
(iii) compute the annual rate of premium/discount of US$ on INR, on an average rate.
International Financial Management
10. A USA based company is planning to set up a software development unit in India. Software
developed at the Indian unit will be bought back by the US parent at a transfer price of US
$10 millions. The unit will remain in existence in India for one year; the software is expected
to get developed within this time frame.
The US based company will be subject to corporate tax of 30% and additional withholding
tax of 10% in India and will not be eligible for tax credit in the US. The software developed
will be sold in the US market for US $ 12.0 millions. Other estimates are as follows:
Rent for fully furnished unit with necessary hardware in India ` 1500000
Man power cost (80 software professional will be working for ` 400 per man hour
10 hours each day)
Administrative and other costs ` 12,00,000
Advise the US Company on the financial viability of the project. The rupee-dollar rate is `48/$.
Note: Assume 365 days a year.

Interest Rate Risk Management

11. XYZ Limited borrows £ 15 Million of six months LIBOR + 10.00% for a period of 24
months. The company anticipates a rise in LIBOR, hence it proposes to buy a Cap Option
from its Bankers at the strike rate of 8.00%. The lump sum premium is 1.00% for the
entire reset periods and the fixed rate of interest is 7.00% per annum. The actual position
of LIBOR during the forthcoming reset period is as under:
Reset Period LIBOR
1 9.00%
2 9.50%
3 10.00%
You are required to show how far interest rate risk is hedged through Cap Option.
For calculation, work out figures at each stage up to three decimal points and amount
nearest to £. It should be part of working notes.
Corporate Valuation
12. Delta Ltd.’s current financial year’s income statement reports its net income as
` 15,00,000. Delta’s marginal tax rate is 40% and its interest expense for the year was
` 15,00,000. The company has ` 1,00,00,000 of invested capital, of which 60% is debt. In
addition, Delta Ltd. tries to maintain a Weighted Average Cost of Capital (WACC) of 12.6%.
(i) Compute the operating income or EBIT earned by Delta Ltd. in the current year.
(ii) What is Delta Ltd.’s Economic Value Added (EVA) for the current year?
(iii) Delta Ltd. has 2,50,000 equity shares outstanding. According to the EVA you
computed in (ii), how much can Delta pay in dividend per share before the value of
the company would start to decrease? If Delta does not pay any dividends, what
would you expect to happen to the value of the company?
Mergers, Acquisitions & Corporate Restructuring
13. AFC Ltd. wishes to acquire BCD Ltd. The shares issued by the two companies are
10,00,000 and 5,00,000 respectively:
(i) Calculate the increase in the total value of BCD Ltd. resulting from the acquisition on
the basis of the following conditions:
Current expected growth rate of BCD Ltd. 7%
Expected growth rate under control of AFC Ltd., (without any additional 8%
capital investment and without any change in risk of operations)
Current Market price per share of AFC Ltd. ` 100

Current Market price per share of BCD Ltd. ` 20

Expected Dividend per share of BCD Ltd. ` 0.60
(ii) On the basis of aforesaid conditions calculate the gain or loss to shareholders of both
the companies, if AFC Ltd. were to offer one of its shares for every four shares of
BCD Ltd.
(iii) Calculate the gain to the shareholders of both the Companies, if AF C Ltd. pays ` 22
for each share of BCD Ltd., assuming the P/E Ratio of AFC Ltd. does not change
after the merger. EPS of AFC Ltd. is ` 8 and that of BCD is ` 2.50. It is assumed that
AFC Ltd. invests its cash to earn 10%.
Theoretical Questions
14. Explain different forms of divestitures.
15. Briefly explain how a Centralized Cash Management system helps MNCs in their treasury
management.
SUGGESTED ANSWERS/HINTS
1. (i) Let P be the buyback price decided by Rahul Ltd.

Market Capitalisation after Buyback
1.1P (Original Shares – Shares Bought Back)
 27% of 100 lakhs 
= 1.1P  10 lakhs - 
 P 
= 11 lakhs  P – 27 lakhs  1.1 = 11 lakhs P – 29.7 lakhs
Again, 11 lakhs P – 29.7 lakhs
or 11 lakhs P = 210 lakhs + 29.7 lakhs
239.7
or P = = ` 21.79 per share
11
(ii) Number of Shares to be Bought Back :-
` 27 lakhs
= 1.24 lakhs (Approx.) or 123910 share
` 21.79
(iii) New Equity Shares:-
10 lakhs – 1.24 lakhs = 8.76 lakhs or 1000000 – 123910 = 876090 shares

3  10 lakhs
EPS = = ` 3.43
8.76 lakhs
Thus, EPS of Rahul Ltd., increases to ` 3.43.
2. (i) Calculation of initial outlay:-
` (million)
a. Face value 300

Add: Call premium 12
Cost of calling old bonds 312
b. Gross proceed of new issue 300
Less: Issue costs 6
Net proceeds of new issue 294
c. Tax savings on call premium
and unamortized cost 0.30 (12 + 9) 6.3
 Initial outlay = ` 312 million – ` 294 million – ` 6.3 million = ` 11.7 million
(ii) Calculation of net present value of refunding the bond:-
Saving in annual interest expenses ` (million)
[300 x (0.12 – 0.10)] 6.00
Less:- Tax saving on interest and amortization
0.30 x [6 + (9-6)/6] 1.95
Annual net cash saving 4.05
PVIFA (7%, 6 years) 4.766
Present value of net annual cash saving ` 19.30 million
Less:- Initial outlay ` 11.70 million
Net present value of refunding the bond ` 7.60 million
Decision: The bonds should be refunded
3. Capital Asset Pricing Model (CAPM) formula for calculation of expected rate of return is
ER = Rf + β (Rm – Rf)
ER = Expected Return
β = Beta of Security
Rm = Market Return
Rf = Risk free Rate
= 10 + [1.2 (15 – 10)]

= 10 + 1.2 (5)
= 10 + 6 = 16% or 0.16
Applying dividend growth mode for the calculation of per share equilibrium price:-
D1
ER = +g
P0
3(1.12) 3.36
or 0.16 = + 0.12 or 0.16 – 0.12 =
P0 P0
3.36
or 0.04 P0 = 3.36 or P0 = = ` 84
0.04
Therefore, equilibrium price per share will be ` 84.
4. (i) A Ltd. has lower return and higher risk than B Ltd. investing in B Ltd. is better than in
A Ltd. because the returns are higher and the risk, lower. However, investing in both
will yield diversification advantage.
(ii) rAB = .22  0.7 + .24  0.3 = 22.6%
σ 2AB = 0.402 X 0.72 + 0.382 X 0.32 + 2X 0.7 X 0.3 X 0.72 X 0.40 X 0.38 = 0.1374
 AB = 2AB = .1374 = .37 = 37% *
* Answer = 37.06% is also correct and variation may occur due to approximation.
(iii) This risk-free rate will be the same for A and B Ltd. Their rates of return are given as
follows:
rA = 22 = rf + (rm – rf) 0.86
rB = 24 = rf + (rm – rf) 1.24
rA – rB = –2 = (rm – rf) (–0.38)
rm – rf = –2/–0.38 = 5.26%
rA = 22 = rf + (5.26) 0.86
rf = 17.5%*
rB = 24 = rf + (5.26) 1.24
rf = 17.5%*
rm – 17.5 = 5.26
rm = 22.76%**

*Answer = 17.47% might occur due to variation in approximation.

**Answer may show small variation due to approximation. Exact answer is 22.73%.
(iv) AB = A  WA + B  WB
= 0.86  0.7 + 1.24  0.3 = 0.974
5.
Amount in Amount in Amount in
` lakhs ` lakhs ` lakhs
Opening Bank (200 - 185 -12) 3.00
Add: Proceeds from sale of securities 63.00
Add: Dividend received 2.00 68.00
Deduct:
Cost of securities purchased 56.00
Fund management expenses paid (90% of 8) 7.20
Capital gains distributed = 80% of (63 – 60) 2.40
Dividend distributed =80% of 2.00 1.60 67.20
Closing Bank 0.80
Closing market value of portfolio 198.00
198.80
Less: Arrears of expenses 0.80
Closing Net Assets 198.00
Number of units (Lakhs) 20
Closing NAV per unit (198.00/20) 9.90
Rate of Earning (Per Unit)
Amount
Income received (` 2.40 + ` 1.60)/20 ` 0.20
Loss: Loss on disposal (` 200 - ` 198)/20 ` 0.10
Net earning ` 0.10
Initial investment ` 10.00
Rate of earning (monthly) 1%
Rate of earning (Annual) 12%

6. (i) To compute perfect hedge we shall compute Hedge Ratio (Δ) as follows:
C1 − C2 150 − 0 150
Δ= = = = 0.50
S1 − S2 780 − 480 300
Mr. Dayal should purchase 0.50 share for every 1 call option.
(ii) Value of Option today
If price of share comes out to be `780 then value of purchased share will be:
Sale Proceeds of Investment (0.50 x ` 780) ` 390

Loss on account of Short Position (` 780 – ` 630) ` 150
` 240
If price of share comes out to be ` 480 then value of purchased share will be:
Sale Proceeds of Investment (0.50 x ` 480) ` 240
Accordingly, Premium say P shall be computed as follows:

(` 300 – P) 1.025 = ` 240
P = `65.85
(iii) Expected Return on the Option
Expected Option Value = (` 780 – ` 630) × 0.60 + ` 0 × 0.40 = ` 90
90 − 65.85
Expected Rate of Return =  100 = 36.67%
65.85
7. No. of the Future Contract to be obtained to get a complete hedge
10000 ×`22 × 1.5 - 5000 × ` 40 × 2
=
`1000
`3,30,000 - `4,00,000
= = 70 contracts
`1000
Thus, by purchasing 70 Nifty future contracts to be long to obtain a complete hedge.
Cash Outlay
= 10000 x ` 22 – 5000 x ` 40 + 70 x ` 1,000
= ` 2,20,000 – ` 2,00,000 + ` 70,000 = ` 90,000
Cash Inflow at Close Out
= 10000 x ` 22 x 0.98 – 5000 x ` 40 x 1.03 + 70 x ` 1,000 x 0.985

= ` 2,15,600 – ` 2,06,000 + ` 68,950 = ` 78,550

Gain/ Loss
= ` 78,550 – ` 90,000 = - ` 11,450 (Loss)
8. In the given case, the exchange rates are indirect. These can be converted into direct rates
as follows:
Spot rate
1 1
GBP = to
USD1.5617 USD1.5673
USD = GBP 0.64033 - GBP 0.63804
6 months’ forward rate
1 1
GBP = to
USD1.5455 USD1.5609
USD = GBP 0.64704 - GBP 0.64066
Payoff in 3 alternatives
i. Forward Cover
Amount payable USD 3,64,897
Forward rate GBP 0.64704
Payable in GBP GBP 2,36,103
ii. Money market Cover
1 USD 3,56,867
PV @ 4.5% for 6 months i.e. = 0.9779951
1.0225
Spot rate purchase GBP 0.64033
Borrow GBP 3,56,867 x 0.64033 GBP 2,28,512
Interest for 6 months @ 7 % 7,998
-
Payable after 6 months GBP 2,36,510
iii. Currency options

Unit in Options contract GBP 12,500
Value in USD at strike rate of 1.70 (GBP 12,500 x 1.70) USD 21,250

Number of contracts USD 3,64,897/ USD 21,250 17.17

Exposure covered USD 21,250 x 17 USD 3,61,250
Exposure to be covered by Forward (USD 3,64,897 – USD USD 3,647
3,61,250)
Options premium 17 x GBP 12,500 x 0.096 USD 20,400
Premium in GBP (USD 20,400 x 0.64033) GBP 13,063
Total payment in currency option
Payment under option (17 x 12,500) GBP 2,12,500
Premium payable GBP 13,063
Payment for forward cover (USD 3,647 x 0.64704) GBP 2,360
GBP 2,27,923
Thus, total payment in:
(i) Forward Cover 2,36,103 GBP
(ii) Money Market 2,36,510 GBP
(iii) Currency Option 2,27,923 GBP
The company should take currency option for hedging the risk.
9. (i) Swap Points for 2 months and 15 days
Bid Ask
Swap Points for 2 months (a) 70 90
Swap Points for 3 months (b) 160 186
Swap Points for 30 days (c) = (b) – (a) 90 96
Swap Points for 15 days (d) = (c)/2 45 48
Swap Points for 2 months & 15 days (e) = (a) + (d) 115 138
(ii) Foreign Exchange Rates for 20 th June 2016
Bid Ask
Spot Rate (a) 66.2525 67.5945
Swap Points for 2 months & 15 days (b) 0.0115 0.0138
66.2640 67.6083
(iii) Annual Rate of Premium
Bid Ask
Spot Rate (a) 66.2525 67.5945

Foreign Exchange Rates for 66.2640 67.6083

20th June 2016 (b)
Premium (c) 0.0115 0.0138
Total (d) = (a) + (b) 132.5165 135.2028
Average (d) / 2 66.2583 67.6014
Premium 0.0115 12 0.0138 12
 × 100  × 100
66.2583 2.5 67.6014 2.5
= 0.0833% = 0.0980%
10. Proforma profit and loss account of the Indian software development unit
` `
Revenue 48,00,00,000
Less: Costs:
Rent 15,00,000
Manpower (`400 x 80 x 10 x 365) 11,68,00,000
Administrative and other costs 12,00,000 11,95,00,000
Earnings before tax 36,05,00,000
Less: Tax 10,81,50,000
Earnings after tax 25,23,50,000
Less: Withholding tax(TDS) 2,52,35,000
Repatriation amount (in rupees) 22,71,15,000
Repatriation amount (in dollars) $ 4.7 million
Advise: The cost of development software in India for the US based company is $5.268
million. As the USA based Company is expected to sell the software in the US at $12.0
million, it is advised to develop the software in India.
11. First of all we shall calculate premium payable to bank as follows:
rp rp
P= X A or A
 1  PVAF(3.5%,4)
(1  i) - 
 i  (1 + i) t 
Where
P = Premium
A = Principal Amount
rp = Rate of Premium

i = Fixed Rate of Interest

t = Time
0.01 0.01
= × £15,000,000 or
 1  (0.966 + 0.933 + 0.901+ 0.871)
(1/ 0.035) - 0.035  1.0354 
× £15,000,000
0.01 £150,000
= × £15,000,000 = £ 40,595 or = £ 40,861
 1  3.671
(28.571) - 0.0402 
Now we see the net payment received from bank

Reset Additional interest Amount Premium Net Amt.
Period due to rise in received from paid to bank* received from
interest rate bank bank
1 £ 75,000 £ 75,000 £ 40,861 £ 34,139
2 £ 112,500 £ 112,500 £ 40,861 £ 71,639
3 £ 150,000 £ 150,000 £ 40,861 £ 109,139
TOTAL £ 337,500 £ 337,500 £ 122,583 £ 214,917
Thus, from above it can be seen that interest rate risk amount of £ 337,500 reduced by
£ 214,917 by using of Cap option.
* Alternatively, if premium paid is considered as £ 40,595, then above figure of £ 214,917
shall be changed to £ 215,715.
12. (i) Taxable income = Net Income /(1 – 0.40)
or, Taxable income = ` 15,00,000/(1 – 0.40) = ` 25,00,000
Again, taxable income = EBIT – Interest
or, EBIT = Taxable Income + Interest
= ` 25,00,000 + ` 15,00,000 = ` 40,00,000
(ii) EVA = EBIT (1 – T) – (WACC  Invested capital)
= ` 40,00,000 (1 – 0.40) – (0.126  ` 1,00,00,000)
= ` 24,00,000 – ` 12,60,000 = ` 11,40,000
(iii) EVA Dividend = ` 11,40,000/2,50,000 = ` 4.56
If Delta Ltd. does not pay a dividend, we would expect the value of the firm to increase
because it will achieve higher growth, hence a higher level of EBIT. If EBIT is higher, then
all else equal, the value of the firm will increase.

13. (i) For BCD Ltd., before acquisition

The cost of capital of BCD Ltd. may be calculated by using the following formula:
Dividend
+ Growth %
Pr ice
Cost of Capital i.e., Ke = (0.60/20) + 0.07 = 0.10
After acquisition g (i.e. growth) becomes 0.08
Therefore, price per share after acquisition = 0.60/(0.10-0.08) = `30
The increase in value therefore is = `(30-20) x 5,00,000 = `50,00,000/-
(ii) To share holders of BCD Ltd. the immediate gain is `100 – `20x4 = `20 per share
The gain can be higher if price of shares of AFC Ltd. rise following merger which they
should undertake.
To AFC Ltd. shareholders (` (In lakhs)
Value of Company now 1,000
Value of BCD Ltd. 150
1,150
No. of shares 11.25
 Value per share 1150/11.25 = ` 102.22
Gain to shareholders of BCD Ltd. = `102.22 – `(4 x 20) = `22.22
Gain to shareholders of AFC Ltd. = `102.22 – `100.00 = `2.22
(iii) Gain to shareholders of AFC Ltd:-
Earnings of BCD Ltd. (5,00,000 x 2.50) ` 12,50,000/-
Less: Loss of earning in cash (5,00,000 x ` 22 x 0.10) ` 11,00,000/-
Net Earning ` 1,50,000/-
Number of shares 10,00,000
Net increase in earning per share 0.15
P/E ratio of AFC Ltd. = 100/8 = 12.50
Therefore, Gain per share of shareholders of AFC Ltd. = 0.15 x12.50 = ` 1.88
Gain to the shareholders of BCD Ltd. ` (22-20) = ` 2/- per share

Alternatively, it can also be computed as follows:

Post-Merger Earnings ` 81,50,000
(10,00,000 x ` 8 + 5,00,000 x ` 2.5 – 11,00,000)
 81, 50, 000  ` 8.15
EPS after Merger  
 10, 00, 000 
PE Ratio 12.50
Post Merger Price of Share (` 8.15 x 12.50) ` 101.875
Less: Price before merger ` 100.00
` 1.875
Say ` 1.88
14. Different ways of divestment or demerger or divestitures are as follows:
(a) Sell off / Partial Sell off: A sell off is the sale of an asset, factory, division, product line
or subsidiary by one entity to another for a purchase consideration payable either in
cash or in the form of securities. Partial Sell off, is a form of divestiture, wherein the
firm sells its business unit or a subsidiary to another because it deemed to be unfit
with the company’s core business strategy.
Normally, sell-offs are done because the subsidiary doesn't fit into the parent
company's core strategy. The market may be undervaluing the combined businesses
due to a lack of synergy between the parent and the subsidiary. So, the management
and the board decide that the subsidiary is better off under a different ownership.
Besides getting rid of an unwanted subsidiary, sell-offs also raise cash, which can be
used to pay off debts. In the late 1980s and early 1990s, corporate raiders used debt
to finance acquisitions.
(b) Spin-off: In this case, a part of the business is separated and created as a separate
firm. The existing shareholders of the firm get proportionate ownership. So, there is
no change in ownership and the same shareholders continue to own the newly
created entity in the same proportion as previously in the original firm. The
management of spin-off division is however, parted with. Spin-off does not bring fresh
cash. The reasons for spin off may be:
(i) Separate identity to a part/division.
(ii) To avoid the takeover attempt by a predator by making the firm unattractive to
him since a valuable division is spun-off.
(iii) To create separate Regulated and unregulated lines of business.
(c) Split-up: This involves breaking up of the entire firm into a series of spin off (by
creating separate legal entities). The parent firm no longer legally exists and only the
newly created entities survive. For instance, a corporate firm has 4 divisions namely

A, B, C, D. All these 4 divisions shall be split-up to create 4 new corporate firms with
full autonomy and legal status. The original corporate firm is to be wound up. Since
de-merged units are relatively smaller in size, they are logistically more convenient
and manageable. Therefore, it is understood that spin-off and split-up are likely to
enhance shareholders value and bring efficiency and effectiveness.
(d) Equity Carve outs: This is like spin off, however, some shares of the new company
are sold in the market by making a public offer, so this brings cash. More and more
companies are using equity carve-outs to boost shareholder value. A parent firm
makes a subsidiary public through an initial public offering (IPO) of shares, amounting
to a partial sell-off. A new publicly listed company is created, but the parent keeps a
controlling stake in the newly traded subsidiary.
A carve-out is a strategic avenue a parent firm may take when one of its subsidiaries
is growing faster and carrying higher valuations than other businesses owned by the
parent. A carve-out generates cash because shares in the subsidiary are sold to the
public, but the issue also unlocks the value of the subsidiary unit and enhances the
parent's shareholder value.
15. A Centralized Cash Management system helps MNCs in their treasury management as
follows:
(a) To maintain minimum cash balance during the year.
(b) To manage judiciously liquidity requirements of the centre.
(c) To optimally use various hedging strategies so that MNC’s foreign exchange
exposure is minimised.
(d) To aid the centre to generate maximum returns by investing all cash resources
optimally.
(e) To aid the centre to take advantage of multinational netting so that transaction costs
and currency exposure are minimised.
(f) To make maximum utilization of transfer pricing mechanism so that the firm enhances
its profitability and growth.
(g) To exploit currency movement correlations:
(i) Payables & receivables in different currencies having positive correlations.
(ii) Payables of different currencies having negative correlations.
(iii) Pooling of funds allows for reduced holding – the variance of the total cash flows
for the entire group will be smaller than the sum of the individual variances.

