PRIME ACADEMY FINAL - 42nd SESSION … - 42nd SESSION PROGRESS TEST. ADVANCED MANAGEMENT ACCOUNTING; PART A. PRIME ACADEMY. ... / Contribution per unit 9) Differential cost is the

No.of. Pages: 4 Total Marks: 75

Time Allowed : 2 Hrs

I. Write short notes on the following

1) Explain briefly the concept of Relevant Costs

2) Explain briefly the concept of Opportunity Costs

3) Explain the difference between Marginal cost and differential costs

4) What are the important factors considered in marginal costing decisions

5) "Sunk costs are irrelevant in decision making; but all irrelevant costs are not sunk costs" - Explain

(5 X 3 = 15 Marks)

II. Choose the correct answer

1) Assignment is another special case of

(a) LPP

(b) Transportation

(c ) PERT

(d) Critical Path Analysis

2) All variable costs are relevant costs

(a) True

(b) False

3) Cost which do not change under given circumstances and do not play any role in decision making

(a) Out of pocket cost

(b) Differential cost

(c ) Opportunity cost

(d) Sunk cost

4) Calculate shut down point. Total fixed cost `200,000. Shut down costs `88,000. Contribution / unit `8.

(a) 10,000 tins

(b) 14,000 tins

(c ) 15,000 tins

(d) 20,000 tins

5) Fixed expenses at 50% activity is `15,000. Fixed expenses when factory is shut down `10,000. Additional

expenses `1,000. What is the additional fixed expense?

(a) `1,000

(b) `4,000

(c ) `5,000

(d) `10,000

6) In order to make decisions for continuing or shutting down a plant, cost analysis to be used is

(a) Marginal cost analysis

(b) Differential cost analysis

(c ) Consider additional fixed expenses incurred in shut down

(d) Utilisation of surplus capacity is the main consideration

PRIME ACADEMY

FINAL - 42nd SESSION PROGRESS TEST

ADVANCED MANAGEMENT ACCOUNTING

PART A

PRIME A

CADEMY

7) Pricing decision during recession would be to sell the articles at a price

(a) less than total cost but above marginal cost for a limited period

(b) more than total cost but less than marginal cost for a limited period

(c ) less than total cost and marginal cost for a limited period

(d) more than total cost and marginal cost for a limited perod

8) Shut down point would be

(a) (Total fixed cost + Shut down costs) / Contribution per unit

(b) (Total cost - shut down costs) / contribution per unit

(c ) (Total variable costs - Shut down costs) / contribution per unit

(d) (Total fixed cost - shut down costs) / Contribution per unit

9) Differential cost is the difference in _____________cost that will arise from the selection of one

alternative instead of another

(a) Fixed costs

(b) Variable costs

(c ) Total costs

(d) shut down costs

10) An optimal assignment exist if the total reduced cost of the assignment reduce to zero

(a) True

(b) False

(10 X 1 = 10 Marks)

III. Solve PART - B

1) 5 salesmen are to be assigned to 5 districts. Estimates of sales revenue in thousands of rupees for each

salesman are given below

A B C D E

1 32 38 40 28 40

2 40 24 28 21 36

3 41 27 33 30 37

4 22 38 41 36 36

5 29 33 40 35 39

Find the assignment pattern that maximises the sales revenue (10 Marks)

2) You have been approached by a friend who is seeking your advice as to whether he should give up his

job as an engineer, with a current salary of `14,800 per month and go into business on his own assembling

and selling a component which he has invented. He can procure the parts required to manufacture the

component from a supplier.

It is very difficult to forecast the sales potential of the component, but after some research, your friend

has estimated the sales as follows:

(i) Between 600 to 900 components per month at a selling price of `250 per component

(ii) Between 901 to 1,250 components per month at a selling price of `220 per component for the entire lot

The costs of the parts required would be `140 for each completed component. However, if more than

1,000 components are produced in each month, a discount of 5% would be received from the supplier

of parts on all purchases.

Assembly costs would be `60,000 per month up to 750 components. Beyond this level of activity

assembly costs would increase to `70,000 per month

Your friend has already spent `30,000 on development , which he would write - off over the first 5 years

of the venture.

PRIME A

CADEMY

Required:

(i) Calculate for each of the possible sales levels at which your friend could expect to benefit by going

into the venture on his own

(ii) Calculate 'Break-even point' of the venture for each of the selling price

(iii) Advice your friend as to the viability of the venture (10 Marks)

3) A company has 4 zones and 4 marketing managers available for assignment. The ones are not equal in

sales potentials. It is estimated that a typical marketing manager operating in each zone would bring

in the following annual sales:

Zones `

East 240,000

West 192,000

North 144,000

South 120,000

The four marketing managers are also different in ability. It is estimated that working under the same

conditions, their yearly sales would be proportionately as under:

Manager M 8

Manager N 7

Manager O 5

Manager P 4

Required:

If the criterion is maximum expected total sales, find the optimum assignment and the maximum sales

(10 Marks)

4) Capacity Unit Cost ` Unit selling price `

6,000 80 100

7,000 75 97

8,000 74 95

9,000 72

10,000 71

The firm is operating at 8,000 units capacity and has received an order for 2,000 units from an export

market at a price of `70 per unit. Advise the firm as to whether the export order should be accepted or

not

(5 Marks)

5) A Company can produce and sell at its maximum capacity of 20,000 units of a product. The sales price

per unit is `100. the present sale is 15,000 units. To produce over 20,000 units and up to another 10,000

units some balancing equipments are to be installed at a cost of `10 lakhs and the same will have a life span

of 10 years.

The current cost structure is as under

Direct material 30% of sales value

Direct labour 20% of sales value

Variable overheads `20 per unit

Profit `15 per unit

PRIME A

CADEMY

The present cost is estimated to go up due to price escalation as under:

10% in direct material from present level of 30%

25% in direct labour from present level of 20%

`50,000 in fixed overheads per year.

There is a concrete proposal from a party to take 10,000 units additionally over the present levels of output

on a long-term basis at a unit price of `90. Apart from the investment of `10 lakhs, as shown above, the

fixed overheads will increase by ` 50,000 due to additional administrative expenses.

The Company is in a dilemma as to whether to accept the order for 10,000 units or to use the present

unused capacity of 5,000 units for which there will be additional selling expenditure of ` 50,000.

Ignore financing charges and give your recommendation

(15 Marks)

PRIME A

CADEMY

PRIME/42nd PT/FINAL 1

PRIME ACADEMY

42nd

SESSION – FINAL - PROGRESS TEST

ADVANCED MANAGEMENT ACCOUNTING

SUGGESTED ANSWERS

PART - A

I.

1) Expected future costs which differ for alternative course. It is not essential that all variable

costs are relevant and all the fixed costs are irrelevant. Fixed, or variable costs that differ for

various alternatives are relevant costs. Relevant costs draw our attention to those elements of

costs which are relevant for the decision.

