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PRIME/49th PT/IPC 1
PRIME ACADEMY 49th SESSION PROGRESS TEST – IPC - PAPER 1 ACCOUNTING
PART – A No. of Pages: 4 Total Marks: 75 Time Allowed: 2 hrs
1. a) Chandra Ltd. expects that a plant becomes useless which is appearing in the books at INR 10 lakh
gross value. The company charges SLM depreciation over an estimated period of 10 years and
estimated scrap value is 3% of the cost. At the end of 7th year the plant has been assessed as useless
and decided to sell. Its estimated net realizable value is INR 3,10,000. Determine the loss/gain on retirement of the PPE.
b) X Ltd. received a grant of INR 2 crores from the Central Government for the purpose of special
machinery during 2013-14.The cost of Machinery was 20 crores and had a useful life of 9 years. During 2017-18 (after 4 years), the grant has become refundable due to non-fulfillment of certain conditions attached to it. Assuming the entire grant was deducted from the cost of machinery in the year of acquisition, state with reasons the accounting treatment to be followed in the year 2017-18.
c) Bela Ltd. has a vacant land measuring 20,000 sq. mts, which it had no intention to use in the future.
The Company decided to sell the land to tide over its liquidity problems and made a profit of INR10 Lakhs by selling the said land. Moreover, there was a fire in the factory and a part of the unused factory shed valued at INR 8 Lakhs was destroyed. The loss from fire was set off against the profit from sale of land and profit of INR 2 lakhs was disclosed as net profit from sale of assets. You are required to examine the treatment and disclosure done by the company and advise the company in line with AS5. [5 X 3=15Marks]
PART B Answers any three questions out of four questions.
1. a) On 01.04.2017, Dhakshinamurthi purchased 1,000 Equity Shares of INR100 each in Lakshmi Ltd at INR
120 each from a Broker, who charged 2% Brokerage. He incurred 50 paise per INR 100 as cost of Share Transfer Stamps. On 31.01.2018, Bonus was declared in the ratio of 1:2. Before and after the record date of Bonus Shares, the Shares were quoted at INR 175 per Share and INR 90 per Share respectively. On 31.03.2018, Dhakshinamurthi sold Bonus Shares to a Broker, who charged 2% Brokerage. Show the Investment Account in the books of Dhakshinamurthi, who held the shares as Current Assets. Closing Value of Investments shall be made at Cost or Market value whichever is less.
(10 Marks)
b) The premises of AB Limited were partially destroyed by fire on 1stMarch 2018, and as a result, the
business was practically disorganized upto 31s August 2018. The Company is insured under a Loss of Profits Policy for INR 1,65,000 having an Indemnity Period of 6 months. From the following information, prepare a claim under the policy:
PRIME ACADEMY
PRIME/49th PT/IPC 2
Particulars INR
Actual Turnover during the period of dislocation (01-03-2018 to 31-08-2018)
80,000
Turnover for corresponding period (dislocation) in 12 months immediately before fire (1-3-2017 to 31-8-2017)
2,40,000
Turnover for the 12 months immediately preceding the fire (01-03-2017 to 28-02-2018)
6,00,000
Net Profit for the last financial year 90,000
Insured Standing Charges for the last financial year 60,000
Uninsured Standing Charges 5,000
Turnover for the last financial year 5,00,000
Due to substantial increase in trade, before and up to the time of the fire, it was agreed that an adjustment of 10% should be made in respect of the upward trend in turnover. The Company incurred Additional Expenses of INR 9,300 immediately after the fire and but for this expenditure, the Turnover during the period of dislocation would have been only INR 55,000. There was also a saving during the indemnity period of INR 2,700 in insured standing charges as a result of the fire.
(10 Marks)