PAPER – 3 : ADVANCED AUDITING AND PROFESSIONAL ETHICS
PART – I ACADEMIC UPDATE
RELEVANT AMENDMENTS FOR NOVEMBER 2022 EXAMINATION
(Legislative Amendments / Notifications / Circulars / Rules / Guidelines issued by
Regulating Authority)
Chapter 7 Audit Committee and Corporate Governance (SEBI (LODR) Regulations, 2015)
1. Insertion of word At least before two-thirds in point no. 1. The Audit Committee shall have
minimum three directors as members. At least two-thirds of the members of audit
committee shall be independent directors, however, in case of a listed entity having
outstanding SR (Superior Rights) equity shares, the audit committee shall only comprise of
independent directors. (Refer para 4.1 Qualified and Independent Audit Committee
[Regulation 18(1)]– Page no.7.4).
2. Deletion of information on Statement of significant related party transactions (as
defined by the Audit Committee), submitted by management under mandatorily review
by Audit Committee as per Part C(B) OF Schedule II. (Refer para 7 Review of Information
by Audit Committee on Page no.7.13)
3. Deletion of point no. (iv) The auditor shall ensure that the Chairperson of the board of the
top 500 listed entities is - (a) a non-executive director; (b) not related to the Managing
Director or the Chief Executive Officer as per the definition of the term “relative” defined
under the Companies Act, 2013. It may be noted that this provision shall not be applicable
to the listed entities which do not have any identifiable promoters as per the shareholding
pattern filed with stock exchanges. It may also be noted that the top 500 entities shall be
determined on the basis of market capitalisation, as at the end of the immediate previo us
financial year. (Refer Para 8.5 Verification regarding Composition of Board
[Regulation 17 & 17A on Page no. 7.16]
3.1. Insertion in Para 8.5 Verification regarding Composition of Board i.e., Regulations 17:
• The listed entity shall ensure that approval of shareholders for appointment of a person
on the Board of Directors [or as a manager] is taken at the next general meeting or within
a time period of three months from the date of appointment, whichever is earlier.
• Provided that the appointment or a re-appointment of a person, including as a managing
director or a whole-time director or a manager, who was earlier rejected by the
shareholders at a general meeting, shall be done only with the prior approval of the
shareholders:
• Provided further that the statement referred to under sub-section (1) of section 102 of the
Companies Act, 2013, annexed to the notice to the shareholders, for considering the
appointment or re-appointment of such a person earlier rejected by the shareholders shall
contain a detailed explanation and justification by the Nomination and Remuneration

PAPER – 3 : ADVANCED AUDITING AND PROFESSIONAL ETHICS 53
Committee and the Board of directors for recommending such a person for appointment
or re-appointment. (Refer Para 8.5 Verification regarding Composition of Board
[Regulation 17 & 17A on Page no. 7.17]
4. Meaning of Independent Director given on Page no. 7.18 to be read as: I ndependent
director" means a non-executive director, other than a nominee director of the listed entity:
(i) who, in the opinion of the board of directors, is a person of integrity and possesses
relevant expertise and experience;
(ii) who is or was not a promoter of the listed entity or its holding, subsidiary or associate
company [or member of the promoter group of the listed entity];
(iii) who is not related to promoters or directors in the listed entity, its holding, subsidiary
or associate company;
(iv) who, apart from receiving director's remuneration, has or had no material pecuniary
relationship with the listed entity, its holding, subsidiary or associate company, or
their promoters, or directors, during the three immediately preceding financial years
or during the current financial year;
(v) none of whose relatives— (A) is holding securities of or interest in the listed entity, its
holding, subsidiary or associate company during the three immediately preceding
financial years or during the current financial year of face value in excess of fifty lakh
rupees or two percent of the paid-up capital of the listed entity, its holding, subsidiary
or associate company, respectively, or such higher sum as may be specified; (B) is
indebted to the listed entity, its holding, subsidiary or associate company or their
promoters or directors, in excess of such amount as may be specified during the three
immediately preceding financial years or during the current financial year; (C) has
given a guarantee or provided any security in connection with the indebtedness of
any third person to the listed entity, its holding, subsidiary or associate company or
their promoters or directors, for such amount as may be specified during the three
immediately preceding financial years or during the current financial year; or (D) has
any other pecuniary transaction or relationship with the listed entity, its holding,
subsidiary or associate company amounting to two percent or more of its gross
turnover or total income: Provided that the pecuniary relationship or transaction with
the listed entity, its holding, subsidiary or associate company or their pro moters, or
directors in relation to points (A) to (D) above shall not exceed two percent of its gross
turnover or total income or fifty lakh rupees or such higher amount as may be
specified from time to time, whichever is lower.]
(vi) who, neither himself /herself, nor whose relative(s) — (A)holds or has held the
position of a key managerial personnel or is or has been an employee of the listed
entity or its holding, subsidiary or associate company or any company belonging to
the promoter group of the listed entity, in any of the three financial years immediately
preceding the financial year in which he is proposed to be appointed: Provided that

in case of a relative, who is an employee other than key managerial personnel, the
restriction under this clause shall not apply for his / her employment.(B) is or has been
an employee or proprietor or a partner, in any of the three financial years immediately
preceding the financial year in which he is proposed to be appointed, of — (1) a firm
of auditors or company secretaries in practice or cost auditors of the listed entity or
its holding, subsidiary or associate company; or (2) any legal or a consulting firm that
has or had any transaction with the listed entity, its holding, subsidiary or associate
company amounting to ten per cent or more of the gross turnover of such firm; (C)
holds together with his relatives two per cent or more of the total voting power of the
listed entity; or (D)is a chief executive or director, by whatever name called, of any
nonprofit organisation that receives twenty-five per cent or more of its receipts or
corpus from the listed entity, any of its promoters, directors or its holding, subsidiary
or associate company or that holds two per cent or more of the total voting power of
the listed entity; (E) is a material supplier, service provider or customer or a lessor or
lessee of the listed entity;
(vii) who is not less than 21 years of age.
(viii) who is not a non-independent director of another company on the board of which any
non-independent director of the listed entity is an independent director.
(Refer Page no.7.18 )
5. Deletion of word “the immediate next Board meeting or” and “whichever is later” in
Regulation 25(6) i.e., sub-point no (ix) An independent director who resigns or is removed
from the Board of Directors of the listed entity shall be replaced by a new independent
director at the earliest but not later than three months from the date of such vacancy.
(Refer para 10 Obligations With respect to employees including Senior management,
key managerial persons, directors and promoters on Page no. 7.22)
6. The Board of Directors of every listed public company shall constitute the Nomination and
Remuneration Committee which shall comprise of at least three directors, all of whom shall
be non-executive directors and at least two-thirds shall be independent directors. Deletion
of condition i.e., in case of a listed entity having outstanding SR equity shares, two thirds
of the committee shall comprise of independent directors. Chairperson of the committee
shall be an independent director. (Refer Para 14 Nomination and Remuneration
Committee- Regulation 19 and Part D of Schedule II, on Page No. 7.26)
6.1 Insertion in the role of the Nomination and Remuneration Committee :(1A). For every
appointment of an independent director, the Nomination and Remuneration Committee
shall evaluate the balance of skills, knowledge and experience on the Board and on the
basis of such evaluation, prepare a description of the role and capabilities required of an
independent director. The person recommended to the Board for appointment as an
independent director shall have the capabilities identified in such description. For the
purpose of identifying suitable candidates, the Committee may: a. use the services of an
external agencies, if required; b. consider candidates from a wide range of backgrounds,

having due regard to diversity; and c. consider the time commitments of the candidates.
(Refer Para 14 Nomination and Remuneration Committee- Regulation 19 and Part D
of Schedule II, on Page No. 7.27)
7. The provisions of regulation 21 shall be applicable to:(i). the top 1000 listed entities,
determined on the basis of market capitalization as at the end of the immediate preceding
financial year; and, (ii). a ‘high value debt listed entity’.
7.1 The role of the Risk Management Committee committee shall, inter alia, include the
following:
(1) To formulate a detailed risk management policy which shall include: (a) A framework
for identification of internal and external risks specifically faced by the listed entity, in
particular including financial, operational, sectoral, sustainability (particularly, ESG
related risks), information, cyber security risks or any other risk as may be determined
by the Committee. (b) Measures for risk mitigation including systems and processes
for internal control of identified risks. (c) Business continuity plan.
(2) To ensure that appropriate methodology, processes and systems are in place to
monitor and evaluate risks associated with the business of the Company;
(3) To monitor and oversee implementation of the risk management policy, including
evaluating the adequacy of risk management systems;
(4) To periodically review the risk management policy, at least once in two years,
including by considering the changing industry dynamics and evolving complexity;
(5) To keep the board of directors informed about the nature and content of its
discussions, recommendations and actions to be taken;
(6) The appointment, removal and terms of remuneration of the Chief Risk Officer (if any)
shall be subject to review by the Risk Management Committee. The Risk
Management Committee shall coordinate its activities with other committees, in
instances where there is any overlap with activities of such committees, as per the
framework laid down by the board of directors.]
(Refer Para 16 Risk Management Committee- Regulation 21 and Part D of Schedule
II, on Page No. 7.29)
8. Para 18 Information to Shareholders [Regulation 36] to be read as: (1) The listed
entity shall send the annual report in the following manner to the shareholders: (a) Soft
copies of full annual report to all those shareholder(s) who have registered their email
address(es) either with the listed entity or with any depository; (b) Hard copy of statement
containing the salient features of all the documents, as prescribed in Section 136 of
Companies Act, 2013 or rules made thereunder to those shareholder(s) wh o have not so
registered; (c) Hard copies of full annual reports to those shareholders, who request for
the same.

(2) The listed entity shall send annual report referred to in sub-regulation (1), to the
holders of securities, not less than twenty-one days before the annual general
meeting.
(3) In case of the appointment of a new director or re-appointment of a director the
shareholders must be provided with the following information: (a) a brief resume of
the director; (b) nature of expertise in specific functional areas; (c) disclosure of
relationships between directors inter-se; (d) names of listed entities in which the
person also holds the directorship and the membership of Committees of the board
along with listed entities from which the person has resigned in the past three years;
and (e) shareholding of non-executive directors in the listed entity, including
shareholding as a beneficial owner; (f) In case of independent directors, the skills and
capabilities required for the role and the manner in which the proposed person meets
such requirements.
The auditor should ascertain from the communications sent, whether in the case of
appointment of a new director or re-appointment of a director, the shareholders have
been provided with the information stipulated above. (Refer Para 18 Information to
Shareholders [Regulation 36] on Page no. 7.30)
9. The listed entity shall submit a quarterly compliance report on corporate governance in the
format as specified by the Board from time to time to the recognised stock exchange(s)
within twenty one (21) days from the end of each quarter.
The listed entity is also required to formulate a policy on materiality of related party
transactions and on dealing with related party transactions. This policy should also include
clear threshold limits duly approved by the board of directors. Further, such policy shall be
reviewed by the board of directors at least once every three years and updated accordingly.
A related party transaction shall be considered material, if the transaction(s) to be entered
into individually or taken together with previous transactions during a financial year,
exceeds rupees one thousand crore or ten per cent of the annual consolidated turnover of
the listed entity as per the last audited financial statements of the listed entity, whichever
is lower. [Regulation 23(1)]
All related party transactions and subsequent material modifications shall require prior
approval of the independent directors in audit committee of the listed entity [Regulation
23(2)]
Audit committee may grant omnibus approval for related party transactions proposed to be
entered into by the listed entity subject certain conditions [Regulation 23(3)].
The listed entity shall submit to the stock exchanges disclosures of related party
transactions in the format as specified by the Board from time to time, and publish the
same on its website [Regulation 23(8)].
Provided that a ‘high value debt listed entity’ shall submit such disclosures along with its
standalone financial results for the half year.

Provided further that the listed entity shall make such disclosures every six months within
fifteen days from the date of publication of its standalone and consolidated financial results .
Provided further that the listed entity shall make such disclosures every six months on the
date of publication of its standalone and consolidated financial results with effect from April
1, 2023. (Refer Para 22.3 Related Party Disclosures given on Page no. 7.35)
9.1 As per Schedule V - Annual Report, the annual report shall contain the following additional
disclosures relating to Related Party:
1. The listed entity which has listed its non-convertible securities] shall make disclosures
in compliance with the Accounting Standard on “Related Party Disclosures”.
2. The disclosure requirements shall be as follows:
Sr. In the accounts Disclosures of amounts at the year end and the maximum
no. of amount of loans/ advances/ Investments outstanding
during the year.
1. Holding • Loans and advances in the nature of loans to
Company subsidiaries by name and amount.
• Loans and advances in the nature of loans to
associates by name and amount.
• Loans and advances in the nature of loans to
firms/companies in which directors are interested by
name and amount.
2. Subsidiary Same disclosures as applicable to the parent company in
the accounts of subsidiary company.
3. Holding Investments by the loanee in the shares of parent
Company company and subsidiary company, when the company
has made a loan or advance in the nature of loan.
For the purpose of above disclosures directors’ interest shall have the same meaning
as given in Section184 of Companies Act, 2013.
(2A) Disclosures of transactions of the listed entity with any person or entity belonging
to the promoter/promoter group which hold(s) 10% or more shareholding in the listed
entity, in the format prescribed in the relevant accounting standards for annual
results.
3. The above disclosures shall not be applicable to listed banks.
(Refer Para 22.3 Related Party Disclosures given on Page no. 7.35)
Note: Students are also advised to refer RTP of Paper 1 Financial Reporting (for AS, Ind AS
and other updates) and Paper 4 Part A -Corporate Laws (for academic updates relating to
Company Law).

PART – II : QUESTIONS AND ANSWERS
QUESTIONS
PART A: MULTIPLE CHOICE QUESTIONS
Integrated Case Scenario 1.
Mr. K is a practicing-chartered accountant and also member of CPA Ireland. He handles only
GST related work and tax audits for clients. Currently, he is having 19 companies for which he
is handling the tax audit. At the beginning of the current Financial Year, he was approached by
40 new clients for tax audit assignments. He was reluctant to accept all the work as he feared
breaching the permissible limit of handling clients. After consulting several fr iends of his, he
finally decided to accept the work of just 2 big clients who approached him.
Mr. J, (K’s friend) a chartered accountant in practice and a member empanelled as insolvency
professional was acting as the statutory auditor for a listed entity. The audit for the current
Financial Year was completed but there was some difference of opinion between auditor and
the management. As a result of this, the company did not send the notice for AGM to Mr. J.
When enquired, it was said that the company is not obliged to send notices to the auditor and
it’s the responsibility of the auditor to be aware of the AGM. Having heard this, Mr. J went to his
friend to clarify the above matter. As a result of this incident, the management had not paid a
part of the agreed audit fees to Mr. J. In retaliation, Mr. J took lien over few documents pertaining
to the company. Having come to know about this, Mr. K immediately informed his friend that his
act would lead to professional misconduct.
Mr. K & his friend Mr. J decided to start a partnership firm. They completed all formalities and
went ahead and printed their visiting card as follows:
M/s KJ & Associates M/s KJ & Associates
Mr. K, Chartered Accountant, Mr. J, Chartered Accountant,

CPA Ireland Insolvency Professional
Partner Partner
No.3, MMM Street, Delhi No.3, MMM Street, Delhi

Phone: 9xxxxxxxx0 Phone: 9xxxxxxxx0
The firm had also received the following assignments:
(i) Concurrent audit for T Bank Ltd.
(ii) Statutory audit for BBT Bank Ltd. (it is to be noted that the bank was not sponsored by T
Bank)
(iii) Offer to act as settlor of ZZ Charitable Trust.

(iv) Internal audit of PF Trust of Government Company Ltd.

(v) Statutory Auditor of Government Company Ltd.
On the basis of the abovementioned facts, you are required to choose the most appropriate
answer for the following MCQs:
QUESTIONS:
1. In the given case scenario, has Mr. K breached the maximum limit of clients. If yes, can he
be held guilty of professional misconduct?
(a) Yes. The ceiling on number of tax audits which can be accepted by a chartered
accountant is 20. In this given case, Mr. K is already having 19 clients and has now
accepted 2 more (19+2=21). Also, he shall be held guilty of professional misconduct
as per the Chartered Accountants Act, 1949.
(b) Yes. The ceiling on number of tax audits which can be accepted by a chartered
accountant is 20. In this given case, Mr. K is already having 19 clients and has now
accepted 2 more (19+2=21). However, this shall not be considered as guilty of
professional misconduct as per the Chartered Accountants Act, 1949.
(c) No. In the above case, the maximum ceiling is 25 in number (as per the latest decision
taken by the ICAI council). The assignments (existing + new) handled by Mr. K is well
below the prescribed limit and hence there is no breach.
(d) No. In the above case, the maximum ceiling is 60 in number. The assignments
(existing + new) handled by Mr. K is well below the prescribed limit and hence there
is no breach.
2. Assuming yourself to be Mr. K, what would be your advice to Mr. J on the above matter?
(a) The company has not followed the provisions of section 146 of Companies Act, 2013.
All notices of, and other communications relating to, any general meeting shall be
forwarded to the auditor of the company. Also, as per section 147, the company shall
be punishable with fine which shall not be less than ` 25,000/- but which may extend
to ` 5 lakh.
(b) The company has not followed the provisions of section 146 of Companies Act, 2013.
forwarded to the auditor of the company. Also, as per section 147, the company shall
be punishable with fine which shall not be less than ` 10,000/- but which may extend
to ` 1 lakh.