2) Eg. Direct labour under alternative I - `10/ hour; Direct labour under alternative II - `20/ hour;

Then, directlabour is relevant cost

3) Opportunity costs is a measure of benefit of opportunity foregone when various alternatives

are considered. In other words, it is the cost of sacrifice made by alternative action chosen.

For example, opportunity cost of funds invested in business is the interest that could have been

earned by investing the funds in bank deposits.

4) Marginal Cost represents the increase or decrease in total cost which occurs with a small

change in output say, a unit of output. In cost accounting variable costs represent marginal cost.

Differential cost is the change (increase or decrease) in the total cost (variable as well as fixed)

due to change in the level of activity, technology or production process or method of

production. In other words, it can be defined as the cost of one unit of product or service

which would be avoided if that unit was not produced or provided. The main point which

distinguishes marginal cost and differential costs is that change in fixed cost when volume of

production increases or decreases by a unit of production. In the case of differential cost

variable as well as fixed costs i.e. both costs change due to change in the level of activity,

whereas under marginal costing only variable cost changes due to change in the level of activity.

5)

(i) Whether the product or production line in question makes a contribution

(ii) Where a choice is to be made between two courses of action, the additional fixed

overhead, if any, should be taken into consideration

(iii) The continuity of demand after expansion or renovation or installation of the sophisticated

machine and its impact on the selling price should also be considered. For example, if the

selling price goes down when the supply increases the possible drop in profit should be

taken into account.

(iv) Cost is not the only criterion for decision making. Non-cost factors like the necessity to

retain the experienced employees etc. should also be considered.

6) Sunk costs are the costs that have been created by a decision made in the past and that cannot

be changed by any decision that will be made in future. For example, the written down value of

an asset previously purchased are sunk costs. Sunk costs are not relevant for decision making

because they are past costs. But not all irrelevant costs are sunk costs. For example, a

comparison of two alternative production methods may result in identical material costs for

both the alternatives. In this case, the direct material cost will remain the same whichever

alternative is chosen. In this situation, though direct material cost is the future cost to be

incurred in accordance with the production, it is irrelevant, but, it is not a sunk cost.

II.

PRIME A

CADEMY


1) (a) LPP

2) (b) False

3) (d) Sunk Cost

4) (a) 10,000 tins

5) (b) `4,000

6) (c ) Consider additional fixed expenses incurred in shut down

7) (a) less than total cost but above marginal cost for a limited period

8) (d) (Total fixed cost - shut down costs) / Contribution per unit

9) (c ) Total costs

10) (a) True

III.

1) In order to convert this maximization problem into a minimization problem to be able to

apply the assignment algorithm we subtract each element from the highest, 41 and obtain

the following loss matrix

9 3 1 13 1

1 17 13 20 5

0 14 8 11 4

19 3 0 5 5

12 8 1 6 2

Applying step 1 to the loss matrix we derive the following matrix, in which 4 lines are drawn

to cover all zeroes

8 0 0 7 0

0 14 12 14 4

0 12 8 6 4

19 1 0 0 5

11 5 0 0 1

The minimum uncovered element is 4 and that is subtracted from all elements and added to

all elements at intersections. This yields the following matrix in which 5 lines are needed to

cover all zeros

12 0 0 7 0

0 10 8 10 0

0 8 4 2 0

23 1 0 0 5

15 5 0 0 1

Step 5(A) and (B) is applied below to obtain the optimal assignment

12 0 0 7 0

0 10 8 10 0

0 8 4 2 0

23 1 0 0 5

15 5 0 0 1

Condition (ii) of Step B arises above; therefore cell (2,1) is arbitrarily chosen and put around

it and a line is also drawn in the second row

12 0 0 7 0

0 10 8 10 0

0 8 4 2 0

23 1 0 0 5

15 5 0 0 1

PRIME A

CADEMY


This process is repeated by putting around cell (3,4) arbritrarily chosen. Therefore 2 lines

are drawn to cover 4th row and 3rd column

12 0 0 7 0

0 10 8 10 0

0 8 4 2 0

23 1 0 0 5

15 5 0 0 1

The same process is continued to yield the optimal pattern as shown below

12 0 0 7 0

0 10 8 10 0

0 8 4 2 0

23 1 0 0 5

15 5 0 0 1

Optimal assignment then is

1 ----->B, 2------->A, 3------->E, 4-------->C, and 5-------->D

The maximum assignment profit is given by Z = 38+40+37+41+35=191 thousand rupees

2) The salary of `14,800 per month is a benefit foregone by going into the business. It should

therefore be considered as a minimum profit which must be earned p.m. from the new

venture in order to be not-worse off than before. Sum of `30,000 spent on the development

work of the new venture cannot be recovered irrespective of the decision and thus it should be

ignored.

At a selling price of `250

Contribution per unit (`250 - `140) `110

Minimum sales (units) to recover assembly costs of `60,000 per month and earn a profit of

`14,800 p.m. (BE sales level)

(`60,000+`14,800) = 680 units

`110

Note that 600 units and up to 679 units i.e. units below the break even level the loss would be

`110 per unit. From 680 units up to 750 units i.e. on additional 70 units the total profit would be

`7,700 (70 units X `110)

Minimum sales (units) to recover assembly costs of `70,000 per month and earn a profit of

`14,800 p.m. (BE sales level)

(`70,000+`14,800) = 770.909 units

`110

If the sales units are more than 770.909 units and up to 900 units, profit would be made. The

total amount of profit comes to `14,200 [(900 units - 770.909 units) X `110]

It is not worthwhile to proceed if the demand of components is less than 680 units or between

750 to 770.909 units. At a selling price of 220

Minimum sales (units) to recover assembly cost of `70,000 p.m. and earn a profit of `14,800 p.m.

(BE sales level)

(` 70,000+`14,800) = 1,060 units

PRIME A

CADEMY


`220 - `140

Minimum sales (units) to recover assembly cost of `70,000 p.m. and earn a profit of `14,800 p.m;

after availing a discount of 5% on the purchase of all parts.