2. The following is the Balance Sheet of Easwar, a Proprietor, as at the beginning of a financial year.
(1stApril):
Capital and Liabilities INR Properties and Assets INR
Capital Account Current Liabilities: Sundry Creditors for Purchases
2,52,500 45,000
Non-Current Assets: Machinery Furniture Current Assets: Stock Debtors Cash at Bank Cash in Hand
1,20,000 20,000 33,000
1,00,000 16,500
8,000
Total 2,97,500 Total 2,97,500
Riots occurred and fire broke out on the evening of 31st March (year-end) destroying the books of
account and Furniture. The Cashier was grievously hurt and the Cash available in the Cash Box was stolen. Easwar gives you the following information - 1. Sales are effected as 25% for Cash and the balance on Credit. His Total Sales for the year ended
31st March were 20% higher than the previous year. All the Sales and Purchases of Goods were
evenly spread throughout the year (as also in the last year). 2. Terms of Credit: Debtors - 2 Months, Creditors -1Month. 3. Stock Level was maintained at INR 33,000 all throughout the year. 4. A steady Gross Profit Rate of 25% on the Turnover was maintained throughout. Creditors are
paid by Cheque only, except for Cash Purchase of INR50,000. His private records and the Bank Pass Book disclose the following transactions for the year- (a) Miscellaneous Business Expenses: INR 1,57,500 (including INR 5,000 paid by Cheque and INR
7,500 was due as at the year-end)
PRIME ACADEMY
PRIME/49th PT/IPC 3
(b) Repairs: INR 3,500 (paid by Cash) (c) Addition to Machinery: INR 60,000 (paid by Cheque) (d) Private Drawings: INR 30,000 (paid by Cash) (e) Traveling Expenses: INR 18,000 (paid by Cash) (f) Introduction of Additional Capital by depositing into the Bank: INR5,000 (g) Collection from Debtors was all through Cheque. (h) Depreciation on Machinery is to be provided at 15% on the Closing Book value. (i) The Cash Stolen is to be charged to the Profit and Loss A/c. (j) Loss of Furniture is to be adjusted from the Capital A/c.
Prepare Trading, Profit and Loss A/c for the year-ended 31st March and Balance Sheet as on that
date. Make appropriate assumptions wherever necessary. All workings should form part of your answer. [20 Marks]
3. a) The partners A, B and C have called you to assist them in winding up the affairs of their partnership
on 30th June, 2018. Their Balance Sheet as on that date is given below:
Liabilities INR Assets INR
Sundry Creditors 17,000 Cash at Bank 6,000
Capital Accounts: Sundry Debtors 22,000
A 67,000 Stock in trade 14,000
B 45,000 Plant and Equipment 99,000
C 31,500 Loan-A 12,000
Loan-B 7,500
1,60,500 1,60,500
1) The partners share profit and losses in the ratio of5:3:2 2) Cash is distributed to the partners at the end of each month 3) A summary of liquidation transactions are as follows: July 2018 INR 16,500 – collected from Debtors; balance is uncollectable. INR 10,000 – received from sale of entire stock. INR1,000– liquidation expenses paid INR8,000 cash retained in the business at the end of the month. August 2018 INR 1,500 – liquidation expenses paid. As part payment of his Capital, C accepted a piece of equipment for INR 10,000 (book value INR 4,000). INR 2,500 - cash retained in the business at the end of the month. September 2018 INR 75,000 – received on sale of remaining plant and equipment. INR1,000 – liquidation expenses paid. No cash retained in the business. Required: Prepare a schedule of cash payments amongst the partners by “Higher Relative Capital Method”. (15 Marks)
(b). Y Ltd. is a full tax free entity for the first ten years of its existence and is in the second year of its operation. Depreciation timing difference resulting in a tax liability in year 1 and 2 is INR200 lakh and INR400 lakh respectively. From the third year it is expected that the timing difference would reverse each year by INR10 lakh. Assuming tax rate of 35%, find out the deferred tax liability at the end of the second year and any charge to the Profit and Loss account. (5 Marks)
PRIME ACADEMY
PRIME/49th PT/IPC 4
4. a) Aditi (P) Ltd was incorporated on 01.08.2017 to take over the business of M/s Devas & Co from
01.04.2017. The Profit & Loss Account as given by Aditi (P) Ltd for the year ending 31.03.2018 is asunder:
Particulars INR Particulars INR
To Advertisement 99,000 By Gross Profit b/d 9,45,000
To Audit Fee
15,000
By Interest on Investment
16,000
To Bad Debts (related to Sales) 27,000
To Depreciation 21,000
To Discount 9,000
To Interest on Debentures 80,000
To Preliminary Expenses 12,000
To Rent 1,40,000
To Salaries 4,48,000
To Underwriting Commission
To Net Profit
20,000
90,000
Total 9,61,000 Total 9,61,000
Prepare Profit & Loss Account showing allocation of pre-incorporation and post- incorporation profits after considering following information: 1. GP Ratio was constant throughout the year.
2. Sales for August 2017 to November 2017 were 11/2 times the average monthly sales, while for December 2017 to 2018 were 2 times the Average Sales.