(c) The company has not followed the provisions of section 147 of Companies Act, 2013.
forwarded to the auditor of the company. However, the company shall not be
punishable for this act.
(d) The argument of the management is right. The Companies Act, 2013 does not
mandate that the company shall send the notices for its general meetings to the
auditor. It is the responsibility of the auditor (in this case Mr. J) to attend the AGM
irrespective of getting the notice for it or not. The auditor shall be punishable under
the provisions of the Act if he doesn’t not attend the AGM.
3. Will the retaliating act of Mr. J against the company make him guilty of professional
misconduct?
(a) No. The above act will not lead to professional misconduct. However, under section
147 of the Companies Act, 2013, Mr. J shall be punishable for exercising lien over
the company’s documents.
(b) No. The Chartered Accountants Act, 1949 is silent about the above situation and
hence it will not lead to professional misconduct.
(c) Yes. As per the recent decision of Ethical Standards Board, a chartered accountant
cannot exercise lien over client documents/ records for non-payment of his fees.
(d) Yes. As per Clause 7 of Part I of Second Schedule of Chartered Accountants Act ,
1949, the above act of Mr. J will make him guilty of professional misconduct.
4. In the given case scenario, visiting cards printed by Mr. K & Mr. J, is there anything which
may lead to professional misconduct? If so, under what provisions?
(a) Mentioning ‘CPA Ireland’ & the term ‘Insolvency Professional’ by Mr. K & Mr. J
respectively violates the provisions of clause 7 of part I of First schedule of the
Chartered Accountants Act, 1949. Hence, both of them shall be held guilty of
professional misconduct.
(b) There is no information contained in both the visiting cards, which leads to
professional misconduct. All details mentioned are abiding the provisions of clause 7
of part I of First schedule of the Chartered Accountants Act, 1949.
(c) Mentioning ‘CPA Ireland’ by Mr. K violates the provisions of clause 6 & clause 7 of
part I of First schedule of the Chartered Accountants Act, 1949. Hence, Mr. K shall
be held guilty of professional misconduct. However, as far as Mr. J’s card is
concerned, nothing mentioned in it is against the provision of Chartered Accountants
Act, 1949, so he shall not be held guilty of professional misconduct.

(d) Mentioning the term ‘Insolvency Professional’ by Mr. J violates the provisions of
clause 7 of part I of First schedule of the Chartered Accountants Act, 1949. Hence,
he shall be held guilty of professional misconduct. However, as far as Mr. K’s card is
concerned, nothing mentioned in it is against the provision of Chartered Accountants
Act, 1949, so he shall not be held guilty of professional misconduct
5. The firm had received the following assignments:
(i) Concurrent audit for T Bank Ltd.
(ii) Statutory audit for BBT Bank Ltd. (it is to be noted that the bank was not sponsored
by T Bank)
(iii) Offer to act as settlor of ZZ Charitable Trust.
(iv) Internal audit of PF Trust of Government Company Ltd.
(v) Statutory Auditor of Government Company Ltd.
Among the above assignments, which assignments can be accepted by the firm?
(a) Either (i) or (ii), (iii) & Either (iv) or (v)
(b) (i), (ii), (iii) & Either (iv) or (v)
(c) Either (i) or (ii) & Either (iv) or (v)
(d) (ii) only
Independent MCQs
6. Mr. B one of the partners of the firm is facing a dilemma as to whether the firm BMY LLP
should accept the appointment as Statutory Auditors of M/s Foam Limited wherein Mr. B
had sent a communication in writing addressed to the outgoing auditor Mr. Dalai u nder
certificate of posting and the outgoing auditor has sent an acknowledgement vide their
official email, but this email address of the outgoing auditor is not registered with the
Institute of Chartered Accountants of India. Mr. B is of the opinion that this is not positive
evidence of delivery and violates the provisions of Code of Ethics if the firm accepts the
audit assignment.
With respect to the dilemma being faced by Mr. B, partner of the firm regarding
acknowledgment of the communication from the retiring auditor's vide their official email is
not positive evidence of delivery?
(a) The dilemma of Mr. B is correct as it is not positive evidence of delivery.
(b) The dilemma of Mr. B is not correct as it is positive evidence of delivery as the same
is received from the official email of the outgoing auditor, as per the Code of Ethics.
(c) The dilemma of Mr. B is not correct as statutory auditors are not required to
communicate with the retiring or outgoing auditors in this case.

(d) The dilemma of Mr. B is correct as the email address of the outgoing auditor from
which acknowledgement has come is not registered with the Institute of Chartered
Accountants of India.
7. CA Z is appointed as a Statutory Auditor of JB Finance Limited (a Non - Banking Financial
Company covered under Non-Banking Financial Company — Systematically important
Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions,
2016) for the year 2021-22. Following information is available with CA Z with respect to JB
Finance Limited as at 31 st March, 2022:
Particulars ` (in Lakh)
Standard Assets 700.00
Sub-standard Assets 200.00
Doubtful Assets (Secured and up-to one year) 10.00
Doubtful Assets (Secured and more than three years) 50.00
What will be the total provision required to be made in the books of JB Finance Limited for
the year ended 31 March, 2022 for the above stated Assets?
(a) ` 49.8 Lakh
(b) ` 47 Lakh
(c) ` 34.8 Lakh
(d) ` 52.8 Lakh
8. While auditing with respect to compliance with CARO, 2020, Mr. Omprakash, for additional
reporting purpose, observed the following, relevant to Para 3(vii) of CARO, 2020:
Statutory Dues Undispute Date Payable Date Paid
d Amount
(` in lakh)
Provident Fund 28 1.5 24th September, 2021 27th March, 2022
GST 2.45 23rd October, 2021 24th April, 2022
Customs Duty 0.65 20th September, 2021 10th April, 2022
Income Tax Demand for 0.55 18th October, 2021 Not Paid till date
A.Y. 2019-20
Also, a representation was made to GST Department for waiving a penalty of ` 1 lakh for
late payment of GST demand. What total amount of statutory dues need to be reported by
Mr. Omprakash as per Para 3 of CARO?
(a) ` 3.10 lakh.

(b) ` 0.65 lakh.

(c) ` 3.65 lakh.
(d) ` 2.70 lakh.
9. With respect to audit of public sector undertaking, which among the below is related to
propriety audit?
(a) This audit is carried out by assessing whether activities, financial transactions and
information comply in all material aspects, with the regulatory and other authorities
which govern the audited entity.
(b) This auditing focuses on the areas in which it can add value which have the greatest
potential for development. It provides constructive incentives for the responsible
parties to take appropriate action.
(c) It is an audit under which the C&AG does not really cover again the field which has
already been covered. He conducts an appraisal or an efficiency cum performance
audit.
(d) It stands for verification of transactions on the tests of public interest, commonly
accepted customs and standards of conduct. This audit is directed towards an
examination of managements decisions in sales, purchases, contracts, etc.
10. In case of peer review, which among the following the review shall covered?
(a) Compliance with legal regulations governing the firm
(b) Check whether the qualification of the articled assistants and other staffs are
sufficient to be employed
(c) Compliance with tax regulations of the firm, which includes filing IT return of the firm,
payment of tax, etc.
(d) Training program for staff concerned with assurance function, including availability of
infrastructure
PART B : DESCRIPTIVE QUESTIONS
Standards on Auditing, Statements and Guidance Notes
11. Abhinandan Limited a chemical manufacturing company, having its factory located at
Nanded Village, for the year 2021-22 appointed Subahu & Co. as their statutory auditors.
During the course of the audit, Subahu & Co. identified that Abhinandan Limited received
a show cause notice from National Green Tribunal based on the investigation performed
by the regional forest department for violating environmental laws. Upon gathering a further
understanding of the said matter, it was identified that Abhinandan Limited was dumping
toxic solid waste, without treating it, on the nearby grounds, and because of this, the nearby
water bodies were getting polluted. Based on the preliminary investigation performed by

the regional forest department under the directions of the National Green Tribunal, it was
identified that these practices were carried out since 2009 and a lot of damage has been
done to the environment by Abhinandan Limited. A show cause notice was already issued
to Abhinandan Limited by the National Green Tribunal for levying the penalty of an amount
of ` 500 crore. The unaudited profit for the financial year 2021-22 of Abhinandan Limited
was ` 35 crore and the unaudited turnover was ` 100 crore. Upon inquiry it was identified
that Abhinandan Limited has disclosed this matter in the financial statements by way of
footnote, the extract of which is provided below:
“The company has received a show cause notice from the National Green Tribunal for
some potential violation of environmental laws and the company’s legal department has
assessed and found that the judgment would be in favour of the company. Accordingly, no
provision has been created for such notices.”
In the light of the above scenario kindly provide what should be the appropriate opti on for
the statutory auditor of the company to report this matter.
12. Chintamani Ltd appoints Chintan & Mani as statutory auditors for the financial year 2021 -
2022. Chintan & Mani seem to have different opinions on Audit approach to be adopted for
audit of Chintamani Ltd. Mani is of the opinion that 100% checking is not required and they
can rely on Audit Sampling techniques in order to provide them a reasonable basis on
which they can draw conclusions about the entire population.
Chintan is concerned that whether the use of audit sampling has provided a reasonable
basis for conclusions about the population that has been tested.
You are required to guide Chintan about his role if audit sampling has not provided a
reasonable basis for conclusions about the population that has been tested in accordance
with SA 530,
Risk Assessment and Internal Control
13. Arihant Limited was engaged in the business of owning and managing hotels and resorts,
selling tourism packages and performing airline bookings for corporate and individuals. It
appointed Upadhyay & Co. as its statutory auditor for the financial year 2021-22. While
planning the audit, the audit team decided that the risk of improper revenue recognition
from hotel business should not be treated as a fraud risk. This conclusion was based on
the assessment of earlier years, wherein no fraud was identified in revenue recorded from
such business. While testing the internal financial controls over the process of revenue
recognition, it was identified that the controls are not properly designed to mitigate the risk
of fraud and risk of improper revenue recognition. As a result, the audit team decided to
perform additional substantive testing. However, the audit team still were to the conclusion
that there is no risk of fraud in revenue recognition. During the course of substantive
testing, it was identified that the management did not account for revenue received from
corporate hotel bookings amounting to ` 35 crore. These amounts were partially received
in the company’s bank accounts and partially received in the CFO’s personal account. The

amounts received in the bank account of the company were disclosed as advances
received against the future bookings.
In the light of above scenario, kindly guide the statutory auditors with respect to their
responsibility relating to fraud in an audit of a financial statement.
Special Aspects of Auditing in an Automated Environment
14. M/s RST & Associates have been appointed as auditors of ADI Ltd. for the financial year
2021-22. The processes, operations, accounting and decisions are carried out by using
computers in ADI Ltd. M/s RST & Associates understand that there are several aspects
that they should consider to determine the level of automation and complexity in the
business environment of ADI Ltd. While planning the audit work, the engagement partners
discussed with the audit staff about the various types of controls in the automated
environment that are put in place to mitigate the IT risks and to maintain the confidentiality,
integrity, availability and security of data such as General IT Controls; Application Controls;
and IT-Dependent Controls.
You are required to briefly explain:
(i) General IT Controls.
(ii) Application Controls.
(iii) IT-Dependent Controls.
The Company Audit
15. The Balance Sheet Extract of Siddha Limited, required to prepare financial statement
under Ind-AS, as at 31 st March, 2022 is as under. Comment on the presentation in terms
of Division II of Schedule III to the Companies Act, 2013.
Particulars As at 31st March, 2022 As at 31st March, 2021
Property Plant and Equipment
Trademark xxxx xxxx
Other Non-current Assets
Bank deposit with more than 12 xxxx xxxx
months maturity
Equity
Share Options Outstanding Account xxxx xxxx
Other Current Liabilities
Application money received for xxxx xxxx
allotment of securities to the extent
refundable and interest accrued
thereon.

16. Gautam Limited had borrowed ` 1000 crore from XYZ Bank, the principal of which was
repayable after 5 years and interest was payable at the end of each year. For 4 years,
Gautam Limited paid the interest amount on time. Gautam Limited defaulted the
5th instalment of interest payment and principal which was due on June 30, 2021. On March
31, 2021, Gautam Limited approached XYZ bank and MNO bank to restructure the existing
liability. As a result, the existing principal and outstanding and overdue interest was
restructured into a new loan amounting to ` 1,100 crore. The management did not provide
any disclosure for the default on the loan on the belief that the old loan ceased to exist and
the new loan has maturity after 5 years.
During the statutory audit for the financial year 2021-22, KP & Co. identified this transaction
and obtained the relevant documents and understanding. Based on the underlying
documents, it was identified that the said restructuring agreement was approved and
signed on April 8, 2022, by both of the banks. As a result, on March 31, 2022, the
restructuring was still not approved.
In the light of the above scenario, kindly guide the statutory auditors in the reporting of this
transaction.
Audit Report
17. (a) CA Bahubali is the statutory auditor of Bharat Ltd. for the FY 2021-22. During the
course of audit CA Bahubali noticed the following:
(i) With respect to the debtors amounting to ` 240 crore, no balance confirmation
was received by the audit team. Further, there have been defaults on the
payment obligations by debtors on the due dates during the year under audit.
The Company has created a provision for doubtful debts to the tune of `40 crore
during the year under audit. The Company has stated that the provision is based
on receivables which are older than 39 months, which according to the audit
team is inadequate and as such the audit team is unable to ascertain the
carrying value of trade receivables.
(ii) In respect of Inventories (which constitutes 38% of the total assets of the
company), during the reporting period, the management has not undertaken
physical verification of inventories at periodic intervals. Also, the Company has
not maintained adequate inventory records at the factory. The audit team was
unable to undertake the physical inventory count as such the value of inventory
could not be verified.
Under the above circumstances what kind of opinion should CA Bahubali give?
Write the opinion paragraph and basis of opinion paragraph to be included in
the Independent Auditor’s Report.
(b) How should auditor give description of auditor’s responsibilities for the audit of the
financial statements when the auditor disclaims an opinion on the financial
statements?

Audit of Consolidated Financial Statements

18. Jambu & Sudharma Investments Ltd. is a company having paid up share capital of ` 1
crore, it has a subsidiary, Investors Fund Management Ltd. Major business of Jambu &
Sudharma Investments Ltd. is to pool money from investors on a collective basis and invest
this money in various funds. This company pooled ` 12 crore from a number of clients,
which represent the Company's shareholders.
While auditing books of accounts of Jambu & Sudharma Investments Ltd. CA Vardhman
observed that whole amount of ` 12 crore pooled has been invested in shares and
debentures of various companies and profit earned due to appreciation of the prices of
these shares has been distributed to various shareholders of the company. Performance
of all of its investments is measured on fair value basis.
Now, CA Vardhman raised an issue while auditing financial statements of Jambu &
Sudharma Investments Ltd. whether the consolidated financial statements are req uired as
per Section 129(3) of the Companies Act, 2013? Analyse the above issue and give your
opinion.
Audit of Banks
19. CA Prachi was conducting statutory audit of branch of a nationalized bank for the year
2021-22. While reviewing operations and documents/papers of a borrower enjoying
overdraft credit facilities of ` 50 crore (availed against security of stocks and book debts),
following observations were jotted down by her: -
(i) The balance in overdraft credit facility as on 31st March,2022 was ` 55.65 crore. The
balance in account exceeded sanctioned limit during the whole month of March 2022.
(ii) As per terms of sanction letter, stock/book debt statements were required to be
submitted monthly. Latest available stock/book debt statement for the month of
February, 2022 showed drawing power of ` 48.50 crore only. However, stock/book
debt statements of previous months showed adequate drawing power.
(iii) Stock audit of borrower was also conducted during the year by one of empanelled
stock auditors of the bank. Stock audit report dated 31 st December,2021 placed on
the record showed adequate drawing power in the account. However, it has
commented adversely on the declining turnover of borrower in year 2021 -22(till the
date of stock audit report) as compared to proportionate turnover in preceding year.
(iv) The renewal of overdraft facilities was due on 20 th October,2021. The account was
short renewed by competent authority for a period of 3 months pending submission
of complete papers.
However, borrower has not submitted complete renewal papers till 31 st March,2022. There
is a request letter from borrower on record stating that valuation report of a property located
at a faraway location was taking time.

The branch has classified the account as ‘Standard Asset’. Considering above, CA Prachi
is in dilemma relating to proper classification of above advance. Guide he r.
Audit of Non-Banking Financial Company
20. Sudarshan Ltd. is a company registered under the Companies Act, 2013. The company is
engaged in the business of loans and advances, acquisition of shares / stocks / bonds /
debentures/securities issued by Government or local authorities. For the year ended
31st March, 2022 following are some extracts from the financial statements:
(i) Paid-up share capital ` 40.53 Cr.
(ii) Non-Current Assets - Loans & Advances ` 75.50 Cr.
(iii) Current Assets - Loans and advances ` 294.33 Cr.
(iv) Total assets of the company ` 618.55 Cr.
(v) Intangible assets ` 6.35 Cr.
(vi) Profit for the Year ` 8.15 Cr.
(vii) Income from interest and dividends ` 62.31 Cr.
(viii) Gross income ` 111.23 Cr.
Directors intend to apply for registration as Non-Banking Financial Company (NBFC) under
Section 45-IA of the Reserve Bank of India (Amendment) Act, 1997. Advise.
Audit under Fiscal Laws
21. Billimoria & Billimoria, a partnership firm, is engaged in providing engineering consultancy
services to insurance corporates in automobile sector. The firm conducts risk inspection of
vehicles and submit their reports to insurance companies. Both the partners are Chartered
Engineers. The Firm is one of your regular tax audit clients. The following information is
culled out from the account books of the company for financial year 2021 -22 by the firm:
Particulars Rupees in Crore
Turnover 8.50
Receipt on account of sales/debtors 6.00
Cash receipt from debtors 0.10
Expenditure during year 7.00
Cash expenditure 0.21
Cash loan repayment 0.05
The partner of said firm informs you that due to changes in income-tax laws, their firm is
not liable for audit under section 44 AB of Income tax Act (commonly called as tax audit).
How would you deal with the matter? Is contention of partner in accordance with law?