(`70,000+`14,800) = 974.712 units

`220 - [`140-(5/100) X`140]

Or 975 units

Conclusion:

It is not worthwhile to sell between 900 to 1,000 units when no discount is available. Also, it is

worthwhile selling at `220 if sales units are in excess of 1,000 units and a discount of 5% is

available on the purchase of all components-parts

Profit on the sale (1,250 units) `23,950 (1,250 units X `87 - `84,800)

Advice on the viability of the venture

At a selling price of `250 he will not be at a loss if the demand of the component exceeds 680

units to 750 units and

770.909 units to 900 units

At a selling price of `220, it is not worthwhile to sell if the demand is less than 1,000 components

without availing a discount of 5%

3) Sum of proportion = 8+7+5+4 = 24

Assuming `1,000 as one unit, the effective matrix is as follows

Effective matrix

Managers EAST WEST NORTH SOUTH

M (8/24)X240 = 80 (8/24)X192 = 64 (8/24)X144 = 48 (8/24)X120 = 40

N (7/24)X240 = 70 (7/24)X192 = 56 (7/24)X144 = 42 (7/24)X120 = 35

O (5/24)X240 =50 (5/24)X192 = 40 (5/24)X144 = 30 (5/24)X120 = 25

P ( 4/24)X240 = 40 (4/24)X192 = 32 (4/24)X144 = 24 (4/24)X120 = 20

Conversion to minimization

The resultant loss matrix is as follows:


M 0 16 32 40

N 10 24 38 45

O 30 40 50 55

P 40 48 56 60

Row operation


M 0 16 32 40

N 0 14 28 35

O 0 10 20 25

P 0 8 16 20

Column operation


M 0 8 16 20

N 0 6 12 15

PRIME A

CADEMY


O 0 2 4 5

P 0 0 0 0


M 0 6 14 18

N 0 4 10 13

O 0 0 2 3

P 2 0 0 0


M 0 2 10 14

N 0 0 6 9

O 4 0 2 3

P 6 0 0 0


M 0 2 8 12

N 0 0 4 7

O 4 0 0 1

P 8 2 0 0

Assignment `

East 80,000

West 56,000

North 30,000

South 20,000

186,000

4) Capacity Unit cost total cost Incremental Unit price Total Incremental

` cost ` sales revenue `

Value `

6,000 80 480,000 - 100 6,00,000 -

7,000 75 525,000 45,000 97 6,79,000 79,000

8,000 74 5,92,000 67,000 95 7,60,000 81,000

9,000 72 6,48,000 56,000

10,000 71 7,10,000 62,000

At 8,000 level of output the total sales revenue is `760,000 and the total cost is `592,000 leaving

a profit of `168,000. The fact that this level of output leaves a profit means that the fixed

expenses have been recovered already. Hence we have to take only the incremental cost for

further levels of output. For an additional sales of 2,000 units the incremental cost is

` 710,000 - `592,000 = `1,180,000. The cost per unit, therefore, is `118,000/ 2,000 units =

`59 for which the price quoted is `70 per unit. The offer is therefore, acceptable.

5) Working note

Fixed overheads `

PRIME A

CADEMY


Present sales value (A) 1,500,000

(15,000 units X `100)

Direct materials 450,000

(30% of sales value)

Direct labour 300,000


Variable overheads 300,000

(`20 per unit)

Total variable costs (B) 1,050,000

Contribution (C ) = (A) - (B) 450,000

Profit (D) 225,000

(15,000 units X `15)

Fixed overheads (C ) - (D) 225,000

(current level)

Add: Additional fixed overheads due to

price escalation

50,000

Total fixed overheads 275,000

PRIME A

CADEMY


Statement of profitability for

various alternatives

Alternatives I II III IV

Rejecting the

proposal for the

purchase of

10,000 units

and

continuing

with present

level of

sales only

Rejecting the

proposal for the

purchase of

10,000 units

from a party

and attaining the

maximum

capacity by

incurring

additional

selling

expenditure

Accepting the

proposal

of the party to

take

10,000 units

@ `90 per

unit by

installing a

balancing

equipment

and

continuing

with the

present

sales level

Accepting the

proposal of the

party to

take 10,000

units @ `90

per unit by

installing a

balancing

equipment

and

maximum

availability

capacity by

incurring

additional

selling

expenditure

Sales (units) 15,000 20,000 25,000 30,000

` ` ` `

Sales Value (A) 1,500,000 2,000,000 2,400,000 2,900,000

(15,000 X `100) (20,000 X `100) (15000*100)

+(10000*90)

(20,000*100)

+(10000*90)

Variable costs:

Direct materials


495,000 660,000 825,000* 990,000*

Direct labour


375,000 500,000 625,000* 750,000*

Variable overheads

(@ 20 per unit)

300,000 400,000 500,000 600,000

Total variable costs (B) 1,170,000 1,560,000 1,950,000 2,340,000

Fixed costs:

Fixed overheads (Refer to

working note)

275,000 275,000 275,000 275,000

Additional selling expenditure - 50,000 - 50,000

Depreciation for balancing

equipment

- - 100,000 100,000

Additional administrative

expenses

- - 50,000 50,000

Total fixed costs (C ) 275,000 325,000 425,000 475,000

Total costs (D) = (B+C) 1,445,000 1,885,000 2,375,000 2,815,000

Profit (A) - (D) 55,000 115,000 25,000 85,000

* Note :For computing the material and labour cost under alternatives III & IV the notional sales price

of `100 is taken for additional 10,000 units

Recommendation : Alternative II gives maximum profit

PRIME A

CADEMY


PRIME ACADEMY

FINAL – 42nd SESSION - PROGRESS TEST DIRECT TAX LAWS

No. of Pages: 2 Total Marks: 75 Time Allowed: 2 ½ Hrs

CLASS TEST –DIRECT TAX 1. Uppili Limited is mainly engaged in the business of buying and selling of shares. The company incurred

a loss of 50 Lacs in the buying and selling of shares and wants to set off the same against STCG on sale of land . AO refuses to allow the set off the losses on the ground that the loss is a speculation loss. Your view are sought on the same

2. The net profits of P Ltd a subsidiary of foreign company ( transactions between the Holding company and subsidiary company took place during the year at the arms length) for the year ended March 31,2016, after debiting/crediting the following items, were ` 500 lakh:

a) The company incurred `100 Lacs on purchase of plant and machinery on in house Research and development approved by the prescribed authority. Depreciation of ` 15 Lacs has been debited in the profit and loss account in respect of the same.

b) The company collected ` 13 lakh from its customers by way of sales tax in the year 1989-90 and had remitted it to the State Government in due time. On the levy being challenged in the High Court, the Court held the collection as illegal and the State Government in February, 2015 refunded the amount to the company.

c) Contribution to approved agricultural extension project of ` 30 lakhs. d) The company has incurred `30 Lacs towards VRS payments and the entire amount has been

debited to the P & L account e) The company has incurred `50 Lacs towards family planning expenditure on the employees. 40

Lacs of this are capital in nature. The entire amount has been debited to the P & L account f) The company has also incurred ` 5 Lacs on demerger expense. The same has been debited to the

P & L account. g) The company issued in the year bonus shares to its shareholders. Bonus issue expenses

amounted to `2,00,000. These have been written off in the accounts as revenue expenses. h) The company has been incurring losses year after . It received grant of 200 Lacs from its holding

company to meet its liabilities. i) The company obtained a loan of ` 30 Lacs for relocation of office premises in order to reduce the

rent. The company repaid 20 lacs as full and final settlement. The unpaid amount was written back to capital reserve.