3. The Company had to occupy additional space from 1stDecember 2017 for which rent was INR 5,000 per month.
4. Bad Debts are shown after adjusting a recovery of INR 9,000 5. Salary of one Manager was increased by INR 2,000 p.m. from August 2017. Salary of other
employees remains unchanged. 6. All Investments were sold in May 2017 at a profit of INR 27,000. Profit on Sale of Investment
inadvertently included to Sales and ultimately to Gross Profit. (15 Marks)
b). The Notes to Accounts of Raj Ltd., for the year ended 31st March, includes the following:
“Interest on Bridge Loan from Banks and Financial Institutions and on Debentures specifically obtained for the Company’s fertilizer project amounting to INR1,80,80,000 has been capitalised during the year, which includes approximately INR 1,70,33,645 capitalised in respect of the utilization of loan and debenture money for the said purpose”. Is the treatment correct. Briefly comment.
(5 Marks)
PRIME ACADEMY
IPC/49PT/PAPL Page 1
Prime Academy 49th Session Progress Test
IPC – New Scheme Accounting Suggested Answers
Part A
1(a): Cost of the plant INR 10,00,000 Estimated realizable value at the beginning (10,00,000 * 3%) = INR 30,000 Depreciable amount (10,00,000 – 30,000) = INR 9,70,000 Depreciation per year (9,70,000/10 years) = INR 97,000
WDV at the end of 7th year = [INR 10,00,000 – (97,000 * 7 years)] = INR 3,21,000 (net book value) As per AS 10, items of PPE that have been retired from active use and held for disposal are stated at the lower of the carrying amount and net realizable value. Any expected losses should be recognized immediately in P&L. In the given case, the expected loss of INR 11,000 (i.e. 3,21,000 – 3,10,000) should be charged to P&L and PPE of INR 3,10,000 to be shown in Balance sheet separately. 1(b): As per AS 12, in case of refund of government grant, which was already deducted from the carrying amount, refunded amount should be added to the carrying amount of the asset on the date of refund. The revised book value is depreciated over the remaining useful life of the asset prospectively. In the given case, book value of machinery will be increased by INR 2 crores in 2017- 2018. Depreciation for FY 2017-18 onwards continues as follows: INR in crores Cost of machinery (Initial Cost) 20 Less: Grant received (at the time of receipt) 2 Cost of machinery 18 Useful life of machinery 9 years Annual Depreciation as per SLM (INR 18/9 years) 2 (Residual value is assumed as zero) Total depreciation for 4 years (2013-14 to 2016-2017) (4*2) 8 Carrying amount on the date of refund (in FY 2012-2013) (INR18 – 8)
10
Add: Grant refunded 2 Revised book value 12 Remaining useful life (9-4 years) 5 years Revised annual depreciation (INR 12 / 5 years) 2.40
Thus, book value of machinery will be INR 12 crores in the year 2017-18 and the annual depreciation of INR 2.4 crores will be charged on machinery over remaining five years of life (including2017-18).
PRIME ACADEMY
IPC/49PT/PAPL Page 2
1(c): As per AS 5 “Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies” Extraordinary items should be disclosed in the statement of profit and loss as a part of net profit or loss for the period. The nature and the amount of each extraordinary item should be separately disclosed in the statement of profit and loss in a manner that its impact on current profit or loss can be perceived. In the given case the selling of land to tide over liquidation problems as well as fire in the Factory does not constitute ordinary activities of the Company. These items are distinct from the ordinary activities of the business. Both the events are material in nature and expected not to recur frequently or regularly. Thus, these are Extraordinary Items. Therefore, in the given case, disclosing net profits by setting off fire losses against profit from sale of land is not correct. The profit on sale of land, and loss due to fire should be disclosed separately in the statement of profit and loss.
Part B 1(a)
Points for Consideration Stamp Duty is calculated on the Price excluding the Brokerage, i.e. on the Purchase Price. Total Cost of Investment = Purchase Price + Brokerage + Stamp Duty. Brokerage on Sale Transaction is to be reduced to arrive at the net Sale Proceeds.