Audit of Public Sector Undertakings

22. Comptroller & Auditor General appointed Sambhav & Associates, a chartered accountant
firm, to conduct Performance audit of MAP Ltd., a public sector undertaking of Government
of India. The firm conducted the audit with a view to check all the expenses of the unit are
in conformity with the public interest and publicly accepted customs. The audit report
submitted by audit firm was rejected by C&AG. Give your opinion on the action of C&AG.
Peer Review and Quality Review
23. (a) Evaluating the professional judgment exercised by the auditor is one of the important
aspect under Quality Review, please explain the situation with reference to applicable
Standard on Auditing.
(b) Prabhu & Co LLP is a large firm of Chartered Accountants based out of Mumbai.
Prabhu & Co. LLP is subject to peer review which was last conducted 3 years back.
For the peer review of the financial year ended 31 st March 2021, the firm got an
intimation on 29th May 2021. The process of peer review got started and was
completed on 27th September 2021. In view of peer reviewer, the systems and
procedures of Prabhu & Co. LLP are deficient / non-compliant. The peer reviewer did
not share any of his observations with Prabhu & Co LLP as draft and final report was
submitted to the Board. Comment.
Professional Ethics
24. Comment on the following with reference to the with reference to the Chartered
Accountants Act, 1949 and Schedules thereto:
(a) CA Dev started practice in Punjab in the year 2019. CA Dev issued ‘Turnover
Certificate’ for M/s. ASAUS Traders to be forwarded to the Bank for the purpose of
availing cash credit facility and machinery term loan. Brother of CA Dev was proprietor
of M/s. ASAUS Traders.
(b) Aagam Private Limited requested CA Sheetal, a practicing Chartered Accountant, to
digitally sign the form related to resignation of Mr. Rohit, one of the Director of Aagam
Private Limited, along with the copy of Resignation Letter to be uploaded on the
website of Registrar of Companies. The signature of Mr. Rohit was simply copied and
pasted by another Director of Aagam Private Limited. CA Sheetal, without verifying
the genuineness of the resignation letter, digitally signed the form and the said form
was uploaded on the website of Registrar of Companies.
25. Write a short note on the following:
(a) Management audit questionnaire.
(b) Free look Cancellation (FRC)
(c) Services rendered by Forensic Auditors

SUGGESTED ANSWERS
PART A : ANSWERS TO MULTIPLE QUESTIONS

1. (d)
2. (a)
3. (c)
4. (b)
5. (b)
6. (b)
7. (a)
8. (b)
9. (d)
10. (d)
PART B
PART B : DESCRIPTIVE QUESTIONS
11. As per SA 250, “Consideration of Laws and Regulations in an Audit of Financial Statements”,
the auditor is required to obtain an understanding and need to evaluate the impact of other
laws and regulations that do not have a direct effect on the determination of the amounts
and disclosures in the financial statements, but compliance with which may be fundamental
to the operating aspects of the business, to an entity’s ability to continue its business, or
to avoid material penalties (for example, compliance with the terms of an operating license,
compliance with regulatory solvency requirements, or compliance with environmental
regulations); non-compliance with such laws and regulations may therefore have a material
effect on the financial statements.
The auditor shall perform the following audit procedures to help identify instances of non -
compliance with other laws and regulations that may have a material effect on the financial
statements:
(a) Inquiring of management and, where appropriate, those charged with governance, as
to whether the entity is in compliance with such laws and regulations; and
(b) Inspecting correspondence, if any, with the relevant licensing or regulatory authorities
As per Section 143(3)(j) read with Rule 11(a), the auditor is required to report whether the
company has disclosed the impact, if any, of pending litigations on its financial position in
its financial statement.

As per SA 570, “Going Concern”, if the auditor concludes that management’s use of the
going concern basis of accounting is appropriate in the circumstances but a material
uncertainty exists, the auditor shall determine whether the financial statements:
(i) Adequately disclose the principal events or conditions that may cast significant doubt
on the entity’s ability to continue as a going concern and management’s plans to deal
with these events or conditions; and
(ii) Disclose clearly that there is material uncertainty related to events or conditions that
may cast significant doubt on the entity’s ability to continue as a going concern and,
therefore, that it may be unable to realize its assets and discharge its liabilities in the
normal course of business.
If adequate disclosure about the material uncertainty is not made in the fi nancial
statements, the auditor shall (a) Express a qualified opinion or adverse opinion, as
appropriate, in accordance with SA 705; and (b) In the Basis for Qualified (Adverse)
Opinion section of the auditor’s report, state that a material uncertainty exi sts that may
cast significant doubt on the entity’s ability to continue as a going concern and that the
financial statements do not adequately disclose this matter.
In the current scenario, Abhinandan Limited has received a show cause notice from the
National Green Tribunal of an amount which is more than the net profit and the turnover of
the company for the year. In the event of an unfavourable order for Abhinandan Limited,
there will be an impact on Abhinandan Limited’s ability to continue as a going concern.
As a result, appropriate disclosure should be provided by management for such events
which cast significant doubt on the entity’s ability to continue as a going concern. As no
appropriate disclosure has been provided by Abhinandan Limited for such show cause
notice, Subahu & Co. should report this matter in their audit report under “Going Concern
Para” as per SA 570 and under clause (j) of Section 143(3) of the Companies Act, 2013.
Also, the auditor is required to issue an adverse opinion as per SA 705, “Modifications to
the Opinion in the Independent Auditor’s Report”.
12. As per SA 530, “Audit Sampling”, the auditor shall evaluate:
(a) The results of the sample; and
(b) Whether the use of audit sampling has provided a reasonable basis for conclusions
about the population that has been tested.
If the auditor concludes that audit sampling has not provided a reasonable basis for
conclusions about the population that has been tested, the auditor may:
(I) Request management to investigate misstatements that have been identified and the
potential for further misstatements and to make any necessary adjustments; or
(II) Tailor the nature, timing and extent of those further audit procedures to be st achieve
the required assurance. For example, in the case of tests of controls, the auditor might

extend the sample size, test an alternative control or modify related substantive
procedures.
13. As per SA 240, “The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial
Statements” and SA 315, “Identifying and Assessing the Risks of Material Misstatement
Through Understanding the Entity and Its Environment”, the auditor shall identify and
assess the risks of material misstatement due to fraud at the financial statement level, and
at the assertion level for classes of transactions, account balances and disclosures. When
identifying and assessing the risks of material misstatement due to fraud, the auditor shall ,
based on a presumption that there are risks of fraud in revenue recognition, evaluate which
types of revenue, revenue transactions or assertions give rise to such risks.
In accordance with SA 240, “The Auditor’s Responsibilities Relating to Fraud in an Audit
of Financial Statements” and 330,” The Auditor’s Responses to Assessed Risks” the
auditor shall determine overall responses to address the assessed risks of material
misstatement due to fraud at the financial statement level and assertion level.
The presumption that there are risks of fraud in revenue recognition may be rebutted. For
example, the auditor may conclude that there is no risk of material misstatement due to
fraud relating to revenue recognition in the case where there is a single type of simple
revenue transaction, for example, leasehold revenue from a single unit rental property.
However, when there is a complex revenue structure or when there is lack of controls on
revenue recognition, then there is a high probability of fraud risk in revenue recognition.
Obtaining an understanding of the entity and its environment, including the entity’s internal
control (referred to hereafter as an “understanding of the entity”), is a continuous, dynamic
process of gathering, updating and analysing information throughout the audit.
In the current scenario, the company was earning revenue from multiple streams. Also, it
was identified that the controls are not properly designed to mitigate the risk of fraud and
risk of improper revenue recognition. During the year it was identified that the management
did not account for revenue from corporate hotel bookings amounting to ` 35 crore. These
amounts were partially received in the company’s bank accounts and partially received in
the CFO’s personal account. The amounts received in the bank account of the company
were disclosed as advances received against future bookings.
Therefore, the auditor while performing the risk assessment procedures should consider
the complexity and nature of the revenue for determining the fraud risks in revenue
recognition. Also, there were no adequate controls addressing the risk of improper revenue
recognition or fraud risk, the audit team rebutted the fraud risk. Moreover, the audit team
should have recognised fraud risk by identifying the deficiencies of internal control over
the revenue recognition process and should have treated the risk of improper revenue
recognition as a significant risk. Also, as per Section 143(12), the auditor is required to
report all the frauds identified during the course of the audit involving amounts above ` 1
crore within the prescribed time frame to the Central Government

14. The controls that are put in place to mitigate the IT risks and to maintain the
confidentiality, integrity, availability and security of data are General IT Controls,
Application Controls and IT-Dependent Controls.
General IT Controls: “General IT controls are policies and procedures that relate to many
applications and support the effective functioning of application controls. They apply to
mainframe, miniframe, and end-user environment. General IT controls that maintain the
integrity of information and security of data commonly include controls over the following:”
(SA 315)
• Data center and network operations;
• System software acquisition, change and maintenance
• Program change;
• Access security;
• Application system acquisition, development, and maintenance (Business
Applications).
These are IT controls generally implemented to mitigate the IT specific risks and applied
commonly across multiple IT systems, applications and business processes. Hence,
General IT controls are known as “pervasive” controls or “indirect” controls.
Application Controls: Application controls include both automated or manual controls that
operate at a business process level. Application controls can be preventive as well as
detective in nature and are designed to ensure the integrity of the accounting records.
application controls relate to procedures used to initiate, record, process and report
transactions or other financial data. These controls help ensure that transactions occurred,
are authorised, and are completely and accurately recorded and processed. Automated
Application controls are embedded into IT applications viz., ERPs and help in ensuring the
completeness, accuracy and integrity of data in those systems. Examples of automated
applications include edit checks and validation of input data, sequence number check, limit
check, format check, range check, reasonableness check, mandatory data fields,
existence check etc.
IT dependent controls: IT dependent controls are basically manual controls that make
use of some form of data or information or report produced from IT systems and
applications. In this case, even though the control is performed manually, the design and
effectiveness of such controls depend on the reliability of source data.
Due to the inherent dependency on Information Technology, the effectiveness and
reliability of Automated application controls and IT dependent controls require the General
IT Controls to be effective.

15. Following Errors have been noticed in presentation, as per Division II of

Schedule III:
(i) “Trademark” is not to be classified under “Property Plant and Equipment” since they
are specifically to be disclosed under ‘Other Intangible Assets" as per Division II of
Schedule III.
(ii) “Bank deposit with more than 12 months maturity" is not to be classified under "Other
Non-current Assets” since they are specifically to be disclosed under “Other Financial
Assets” as per Division II of Schedule III.
(iii) “Share Option Outstanding Accounts” is not to be classified under “Equity", since it
has to be disclosed under “Other Equity" as per Division II of Schedule III.
(iv) Interest accrued thereon” is not to be classified under "Other non-current assets”,
since they are specifically to be disclosed under the head “Other Financial Liabilities”
as per Division II of Schedule III.
16. As per Clause 3(ix) of CARO 2020, the auditor is required to report whether the company
has defaulted in repayment of loans or other borrowings or in the payment of interest
thereon to any lender, if yes, the period and the amount of default to be reported as per
the format below.
Nature of Name of Amount not Whether No. of days Remarks, if
borrowing, lender paid on due principal or delay or any
including date interest unpaid
debt
securities
lender wise
details to be
provided in
case of
defaults to
banks,
financial
institutions
and
Government.
In the given case, the company Gautam Limited defaulted in payment of the principal
amount of the loan due of ` 1000 crore on 30 June 2021 and the interest instalment of
` 100 crore. The said default continued till the end of the year and on 8 April 2022, a
restructuring agreement was signed by the banks and company for re-structuring the
outstanding loan. Moreover, no disclosure was provided by the company with respect to
the said matter.

Hence the auditor is required to report the same matter under Clause (ix) of Para 3 of
CARO 2020, i.e., whether the company has defaulted in repayment of loans or other
borrowings or in the payment of interest thereon to any lender, if yes, then provide the
details of the period and the amount of default. Also, the auditor needs to consider the
impact of such non-disclosure and the non-compliance with the financial reporting
framework and accordingly the auditor needs to either issue a qualified opinion or an
adverse opinion as per SA 705, “Modifications to the Opinion in the Independent
Auditor’s Report”.
17. (a) In the present case, CA Bahubali is unable to obtain sufficient and appropriate audit
evidence with respect to the following:
(i) The balance confirmation with respect to debtors amounting to ` 240 crore is
not available. Further there has been default in payment by the debtors and the
provision so made is not adequate. The audit team is also unable ascertain the
carrying value of trade receivables.
(ii) With respect to 38% of the company’s inventory, neither the physical verification
has been done by the management nor are adequate inventory records
maintained. The audit team is also unable to undertake the physical inventory
count as such the value of inventory could not be verified.
In the above two circumstances the auditor is unable to obtain sufficient appropriate
audit evidence on which to base the opinion, and the possible effects on the financial
statements of undetected misstatements, if any, could be both material and
pervasive.
Thus, CA Bahubali should give a Disclaimer of Opinion.
The relevant extract of the Disclaimer of Opinion Paragraph and Basis for
Disclaimer of Opinion paragraph is as under:
Disclaimer of Opinion
We do not express an opinion on the accompanying financial statements of Bharat
Ltd. Because of the significance of the matters described in the Basis for Disclaimer
of Opinion section of our report, we have not been able to obtain sufficient appropriate
audit evidence to provide a basis for an audit opinion on these financial statements.
Basis for Disclaimer of Opinion
We are unable to obtain balance confirmation with respect to the debtors amounting
to ` 240 crore. Further, there have been defaults on the payment obligations by
debtors on the due dates during the year under audit. The Company has created a
provision for doubtful debts to the tune of ` 40 crore during the year under audit which
is inadequate in the circumstances of the company. The carrying value of trade
receivables could not be ascertained.

Further, in respect of Inventories (which constitutes 38% of the total assets of the
company), during the reporting period, the management has not undertaken physical
verification of inventories at periodic intervals. Also, the Company has not maintained
adequate inventory records at the factory. We were unable to undertake the physical
inventory count and as such the value of inventory could not be verified.
(b) When the auditor disclaims an opinion on the financial statements due to a n inability
to obtain sufficient appropriate audit evidence, the auditor shall amend the description
of the auditor’s responsibilities required by SA 700, “Forming an Opinion and
Reporting on Financial Statements”, to include only the following:
(i) A statement that the auditor’s responsibility is to conduct an audit of the entity’s
financial statements in accordance with Standards on Auditing and to issue an
auditor’s report;
(ii) A statement that, however, because of the matter(s) described in the Basis for
Disclaimer of Opinion section, the auditor was not able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion on the financial
statements; and
(iii) The statement about auditor independence and other ethical responsibi lities
required in SA 700.
18. According to Section 129(3) of the Companies Act, 2013, where a company has one or
more subsidiaries, including associate company and joint venture, it shall, in addition to its
own financial statements prepare a consolidated financial statement of the company and
of all the subsidiaries in the same form and manner as that of its own.
As per sub-section 6 of the section 129 of the Companies Act, 2013, the Central
Government may, on its own or on an application by a class or classes of companies, by
notification, exempt any class or classes of companies from complying with any of the
requirements of section 129 or the Rules made thereunder.
An investment entity is an entity that:
(a) obtains funds from one or more investors for the purpose of providing those
investor(s) with investment management services;
(b) commits to its investor(s) that its business purpose is to invest funds solely for returns
from capital appreciation, investment income, or both; and
(c) measures and evaluates the performance of substantially all of its investments on a
fair value basis.
An investment entity need not present consolidated financial statements if it is required, in
accordance with paragraph 31 of Ind AS 110, to measure all of its subsidiaries at fair value
through profit or loss. A parent shall determine whether it is an investment entity.

However, as per paragraph 33 of Ind AS 110, parent of an investment entity shall

consolidate all entities that it controls, including those controlled through an investment
entity subsidiary, unless the parent itself is an investment entity.
Applying the above to the given case of Jambu & Sudharma Investments Ltd., which fulfils
all the conditions stated above, it is an investment entity. By applying Para 31 and 33 of
Ind AS 110, it can be concluded that Jambu & Sudharma Investments Ltd.is not required
to consolidate as per Section 129 (3) of the Companies Act, 2013.
19. The borrower was enjoying overdraft credit facilities of ` 50 crore against security of stocks
and debts. Further, though latest available stock statement for the month of February,
2022 showed inadequate drawing power, there was adequate drawing power available
throughout the year. Stock audit report dated 31.12.2021 also reflected adequate drawing
power. Hence, it shows that borrower had adequate drawing power during the year.
Further, comment on declining sales is of general informative value to management for
making credit decisions.
The fact of over drawings in account during the month of March, 2022 and inadequate
drawing power in a month are in nature of temporary deficiencies and do not require
account to be classified as NPA in accordance with asset classification and provisioning
norms of RBI.
RBI instructions lay down that ordinarily credit limits need to be reviewed not later than
three months from the due date. As per Guidance note on Audit of Banks, in case of
constraints such as non-availability of financial statements and other data from the
borrowers, the branch should furnish evidence to show that renewal/ review of credit limits
is underway and would be completed soon. In any case, delay beyond six months is not
considered desirable as a general discipline. Hence, an account where the credit limits
have not been reviewed/ renewed within 180 days from the due date will be treated as
NPA.
It would be pertinent to note that the counting of 180 days would be required to be done
from the date of original due date for renewal and not from the date of expiry of short
reviews / technical reviews. In the instant case, the original date of renewal was
20th October, 2021 and period of 180 days has still not expired as on balance sheet date.
Keeping in view all above factors, CA Prachi should accept classification of account as
‘Standard Asset’ made by branch.
20. In order to identify a particular company as Non-Banking Financial Company (NBFC), it
will consider both assets and income pattern as evidenced from the last audited balance
sheet of the company to decide its principal business. The company will be treated as
NBFC when a company's
(i) Financial assets constitute more than 50 per cent of the total assets (netted off by
intangible assets) and
(ii) Income from financial assets constitute more than 50 per cent of the gross income.

A company which fulfils both these criteria shall qualify as an NBFC and would require to
be registered as NBFC by RBI.
In the given case, applying the Criteria (i) Financial assets constitute more than 50 per
cent of the total assets (netted off by intangible assets),
A. Financial Assets of Sudarshan Ltd. are =
Non-Current Assets - Loans & Advances ` 75.50 Cr.
Add: Current Assets - Loans and advances ` 294.33 Cr.
Total Financial Assets ` 369.83 Cr.
B. Total Assets (netted off by intangible assets) of Sudarshan Ltd. are =

Total assets of the company ` 618.55 Cr.
Less: Intangible assets ` 6.35 Cr.
Total Assets (netted off by intangible assets) ` 612.20 Cr.
In view of above, Financial assets of Sudarshan Ltd. constitute more than 50 per cent of
the total assets (netted off by intangible assets).
Applying the Criteria (ii) Income from financial assets constitute more than 50
per cent of the gross income.
Income from financial assets = ` 62.31 Cr
Gross Income = ` 111.23 Cr
From the above, it is clear that Sudarshan Ltd.’s financial assets constitute more than 50
per cent of the total assets (netted off by intangible assets) and income from financial
assets constitutes more than 50 per cent of the gross income. Hence, Sudarshan Ltd.
fulfills both these criteria to qualify as an NBFC.
Thus Sudarshan Ltd. can apply for registration under Section 45-IA of Reserve Bank of
India (Amendment) Act, 1997 in prescribed form along with the necessary documents.
21. Section 44 AB(a) of the Income Tax Act, 1961 prescribes that a person carrying on
business shall get his accounts audited if his total sales, turnover or gross receipts exceed
` 1 crore in any previous year. However, this limit was enhanced to ` 10 crore in the
following case where: -
(a) aggregate of all amounts received including amount received for sales, turnover or
gross receipts during the previous year, in cash, does not exceed five per cent of the
said amount; and
(b) aggregate of all payments made including amount incurred for expenditure, in cash,
during the previous year does not exceed five per cent of the said payment .