j) Salary paid to Director 10,00,000 and Director’s sitting fee of `10,000 Both the above Expenditures were paid without deducting TDS

k) Interest paid outside India. TDS deducted in Mar 15 but remitted on 1st September 2015 l) The company had the following claims brought forward from the prior years:

Business losses relating to: Assessment year 1998-99 ` 8 Lacs Assessment year 2008-09 ` 4 Lacs Losses as under the head capital gains: Long-term Loss for Assessment year 2007-08 ` 3 Lacs Unabsorbed depreciation (as per IT records as well as the books of the company) `12.5 Lacs Required to: Compute the total income FOR the assessment year 16 17 {your answer should clearly indicate the reasons for the treatment of the individual items given above} IGONRE 115 JB

3. Krishna Ltd, a manufacturing company, was incorporated on 1st June 2014. It set up a new industrial unit in the backward district of Bihar. It acquires and installs new plant and machinery of `100 crores during financial year 2014-15 and the same was put to use on 1st November 2015. It acquired and put to use Machinery costing ` 200 crores during financial year 2015-16. (Assume put to use for more than 180 days.. Discuss the tax implications of the above transactions on the assumption that the company no other asset in the relevant block.

PRIME A

CADEMY


4. Muruga Ltd a manufacturing company, commenced a new unit in notified backward area of Andhra

Pradesh on 1st April 2015. acquires and installs new plant and machinery of `120 crores during financial year 2015-16 (Put to use on 4th October 2015) It sold the above machinery on 1st December 2016 for 80 crores .Compute the depreciation and investment allowance and any other tax implications for the AY 16 17 to AY 18 19.

5. Shiva Limited seeks your advice on the following issues : • Expenditure incurred CSR activities in accordance with Sec 135 of CA 2013 as a deduction u/s 37 • Depreciation at the rate of 60 % on printer and scanner • Depreciation on customer contacts acquired by the assesee as a part of the slump sale • Expenditure on sign board in the dealer’s place. • Share issue expenses incurred on IPO. The issue could not materialize. • Salary paid to Director 10,00,000 and Director’s sitting fee of `10,000 Both the above Expenditures

were paid without deducting TDS • Interest paid outside India. TDS deducted in Mar 15 but remitted on 1st September 2015 • Loss on derivative transaction entered in MCX commodity exchange.

6. Mr. Iyyanar& Co a partnership firm owns 10 LCV on 1st April 2014. None of the vehicles were used in PY

14 -15. Determine the PGBP if any u/s 44 AE of the income tax Act. Can the firm claim deduction u/s 40 b against the Presumptive income. Can the AO disallow the same u/s 40 A (2) on the ground that the entire remuneration is unreasonable on the grounds that the firm did not actually used any vehicle during the previous year and hence no need to pay the remuneration

7. Mr. Dakshinamurthy furnishes the following information. You are required to compute his total Income for the AY 15 16 Gross total Income (Excluding LTCG of 5 L) 10 L LIC premium paid (Major son not dep. SA 2L ) 30,000 PPF in the name of spouse 1,20,000 Contribution to NPS (similar amount is contributed by ER) 20,000 Medical insurance premium paid by cheque in respect of son referred above 19,000 Preventive Health Check up by cash in the name of mother 18,000 (Senior citizen) Donation to charitable trust by cash 15,000 Donation to a political party by cash 9,000

8. Smt. P started a Proprietary concern in the year 2012. As on 1.04.14 her Capital in business was `3,00,000/- Her husband gifted `2,00,000 on 10.04.2014, which amount Smt. P invested her business on the same date. Smt. P earned profits from her proprietary business for the Financial years 2014-15, `1,50,000 and financial year 2015-16 `3,90,000. Compute the income to be clubbed in the hands of P's husband for the AY 2015-16 and AY 2016-17 andwith reasons.

9. S Traders, a partnership firm consisting of three partners, ‘A`, ’B` and ‘C` is assessed to income tax as partnership firm assessed as such,‘B died on 31.12.2015.‘A` and C continued the business as a firm . The stock-in-trade as at 31.12.2015 was valued at average purchase price for settlement of accounts, which was the system consistently followed. On these facts, you are consulted on the following issues. Under which provisions of the Income tax Act 1961, M/s. S Traders for the period 1.4.2015 to 31.3.2016 shall be assessed for the assessment year 16-17.?Can the assessing Officer dispute the stock valuation in the assessment of the firm?

10. JK Associates is an Association of Persons (AOP) consisting of two members, J and K. Shares of the members are: 60% (J) and 40%(K). Income of the AOP for the previous year 2015-16 is `10 lakh. Compute tax liability of the AOP and the members in the following situations: i. J and K have their income, other than income from AOP, amounting to `2 lakh and `3 lakh,

respectively. ii. Will your answer differ if K attained 80 years of age on 31st March 2016

PRIME A

CADEMY


PRIME ACADEMY 42nd SESSION - FINAL - PROGRESS TEST - DIRECT TAXES

SUGGESTED ANSWERS PART-A

1. The existing provisions of section 73 provide that losses incurred in respect of a speculation business cannot

be set off or carried forward and set off except against the profits of any other speculation business. Explanation to section 73 provides that in case of a company deriving its income mainly under the head business (other than a company whose principal business is business of banking or granting of loans and advances), and where any part of its business consists of purchase or sale of shares such business shall be deemed to be speculation business for the purpose of this section. Finance (No. 2) Act, 2014 has amended the said Explanation to section 73 so as to provide that the provisions of the said Explanation shall also not be applicable to a company the principal business of which is the business of trading in shares. Thus the business of buying and selling of shares by Up pilli Limited shall not be deemed as income from business from speculation business and hence, the contention of the AO is invalid.

2. Computation of total income of P Ltd .for the AY 2016-17 (Lac) Net profit as per profit and loss account 500 Add:

1. Fees paid to ROC for issuing bonus shares by increasing authorized capital is a revenue expenditure — hence allowed. [CIT v. General Insurance Corpn (2006) 156 Taxman 96 (SC)] Nil

2. Interest paid outside India tds paid before 139(1) due date Nil 3. Salary 30 % of `10,10,000 3.03

4. Plant and Machinery on in house R & D ( 200-15) (185) 5. Contribution to Agr. Extension project (15) 6. Grant (200) 7. VRS 24 8. Family planning expenditure 32 9. Demerger expenses 4 PGBP 163.03 Less bfd business loss and depreciation (16.5) Total Income 147.53 Notes: 1. Sales tax refund from the Government has to be treated as a revenue receipt. Since it has been correctly

credited to profit and loss account, no adjustment is required. 2. Expenses relating to issue of bonus shares is deductible 3. The existing provisions contained in sub-clause (ia) of clause (a) of the aforesaid section provide that

payment of any sum by way of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident on which tax is deductible under Chapter XVII-B, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work) on which tax is deductible under Chapter XVII-B, shall be disallowed in case of non-deduction of tax or after deduction if the same is not paid on or before the due date of filing of return of income specified in sub-section (1) of section 139.In order to provide similar extended time limit for payment of tax deducted from

payments made to non-residents, it is proposed that the deductor shall be allowed to claim deduction for payments made to non-residents in the previous year of payment, if tax is deducted during the previous year and the same is paid on or before the due date specified for filing of return under section 139(1) of the Act.