Basic Computations
Particulars Computation INR
a) Cost of Shares purchased on01.04.2017
(1,000 × 120) + (2% of
1,20,000) + 0.5% of 1,20,000
1,23,000
b) Sale Proceeds of Shares sold on31.03.2018
(500 × 90) – 2% of 45,000 44,100
c) Profit on Sale of Bonus Shares on31.03.2018
Sale Proceeds = 44,100
Less: Average
Cost 1,23,000 x 50,000
-------------- = (41,000) 1,50,000
3,100
d) Valuation of Equity Shares of31.03.2018
1,00,000 Cost: 1,23,000 x =
1,50,000
82,000
Market Value: 1,000 Shares of
INR 90 = 90,000
Least of the two 82,000
PRIME ACADEMY
IPC/49PT/PAPL Page 3
Investment (Equity Shares of Lakshmi Limited) Account
Date Particulars NV Cost Date Particulars NV Cost
01.04.2017 To Bank 1,00,000 1,23,000 31.03.2018 By Bank 50,000 44,100
31.03.2018 To Bonus 50,000 - 31.03.2018 By balance 1,00,000 82,000
Shares c/d 31.03.2018 To P&L A/c 3,100
Total 1,50,000 1,26,100 Total 1,50,000 1,26,100
1(b): Period of Indemnity
Computation of GP Rate
Net Profit + Insured Standing Charges
GP Rate for Claim purposes= =
Sales 90,000+60,000
5,00,000
30%
Computation of Insurable Amount Particulars INR
Annual Turnover, i.e. Turnover for 12 months preceding the date of Fire 6,00,000
Add: Adjustment for Increase in Turnover (10% of INR 6,00,000) 60,000
Adjusted Annual Turnover 6,60,000
GP on Adjusted Annual Turnover at 30% on INR 6,60,000 = Insurable Amount 1,98,000
Computation of Short Sales
Particulars INR
Std Turnover from 01.03.2018 to 31.08.2018 (previous year corresponding to Indemnity Period)
2,40,000
Add: Adjustment for Increase in Turnover (INR2,40,000 x 10%) 24,000
Adjusted / Expected Turnover during Indemnity Period 2,64,000
Less: Actual turnover during Indemnity Period, i.e. from 01.03.2018 to 31.08.2018
(80,000)
Short Sales 1,84,000
PRIME ACADEMY
IPC/49PT/PAPL Page 4
Computation of Allowable Additional Expenses
Particulars INR (a) Actual Additional Expenses 9,300
(b) GP on Sales generated by Additional Expenses [(80,000 - 55,000) x 30%] 7,500
(c) Additional Expenses x GP on Adjusted Annual Turnover = INR 9,300 x
GP on Adjusted Annual Turnover + Uninsured Standing Charges
30%×6,60,000 1,98,000 = INR9,300x =
(30% × 6,60,000)+5,000 2,03,000
9,071
Allowable Additional Expenses = Least of the above 7,500
Computation of Claim
Particulars INR
Loss of Profit = Gross Profit on Short Sales = 30% on INR1,84,000 55,200
Add: Allowable Additional Expenses (WN 5) 7,500
Less: Saving in Insured Standing Charges (Given) (2,700)
Net Claim for Loss of Profit 60,000
Admissible Claim (based on Average Clause) = Net Claim x Policy Amount 1,65,000
= INR 60,000 x Insurable Amount 1,98,000
50,000
Note: It is assumed that Trend Adjustment is required on the Total Amount of Annual Turnover. However, part of the Annual Turnover represents the trend adjusted figure. Alternatively, the students may ignore trend and take only the given Annual Turnover. The Claim would be INR55,000, which is more than the Claim as computed above. So, it is possible that the Insurance Company would insist on trend adjusted on Annual Turnover.
2: Trading and Profit and Loss Account of Easwar for the year ended31stMarch
Particulars INR Particulars INR To Opening Stock 33,000 By Sales (WN 1) 9,60,000 To Purchases (WN 2) 7,20,000 By Closing Stock 33,000 To Gross Profit (balancing figure) 2,40,000
Total 9,93,000 Total 9,93,000
To Business Expenses 1,57,500 By Gross Profit b/d 2,40,000
To Repairs 3,500 To Depreciation (15% on 1,80,000) 27,000 To Travelling Expenses 18,000 To Loss of Cash by Theft (written off) (WN 5)
1,500
To Net Profit (balancing figure) 32,500 Total 2,40,000 Total 2,40,000
PRIME ACADEMY
IPC/49PT/PAPL Page 5
A. Balance Sheet of Easwer as at 31stMarch
Capital and Liabilities INR Properties and Assets INR
Capital (WN 6) 2,40,000
Non-Current Assets:
Machinery (120 + 60) 1,80,000
Less: Depreciation (27,000) 1,53,000
Current Liabilities:
Bank Overdraft 2,667 Current Assets:
Sundry Creditors 55,833 Stock in Trade 33,000
Outstanding Expenses 7,500 Sundry Debtors 1,20,000
Total 3,06,000 Total 3,06,000
Working Notes: 1. Computation of Sales during the year and Debtors at year-end
Particulars INR Debtors as at the beginning (relating to Sales of last year), representing to 2 months Credit Sales
1,00,000
INR 1,00,000 So, Total Credit Sales in last year( × 12months)
2 Months
6,00,000
1 1 Add: Cash Sales(= of Credit Sales, i.e. of Total Sales)
3 4
2,00,000
Total Sales during last year 8,00,000
Current Year's Sales = Previous Year Sales + 20% thereon = INR 8,00,000 + 20% = INR 9,60,000
Cash25% Credit75% INR2,40,000 INR7,20,000
So, Debtors at the end of Current Year = 2 months Credit Sales = months = INR
1,20,000.