However, section 44 AB(b) of the Income Tax Act, 1961 states that in case of profession,
every person shall get his accounts audited, if his gross receipts in profession exceed `
50 lakh. The above said firm is engaged in providing engineering consultancy services to
insurance corporates. Hence, the benefit of enhanced threshold limit is not available to
persons engaged in professional activities.
The information regarding cash receipt and payment although falling within 5% of total
receipts/payments is not relevant in the instant case.
Hence, contention of partner is not correct, and firm is required to get its accounts audited
under income tax law.
22. In the given scenario, C&AG appointed Sambhav & Associates, a chartered accountant
firm, to conduct Performance Audit of MAP Ltd., a PSU of Government of India. The firm
conducted audit with a view to check all the expenses of the unit are in conformity to the
public interest and publicly accepted customs which is not Performance Audit.
A performance audit is an objective and systematic examination of evidence for the
purpose of providing an independent assessment of the performance of a government
organization, program, activity, or function in order to provide information to improve public
accountability and facilitate decision-making by parties with responsibility to oversee or
initiate corrective action.
Performance audit in PSUs is conducted by the C&AG (Supreme Audit Institutions) through
various subordinate offices of Indian Audit and Accounts Department (IAAD). In conducting
performance audit, the subordinate offices are guided by manual and auditing standards
prescribed by C&AG.
Therefore, the objectives of performance auditing are evaluation of economy, efficiency,
and effectiveness of policy, programmes, organization and management. It also promotes
accountability by assisting those charged with governance and oversight responsibilities
to improve performance; and transparency by affording taxpayers, those targeted by
government policies and other stakeholders an insight into the management and outcomes
of different government activities.
Performance auditing focuses on areas in which it can add value which have the greatest
potential for development. It provides constructive incentives for the responsible parties to
take appropriate action.
Regulations on Audit and Accounts issued by C&AG lay down that the responsibility for
the development of measurable objectives and performance indicators as also the systems
of measurement rests with the Government departments or Heads of entities. They are
also required to define intermediate and final outputs and outcomes in measurable and
monitorable terms, standardise the unit cost of delivery and benchmark quality of outputs
and outcomes.

Thus, rejection of audit report (submitted by audit firm) by C&AG is in order as audit with
a view to mere check all the expenses of the unit are in conformity to the public in terest
and publicly accepted customs done by audit firm is not performance audit in all aspects.
23. (a) Evaluating the professional judgment exercised by the auditor: It is also
important for the Technical Reviewer (hereinafter referred as TR) to underst and that
“professional judgment”, as defined in SA 200, “Overall Objectives of the Independent
Auditor and the Conduct of an Audit in Accordance with Standards on Auditing” is an
integral concept in the context of an audit and application of SAs in real li fe audit
scenarios. SA 200 defines professional judgment as “the application of relevant
training, knowledge and experience, within the context provided by auditing,
accounting and ethical standards, in making informed decisions about the course of
action that is appropriate in the circumstances of the audit engagement.”
The concept of “professional judgment” underscores the fact that Standards,
particularly, Standards on Auditing are written to lay down the fundamental principles
that would apply to an audit situation. Hence, no Standard can have straight jacketed
application/solutions for all audit scenarios. Above all, the Standards on Auditing
issued by the Institute of Chartered Accountants of India are principle based rather
than rule based. Hence, almost all the SAs envisage exercise of professional
judgment by the auditor in their application in real life audit scenarios.
The TR would need to appreciate that the exercise of professional judgment in any
particular case is based on the facts and circumstances that are known to the auditor
as at the time of exercising that professional judgment. Normally, exercise of
professional judgement by an auditor is preceded by consultation on the relevant
matters both within the engagement team and between the engagement team and
others at the appropriate level within or outside the firm.
In evaluating the professional judgment exercised by the auditor, the TR should
consider the following factors:
• whether the judgment reached reflects a due consideration and application of
the relevant auditing and accounting principles; and
• whether the judgment is appropriate in the light of, and consistent with, the facts
and circumstances that were known to the auditor up to the date of the auditor’s
report. Hence, the TR and the QR Team should not, under any circumstance,
use “hindsight” (i.e. perception or retrospection) in their evaluation of exercise
of professional judgment by the auditor.

Since the auditor needs to exercise professional judgment throughout the audit, the
latter also needs to be appropriately documented. Hence, the TR can expect to find
such audit documentation as a part of the audit engagement file. It is important to
note that professional judgment cannot be used by an auditor as a justification for
decisions that are not otherwise supported by the facts and circumstances of the
engagement or sufficient appropriate audit evidence.
(b) Peer Review Report of Reviewer: After completing the on-site Review, the Peer
Reviewer, before making his Report to the Board, shall communicate his findings
in the Preliminary Report to the Practice Unit if in his opinion, the systems and
procedures are deficient or non-compliant with reference to any matter that has been
noticed by him or if there are other matters where he wants to seek clarification.
The Practice Unit shall within 5 days after the date of receipt of the findings, make
any submissions or representations, in writing to the Reviewer. (i.e. Response to the
Preliminary Report).
At the end of an on-site Review if the Reviewer is satisfied with the reply received
from the Practice Unit, he shall submit a Peer Review Report to the Board along with
his initial findings, response by the Practice Unit and the manner in which the
responses have been dealt with. A copy of the report shall also be forwarded to the
Practice Unit.
In case the Reviewer is of the opinion that the response by the Practice Unit is not
satisfactory, the Reviewer shall accordingly submit a modified Report to the Board
incorporating his reasons for the same. The Reviewer shall also submit initial findings
(i.e. Preliminary Report), response by the Practice Unit (Response to Preliminary
Report) and the manner in which the responses have been dealt with. A copy of the
report shall also be forwarded to the Practice Unit.
In case of a modified report, The Board shall order for a “Follow On” Review after a
period of one year from the date of issue of report as mentioned above. If the Board
so decides, the period of one year may be reduced but shall not be less than six
months from the date of issue of the report.
In the instant case, in view of Peer Reviewer systems and procedures in Prabhu &
Co. LLP are deficient, therefore, Peer Reviewer should not submit the report directly
to the Board. Thus, contention of Prabhu & Co. LLP is correct.
24. (a) As per Clause (4) of Part I of Second Schedule to the Chartered Accountants Act,
1949, a Chartered Accountant in practice is deemed to be guilty if he expresses his
opinion on financial statements of any business or enterprise in which he, his firm, or
a partner in his firm has a substantial interest.

Further, it is not permissible for a member to undertake the assignment of certification,

wherein the client is relative of the member. The “relative" for this purpose would refer
to the definition mentioned in Accounting Standard (AS) - 18.
In the given situation, CA Dev started practice in Punjab in the year 2019. CA Dev
issued Turnover certificate for M/s. ASAUS Traders to be forwarded to the Bank for
the purpose of obtaining Loan. Brother of CA Dev is proprietor of M/s. ASAUS
Traders. Brother is very well covered in the definition of relative menti oned in
Accounting Standard (AS)-18.
Hence, CA Dev is guilty of professional misconduct.
(b) As per Clause (7) of Part I of Second Schedule to the Chartered Accountants Act,
1949, a Chartered Accountant in practice is deemed to be guilty if he does not
exercise due diligence or is grossly negligent in the conduct of this professional
duties.
In the given case, Aagam Private Limited requested CA Sheetal, a practicing
chartered accountant, to digitally sign the form related to resignation of Mr. Rohit, one
of the Director of Aagam Private Limited, along with the copy of Resignation Letter to
be uploaded on the website of Registrar of Companies. The signature of Mr. Rohit
was simply copied and pasted by another Director of Aagam Private Limited.
CA Sheetal, without verifying the genuineness of the Resignation Letter, digitally
signed the Form and the said form was uploaded on the website of Registrar of
Companies.
Due to forged resignation letter, the resignation of Mr. Rohit from directorship of the
Aagam Private Limited had been occurred. It was noted that CA Sheetal had not taken
any step to verify forged signature on resignation letter which anyone would have
taken in normal circumstances.
Consequently, CA. Sheetal would be held liable for professional misconduct as per
Clause (7) of Part I of Second Schedule to the Chartered Accountants Act, 1949 .
25. (a) A management audit questionnaire is an important tool for conducting a management
audit. It is through these questionnaires that the auditors make an inquiry into
important facts by measuring current performance. Such questionnaires aim at a
comprehensive and constructive examination of an organisation’s management and
its assigned tasks. Overall it is concerned with the appraisal of management actions
in accomplishing the organisation’s objectives.

Management Audit
Questionnaire
Its primary objective is to highlight weaknesses and deficiencies of the organisation. It includes
a review of how well or badly the management functions of planning, organising, directing and
controlling are being performed. The questionnaire provides a means for evaluating an
organisation’s ongoing operations by examining its major functional areas. There are three
possible answers to the management audit questions:
Yes No Not applicable
It indicates that the specific It indicates

area, function or aspect unacceptable It indicates that the
under study is functioning in performance & should question doesnot
an acceptable manner. No be explained in writing. apply.
written application is needed
in that case.
Thus, management audit questionnaire for this part of the audit not only serves as
a management tool to analyse the current situation; more importantly, it enables
the management auditors to synthesis those elements that are causing
organisational difficulties and deficiencies.
(b) Free Look Cancellation (FLC) : As per clause 6(2) of IRDA (Protection of
Policyholders Interest) Regulations, 2002, “the insurer shall inform by the letter
forwarding the policy that he has a period of 15 days from the date of receipt of the
policy document to review the terms and conditions of the policy and where the
insured disagrees to any of those terms or conditions, he has the option to return the
policy stating the reasons for his objection, when he shall be entitled to a refund of
the premium paid, subject only to a deduction of a proportionate risk premium for the
period on cover and the expenses incurred by the insurer on medical examination of
the proposer and stamp duty charges”.
Accordingly, FLC is an option provided to the policyholder wherein he has a period of
15 days from the date of receipt of the policy document to review the Terms &
Conditions of the policy and in case of disagreement to any of the terms & conditions,
he/ she has the option to return the policy stating the reason for policy’s cancellation.
FLC requests can be received through any mode –e-mail, fax and letters depending
on insurer’s policy. In case of written letters, the signature of the policy holder should
be matched with the original proposal form. FLC request is processed only when the

policy holder is not satisfied with the terms and conditions of the policy document and
not for any other reasons. FLC refund is paid either by cheque or in case the policy
holder wants direct credit, then consent for direct credit along with cancelled cheque
for bank account details is submitted.
(c) Services rendered by Forensic Auditors are:
• Crafting questions to be posed
• Responding to questions posed
• Identifying documents to be requested and/or subpoenaed
• Identifying individuals to be most knowledgeable of facts
• Conducting research relevant to facts of the case
• Identifying and preserving key evidence
• Evaluating produced documentation and information for completeness
• Analysing produced records and other information for facts
• Identifying alternative means to obtain key facts and information
• Providing questions for deposition and cross examination of fact and expert
witnesses

PAPER 4: CORPORATE AND ECONOMIC LAWS
PART –I: RELEVANT AMENDMENTS FOR NOVEMBER 2022 EXAMINATION
The October 2021 Edition of the Study Material on Final Paper 4: Corporate and Economic Laws
[comprising of 3 Modules – Modules 1 – 2 on Part I: Corporate Laws and Module 3 on Part II:
Economic Laws] contains amendments made uptil 30 th April, 2021. Besides, notifications,
circulars and other legislative amendments made uptill 30 st April, 2022 shall also be relevant
and applicable for November 2022 examination.
Here is the list of the relevant amendments made during the period of 1 st May, 2021 to 30th April,
2022:
I. COMPANIES ACT, 2013
1. Ministry of Corporate Affairs Vide Notification G.S.R. 409(E), dated 15 th June, 2021
hereby amend the Companies (Meetings of Board and its Powers) Rules, 2014, through
enforcement of the Companies (Meetings of Board and its Powers) Amendment Rules,
2021.
According to which, in the Companies (Meetings of Board and its Powers) Rules, 2014,
Rule 4 shall be omitted. This Rule 4 dealt with the “Matters not to be dealt with in a
meeting through video conferencing or other audio visual means”.
See Page no. 3.4 of the Study material
2. Ministry of Corporate Affairs Vide Notification S.O. 3156(E), Dated 5 th August, 2021, in
exercise of the powers conferred by section 393A of the Companies Act, 2013, the Central
Government hereby exempts, from the provisions of sections 387 to 392 (both
inclusive), the following:-
(a) foreign companies;
(b) companies incorporated or to be incorporated outside India, whether the company
has or has not established, or when formed may or may not establish, a place of
business in India, insofar as they relate to the offering for subscription in the
securities, requirements related to the prospectus, and all matters incidental thereto
in the International Financial Services Centres set up under section 18 of the Special
Economic Zones Act, 2005.
See Page no. 9.17 of the Study material
3. Ministry of Corporate Affairs, Vide Notification G.S.R. 538(E), dated 5th August, 2021,
in exercise of the powers conferred by clause (c) and clause (h) of sub-section (1) and
sub-section (3) of section 380, clause (a) of sub-section (1) and sub-section (3) of section
381, section 385, clause (a) of section 386, section 389 and section 390, read with section
469 of the Companies Act, 2013, Central Government hereby enforces the Companies

(Registration of Foreign Companies) Amendment Rules, 2021 to amend the

Companies (Registration of Foreign Companies) Rules, 2014.
In the Companies (Registration of Foreign Companies) Rules, 2014, in clause (c) of sub-
rule (1) of rule 2, the following explanation shall be inserted, namely:-
“Explanation- For the purposes of this clause, electronic based offering of securities,
subscription thereof or listing of securities in the International Financial Services Centres
set up under section 18 of the Special Economic Zones Act, 2005 (28 of 2005) shall not be
construed as ‘electronic mode’ for the purpose of clause (42) of section 2 of the Act.”
See Page no. 9.2 of the Study material.
4. Ministry of Corporate Affairs Vide Notification G.S.R. 579(E), Dated 19 th August, 2021, in
exercise of the powers conferred by section 149 read with section 469 of the Companies
Act, 2013, the Central Government hereby amends the Companies (Appointment and
Qualification of Directors) Rules, 2014, through the enforcement of the Companies
(Appointment and Qualification of Directors) Amendment Rules, 2021.
Accordingly, in the Companies (Appointment and Qualification of Directors) Rules, 2014,
in rule 6, in sub-rule (4),— (i) in the first proviso, for clause (B), the following clause
shall be substituted, namely:—
“(B) in the pay scale of Director or equivalent or above in any Ministry or Department, of
the Central Government or any State Government, and having experience in handling,—
(i) the matters relating to commerce, corporate affairs, finance, industry or public
enterprises; or
(ii) the affairs related to Government companies or statutory corporations set up under
an Act of Parliament or any State Act and carrying on commercial activities.”.
(iii) after the second proviso, the following proviso shall be inserted, namely:— “Provided
also that the following individuals, who are or have been, for at least ten years :—
(A) an advocate of a court; or
(B) in practice as a chartered accountant; or
(C) in practice as a cost accountant; or
(D) in practice as a company secretary, shall not be required to pass the online
proficiency self-assessment test.”.
See Page no. 1.45 of the Study material. For Clause (B), above clause shall be replaced
with. Further after point (c) to explanation, second proviso is inserted.

PAPER – 4 : CORPORATE AND ECONOMIC LAWS 87
5. Nidhi (Amendment) Rules, 2022 - Amendment in Rules 3, 4, 5, 6, 8, 9, 14, 15 and

Substitution of Rule 18
Vide Notification G.S.R. 301(E) [F. NO. 5/28/2020-CL-VII], Dated 19-4-2022, in exercise
of the powers conferred by sub-section (1) of section 406, read with sub-sections (1) and
(2) of section 469 of the Companies Act, 2013, the Central Government hereby makes the
following rules, further to amend the Nidhi Rules, 2014, namely:-
Short title and commencement.
1. (1) These rules may be called the Nidhi (Amendment) Rules, 2022.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. In the Nidhi rules, 2014 (hereinafter referred to as the said rules), in rule 3, in sub-
rule (1), after clause (a), the following clause shall be inserted, namely:—
"(aa) 'Branch' means a place other than the registered office of Nidhi",
3. In rule 4 of the said rules, in sub-rule (1), —
(a) for the words "five lakh rupees", the words "ten lakh rupees" shall be
substituted;
(b) the following proviso shall be inserted, namely: —
"Provided that every Nidhi existing as on the date of commencement of
the Nidhi Amendment Rules, 2022, shall comply with this requirement
within a period of eighteen months from the date of such
commencement".
4. In rule 5 of the said rules, the following sub-rule shall be inserted, namely: —
"(5) The provisions of this rule shall not be applicable for the companies
incorporated as Nidhi on or after the commencement of the Nidhi (Amendment)
Rules, 2022".
5. In rule 6, of the said rules,
(i) for clause (d), the following clause shall be substituted, namely: —
"(d) acquire or purchase securities of any other company or control the
composition of the Board of Directors of any other company in any
manner whatsoever or enter into any arrangement for the change of its
management";
(ii) after clause (k), the following clause shall be inserted, namely : —
"(l) raise loans from banks or financial institutions or any other source
for the purpose of advancing loans to members of Nidhi".

6. In rule 8, of the said rules, after sub-rule (3), the following sub-rule shall be inserted,
namely: —
"(4) A member shall not transfer more than fifty percent of his shareholding (as on the
date of availing of loan or making of deposit) during the subsistence of such loan or
deposit, as the case may be.
Provided that the member shall retain the minimum number of shares required
under sub-rule (3) of rule 7 at all times".
7. In the said rules, in rule 9,
(a) for the words "ten lakh", the words "twenty lakh" shall be substituted;
(b) the following proviso shall be inserted, namely: —
"Provided that every Nidhi existing as on the date of commencement
of the Nidhi (Amendment) Rules, 2022 shall comply with this
requirement within a period of eighteen months from the date of such
commencement".
8. In rule 14, of the said rules, in the proviso, after the words, "approval of the Regional
Director", the words "by making application in Form NDH- 2 along with fee
specified in the Companies (the Registration Offices and Fees) Rules, 2014"
shall be inserted.
9. In rule 15, of the said rules, in sub-rule (1), the following proviso shall be inserted,
namely:—
"Provided that in case of joint shareholders, the loan shall be provided to the
member whose name appears first in the Register of members".
10. For rule 18 of the said rules, the following rule shall be substituted, namely: —
“A Nidhi shall not declare dividend exceeding twenty five per cent in a financial
year".
Page no. of the study material: Module 2: 10.19 - 10.28
II. SEBI (LODR) Regulations, 2015

The Securities and Exchange Board of India (Listing Obligations and Disclosure
Requirements) (Second Amendment) Regulations, 2021 w.e.f. 5th May, 2021, the
Securities and Exchange Board of India (Listing Obligations and Disc losure
Requirements) (Fifth Amendment) Regulations, 2021, w.e.f. 7-9-2021 and the Securities
and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Third
Amendment) Regulations, 2021, w.e.f. 1-1-2022.