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4. Finance (No. 2) Act, 2014 has amended sub-clause (ia) of clause (a) of aforesaid section to provide that disallowance under the said sub-clause shall be restricted to 30% and the provisions of this section shall be applicable to all expenditure, which is payable to a resident, on which tax is deductible under Chapter XVII B.

5. Agricultural extension of project will allowed to the extent of 150 % of the expenditure. 6. Capital expenditure on in house R & D will be allowed as deduction to the extent of 200 %. 7. Grant received by a subsidiary company from its holding company to recoup the losses incurred year

after year and to enable it to meet its liabilities - Capital receipt CIT v. Handicrafts and Handlooms Export Corporation of India Ltd. (2014) 360 ITR 0130 (Delhi)

8. Waiver of loan or advance taken for the purpose of relocation of office premises be treated as a Capital receipt. Sec 41 (1) Not applicable CIT v. Softworks Computers P. Ltd. (2013) 354 ITR 16 (Bom.)

9. As per Sec 35 DD , Demerger expenses will be allowed in 5 installments. Hence 4/5 of the expenditure added back.

10. As per Sec 35 DDA , VRS payments will be allowed in 5 installments. Hence 4/5 of the expenditure added back.

11. As per Sec 36(1)(ix) , Capital expenditure on family planning will be allowed in 5 installments. Hence 4/5 of the expenditure added back.

3. Financial year 13 14

No Depreciation since machinery is not put to use in the relevant previous year. No investment allowance since the amount of investment did not exceed 100 Crores. Financial year 14 15

Normal Depreciation 15 % of 300 Crores = 45 Crores Additional depreciation 20 % of 300 Crores = 60 Crores WDV on 1st April 2015 195 Crores Investment allowance 45 Crores ( 15 % of 300 Crores) .

Financial year 15 16 Depreciation 15 % ( 195 – 80) = 15.75 Crores

PGBP 15 Crores ( 100 X 15 % Investment allowance withdrawn)

4. Deduction u/s 32 AC 18 Crores in AY 14 15 Depreciation Normal 18 Crores and Additional 24 Crores in AY 14 15 WDV on 1st April 2014 = 120 -18-24= 78 Crores Capital gains = 80 – 78 = 2 Crores PGBP = 18 Crores

5. Finance (No. 2) Act, 2014 has inserted a new Explanation 2 in sub-section (1) of section 37 so as to clarify that for the purposes of sub-section (1) of section 37, any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. Computer accessories and peripherals such as UPS, printer , scanners etc., will be eligible for rate of depreciation at the rate or 60 % like compute` CIT v. BSES Yamuna Powers Ltd (2013) 358 ITR 47 (Delhi) • Depreciation on customer contacts acquired by the assesee as a part of the slump sale • Expenditure on sign board in the dealer’s place. • Share issue expenses incurred on IPO. The issue could not materialize. • Business contracts, business information, etc., acquired by the assessee as part of the slump sale and

described as 'goodwill', be classified as an intangible asset to be entitled for depreciation under section 32(1)(ii). Areva T and D India Ltd. v. DCIT (2012) 345 ITR 421 (Delhi)

• Expenditure incurred on glow-sign boards displayed at dealer outlets is a revenue Expenditure. CIT v. Orient Ceramics and Industries Ltd. (2013) 358 ITR 49 (Delhi)

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• Share issue expenses incurred by a company is capital in nature, even if the public issue could not ultimately materialize on account of non-clearance by SEBI Mascon Technical Services Ltd. v. CIT (2013) 358 ITR 545 (Mad.)

• The existing provisions contained in sub-clause (ia) of clause (a) of the aforesaid section provide that payment of any sum by way of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident on which tax is deductible under Chapter XVII-B, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work) on which tax is deductible under Chapter XVII-B, shall be disallowed in case of non-deduction of tax or after deduction if the same is not paid on or before the due date of filing of return of income specified in sub-section (1) of section 139.

• Finance (No. 2) Act, 2014 has amended sub-clause (ia) of clause (a) of aforesaid section to provide that disallowance under the said sub-clause shall be restricted to 30% and the provisions of this section shall be applicable to all expenditure, which is payable to a resident, on which tax is deductible under Chapter XVII B

• The existing provisions of section 40(a)(i) of the Act provide that certain payments to a non-resident shall not be allowed as deduction for computing business income if tax on such payments was not deducted, or after deduction, was not paid within the time prescribed under section 200(1) of the Act. The Act contains similar provisions for disallowance of business expenditure in respect of certain payments made to the residents. Under section 40(a)(ia) of the Act, in case of payments made to resident, the deductor is allowed to claim deduction for payments as expenditure in the previous year of payment, if tax is deducted during the previous year and the same is paid on or before the due date specified for filing of return of income under section 139(1) of the Act.

• In order to provide similar extended time limit for payment of tax deducted from payments made to non-residents, it is proposed that the deductor shall be allowed to claim deduction for payments made to non-residents in the previous year of payment, if tax is deducted during the previous year and the same is paid on or before the due date specified for filing of return under section 139(1) of the Act.

6. Finance (No. 2) Act, 2014 has substituted the said sub-section (2) so as to provide that, for the purposes of sub-section (1), amount of profit and gains for all types of goods carriages shall be ` 7,500 per month or part of a month during which the goods carriage is owned by the assessee or the amount claimed to be actually earned by the assessee, whichever is higher. Finance (No. 2) Act, 2014 has substituted the said sub-section (2) so as to provide that, for the purposes of sub-section (1), amount of profit and gains for all types of goods carriages shall be ` 7,500 per month or part of a month during which the goods carriage is owned by the assessee or the amount claimed to be actually earned by the assessee, whichever is higher. In computing the income u/s 44 AD, all deductions u/s 30 to 38 shall be deemed to have been already given full effect to and no further deduction can be claimed except in the case of partnership firm interest and remuneration will be allowed as deduction subject to the limits and conditions laid out in sec 40 b. Remuneration paid to working partners as per the partnership deed cannot be considered as unreasonable and excessive for attracting disallowance under section 40A(2)(a) even though the same is within the statutory limit prescribed under section 40(b)(v) CIT v. Great City Manufacturing Co. (2013) 351 ITR 156 (All)

7. GTI 15,00,000 Less 80 C LIC 20 K PPF 120 K ) 140 80 CCD ( 20 + 20 ) 40 1,50,000 ER contribution ( not subject to 80 CCE) 20,000 80 D 5,000 80 G /GGC ( not available) NIL Total Income 13,25,000

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8. If the spouse invests the asset in business, clubbing provisions will apply and proportionate business income will be included. Amount to be clubbed will be

For AY 2015-16

Since no amount was invested on the first day of 2012 (amount was gifted only on 10/04/2013), clubbing provision will not be attracted. For AY 2016-17 Proportionate business income will be clubbed. The proportionate business income will be calculated as under :

000201000506

000002000903 ,,

,,

,,,,

9. a) According to S.170 (1) where a person carrying on business has been succeeded by any other person

who continues to carry on that business or profession, then, the predecessor will be assessed from the 1st day of previous year to the date of succession and the successor will be assessed from the date of succession to the end of the previous year.

b) Stock valuation: Where the business of the predecessor is continued, going concern assumption holds good. Therefore, stock is to be valued at cost only. Case law: Shakti Trading Co. However, ICDS 2 provides for valuation of stock at market price, in the event of dissolution of firm / AOP / BOI, even if the business is continued.