1. Computation of Purchases during the year
Particulars INR
Sales for the current year (WN 1) 9,60,000 Less: Gross Profit at 25% of Sales (INR 9,60,000 x 25%) 2,40,000 Cost of Goods Sold 7,20,000
Since there are no changes in Stock Level, Opening Stock = Closing Stock. So, Purchases = COGS
7,20,000
Credit Purchases = Total Purchases INR 7,20,000 - INR50,000 Cash Purchases (given)
6,70,000
PRIME ACADEMY
IPC/49PT/PAPL Page 6
INR 6,70,000 Creditors at year-end = 1 month's Credit Purchases=( x
12 months 1 month)
55,833
2. Sundry Debtors Account (To find out Collections from Debtors
Particulars INR Particulars INR
To balance b/d To Credit Sales (WN 1)
1,00,000 7,20,000
By Bank - Collection (balancing figure) By balance c/d (WN 1)
7,00,000
1,20,000
Total 8,20,000 Total 8,20,000
3. Sundry Creditors Account (To find out payments to creditors)
Particulars INR Particulars INR
To Bank – Payment (balancing figure) To bal c/d (WN 2)
6,59,167
55,833
By Balance b/d By Purchases – Credit (WN 2)
45,000 6,70,000
Total 7,15,000 Total 7,15,000
1. Cash and Bank Account (To find out Cash Lost and Closing Bank Balance) Particulars Cash Bank Particulars Cash Bank
To Balance c/d 8,000 16,500
By Creditors – Payment made 50,000 6,59,167
To Debtors – Collections received - 7,00,000
By Business Expenses
1,45,000 5,000
To Cash Sales 2,40,000 - By Repairs 3,500 - To Additional Capital
- 5,000 By Addition to Machinery
- 60,000
To balance c/d (Overdraft Balance) - 2,667
By Travelling Expenses 18,000 -
(balancing figure)
By Private Drawings
30,000 -
By Cash lost by theft
1,500 -
(balancing figure)
Total 2,48,000 7,24,167 Total 2,48,000 7,24,167
Note: Business Expenses paid = Total INR 1,57,500 – Outstanding INR 7,500 = 1,50,000, of which cheque payment is INR5,000. Hence, balance Cash payment = 1,50,000 – 5,000 = INR 1,45,000
2. Capital Account (To find out Closing Capital) Particulars INR Particulars INR
To Drawings 30,000 By balance b/d 2,52,500 To Loss of Furniture 20,000 By Bank – Capital Introduced 5,000
To balance c/d (balancing figure)
2,40,000 By Net Profit for the year (from P & L) 32,500
PRIME ACADEMY
IPC/49PT/PAPL Page 7
2,90,000 Total 2,90,000
Answer to QuestionNo.3(a):
Creditors Capitals
INR INR A (INR) B (INR) C (INR)
Balance Due after loan (W.N.(i)) July Balance available Realisation less expenses and cash retained
6,000
17,500
17,000 55,000 37,500 31,500
Amount available and paid 23,500 17,000 - - 6,500
Balance due August Opening balance Expenses paid and balance carried forward Available for distribution Cash paid to ‘B’ and Equipment given to C. (Excess paid to ‘C’ INR 7,333) September Opening balance Amount realized less expenses Amount paid to partners
8,000
4,000
— 55,000
—
37,500
4,000
25,000
10,000 4,000
2,500 74,000
55,000
41,500
33,500
25,400
15,000
9,600 76,500
13,500 8,100 5,400
Working Note: (i) Highest Relative Capital Basis
A
INR B
INR C INR
Scheme of payment for July Balance of Capital Accounts 67,000 45,000 31,500 Less : Loans (12,000) (7,500) —
A 55,000 37,500 31,500 Profit sharing ratio 5 3 2
Capital Profit sharing ratio 11,000 12,500 15,750
Capital in profit sharing ratio, taking A’s capital as base B Excess of C’s Capital and B’s Capital (A-B) Profit sharing ratio Capital Profit sharing ratio Capital in profit sharing ratio taking B’s Capital as base Excess of C’s Capital over B
55,000 33,000 4,500
3 1,500
4,500
22,000 9,500
2 4,750
3,000 6,500
PRIME ACADEMY
IPC/49PT/PAPL Page 8
(i) Scheme of distribution of available cash:
A INR
B INR
C INR