Through the enforcement of all the above mentioned Regulations i.e., the Securities and
Exchange Board of India (Listing Obligations and Disclosure Requirements) (Second
Amendment) Regulations, 2021 w.e.f. 5 th May, 2021, the Securities and Exchange Board of
India (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2021 ,
w.e.f. 7-9-2021, and the Securities and Exchange Board of India (Listing Obligations and
Disclosure Requirements) (Third Amendment) Regulations, 2021, w.e.f. 1-1-2022, further
amendments were made in the Securities and Exchange Board of India (Listing Obligations and
Disclosure Requirements) Regulations, 2015.
Following are the relevant amendments in the principal regulation made vide the notification of
the above mentioned amendments regulations:
(A) In regulation 3
i. the existing provision under regulation 3 shall be numbered as sub-regulation (1).
ii. under the newly numbered sub-regulation (1), the word “the” appearing after the word
“to” and before the word “listed” shall be substituted with the word “a” and the word
“who” shall be substituted with the word “which”.
iii. under the newly numbered sub-regulation (1), under clause (a), the words
“Institutional Trading Platform” shall be substituted with the words “Innovators Growth
Platform”.
iv. after the newly numbered sub-regulation (1), a new sub-regulation (2) shall be
inserted,
v. Substituted clause (b) of sub-regulation (1), with the following:
[(b) non-convertible debt securities, non-convertible redeemable preference shares,
perpetual debt instrument, perpetual non-cumulative preference shares;" with the
“non-convertible securities]
vi. Inserted the following Sub-regulation (3):
[(3) The provisions of these regulations which become applicable to listed entities on
the basis of the criterion of the value of outstanding listed debt securities shall
continue to apply to such entities even if they fall below such thresholds as mentioned
in sub-regulation (1A) of regulation 15.]
Amended Regulation 3
[3.(1) Unless otherwise provided, these regulations shall apply to a listed
entity which has listed any of the following designated securities on recognised stock
exchange(s):
(a) specified securities listed on main board or SME Exchange or Innovators
Growth Platform;
(b) non-convertible securities;

(c) Indian depository receipts;

(d) securitised debt instruments;
(da) security receipts
(e) units issued by mutual funds;
(f) any other securities as may be specified by the Board.
(2) The provisions of these regulations which become applicable to listed
entities on the basis of market capitalisation criteria shall continue to apply
to such entities even if they fall below such thresholds.
(3) The provisions of these regulations which become applicable to listed
entities on the basis of the criterion of the value of outstanding listed debt
securities shall continue to apply to such entities even if they fall below
such thresholds as mentioned in sub-regulation (1A) of regulation 15]
See Page no. 2.51 –Module 2 of the Study material. Replace Para under heading
“Applicability” with this amended Regulation.
(B) In regulation 6
In regulation 6, in the heading, the symbol and word “/her” shall be inserted after the word
“his”.
Amended Regulation heading
[Compliance Officer and his /her Obligations]
See Page no. 2.57 –Module 2 of the Study material. Heading of Regulation 6.
(C) In regulation 17A
The paragraph after clause (2) shall be converted as “Explanation” and the word “sub-
regulation” in the paragraph shall be substituted with the word “regulation”.
Amended Regulation
[Explanation: For the purpose of this regulation, the count for the number of listed entities
on which a person is a director/independent director shall be only those whose equity
shares are listed on a stock exchange.]
See Page no. 2.53 –Module 2 of the Study material.
(D) In regulation 18(1)(b) and 18(1)(d)
In regulation 18, in sub-regulation (1), in clause (b), the word “At least” is inserted by the
Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements)
(Third Amendment) Regulations, 2021, w.e.f. 1-1-2022.

Amended Regulation
[At least two-thirds of the members of audit committee shall be independent directors].
In regulation 18, in sub-regulation (1), in clause (d), the symbol and word “/she” shall be
inserted after the word “he”.
Amended Regulation
[(d) The chairperson of the audit committee shall be an independent director and he/she
shall be present at Annual general meeting to answer shareholder queries.]
See Page no.2.62-point A-sub-point (b) and on 2.63 –sub-point (d) –Module 2 of the Study
material.
(E) In regulation 19(1)
In the sub-regulation (1) word "fifty percent" is substituted with “two-thirds” by the
Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements)
(Third Amendment) Regulations, 2021, w.e.f. 1-1-2022.
Amended Regulation
[At least two-thirds of the directors shall be independent directors]
See Page no. 2.64 –point B –Module 2 of the Study material.
(F) In regulation 21
(i) The existing sub-regulation (2) shall be substituted with the following -
[The Risk Management Committee shall have minimum three members with majority
of them being members of the board of directors, including at least one independent
director and in case of a listed entity having outstanding SR equity shares, at least
two thirds of the Risk Management Committee shall comprise independent directors.]
(ii) In sub-regulation (3A), the word “once” shall be substituted with the following word
[twice]
(iii) after sub-regulation (3A) and before sub-regulation (4), the following new sub-
regulations (3B) and (3C) shall be inserted –
[(3B) The quorum for a meeting of the Risk Management Committee shall be either
two members or one third of the members of the committee, whichever is higher,
including at least one member of the board of directors in attendance.
(3C) The meetings of the risk management committee shall be conducted in such a
manner that on a continuous basis not more than one hundred and eighty days shall
elapse between any two consecutive meetings.]
(iv) after sub-regulation (4), the following new proviso shall be inserted--

[Provided that the role and responsibilities of the Risk Management Committee shall
mandatorily include the performance of functions specified in Part D of Schedule II.]
(v) in sub-regulation (5), the number “500” shall be substituted with [“1000”]
(vi) after sub-regulation (5), the following new sub-regulation (6) shall be inserted.
Amended regulation
Risk Management Committee.
21. (1) The board of directors shall constitute a Risk Management Committee.
(2) The Risk Management Committee shall have minimum three members with
majority of them being members of the board of directors, including at least one
independent director and in case of a listed entity having outstanding SR equity
shares, at least two thirds of the Risk Management Committee shall comprise
independent directors.
(3) The Chairperson of the Risk management committee shall be a member of the board
of directors and senior executives of the listed entity may be members of the committee.
(3A) The risk management committee shall meet at least [twice] in a year.
(3B) The quorum for a meeting of the Risk Management Committee shall be either two
members or one third of the members of the committee, whichever is higher, including at
least one member of the board of directors in attendance.
(3C) The meetings of the risk management committee shall be conducted in such a manner
that on a continuous basis not more than one hundred and eighty days shall elapse
between any two consecutive meetings.
(4) The board of directors shall define the role and responsibility of the Risk Management
Committee and may delegate monitoring and reviewing of the risk management plan to the
committee and such other functions as it may deem fit such function shall specifically cover
cyber security:
Provided that the role and responsibilities of the Risk Management Committee shall
mandatorily include the performance of functions specified in Part D of Schedule II.
(5) The provisions of this regulation shall be applicable to:
i. the top 1000 listed entities, determined on the basis of market capitalization as
at the end of the immediate preceding financial year; and,
ii. a ‘high value debt listed entity’.
(6) The Risk Management Committee shall have powers to seek information from any
employee, obtain outside legal or other professional advice and secure attendance of
outsiders with relevant expertise, if it considers necessary.

(G) Regulation 24(5)

In regulation 24, in sub-regulation (5), the words “or equal to” shall be inserted after the
words “less than” and before the words “fifty percent”.
Amended Regulation
[(5) A listed entity shall not dispose of shares in its material subsidiary resulting in reduction
of its shareholding (either on its own or together with other subsidiaries) to less than [or
equal to] fifty per cent or cease the exercise of control over the subsidiary without passing
a special resolution in its General Meeting except in cases where such divestment is made
under a scheme of arrangement duly approved by a Court/Tribunal , or under a resolution
plan duly approved under section 31 of the Insolvency Code and such an event is disclosed
to the recognized stock exchanges within one day of the resolution plan being approved]
(H) Regulation 26
i. in sub-regulation (1), the symbol and word “/she” shall be inserted after the word “he”.
ii. In Sub-regulation (1)(a), the word “high value debt listed entities” has been added
after the word “foreign companies”.
Amended Regulation
26. (1) A director shall not be a member in more than ten committees or act as
chairperson of more than five committees across all listed entities in which he /she is
a director which shall be determined as follows:
(a) the limit of the committees on which a director may serve in all public limited
companies, whether listed or not, shall be included and all other companies including
private limited companies, foreign companies ['high value debt listed entities'] and
companies under Section 8 of the Companies Act, 2013 shall be excluded;
[I] Regulation 27(2)
Substituted for word "fifteen” and inserted the word “the end of each” before the quarter.
(2) (a) The listed entity shall submit a quarterly compliance report on corporate governance
in the format as specified by the Board from time to time to the recognised stock
exchange(s) within [twenty one] days from [the end of each] the quarter.

[J] Regulation 29(1)(f)

Words "where such proposal is communicated to the board of directors of the listed
entity as part of the agenda papers." is omitted.
See Page no. 2.65- bullet point 5- –Module 2 of the Study material.
[k] In Schedule V,
i. In Paragraph C, clause (5), “Shareholders Grievance Committee” shall be substituted
with the following, namely, -
“(5) Stakeholders’ relationship committee
(a) name of the non-executive director heading the committee;
(b) name and designation of the compliance officer;
(c) number of shareholders’ complaints received during the financial year;
(d) number of complaints not solved to the satisfaction of shareholders;
(e) number of pending complaints.”
ii. In Paragraph C, after clause (5) a new clause shall be inserted, namely, -
“(5A) Risk management committee:
(a) brief description of terms of reference;
(b) composition, name of members and chairperson;
(c) meetings and attendance during the year;”
See Page no. 2.56 –point 5 -Module 2 of the Study material.
III. FOREIGN EXCHANGE MANAGEMENT ACT, 1999
(1) The Foreign Exchange Management (Export of Goods and Services) (Amendment)
Regulations, 2021
Reserve Bank of India, Vide Notification No. FEMA 23(R)/(5)/2021-RB, Dated September
08, 2021 through the enforcement of the Foreign Exchange Management (Export of
Goods and Services) (Amendment) Regulations, 2021 the following amendments in the
Foreign Exchange Management (Export of Goods and Services) Regulations, 2015
[Notification No. FEMA 23(R)/2015- RB dated January 12, 2016] (hereinafter referred to
as 'the Principal Regulations') has been amended:
In the Principal Regulations, in Regulation 15, in sub-regulation 1, for clause (ii), the
following shall be substituted, namely: -

(“ii) the rate of interest, if any, payable on the advance payment shall not exceed 100
basis points above the London Inter-Bank Offered Rate (LIBOR) or other applicable
benchmark as may be directed by the Reserve Bank, as the case may be; and”.
See Page no. 1.58 of the Study material.
(2) External Commercial Borrowings (ECB’s) - Changes Due To Libor Transition
Vide A.P. (Dir Series 2021-22) Circular No. 19, Dated 8-12-2021, the following changes
have been made in the Master Direction No. 5 dated March 26, 2019, on "External
Commercial Borrowings, Trade Credits and Structured Obligations", prescribing the
benchmark rates and the maximum spread over benchmark for calculating the all-in-cost
for foreign currency (FCY) ECBs and TCs.
“In view of the imminent discontinuance of LIBOR as a benchmark rate, the following
changes to the all-in-cost benchmark and ceiling for FCY ECBs:
i. Redefining Benchmark Rate for FCY ECBs: Currently, the benchmark rate is
defined in paragraph 1.5 of the master direction as "benchmark rate in case of
FCY ECB/TC refers to 6-months LIBOR rate of different currencies or any other
6-month interbank interest rate applicable to the currency of borrowing, e.g.,
EURIBOR". Henceforth, benchmark rate in case of FCY ECB/TC shall refer to
any widely accepted interbank rate or alternative reference rate (ARR) of 6-
month tenor, applicable to the currency of borrowing.
ii. Change in all-in-cost ceiling for new ECBs/TCs: To take into account
differences in credit risk and term premia between LIBOR and the ARRs, the all-
in-cost ceiling for new FCY ECBs and TCs has been increased by 50 bps to 500
bps and 300 bps, respectively, over the benchmark rates.
iii. One Time Adjustment in all-in-cost ceiling for existing ECBs/TCs: To enable
smooth transition of existing ECBs/TCs linked to LIBOR whose benchmarks are
changed to ARRs, the all-in cost ceiling for such ECBs/TCs has been revised
upwards by 100 basis points to 550 bps and 350 bps, respectively, over the
ARR. AD Category-I banks must ensure that any such revision in ceiling is only
on account of transition from LIBOR to alternative benchmarks.
See Page no. 1.34 –point vi and the footnote-Module 3 of the Study material.
IV. The Insolvency and Bankruptcy Code, 2016
Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) (Amendment) Regulations, 2022 - Substitution of Regulations 18
Vide NOTIFICATION F. NO. IBBI/2021-22/GN/REG/080, DATED 9-2-2022, the
Insolvency and Bankruptcy Board of India hereby makes the following regulations further

to amend the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process
for Corporate Persons) Regulations, 2016, by enforcement of the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)
(Amendment) Regulations, 2022 w.e.f. 9-2-2022.
Prior to its substitution Rule 18, read as under:
"18. Meetings of the committee. A resolution professional may convene a meeting of the
committee as and when he considers necessary, and shall convene a meeting if a request
to that effect is made by members of the committee representing thirty three per cent of
the voting rights."
Said regulation shall be substituted with the following:
"18. Meetings of the committee.
(1) A resolution professional may convene a meeting of the committee as and
when he considers necessary.
(2) A resolution professional may convene a meeting, if he considers it
necessary, on a request received from members of the committee and shall
convene a meeting if the same is made by members of the committee
representing at least thirty three per cent of the voting rights.
(3) A resolution professional may place a proposal received from members of
the committee in a meeting, if he considers it necessary and shall place the
proposal if the same is made by members of the committee representing at
least thirty three per cent of the voting rights."
See Page no. 6.49 -Module 3 of the Study material.
PART – II : QUESTIONS AND ANSWERS
QUESTIONS: DIVISION A: MULTIPLE CHOICE QUESTIONS

Case Scenario-1
DS Jewellers Ltd., a recent launched showroom, have taken a loan of amount 4 crore from ABC
Bank Ltd. It defaulted in repaying the dues and so, the ABC Bank initiated application for
Corporate Insolvency Resolution Process (CIRP) in NCLT. The NCLT accepted the application
for initiation of CIRP. It appointed Ms. Nimmi as Resolution Professional (RP) and the
moratorium was declared.
The RP, after collation of all claims received against DS Jewellers Ltd, (the corporate debtor)
and determination of the financial position of the corporate debtor, constituted a Committee of
Creditors (CoC). There were 6 members.

The first meeting of the CoC was held within 7 days of the constitution of the CoC. The Quorum
of the meeting was present throughout the meeting and the Chairperson presided over the
meeting.
The Chairperson of the meeting of the CoC drafted the minutes and circulated to all the
participants. The RP appointed two registered valuers to find out the fair value and liquidation
value of the company.
Based on the above scenario, answer the following questions:
1. Ms. Nimmi, a Resolution Professional (RP) wants to convene CoC Meeting. State the
requirement for valid holding of meeting of the Creditors:
(a) RP shall convene a meeting of the Creditors as and when she considers necessary
and if requested by the members of the committee representing 33% of the voting
rights
(b) RP shall convene a meeting of the Creditors if requested by the members of the
committee representing 66% of the voting rights
(c) RP shall convene a meeting of the Creditors by the members representing 75% of
the voting rights
(d) RP shall convene a meeting of the Creditors if requested by all of the members of the
committee
2. What shall be the quorum of the meeting of creditors convened by the RP in the given
scenario?
(a) At least 33% of the total number of creditors are present
(b) At least 33% of the voting right are present
(c) At least 66% of the total number of creditors are present
(d) At least 66% of the voting right are present
3. Who will act as Chairperson of the Committee of Creditors :
(a) The Managing Director of the DS Jewellers Ltd
(b) The Company Secretary of the DS Jewellers Ltd.
(c) The Financial Creditor having the highest voting rights
(d) Ms. Nimmi
4. What shall be notice period for calling of the CoC Meeting by Ms. Nimmi in the given case:
(a) three days' notice in writing.
(b) not less than five days' notice in writing.

(c) seven days' notice in writing.

(d) within 48 hours of the scheduled meeting.
5. For conduct of the CoC meeting, whom amongst the following shall be served the notice
of the CoC meeting :
(a) members of Committee of creditors, including the authorized representatives
(b) members of the Board of Directors of the corporate persons,
(c) operational creditors or their representatives if the amount of their aggregate dues is
less than ten per cent of the debt.
(d) Financial and Operational creditors both
Case Scenario 2
Toy Steel Limited (TSL), a famous steel manufacturing company sharing good ethical values
with good clienteles in the market. Following were the financial position as on March 31, 2017,
the company had a paid-up share capital of ` 20 crores with 1150 shareholders and after-tax
net profit to the tune of `10.25 crores. However, a shocking event took place in May 2017 which
led to the downfall of the company. It so happened that, Mr. Pratap, the owner of the company
was diagnosed with serious disease due to which he was unable to manage the rising business
and consequently, the reins of the business slipped into the hands of his two young but
inexperienced sons V and S.
In an attempt to raise the company to further heights, the Gen-Next management took a heavy
loan of ` 70 crores from National Bank Limited. The funds so borrowed were not properly utilised
due to the weak managerial skills of the new leadership and for want of guidance from
Mr. Pratap; and it caused the company to fall to such an extent that in just four years after
Mr. Pratap’s illness it was felt expedient to go for some kind of compromise or arrangement if
the company had to survive in the near future.
The top management of the company decided to provide for the following scheme of
arrangement:
“Sale of a part of plant and machinery and also a vacant plot for appropriating the proceeds so
received for repayment of 70% of the outstanding term loan availed from National Bank Limited.
The remaining 30% of loan shall be rescheduled for repayment in installments spread over next
five years.”
It is noteworthy that National Bank Limited had given in-principle approval to the above
repayment plan, if sanctioned.
Accordingly, TSL made an application in the specified Format along with requisite documents
to the jurisdictional National Company Law Tribunal (NCLT).
The Tribunal ordered for a meeting of the shareholders to be held on 10 th October, 2021 at
11.00 A.M. at the registered office of the company situated at Connaught Place, New Delhi and

the company was directed to issue a suitable notice for conducting the meeting of the
shareholders. Some of the shareholders raised objections against the said arrangement.
Multiple Choice Questions (MCQs)
6. The Case Scenario states that some of the shareholders raised objections against the said
arrangement. Since the compromise or arrangement is to be agreed in compliance to
majority of persons (without considering the value) as prescribed in the Companies Act,
2013, who attend and vote at the meeting through specified modes. State the Compliance
requirement of majority required for approval:
(a) Simple majority where votes cast in favour of compromise or arrangement exceed the
votes cast against it.
(b) Sixty percent or more majority where votes cast in favour of compromise or
arrangement are 60% or more.
(c) Seventy five percent or more majority where votes cast in favour of compromise or
arrangement are 75% or more.
(d) Full majority where all the votes are cast in favour of compromise or arrangement.
7. It is observed from the above Case Scenario that the Tribunal has ordered for a meeting
of the shareholders to consider the scheme of arrangement. The notice of such meeting
shall provide that the persons to whom the notice is sent may vote on the scheme of
compromise or arrangement:
(a) Only by themselves keeping in view the importance of meeting.
(b) By themselves or through proxies appointed by them.
(c) By themselves or through proxies appointed by them but any such appointed proxy
must hold minimum one share in the company.
(d) By themselves or through proxies appointed by them or by postal ballot.
8. In the said Case Scenario some of the shareholders raised objections against the said
arrangement. Since the compromise or arrangement is to be agreed by specified majority
of persons (considering the value they hold) who attend and vote at the meeting through
specified modes, then which kind of majority in value is required for approval of the
scheme:
(a) Specified majority of persons who cast votes in favour of compromise or arrangement
must hold fifty one percent or more in value.
(b) Specified majority of persons who cast votes in favour of compromise or arrangement
must hold sixty percent or more in value.
(c) Specified majority of persons who cast votes in favour of compromise or arrangement
must hold seventy five percent or more in value.