10. Computation of tax of AOP is governed by section 167B of the Income -tax Act.

Tax on total income of AOP is computed as follows: (i) If individual share of a member is known, and the total income of any member exceeds the basic

exemption limit, then the AOP will pay tax at the maximum marginal rate. (ii) If individual share of a member is known and no member has total income exceeding the basic

exemption limit, then the AOP will pay tax at the rates applicable to an individual. Section 86 provides for assessment of share in the hands of members of AOP as follows: A member’s share in the total income of AOP will be treated as follows:-

(i) If an AOP has paid tax at the maximum marginal rate or a higher rate, the member’s share in the total income of AOP will not be included in his total income and will be exempt.

(ii) If the AOP has paid tax at regular rates applicable to an individual, the member’s share in the income of AOP will be included in his total income and he will be allowed rebate at the average rate of tax in respect of such share.

Tax Liability of J K Associates, AOP (i) As K’s income, other than that from the AOP, exceeds the basic exemption limit, the AOP shall pay

tax at maximum marginal rate of 33.99% (i.e. 30% plus10 % Surcharge Plus education cess@2% plus secondary and higher education cess@1%). Thus the tax payable by AOP = `6,00,000 x 33.99% = `2,03,940.

(ii) Since none of the members have income, other than income from the AOP, exceeding the basic exemption limit, the AOP would be taxed at the rates applicable to an individual. Therefore, the AOP’s tax liability = `25,000 + `20,000 =`45,000 + Education cess @ 3 % of 45,000 = 1,350 Total tax payable = 46,350.

yearpreviousofdayfirsttheonasemployedcapitalTotal

yearPreviousofdayfirsttheonasInvestedAmountIncomeBusiness

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Tax Liability of J and K Particulars ` ` (i)Share of profit from AOP NOT TAXABLE NOT TAXABLE Income from other sources 1,00,000 3,00,000 Total Income 1,00,000 3,00,000 Tax liability NIL 5,000 Rebate u/s 87 A NIL 2,000 Education cess@2% + SHEC@1% NIL 90 Total tax payable NIL 3,090 (ii) Share of profit from AOP 3,60,000 2,40,000 Income from other sources 1,00,000 1,20,000 4,60,000 3,60,000 Tax liability (After 87 A rebate) 19,000 9,000 Education cess@2% + SHEC@1% 570 270 Total tax payable 19,570 9,270 Average rate of tax 3.90% 2.58% Total tax liability 19,570 9,270 Less: Rebate under section 86 in respect of share of profit from AOP 19,347 6,192 Tax liability of members 224 3,078

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PRIME ACADEMY FINAL – 42NDSESSION PROGRESS TEST

INDIRECT TAX LAWS No. of Pages: 3 Total Marks: 75 Time Allowed: 2Hrs

Each question carry one mark. Answer all questions. PART - A

Fill in the blanks: 1) Service provided from India with respect to immovable property situated abroad is called

2) Section of the service tax act “Consideration” includes any amount that is payable for

the taxable services provided or to be provided. 3) Point of Taxation Rules 2011, Rule 5 is 4) Taxable event under central excise _____________ and _______________ 5) Excise Duty need to be paid at the time of __________________________ 6) Excisable Goods means ________ 7) Goods manufactured in SEZ are called as __________ 8) Section 11BB of Central Excise Act, 1944 provides for payment of interest @ 6% per annum on refund

of duty which is not paid to the applicant within ________. 9) Indian Customs Waters extends upto ............ nautical miles beyond territorial waters. 10) Interest under section 11AA is liable @ ……… % per annum. (10 x 1 = Marks)

PART - B Answer all questions. Each question carries five marks

1) Manoj Ltd. imports business support services from Green Ltd. of USA on 13.10.2014. The relevant

invoice for $ 1,20,000 is raised by Green Ltd. on 18.10.2015. Manoj Ltd. makes the payment against the said invoice as follows: Case I 22.11.2015 Case II 27.02.2016 Determine point of taxation in each of the aforesaid cases.

2) A SSI unit has effected clearances of goods of the value of ` 475 lacs during the financial year 2014-15.

The said clearances include the following: (i) Clearance of excisable goods without payment of excise duty to a 100% EOU ` 120lacs (ii) Job work in terms of Notification No. 214/86 CE, which is exempt from duty ` 75 lacs (iii) Export to Nepal and Bhutan ` 50 lacs (iv) Goods manufactured in rural area with the brand name of the others ` 90 lacs Examine with reference to the notification governing SSI exemption under the Central Excise Act whether the benefit of exemption would be available to the unit for the financial year 2015-16.

3) Determination of point of taxation in case of change in effective rate of tax: a) in case a taxable service has been provided before the change in effective rate b) in case a taxable service has been provided after the change in effective rate 4) AX Ltd. has entered into a contract for construction of a Mall with BY Ltd. As per the agreement, the

amount payable (excluding all taxes) by AX to BY is `1,00,00,000 inclusive of the material to be supplied by AX for which it charged ` 5,00,000 from BY. Fair market value of the raw material (excluding VAT) is ` 10,00,000. Compute the total amount charged pertaining to the said works contract for execution of “original works”. Also find the service tax liability.

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5) “Services provided by a person to another are taxable under service tax law.” Is there any exception(s) to this general rule whereby services provided by a person to oneself are taxable? Discuss by giving example.

6) With reference to the provisions of rule 16 of Central Excise Rules, 2002, explain the procedure for availment of CENVAT credit when: (i) The duty paid goods returned to the factory are put through a process not amounting to

manufacture; (ii) The duty paid goods returned to the factory are put through a process amounting to manufacture.

7) With reference to the position of service tax law as applicable on or after 01/10/2014, what would be

the place of provision of service in the following independent cases? i. RK trade links of Chennai are appointed as commission agent by a foreign company for sale of its

goods to Indian customers. In lieu of their services RK trade links receive a fixed percentage of commission from the concerned foreign company.

ii. JJ Fabricators of Kolkata has temporarily imported certain goods from its customer located in Singapore for repairs. The said goods have been re-exported to Singapore after carrying out the necessary repairs without being put to any use in Kolkata.

iii. Qatar airways, an airlines located in Mumbai, has hired aircrafts from a foreign Airlines for a period of 26 days.