Scheme of payment for September Balance of Capital Accounts (A) 55,000 33,500 15,000 Profit sharing ratio 5 3 2 Capital/Profit sharing ratio 11,000 11,167 7,500 Capital in profit sharing ratio taking C’s
Capital as base (B) 37,500 22,500 15,000 Excess of A’s capital and B’s capital (A-B) 17,500 11,000 - Profit sharing ratio 5 3 Capital in profit sharing ratio 3,500 3,667 Capital in profit sharing ratio taking A’s
capital as base 17,500 10,500 - Excess of B’s capital over A’s capital - 500 -
Payment INR 500 (C) - (500) -
Balance of Excess 17,500 10,500 Payment INR 28,000 (D) (17,500) (10,500) -
Balance [A-C-D] 37,500 22,500 15,000
Payment (INR 76,500 – INR 28,500) INR 48,000
(D) (24,000) (14,400) (9,600)
Loss 13,500 8,100 5,400
Total Payment INR 76,500 [A+C+D] 41,500 25,400 9,600
b)
(i) Calculation of profit earned by the branch
In the books of Jammu Branch
Trading Account And Profit and Loss Account
Particulars Amount Particulars Amount
To Opening Stock 220,000 By Sales 12,00,000
To Goods received by head office
11,00,000 By Closing Stock (Refer WN)
360,000
To Expenses 45,000
To Net profit 195,000
Total 15,60,000 Total 15,60,000
PRIME ACADEMY
IPC/49PT/PAPL Page 9
(ii) Stock reserve in respect of unrealized profit:
INR 360,000*(20/120) = INR 60,000
Working note:
Particulars Amount Rs
Cost Price
Invoice Price
Sale Price
Calculation of closing stock at invoice price
Opening stock at invoice price
Goods received during the year at invoice price
Less: Cost of goods sold at invoice price
Closing stock
100
120
150
220,000
11,00,000
13,20,000
(960,000)
360,000
(12,00,000*(120/150)
4(a): 1. Computation of Time Ratio and Sales Ratio
Particulars Pre Inc. Period Post Inc. Period Total
(a) No. of Months = Time Ratio
01.04.2017 to 31.07.2017 = 4 months
01.08.2017 to 31.03.2018 = 8 months
4 : 8= 1 :2
(b) Sales per Month Ratio (given) Overall Sales Ratio
Say INR1 x 4Months = 4
INR 1.5 x 4 Mths + INR2 x 4 Mths = 14
4 :14= 2 :7
(c) Rent for Addnl Premises (from 1stDec.)
- 5,000 x 4 Months = INR 20,000
(d) Balance Rent (INR 1,40,000 - INR 20,000) distributed in 1 : 2 (Time Ratio)
INR 40,000 INR 80,000
(e) Total Rent Expense (d) + (e)
INR 40,000 INR 1,00,000
(f) Additional Salary (INR 2,000 × 8)
- INR 16,000
(g) Balance Salary (INR 4,48,000 - INR 16,000) distributed in 1 : 2 (Time Ratio)
INR 1,44,000 INR 2,88,000
(h) Total Salary Expense (f) + (g)
INR 1,44,000 INR 3,04,000
PRIME ACADEMY
IPC/49PT/PAPL Page 10
b) The treatment done by the company is not in accordance with AS-16. As per AS 16, for specific borrowings, capitalisation rate is done for the “actual borrowing cost” incurred. The borrowing cost capitalised should not exceed the actual borrowing cost incurred during the period Hence, the capitalization of borrowing costs should be restricted to the actual amount of interest expenditure i.e. ` 1,70,33,465. Thus, there is an excess capitalization of ` 10,46,535. This has resulted in overstatement of profits by ` 10,46,535 and amount of fixed assets has also gone up by this amount.
(5 Marks)
PRIME ACADEMY
PRIME/49th PT/IPC 1
PRIME ACADEMY 49thSESSIONPROGRESS TEST – IPC
PAPER 2 - CORPORATE LAWS AND OTHER LAWS No. of Pages: 4 Total Marks: 75 Time Allowed: 2 hrs
PART - A Each question 1 mark
1. As per General Clauses Act, 1897, Central Act include a) An act of the Domination Legislature or of the Indian Legislature passed before the
commencement of the constitution. b) An Act made before such commencement by the Governor-General in Council or the
Governor General, acting in a legislative capacity. c) Both of the above. d) None of the above.