(d) Full majority where all the votes are cast in favour of compromise or arrangement
9. A reading of the above Case Scenario reveals that some of the shareholders raised
objections against the said arrangement. From the legal point of view who is eligible to
raise an objection to the scheme of compromise or arrangement if he is a shareholder of
the company:
(a) Persons holding not less than 10% of the shareholding as per the latest audited
financial statement.
(b) Persons holding not less than 5% of the shareholding as per the latest audited
(c) Persons holding not less than 7.5% of the shareholding as per the latest audited
(d) Persons holding not less than 15% of the shareholding as per the latest audited
Independent MCQs
10. A certificate of registration was granted to an NGO on the 1 st January, 2018. A request for
renewal of the certificate was received by the Central Government, by the 30th June, 2022.
But the request was not accompanied by the renewal fee. Comment on the validity of the
registration certificate issued on 1 st January 2018.
(a) A certificate of registration granted on the 1 st January, 2018 shall be valid till
30th June, 2018.
(b) A certificate of registration granted on the 1 st January, 2018 shall be valid till
30th June, 2022.
(c) A certificate of registration granted on the 1 st January, 2018 shall be valid till 30 th July,
2022.
(d) A certificate of registration granted on the 1 st January, 2018 shall be valid till the
31st December, 2022.
11. Mr. X, a person comes to India on 1 st June 2019 for visiting his parents. However, his
parents fall sick and he stays till 31 st March 2020. Thereafter he continues to stay in India.
He decided to live in India for next 6 months by the time his parents recovers. In the light
of the given case, determine the correct residential status of Mr. X from the given
statements.
(a) Mr. X is PRII as he did reside in India in the FY 2019-2020.
(b) Mr. X is PRII as he reside in India for more than 182 days in the FY 2019-20.
(c) Mr. X is PROI in the FY 2019-20, but will be treated as PRII from 1 st April, 2020, as
he resides in India for more than182 days in the previous FY.

(d) His stay in India is neither for employment, nor for business, nor for circumstances
which show that his stay in India for an uncertain period. In FY 2019-20, he is a PROI
as he did not reside in India for more than 182 in FY 2018-19.
12. Where a property is involved in money laundering and the said property is provisionally
attached by the competent officer. State the time period within which a complaint of such
attachment shall be filed before the Adjudicating Authority:
(a) thirty days from such attachment
(b) Forty five days from such attachment
(c) sixty days from the attachment
(d) One eighty days from the attachment
13. State the primary legislations amongst the following that deals with alternate methods of
dispute resolution:
(a) The Code of Civil Procedure, 1908
(b) Arbitration
(c) Lok Adalat
(d) Judicial settlement.
14. Under the garb of cement business, some of the directors of Royal Cement Limited, a
company incorporated in the year 2001 and having its factories at Rohtak and Bhiwani,
were involved in several illegal activities. In such a situation, on receipt of a report of the
Registrar of Companies or inspector under Section 208 or in the public interest or on
request from any Department of the Central Government or a State Government, the
Central Government may, by order, assign the investigation into the affairs of Royal
Cement Limited to the Serious Fraud Investigation Office (SFIO). In addition to the above
bases, there is one more basis which may prompt the Central Government to assign the
investigation to the Serious Fraud Investigation Office (SFIO). From the following four
options, choose such appropriate basis for assigning the investigation to the SFIO.
(a) On intimation through an Ordinary Resolution passed by the shareholders of Royal
Cement Limited that the affairs of the company are required to be investigated.
(b) On intimation through a Special Resolution passed by the shareholders of Royal
Cement Limited that the affairs of the company are required to be investigated.
(c) On an intimation received from certain senior employees of Royal Cement Limited
that the affairs of the company are required to be investigated.
(d) On an intimation received from certain ex-directors of Royal Cement Limited that the
affairs of the company are required to be investigated.

15. Due to non-compliance of certain requirements under the Companies Act, 2013 not
amounting to fraud, Shikha Super-Market Limited was required to re-state its financial
statements for the financial year 2017-18 during the current year. After the financial
statements were restated, it was found that Mr. Kumar, the Managing Director (MD) of that
period, who is now retired, was paid excess remuneration to the extent of ` 5,00,000. In
the given situation, choose the correct option out of those given below, which indicates
whether such excess remuneration paid to ex-MD Mr. Kumar is recoverable or not.
(a) Excess remuneration of ` 5,00,000 paid to Mr. Kumar, ex-MD of Shikha Super-Market
Limited, cannot be recovered since such recovery after retirement is invalid.
(b) Excess remuneration of ` 5,00,000 paid to Mr. Kumar, ex-MD of Shikha Super-Market
Limited, shall be recovered irrespective of his retirement from the company.
(c) Only ` 2,50,000, being 50% of excess remuneration of ` 5,00,000, paid to Mr. Kumar,
ex-MD of Shikha Super-Market Limited, is validly recoverable because no fraud
implicating him is involved.
(d) Only ` 1,25,000, being 25% of excess remuneration of ` 5,00,000, paid to Mr. Kumar,
ex-MD of Shikha Super-Market Limited, is validly recoverable because no fraud
implicating him is involved.
Descriptive Questions
16. ABC Limited (wholly owned government company), failed to file its financial statements for
the financial years 2018-2019, 2019-2020 and 2020-2021 with the ROC. However the
annual returns for the financial years 2018-2019 and 2019-2020 have been filed by the
company. The company appointed Mr. Pratham as its non-executive director with effect
from 1st May 2021. In the meantime, Mr. Pratham received an offer of directorship from
AK Ltd. in the month of September, 2021 which he is willing to accept. Referring to the
provisions of the Companies Act, 2013, examine whether Mr. Pratham is qualified to be
appointed as director in AK Ltd.
17. The Tribunal has made an order for winding-up of LTR Private Limited Consequently,
considering the report of the Liquidator stating that Mr. Tejas has committed the fraud in
formation of the company, the Tribunal directed him to present himself for examination.
However, Mr. Tejas defended the order on the ground that he was never a promoter,
director, officer or employee of the Company, Examine the tenability of the stand taken by
Mr. Tejas to defend the order of the Tribunal and enlighten him of the rights available to
the person to be examined in light of the provisions of the Companies Act, 2013.
18. Maharaja Limited proposed to appoint Mr. Mantri as its Managing Director for a period of
5 years with effect from 1st May, 2022. Mr. Mantri fulfils all the conditions as specified
under Schedule V to the Companies Act, 2013.
The terms of appointment are as under:
(i) Salary. 1 lakh per month;

(ii) Commission, as may be decided by the Board of Directors of the company;

(iii) Perquisites;
Free Housing,
Medical reimbursement upto 10,000 per month,
Leave Travel concession for the family,
Club membership fee,
Personal Accident Insurance 10 lakh,
Gratuity, and Provident Fund as per Company’s policy.
You being the Secretary of the said Company are required to draft a resolution to give
effect to the above, assuming that Mr. Mantri is already the Managing Director in a Limited
company.
19. Charming Limited, a Listed Company, has constituted Nomination and Remuneration
Committee (NRC) which was consisting of 5 members. The Chairman of the Committee is
an independent director and 3 other independent director are the members. Besides, the
Chairman of the company, who is a whole-time director, has also been adopted as a
member of the committee. Based on the given information and referring to the provisions
of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, examine
the following:
(i) Compliance requirement of the composition of NRC.
(ii) Quorum for the meeting of NRC.
20. S & M Private Limited, classified as a small enterprise (a Corporate Debtor), has made an
application to the Adjudicating Authority (the Tribunal) for initiating Pre-Packaged
Insolvency Resolution Process (PPIRP). The requirement for filing an application being
satisfied the Adjudicating Authority, by an order, has admitted an application commencing
the PPIRP. Referring to the provisions of the Insolvency and Bankruptcy Code, 2016
explain the following:
(i) An external agency of which an approval would be sought to base resolution plan
prior to making an application to the Adjudicating Authority.
(ii) Circumstances causing invitation for submission of resolution plan or plans.
(iii) Consequences of not approving the selected resolution plan by the Committee of
Creditors (CoC).
21. EDC Computer Hardware Limited received an advance payment for export of high-tech
hardware to a business concern in Abu Dhabi (UAE) by entering into an export agreement
to supply the hardware within 14 months from the date of receipt of advance payment.
Examine under the provisions of the Foreign Exchange Management Act, 1999 and decide:
(i) Whether it is permissible to receive advance payment in the above scenario?

(ii) If so, what are the conditions to be complied with in the relation to the advance
payment against export in the above scenario?
22. Health Care Foundation has submitted an application of the Central Government for
granting prior permission for receipt of foreign contribution. The value of such foreign
contribution, on the date of final disposal of the application, is ` 3.00 crores. Referring to
the provisions and relevant rules of the Foreign Contribution (Regulations) Act, 2010
advise on the following:
(i) Can permission for receiving the foreign contribution of ` 3.00 crores in instalments
be granted by the Central Government?
(ii) Compliance requirement for obtaining the next instalment, if answer of (i) is
affirmative.
23. Mr. Manoj managed to transfer the proceeds of crime to his son, abroad (a contracting
state). His son then converted the proceeds into immovable properties in his name. if that
property would have been situated in India. It would have been liable for confiscation. Will
Mr. Manoj succeed in escaping the investigation proceedings and the property situated
abroad not being subjected to confiscation? Explain, referring to the provisions of the
Prevention of Money Laundering Act, 2002.
24. Answer the following in the light of the Arbitration and Conciliation Act, 1996:
(i) How important are the ideas of independence and impartiality in arbitration in the
below given context?
(a) Is the arbitrator required to disclose anything to the parties?
(b) Is membership of the same sports club as one of the parties problematic?
(ii) Can an arbitrator resign on their own account? Do they have to give reasons for their
resignation? Could an award be challenged on the ground that the arbitrator had
resigned without giving any proper justifications?
25. B. Pharma Ltd. is a company registered in India for last 5 years. Since last 2 financial
years, it has not been carrying on any business or operations and has not filed financial
statements and annual returns saying that it has not made any significant accounting
transaction during the last two financial years.
Considering the current situation, Directors of the Company is contemplating to apply to
Registrar of Companies to obtain status of dormant or inactive company. Advise them on:
(i) Whether B. Pharma Ltd. is eligible to apply to Registrar of Companies to obtain
dormant status for the company?
(ii) What will be your answer, if B. Pharma Ltd is continuing payment of fees to Registrar
of Companies and payment of rentals for its office and accounting records for last two
financials years?

SUGGESTED ANSWERS
DIVISION A: ANSWERS TO CASE SCENARIO/ MULTIPLE CHOICE QUESTIONS

Case Scenario1
1. (a)
2. (b)
3. (d)
4. (b)
5. (a)
Case Scenario 2
6. (a)
7. (d)
8. (c)
9. (a)
Independent Mcqs
10. (d)
11. (d)
12. (a)
13. (a)
14. (b)
15 (b)
Descriptive Answers
16. Section 164(2) of the Companies Act, 2013, prescribes dis-qualifications which get
attached to a person, if he is or has been a director of a Company which has committed
default, as under.
(i) his Company has not filed financial statements or annual returns for any continuous
period of 3 financial years; or
(ii) his Company has failed to repay the deposits accepted by it or pay interest thereon
or to redeem any debentures on the due date or pay interest due thereon or pay any
dividend declared and such failure to pay or redeem any debentures on the due date
or pay interest due thereon or pay any dividend declared and such failure to pay or
redeem continues for 1 year or more.

In both the cases of default, the director concerned shall not be eligible to be re-appointed
as a director of such defaulting Company or appointed in some other Company for a period
of 5 years from the date on which the said Company has committed default.
However, in case a person is appointed as a director of a Company which has committed
default as per clause (i) or (ii) above, he shall not incur the dis-qualification for a period of
six months.
Further in the light of the Notification No. GSR 582 (E), dated 13th June, 2017, Section
164(2) of the Act is not applicable to a Government Company provided it has not committed
a default in filing its Financial Statements under Section 137 or Annual Return under
Section 92 of the Act with the Registrar.
Conclusion: In the given problem, ABC Limited, a wholly owned Government Company,
has not filed its financial statements for a continuous period of three financial years and
hence, it is not entitled for an exemption under Section 164 (2) of the Act. Mr. Pratham,
who is appointed as a Non-Executive Director in the defaulting Company shall not incur
dis-qualification for a period of six months from the date of his appointment. The six month
period will expire on 31.10.2021.
Hence, he is qualified to be appointed as a Director of AK Limited in the month of
September, 2021.
17. Power of the Tribunal to order the person to attend and be examined before the
Tribunal:
As per Section 300 of the Companies Act, 2013 (the Act) where an order has been made
for the winding up of a Company by the Tribunal, and the Company Liquidator has made
a report to the Tribunal under this Act, stating that, in his opinion, a fraud has been
committed by any person in the promotion, formation, business or conduct of affairs of the
Company since its formation, the Tribunal may, after considering the report, direct that-
(i) such person or officer shall attend before the Tribunal on a day appointed by it for
that purpose, and
(ii) be examined as to promotion or formation or the conduct of the business of the
Company or as to his conduct, and
(iii) dealings as an officer thereof.
Hence, Mr. Tejas is bound to appear before the Tribunal for examination even if he was
not a promoter, director, officer or employee of the Company as the Tribunal has powers
to direct any person to appear for examination. Hence, his stand is not tenable,
Rights available to the person to be examined:
A person ordered to be examined under this Section:
(i) shall, before his examination, be furnished at his own cost with a copy of the report
of the Company Liquidator; and

(ii) may at his own cost employ Chartered Accountants or Company Secretaries or Cost
Accountants or legal practitioners entitled to appear before the Tribunal under Section
432 of the Act, who shall be at liberty to put to him such questions as the Tribunal
may consider just for the purpose of enabling him to explain or qualify any answers
given by him. He may exercise the rights conferred on him as above.
18. Resolution passed at the meeting of board of directors of Maharaja Limited held at its
registered office situated at …………........…on …………..(day), the____________ (date)
at …………A.M.
“Resolved that consent of all the directors present at the meeting be and is hereby
accorded to the appointment of Mr. Mantri, who is already the Managing Director of another
limited company, and fulfils the conditions as specified in Schedule V of the Companies
Act, 2013, as the Managing Director of the company for a period of 5 years effective from
1st May, 2022 subject to approval by a resolution of shareholders in a general meeting and
that Mr. Mantri may be paid remuneration as follows:
(i) Salary of ` 1 Lakh per month
(ii) Commission
(iii) Perquisites: Free Housing, Medical reimbursement upto ` 10,000 per month, Leave
Travel Concession for the family, Club membership fee, Personal Accident Insurance
of `10 Lakhs, Gratuity, Provident Fund etc.
Resolved further that in the event of loss or inadequacy of profits, the salary payable to
him shall be subject to the limits specified in Schedule V.
Resolved further that the Secretary of the company be and is hereby authorize to prepare
and file with the Registrar of Companies necessary forms and returns in respect of the
above appointment.”
Sd/
Board of Directors
Maharaja Limited
19. As per Regulation 19 of the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015, the Board of Directors shall constitute the Nomination and
Remuneration Committee (NRC) as follows:
(i) Compliance requirement of the composition of NRC
(a) The Committee shall comprise of at least 3 directors
(b) All directors of the Committee shall be Non-Executive Directors; and

(c) At least 2/3rd of the directors shall be independent directors.

The Chairperson of the listed entity, whether executive or non-executive, may be
appointed as a member of the NRC and shall not chair such Committee. The NRC of
Charming Limited meets all these requirements and hence the composition
requirement of the NRC is in compliance with Regulation 19 of SEBI (LODR)
Regulations, 2015.
(ii) Quorum for the meeting of NRC
The quorum for a meeting of NRC shall be either two members or one third of the
members of the Committee, whichever is greater, including at least one independent
director in attendance.
20. (i) Approval of External Agency to base Resolution Plan
S & M Private Limited, the Corporate Debtor, shall seek the approval of the financial
creditors to base the Resolution Plan as required under Section 54A (4) of the IBC,
2016.
(ii) Circumstances causing invitation for submission of resolution plan or plans are
as below:
(a) Where the Committee of Creditors does not approve the base resolution plan or
(b) the base resolution plan impairs any claims owed by the corporate debtor to the
operational creditors.
(iii) Consequences of not approving the selected resolution plan by the Committee
of Creditors (CoC)
If selected resolution plan is not approved by the Committee of Creditors (CoC), the
resolution professional shall file an application for termination of the pre-packaged
insolvency resolution process and the Adjudicating Authority shall, within 30, days of
the date of such application, by an order, terminate pre-packaged insolvency
resolution process. (Section 54N of the Code).
21. Advance payment against exports under Regulation 15 of the FEM (Export of Goods
& Services) Regulation 2015.
(1) Where an exporter receives advance payment (with or without interest), from a buyer/
third party named in the export declaration made by the exporter, outside India, the
exporter shall be under an obligation to ensure that-
(i) the shipment of goods is made within one year from the date of receipt of
advance payment;
(ii) the rate of interest, if any, payable on the advance payment does not exceed
the rate of interest London Inter-Bank Offered Rate (LIBOR)+ 100 basis points,
and

(iii) the documents covering the shipment are routed through the authorised dealer
through whom the advance payment is received;
Provided that in the event of the exporter's inability to make the shipment, partly or
fully, within one year from the date of receipt of advance payment, no remittance
towards refund of unutilized portion of advance payment or towards payment of
interest, shall be made after the expiry of the period of one year, without the prior
approval of the Reserve Bank.
(2) Exemption: An exporter may receive advance payment where the export agreement
itself duly provides for shipment of goods extending beyond the period of one year
from the date of receipt of advance payment.
In view of the above provisions EDC Computer Hardware Limited can receive the
advance payment for export of high-tech hardware to business concern in Abu Dhabi,
complying the above conditions.
22. (i) Permission from the Central Government
As per Rule 9A of the Foreign Contribution (Regulation) Rules, 2011, if the value of
foreign contribution on the date of final disposal of an application for obtaining prior
permission is over rupees one crore, the Central Government may permit receipt of
foreign contribution in such instalments, as it may deem fit.
Hence, the Central Government may grant permission to Health Care Foundation for
receiving foreign contribution of ` 3.00 crores in instalments, as it may deem fit.
(ii) Compliance requirement for obtaining the next instalment:
It is further provided in Rule 9A that the second and subsequent instalment shall be
released after submission of proof of utilization of seventy-five per cent of the foreign
contribution received in the previous instalment and after field inquiry of the utilization
of foreign contribution. Health Care Foundation may get next instalment, if this
requirement is fulfilled.
23. According to Section 57 of the Prevention of Money Laundering Act, 2002, (the Act) a
Special Court, if satisfied, may issue a letter of request to a Court or an Authority in the
Contracting State abroad competent to deal with such request to examine facts and
circumstances of the case, take such steps as the Special Court may specify in such letter
of request, and forward all the evidence so taken or collected to the Special Court issuing
such letter of request.
According to Section 60 of the Act where a Special Court has made an order of confiscation
relating to a property found to be involved in money laundering under sub-section (5) of
Section 8, and such property is suspected to be in a contracting State, the Special Court,
on an application by the Director or the Administrator appointed under sub-section (1) of
Section 10, as the case may be, may issue a letter of request to a Court or an Authority in
the Contracting State for execution of such order.