8) Determine the total amount of excise duty payable under section 4 of the central Excise Act, 1944 from the following information: a) Price of machinery excluding taxes and duties – `5,00,000/- b) Installation and erection expenses – `20,000/- c) Packing Charges (Primary – `7,500/- + Secondary – `5000/-)– `12,500/- d) Design and Engineering charges – `2,500/- e) Cost of material supplied by buyer free of charge – `25,000/- f) Pre-delivery inspection charges – `5,000/- Other information: a) Cash discount @ 4% on price of machinery was allowed as per terms of contract with the buyer of

machinery, since full payment was received in advance. Normally discount @ 2% will be allowed. b) Bought out accessories supplied along with machinery valued at `5,000/- c) Loading & Unloading Charges of `1,500/- incurred at the time of transpiration of goods and the

same was not recovered from buyer separately. d) Central Excise duty rate 12.5%. Make suitable assumptions if required and provide brief reason.

9) Determine the basis of valuation under section 4 or Section 4A of the Central Excise Act , 1944 in the

following cases, explain citing case law wherever available:- i) A packaged commodity covered under MRP notification and also the LMA. 2009. ii) Packaged products which is a standard product as per LMA, 2009 and Notified by Central

Government, with MRP printed/marked thereon, exported to Nepal. iii) Ice creams sold in bulk to hotels. iv) Chocolates distributed as free gift along with bottles of soft drinks. v) A packaged commodity covered under MRP notification and also the LMA, 2009 was manufactured

by Job-worker.

10) FMCG Products Ltd, has it manufacturing plant at Bangalore. The following are the transactions made during the period. Calculate the transaction value for the product “A”. (i) Quantity cleared to Amritsar Depot – 200 units. (ii) Quantity cleared to Bhopal Depot – 500 units (iii) Quantity cleared to Cuttack Depot – 300 units (iv) The goods were cleared to respective depots on 01/02/2016, reached respective depots on

11/02/2016 and actually sold at the depots on 25/02/2016. (v) A freight of `5/- per unit is incurred and collected from depots.

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Place of Removal Price at depot on 01.02.2016

Price at depot on 11.02.2016

Price at depot on 25.02.2016

Amritsar Depot `150 per unit `155 per unit `160 per unit

Bhopal Depot `175 per unit `180 per unit `185 per unit

Cuttack Depot `200 per unit `205 per unit `210 per unit

11) M/s Excellent Packaging, a partnership firm has three units situated in Chennai, Delhi and Pune. The

total clearance from all these three units for FY 2014-15 was `350 lakhs. However, the value of individual clearances of excisable goods from each of the said units was Chennai Unit `150 lakhs; Delhi Unit `50 lakhs; and Pune Unit `150 lakhs. a) Discuss briefly with reference to the notifications governing small scale industrial undertakings

under the Central Excise Act, 1944 whether the benefit of exemption would be available to M/s Excellent Packaging for the financial year, 2015-16.

b) Would your answer be different if clearances of excisable goods from Delhi Unit is are `75 lakhs and clearances of excisable goods from Pune Unit are `185 lakhs.

c) Would the exemption available under the notification will be continued to M/s Excellent Packaging if it manufactures branded goods.

12) Explain the provisions of Rule 3 (A mixture or combination containing more than one material) & Rule

5 (Classification of Packing Materials) of the General rules for the interpretation of the First Schedule to the Central Excise Tariff Act, 1984?

13) Explain what is excluded from the term “Service” defined under Finance Act, 1994?

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PRIME ACADEMY

42nd

SESSION - FINAL - PROGRESS TEST - INDIRECT TAXES

SUGGESTED ANSWERS

PART-A

I.

1) Export of services

2) 67

3) Payment of tax in cases of new services

4) Production and Manufacture

5) Removal of Goods

6) Mentioned in Tariff Act with Rate of Duty.

7) Excluded Excisable Goods.

8) Three Months

9) 24

10) 18

II.

1) As per Rule 7 of POT, 2011In case of specified service the Service Receiver liable to pay

service tax. Point of Taxation shall be date on which payment made. If such payment is not

made within 3 months from date of Invoice point of Taxation is next day after expiry of such 3

months.

In Case I – POT is Date of Payment – 22.11.2015.

In Case 2 – POT is 18.01.2016 as payment is NOT made within 3 months from DOI.

2) Value of Home Clearance for Applicability of Notification:-

Particulars Amount (`)

Total Value of Goods Cleared 475.00

Less: Goods cleared to 100% EOU – Deemed Export 120.00

Less: Job Work Charges - As per JW Notification 75.00

Value of Home Clearance for Applicability of SSI Exemption 280.00

Goods Cleared to Nepal & Goods Manufactured in Rural area is included in VOHC. The

manufacturer is eleigible to claim SSI Exemption for FY 2015-16 as VOHC for Applicability of

Notification is ` 280 Lacs which is less than Rs.400 Lacs.

3)

a) In case a taxable service has been provided before the change in effective rate

i. Where the invoice for the same has been issued and the payment received after the

change in effective rate, the point of taxation shall be date of payment or issuing of

invoice, whichever is earlier; or

ii. Where the invoice has also been issued prior to change in effective rate but the

payment is received after the change in effective rate, the point of taxation shall be

the date of issuing of invoice; or

iii. Where the payment is also received before the change in effective rate, but the

invoice for the same has been issued after the change in effective rate, the point of

taxation shall be the date of payment;

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b) In case a taxable service has been provided after the change in effective rate

i. Where the payment for the invoice is also made after the change in effective rate but

the invoice has been issued prior to the change in effective rate, the point of taxation

shall be the date of payment; or

ii. Where the invoice has been issued and the payment for the invoice received before the

change in effective rate, the point of taxation shall be the date of receipt of payment

or date of issuance of invoice, whichever is earlier; or

iii. Where the invoice has also been raised after the change in effective rate but the

payment has been received before the change in effective rate, the point of taxation

shall be date of issuing of invoice.

4) Computation of service tax liability

5) In case of Section 65B (44) of FA, 1994 - Explanation 2 to (b) an establishment of a person in

the taxable territory and any of his other establishment in a non-taxable territory shall be

treated as establishments of distinct persons. In such case service provided by a person’s

establishment located in taxable territory to his own establishment located in non-taxable

territory is liable to Service Tax. This is against the exception to general rule.

6)

(i) As per Rule 16 of CER, 2002,when duty paid goods returned to factory put through a process

not amounting to manufacturer. The manufacturer is not liable to pay excise duty at the time

of removal of such goods.

(ii) As per Rule 16 of CER, 2002, when duty paid goods returned to factory put through a

process amounting to manufacturer. The manufacturer is liable to pay excise duty at the time

of removal of such goods from factory. At the time receipt of goods Cenvat Credit can be

availed by manufacturer based on his own invoice.