2. Company shall maintain a complete record of private placement offers in___________________
a) Form PAS–2 b) Form PAS –3 c) Form PAS–4 d) Form PAS –5
3. Ejusdem Generis means a) Let the buyer aware b) Harmonious construction c) Of the same kinds or species d) Words must be constructed in conjunction with the other words and phrases used in the
text.
4. What is liability of members, if company is limited by shares? a) Unpaid value of shares b) Guarantee amount c) Unlimited liability d) None of the above
5. An indorsement by which the indorser excludes his liability by express words, is known as___ .
a) Facultative indorsement b) Restrictive indorsement c) sans recourse indorsement d) contingent indorsement
6. Section 8 company cannot alter its Memorandum or Articles without approval of ________ .
a) All directors b) Central Government c) State Government d) Charity Commissioner
7. Object of definitions contained in general ClausesAct,1897 are mean to provide for proper interpretation of a) All Central Acts made after commencement of this Act. b) Few Central Acts made after commencement of this Act c) All central Acts made before commencement of this Act. d) All central Acts made before or after commencement of this Act.
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8. After completion of buy-back, a return in form SH 11 has to be filed with ROC and SEBI. Along with return, a certificate signed by ______________shall be submitted. a) two directors b) Two directors and company secretary c) One director and one Managing Director d) One managing director and company Secretary
9. Which of the following is an incorrect presumption of Interpretation of Statutes? a) The state is not affected by a statute unless it is expressly mentioned as being so affected. b) A statute is very much intended to be consistent with the principles of International law. c) The legislature does not make any alternation in the existing law unless by express
enactment. d) Where powers and duties are inter-connected and it is not possible to separate one from
the other in such a way that powers may be delegated while duties are retained and vice versa, the delegation of powers takes with it the duties.
10. BasedonthecurrentprovisionsandlimitsprescribedintheCompaniesAct2013, “Small company” means a company, other than a public company, I. Paid-up share capital of which does not exceed INR ;and II. TurnoverofwhichaslatestprofitandlossaccountdoesnotexceedINR_________ .
a) 10 Crs; 100Crs b) 50 Crs; 150Crs c) 50 Lakhs; 2Crs d) 20 Crs; 10Crs.
11. AsperRule10ofcompanies(RegistrationofCharges)Rules2014,theentriesin Register of charge
maintained by company shall be authenticated by a) A director of company b) Secretary of the company c) Other person Authorised by Board d) Any of the above
12. In case of ‘Special resolution’, a resolution is passed only when at least_ of the members present in person or by proxy cast vote in favour of their resolution. a) 51% b) 60% c) 66.66% d) 75%
13. Rajesh has formed a ‘One Person Company (OPC)’ with his wife Roopali as nominee. For the last two years his wife Roopali is suffering from terminal illness and due to this hard fact he wants to change her as nominee. He has a trusted and experienced friend Ramnivas who could be made nominee or his (Rajesh) son Rakshak who is of seventeen years of age. Whom should he nominate as nominee in place of his wife? a) Since blood relation can only be appointed as nominee in case of OPC, Rajesh needs to appoint
his son Rakshak. b) Rajesh can appoint his friend Ramnivas as nominee in his OPC c) Roopali is not agreeable to the proposal of Rajesh and hence, Rajesh cannot change her as the
nomine d) Either Rakshak or Mr. Ramnivas can be appointed as nominee
14. A Company limited by shares can issue equity shares with differential voting rights. Which of the following is not a necessary condition to be fulfilled before issue of such shares: a) The articles of association of the company shall authorize issue of shares with differential
rights;
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b) The issue of shares shall be authorized by an ordinary resolution passed at a general meeting of the shareholders;
c) The issue of shares shall be authorized by special resolution passed at a general meeting of the shareholders;
d) The company shall have consistent track record of distributable profits for the last three years;
15. A Ltd. is the holding company of B Ltd. Another company C Ltd. is the subsidiary company of B Ltd. Is there any relationship between A Ltd. and C Ltd. a) There is no relationship between A Ltd. and C Ltd. b) C Ltd. is deemed to be the subsidiary of A Ltd. c) A Ltd. shall be deemed to be the holding company of C Ltd. provided A Ltd. Acquires at least
10% stake in C Ltd. d) C Ltd. shall be deemed to be the subsidiary of A Ltd. if the latter company acquires
PART B Answers any six questions out of seven questions
1. a). X,aregisteredshareholderofYlimitedlefthissharecertificateswithhisbroker A.A forged the transfer