Mr. Manoj has transferred the proceed of crime into the Contracting State, a Special Court
by order confiscate the property situated abroad and take steps to enforce his order by
following the due procedure as explained above. Thus, Mr. Manoj will not succeed in
escaping the process of investigation and property being confiscated.
24. (i) (a) The arbitrator are under a duty of disclose any relations with parties or their
lawyers that might give rise to justifiable doubts as to their independence and
impartiality.
(b) Such an association is too remote to count as a relation that might lead to doubts
of bias.
(ii) An arbitrator can resign when they want, without giving reasons for their resignation.
This action does not affect the validity either of the arbitration proceedings or the
arbitral award.
25. (i) According to section 455 of the Companies Act, 2013, an inactive company may make
an application to the Registrar in such manner as may be prescribed for obtaining the
status of a dormant company.
Here, “inactive company” means a company which has not been carrying on any
business or operation, or has not made any significant accounting transaction during
the last two financial years, or has not filed financial statements and annual returns
during the last two financial years.
B. Pharma Ltd., since from last two years is not carrying on business or operations
and has not filed financial statements and annual returns saying it has not made any
significant accounting transaction during the last two financial years. Thus, it falls
within the definition of inactive company as stated above and hence is eligible to apply
to Registrar of Companies to obtain the status of Dormant Company.
(ii) According to Explanation to section 455, “significant accounting transaction” means
any transaction other than—
(1) payment of fees by a company to the Registrar;
(2) payments made by it to fulfill the requirements of this Act or any other law;
(3) allotment of shares to fulfill the requirements of this Act; and
(4) payments for maintenance of its office and records.
Thus, B. Pharma Ltd. is still eligible to apply to the Registrar of Companies to obtain
the status of Dormant company even if it has continued ‘payment of fees to Registrar
of Companies and payment of rentals for its office and accounting records’ for last
two years, as these transactions have been kept outside the purview of significant
accounting transactions.

Applicability of Standards/Guidance Notes/Legislative Amendments etc. for
November, 2022 Examination
Study Guidelines for November, 2022 Examinations
Final Course
Paper 1: Financial Reporting

List of topic-wise exclusions from the syllabus
(1) (2) (3)
S. No. in Topics of the syllabus Exclusions
the
revised
syllabus
2. Application of Indian Indian Accounting Standard (Ind AS) 16
Accounting Standards ‘Property, Plant and Equipment’
(Ind AS) with reference • Appendix B- Stripping Costs in the Production
to General Purpose Phase of a Surface Mine
Financial Statements
Indian Accounting Standard (Ind AS) 37
(v) Ind AS on Assets ‘Provisions, Contingent Liabilities and
and Liabilities of Contingent Assets’
the Financial
• Appendix A: Rights to Interests arising from
Statements Decommissioning, Restoration and
including Industry Environmental Rehabilitation Funds
specific Ind AS
• Appendix B: Liabilities arising from Participating
in a Specific Market — Waste Electrical and
Electronic Equipment
(viii) Other Ind AS • Indian Accounting Standard (Ind AS) 29:
Financial Reporting in Hyperinflationary
Economies
• Indian Accounting Standard (Ind AS) 104:
Insurance Contracts
Exploration for and Evaluation of Mineral
Resources
Regulatory Deferral Accounts
5. Analysis of financial Analysis of financial statements based on Accounting
statements Standards

Notes:
(1) October, 2021 edition of the Study Material is relevant for November, 2022 examination.
The relevant / applicable topics or content are to be read alongwith the webhosted
‘Corrigendum to Study Material’, if any.
(2) The relevant Amendments / Notifications / Circulars / Rules issued by the Companies
Act, 2013 up to 30th April, 2022 will be applicable for November, 2022 Examination.
Accordingly, amendments issued by MCA and notified by the Central Government on 23 rd
March, 2022 wrt Amendments in the Companies Indian Accounting Standards Rules,
2015 is applicable for November, 2022 Examination.
Further, revised Conceptual Framework for Financial Reporting under Indian Accounting
Standards is applicable from May, 2022 examination.
Paper 3: Advanced Auditing and Professional Ethics

A. List of topic-wise inclusion in the syllabus
I. List of applicable Statements and Standards for November, 2022 Examination:
1. Statement on Reporting under Section 227(1A) of the Companies Act, 1956
(Section 143(1) of the Companies Act, 2013).
2. Framework for Assurance Engagements.
II. List of applicable Engagements and Quality Control Standards on Auditing for
November, 2022 Examination
S. No. SA Title of Standard on Auditing
1 SQC 1 Quality Control for Firms that Perform Audits and Reviews
of Historical Financial Information, and Other Assurance
and Related Services Engagements
2 SA 200 Overall Objectives of the Independent Auditor and the
Conduct of an Audit in Accordance with Standards on
Auditing
3 SA 210 Agreeing the Terms of Audit Engagements
4 SA 220 Quality Control for Audit of Financial Statements
5 SA 230 Audit Documentation
6 SA 240 The Auditor’s responsibilities Relating to Fraud in an Audit
of Financial Statements
7 SA 250 Consideration of Laws and Regulations in An Audit of
Financial Statements
8 SA 260 Communication with Those Charged with Governance
(Revised)

REVISION TEST PAPER 113
9 SA 265 Communicating Deficiencies in Internal Control to Those

Charged with Governance and Management
10 SA 299 Joint Audit of Financial Statements (Revised)
11 SA 300 Planning an Audit of Financial Statements
12 SA 315 Identifying and Assessing the Risks of Material
Misstatement through Understanding the Entity and its
Environment
13 SA 320 Materiality in Planning and Performing an Audit
14 SA 330 The Auditor’s Responses to Assessed Risks
15 SA 402 Audit Considerations Relating to an Entity Using a Service
Organization
16 SA 450 Evaluation of Misstatements Identified during the Audits
17 SA 500 Audit Evidence
18 SA 501 Audit Evidence - Specific Considerations for Selected Items
19 SA 505 External Confirmations
20 SA 510 Initial Audit Engagements-Opening Balances
21 SA 520 Analytical Procedures
22 SA 530 Audit Sampling
23 SA 540 Auditing Accounting Estimates, Including Fair Value
Accounting Estimates, and Related Disclosures
24 SA 550 Related Parties
25 SA 560 Subsequent Events
26 SA 570 Going Concern (Revised)
27 SA 580 Written Representations
28 SA 600 Using the Work of Another Auditor
29 SA 610 Using the Work of Internal Auditors (Revised)
30 SA 620 Using the Work of an Auditor’s Expert
31 SA 700 Forming an Opinion and Reporting on Financial Statements
(Revised)
32 SA 701 Communicating Key Audit Matters in the Independent
Auditor’s Report (New)
33 SA 705 Modifications to the Opinion in the Independent Auditor’s
Report (Revised)
34 SA 706 Emphasis of Matter Paragraphs and Other Matter
Paragraphs in the Independent Auditor’s Report (Revised)

35 SA 710 Comparative Information – Corresponding Figures and

Comparative Financial Statements
36 SA 720 The Auditor’s Responsibility in Relation to Other
Information (Revised)
III. List of applicable Guidance Notes and other publications for November, 2022
Examination:
1. Guidance Note on Audit under Section 44AB of the Income-tax Act.
2. Guidance Note on Audit of Banks.
3. Guidance Note on Audit of Internal Financial Controls over Financial
Reporting.
IV Applicability of the Companies Act, 2013 and other Legislative Amendments
for November, 2022 Examination
(i) Students are expected to be updated with the notifications, circulars and other
legislative amendments made up to 6 months prior to the examination.
Accordingly, the relevant notified Sections of the Companies Act, 2013 and
legislative amendments including relevant Notifications / Circulars / Rules /
Guidelines issued by Regulating Authority up to 30th April, 2022 will be
applicable for November, 2022 Examination. It may be noted that the
significant notifications and circulars issued which are not covered in the
October 2021 edition of Study Material, would be given as Academic Update in
the Revision Test Paper for November, 2022 Examination.
(ii) Companies (Auditor’s Report) Order, 2020 issued by Ministry of Corporate
Affairs is applicable for November, 2022 Examination.
(iii) Revised Statement on Peer Review is applicable for November, 2022
Examination.
(iv) Revised Chapter on Professional Ethics based on Code of Ethics 2020 is
applicable for November, 2022 Examination.
(v) Applicability of the Amendments to Schedule III to the Companies Act, 2013:
The Central Government made certain amendments in Schedule III to the
Companies Act, 2013 (vide Notification dated 24th March, 2021), with effect
from 1st day of April, 2021.These amendments to Schedule III are applicable
for November, 2022 Examination.
B. List of topic-wise exclusions from the syllabus
I. Non-Applicability of GST Audit topic: GST Audit Topic is not applicable for
November, 2022 Examination.

II. Topic on NOCLAR in Chapter on Professional Ethics is not applicable for November
2022 Examination.
III. Following Engagement and Quality Control Standards excluded:
(1) (2) (3)
S. Topics of the Exclusions
No syllabus
1 SA 800 Special Considerations-Audits of Financial Statements
Prepared in Accordance with Special Purpose
Framework
2 SA 805 Special Considerations-Audits of Single Purpose
Financial Statements and Specific Elements, Accounts
or Items of a Financial Statement
3 SA 810 Engagements to Report on Summary Financial
Statements
4 SRE 2400 Engagements to Review Historical Financial
Statements (Revised)
5 SRE 2410 Review of Interim Financial Information Performed by
the Independent Auditor of the Entity
6 SAE 3400 The Examination of Prospective Financial Information
7 SAE 3402 Assurance Reports on Controls At a Service
Organisation
8 SAE 3420 Assurance Engagements to Report on the Compilation
of Pro Forma Financial Information Included in a
Prospectus (New)
9 SRS 4400 Engagements to Perform Agreed Upon Procedures
Regarding Financial Information
10 SRS 4410 Compilations Engagements (Revised)
IV. Following Guidance Notes and other publications are excluded:
1. Code of Ethics publication is excluded whereas Chapter 18 on Professional
Ethics is in syllabus
2. Guidance Note on Independence of Auditors.
3. Guidance Note on Audit of Inventories.
4. Guidance Note on Audit of Debtors, Loans and Advances.
5. Guidance Note on Audit of Investments.
6. Guidance Note on Audit of Cash and Bank Balances.

7. Guidance Note on Audit of Liabilities.

8. Guidance Note on Audit of Revenue.
9. Guidance Note on Audit of Expenses.
10. Guidance Note on Computer Assisted Audit Techniques (CAATs).
11. Guidance Note on Audit of Payment of Dividend.
12. Guidance Note on Audit of Capital and Reserves.
13. Guidance Note on Reporting under section 143(3)(f) and (h) of the Companies
Act, 2013
14. Guidance Note on Reporting on Fraud under section 143(12) of the
Companies Act, 2013.
Paper 4: Corporate and Economic Laws

The provisions of the Companies Act, 2013 along with significant Rules/ Notifications/
Circulars/ Clarification/ Orders issued by the Ministry of Corporate Affairs and the laws
covered under the Economic Laws, as amended by concerned authority, including significant
notifications and circulars issued up to 30 th April, 2022 are applicable for November 2022
examination.
Inclusions / Exclusions from the syllabus
Chapters/ Topics of the Inclusions Exclusions
syllabus (Provisions which are (Provisions which are
included from the excluded from the
corresponding chapter of corresponding chapter
the syllabus) of the syllabus)
(1) (2) (3)
Part I: Section A- The entire content included in Following sections of the
Company Law the October 2021 edition of Companies Act are
the Study Material and the excluded-
Legislative amendments 337-351, 359-378, 396-
hosted on the website for 405, 408-419, 441, 448-
November 2022 examinations, 449, 451-453, 456-470
shall only be relevant for the and provisions related to
said examinations. Producer Companies.
Whereas, the Relevant rules
of the Companies Act to the
extent covered in the October
2021 edition of the Study
Material, shall only be relevant
for the said examinations.

Part I: Section B- - The entire chapter is

Securities Laws- Chapter excluded.
1: The Securities Contract
(Regulation) Act, 1956 and
Securities Contract
(Regulation) Rules, 1957
Part I: Section B-
The entire content included in Following provisions of
Securities Laws- Chapter the October 2021 edition of the SEBI Act, are
2: The Securities Exchange
the Study Material and the excluded – Sections
Board of India Act, 1992 and
Legislative amendments 2(1)(b), 2(1)(c), 2(1)(d),
SEBI (LODR) Regulations, hosted on the website for 2(1)(da), 2(1)(f), 2(1)(fa),
2015 November 2022 examinations, 2(1)(g), 21, 25, 28,33 &
shall only be relevant for the 35.
said examinations.
In particular, SEBI (LODR)
Regulations, 2015 to the
extent covered in the study
material, shall only be
applicable for the examination.
Part II: Economic Laws The FEMA, 1999 along with Following provisions of
Chapter 1: The Foreign the following Rules/ the FEMA, 1999 is
Exchange Management Act, Regulations to the extent excluded for the
1999 covered in the October 2021 examination-Sections
edition of the study material 2(cc) & Section 2(gg),
and the Legislative 16(2)- 16(6) ,17(4) 17(6),
amendments hosted on the 19 to 34, 37(2) – 37(3),
website for November 2022 37A, 45, 46, 47 & 48.
examinations, shall only be
relevant for the said All other FEM
examinations- (Regulations)/ Rules
• Fem (Permissible Capital except given in column
Account Transactions) (3), are excluded.
Regulations, 2000
• Fem (Current Account
Transactions) Rules,
2000
• FEM (Export of Goods &
Services) Regulations,
2015
• Overseas Direct
Investment

• Import of Goods and

Services
• External Commercial
Borrowing Policy
Chapter 2: SARFAESI Act, - The entire chapter is
2002 excluded.
Chapter 3: Prevention of The entire content included in Following Sections are
Money Laundering Act, 2002 the October 2021 edition of excluded for examination:
the Study Material and the 2(1)(a), (b)(c), (d), (da),
Legislative amendments (f), (g), (h), (i), (ia), (ib),
hosted on the website for (j), (ja), (k), (m), (na), (o),
November 2022 examinations, (q), (r), (rc), (s), (sb), (sc),
shall only be relevant for the (t), (va), (z) , (zb) & (2)-
said examinations. Definitions, 6(3)-6(15), 7,
16 to 24, 27-34, 35(1),
Rules to the extent covered in 35(3)- 35(5), 36- 37, 39-
the Study material are only 40, 49 to 54, 73, 74 & 75.
relevant.
Chapter 4: Foreign The entire content included in Following Sections are
Contribution Regulation Act, the October 2021 edition of excluded for examination:
2010 the Study Material and the Section 2(1)(a), (b), (c),
Legislative amendments to be (d), (e), (f), (k), (l), (o),
hosted on the website for (p), (q), (s), (t), & (u)-
November 2022 examinations, Definitions, 21, 23–27,
shall only be relevant for the 44, 45, 49, 53 & 54.
said examinations.
Rules related to FCRR, 2011
is relevant to the extent
covered in the Study Material.
Chapter 5: The Arbitration The entire content included in -
and Conciliation Act, 1996 the October 2021 edition of
the Study Material and the
Legislative amendments
hosted on the website for
November 2022 examinations,
shall only be relevant for the
said examinations.
Chapter 6: The Insolvency The entire content included in Provisions from section
and Bankruptcy Code, 2016 the October 2021 edition of 60 onwards are excluded.
the Study Material and the
Legislative amendments

hosted on the website for

November 2022 examinations,
shall only be relevant for the
said examinations covering-
• Relevant definitions in
the Study Material
• Provisions uptill section
59
Rules related to Insolvency
and Bankruptcy Code, is
relevant to the extent covered
in the Study Material.
Notes:
(1) In the above table of exclusion, in respect of the Chapters of the syllabus specified in
column (1) the related exclusion is given in column (3). Where an exclusion has been so
specified in any topic of the syllabus, the provisions corresponding to such exclusions,
covered in other topic(s) forming part of the syllabus, shall also be excluded.
(2) October 2021 edition of the Study Material is relevant for November 2022
examinations.
(3) Except the exclusions mentioned in the column (3) of the table, the entire content of the
syllabus included in the October 2021 edition of the Study Material shall only be relevant
for the said examinations.
(4) The amendments - made after the issuance of this Study Material for the period 1 st of
May 2021 to 30th April, 2022 shall also be relevant for November 2022 examination. The
Relevant Legislative amendments hosted on the BoS Knowledge Portal.

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FINAL COURSE

REVISION TEST PAPERS

© The Institute of Chartered Accountants of India

Edition : August, 2022

Department/Committee : Board of Studies

Published by : The Publication Department on behalf of The Institute of Chartered

Typeset and designed at Board of Studies.

© The Institute of Chartered Accountants of India

Objective of RTP .......................................................................................................... i

Planning & Preparing for Examination ........................................................................... ii

Paper 1: Financial Reporting ............................................................................1 – 35

Part – II : Questions and Answers........................................................5 – 35

Paper 2: Strategic Financial Management........................................................ 36 – 51

Paper 3: Advanced Auditing and Professional Ethics ........................................ 52 – 84

Part – II : Questions and Answers...................................................... 58 – 84

Paper 4: Corporate and Economic Laws ....................................................... 85 – 110

Part – I : Relevant Amendments ....................................................... 85 – 96

© The Institute of Chartered Accountants of India

I. Objective of Revision Test Paper

© The Institute of Chartered Accountants of India

II. Planning and preparing for examination

© The Institute of Chartered Accountants of India

III. Subject-wise Guidance – An Overview

PAPER 1: FINANCIAL REPORTING

© The Institute of Chartered Accountants of India

PAPER 2: STRATEGIC FINANCIAL MANAGEMENT

© The Institute of Chartered Accountants of India

10 International Financial Management

PAPER 3: ADVANCED AUDITING AND PROFESSIONAL ETHICS

PAPER 4: CORPORATE AND ECONOMIC LAWS

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

14 The Companies Act, 2013

© The Institute of Chartered Accountants of India

Ind AS Significant amendment made in 2022

© The Institute of Chartered Accountants of India

Ind AS Significant amendment made in 2022

© The Institute of Chartered Accountants of India

Ind AS Significant amendment made in 2022

© The Institute of Chartered Accountants of India

Ind AS Significant amendment made in 2022

© The Institute of Chartered Accountants of India

Ind AS 101, Ind AS 102 and Ind AS 8

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Other expenses 300.00

• Other expenses include research and development (R & D) expenditure of

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

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Ind AS 2 and Ind AS 16

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1. For 80,000 share-based options vested before transition date:

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20X3-20X4 2 (4-year 3/4 8,00,000 6,00,000 2,00,000

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Year 2 Cash/Bank Dr. 57,500

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