7)

(i) The place of provision of services provided or agreed to be provided by RK trade links (as

commission agent of goods) to foreign company will be the location of service provider i.e.

Chennai.

(ii) Rule 4(a) of POPS Rules provides that the place of provision of services provided in respect of

goods that are required to be made physically available by the recipient of service to the

provider of service in order to provide the service, is the location where the services are

actually performed.

However, with effect from 01/10/2014, second proviso to rule 4(a) has been substituted to

lay down that clause (a) of rule 4 will not apply in the case of a service provided in respect of

goods that are temporarily imported into India for repairs and are exported after the repairs

without being put to any use in the taxable territory, other than that which is required for

Particulars Amount `

Gross value of contract 1,00,00,000.00

Add: Fair market value of goods supplied 10,00,000.00

Less: Value charged by AX (5,00,000.00)

Net value of contract 1,05,00,000.00

Value of service @ 40% on ` 1,05,00,000 42,00,000.00

Service tax @ 14% on Rs. 42,00,000 5,88,000.00

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such repair. Consequently, such a case will be covered under rule 3 of POPS Rules (general

rule) and the place of provision of service will be the location of service receiver.

In the given case, goods have been temporarily imported by JJ fabricators and have been re-

exported after the repairs without being put to any use in Kolkata.

Therefore, place of provision of repair services carried out by JJ fabricators will be

determined by rule 3 of POPS Rules. Consequently, the place of provision of service will be

the location of service receiver i.e. Singapore

(iii) With effect from 01/10/2014, rule 9(d) of POPS rules has been substituted to provide that the

place of provision of service consisting of hiring of all means of transport other than:-

Aircrafts

Vessels except yachts

Upto a period of one month, is the location of the service provider.

Therefore, services of hiring of aircraft and vessel ( except yachts) irrespective of the period

of hire, will be covered under rule 3 of POPS rules (general rules) and the place of provision

of service will be the location of the service receiver.

In the given case, since Qatar Airways (service receiver) has taken aircrafts on fire from

foreign airlines, the place of provision of aforesaid hiring services will be Mumbai (location of

service recipient) in accordance with rule 3 of POPS rules.

8)

Particulars Amount (`)

Basic Price of Machinery 5,00,000.00

Installation Charges ( Assumption - Movable in Nature) 20,000

Packing Charges (In relation to Sale of Goods) 12,500

Design &Engg Charges (In relation to Sale of Goods) 2,500

Cost of Material Supplied by buyer – Additional Consideration –

Rule 6 of CE Valuation Rules – Included in TV

25,000

Inspection Charges (In relation Connection with Sale of Goods) 5,000

Discount @ 2% (Normal Discount as per Policy) (10,000)

Bought out Accessories (Mandatory Parts ) 5,000

Transaction Value U/s 4 of CEA 5,60,000

Note: A Cost of Loading &Un Loading incurred, hence not included in Transaction Value.

9)

i) Valued under Section 4A of CEA as conditions of Sec 4A is satisfied.

ii) Valued under Section 4 of CEA, since the goods are exported to Foreign Country though it

satisfy the conditions of Sec 4A of CEA.

iii) Valued under Section 4 of CEA, since the goods are sold to Institution or Industry and

marking of MRP is not mandatory.

iv) Valued under Section 4 of CEA, If MRP is NOT mentioned in goods given as free issue, and

valued under Section 4A of CEA if the MRP is printed on the goods.

v) Valued under Section 4A of CEA, even if goods are manufactured by Job- Worker.

10) As per Rule 7 of Central Excise Valuation Rules, when goods are cleared from factory to

depot transaction value shall be price at which goods are sold at depot at the time of removal

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of goods from factory shall be transaction value. Transportation Charges if any collected by

the factory the same will be included in Transaction Value as per Rule 5 of CE Valuation Rule.

Amritsar Depot = 200 Units X (`150 + Rs.5) = `31,000/-

Bhopal Depot = 500 Units X (`175 + Rs.5) = `90,000/-

Cuttack Depot = 300 Units X (`200 + Rs.5) = `61,500/-

Transaction Value on which Factory liable to Pay Excise Duty is `1,82,500/-

11)

a) The unit is eligible to claim SSI Exemption for the FY 2015-16, as the Value of Home

Clearance for applicability of Notification is `350 lacs which is less than 400 lacs. In case of

manufacturer having more than one factory the clearance from all factories need to clubbed

as per SSI Notification.

b) The unit is NOT eligible to claim SSI Exemption for the FY 2015-16, as the Value of Home

Clearance for applicability of Notification is `410 lacs which is more than 400 lacs. In case of

manufacturer having more than one factory the clearance from all factories need to clubbed

as per SSI Notification.

c) The unit is NOT eligible to claim SSI Exemption for the FY 2015-16, if they manufacture

Other Branded Goods as per SSI Notification.

12) Rule 3

a) When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable

under two or more headings, classification shall be effected as follows: (a) the heading which

provides the most specific description shall be preferred to headings providing a more general

description. However, when two or more headings each refer to part only of the materials or

substances contained in mixed or composite goods or to part only of the items in a set put up

for retail sale, those headings are to be regarded as equally specific in relation to those goods,

even if one of them gives a more complete or precise description of the goods.

b) mixtures, composite goods consisting of different materials or made up of different

components, and goods put up in sets for retail sale, which cannot be classified by reference

to (a), shall be classified as if they consisted of the material or component which gives them

their essential character, insofar as this criterion is applicable.

c) When goods cannot be classified by reference to (a) or (b), they shall be classified under the

heading which occurs last in numerical order among those which equally merit consideration.

Rule 5

In addition to the foregoing provisions, the following rules shall apply in respect of the goods

referred to therein:

a) camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases

and similar containers, specially shaped or fitted to contain a specific article or set of articles,

suitable for long-term use and presented with the articles for which they are intended, shall

be classified with such articles when of a kind normally sold therewith. This rule does not,

however, apply to containers which give the whole its essential character;

b) Subject to the provisions of (a) above, packing materials and packing containers presented

with the goods therein shall be classified with the goods if they are of a kind normally used for

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packing such goods. However, this provision does not apply when such packing materials or

packing containers are clearly suitable for repetitive use.

13) The term Service excludes

a) Any activity which constitutes merely,—

(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other

manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale

within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in

money or actionable claim;

b) a provision of service by an employee to the employer in the course of or in relation to his

employment;

(c) Fees taken in any Court or tribunal established under any law for the time being in force.

PRIME A

CADEMY

Documents

PRIME ACADEMY FINAL - 42nd SESSION … - 42nd SESSION PROGRESS TEST. ADVANCED MANAGEMENT ACCOUNTING; PART A. PRIME ACADEMY. ... / Contribution per unit 9) Differential cost is the