deed in favour of Z. Accompanied by these share certificates Z lodged the transfer deed along with the share certificates with the company for registration. The company secretary who had certain doubts, wrote to X informing him of the proposed transfer and in the absence of a reply from him (Mr. X) within the stipulated time, registered the transfer of shares in the name of Z. Subsequently, Z sold the shares to J and J’s name was placed in the register of shareholders. Later on, X discovered that forgery has taken place. Referring to the provisions of the Companies Act, 2013 state the remedy available to X and Z in the given case. Explain. (5 Marks)
b). State the procedure for inspection of minutes Book of General Meetings of a company by the members (5 Marks)
2. a). P Ltd. issued and published its prospectus to invite the investors to purchase its shares. The said
prospectus contained a false statement. Mr.X purchased some partly paid shares of the company in good faith on the stock exchange. Subsequently, the company was wound up and the name of Mr.X was in the list of contributors. Decide: i. Whether Mr. X is liable to pay the unpaid amount? ii. Can Mr. X sue the directors of the company to recover damages? (5 Marks)
b). ‘A’drawsabillofexchangepayabletohimselfonXwhoacceptsthebillwithout consideration. Just to accommodate A. 'A' transfers the bill to P for good consideration. State the rights of A and P. Would your answer be different if A transferred the bill to P after maturity? (5 Marks)
3. a). Explain provisions for ‘Appointment of Trustee for Depositors’ under the Companies Act, 2013.
(5 Marks) b) Explain the rule of ‘Ejusdem Generis' with regard to interpretation of statutes.
(5 Marks)
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4. a) What is meant by ‘Red-herring prospectus'? State the circumstances under which such
prospectus is required to be filed with the Registrar of Companies. What is the requirement relating to filing of final prospectus in such cases? (5 Marks)
b) ExplainbrieflyanyfoureffectsbyrepealofanexistingActbycentrallegislature enumerated in Section
6 of the General Clauses Act, 1897. (5 Marks)
5. a) Howwouldyoureconcileincaseonepartoftheexecutedleasedeedisinconflict with the other part?
(5 Marks) b) K Ltd. was in the process of incorporation. Promoters of the company signed an agreement for
the purchase of certain furniture for the company and payment was to be made to the suppliers of furniture by the company after incorporation. The company was incorporated and the furniture was used by it. Shortly after incorporation, the company went into liquidation and debt could not be paid by the company for the purchase of above furniture. As a result, supplier sued the promoters of the company for the recovery of money. Examine whether promoters can be held liable for payment under the following situations: 1. When the company has already adopted the contract after incorporation? 2. When the company makes afresh contract with the suppliers in terms of pre- incorporation
contract? (5 Marks)
6. a) What is the concept of ‘Charge’ under the provisions of the composition of the Companies Act,
2013? Point out the circumstances under which a floating charge becomes a fixed charge. (5 Marks)
b) What is meant by 'sans Recourse Endorsement' of a bill of exchange? How does it differ from 'Sans Frais Endorsement'? (5 Marks)
7. a). Walnut Limited has an authorized share capital of 1,00,000 equity shares of INR 100 per share
and an amount of INR 3 crores in its Share Premium Account as on 31-3-2018. The Board of Directors seeks your advice about the application of share premium account for its business purposes. Please give your advice.
(5 Marks)
b) Ashish Ltd. having a net-worth of INR 80 crores and turnover of INR 30 crores wants to accept deposits from public other than its members. Referring to the provisions of the Companies Act, 2013, state the conditions and the procedures to be followed by Ashish Ltd. For accepting deposits from public other than its members.
(5 Marks)
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Prime Academy 49TH Session Progress Test
IPC-New Scheme- Law
Suggested Answers
PART A
1. c) Both of the above.
2. d) Form PAS –5
3. c) Of the same kinds or species
4. a) Unpaid value of shares
5. c) sans recourse endorsement.
6. b) Central Government
7. a) All Central Acts made after commencement of this Act.
8. a) two directors
9. b) A statute is very much intended to be consistent with the principles of
International law.
10. c) 50 Lakhs; 2Crs
11. d) Any of the above
12. d) 75%
13. b
14. c
15. b.
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PART B:
Question 1)
(a). Aforgedtransferislegallyineffectiveandconfersnotitleonthetransferee of shares.
Forged transfer is void-ab-initio transfer and therefore, original owner will
continue to be owner of shares. His rights are not affected in anyway.
Transferee does not become owner of shares and therefore he has no right. A
forged transfer is legally ineffective and confers no title on the transferee of
shares.
Forged transfer is void ab-initio transfer and therefore, original owner will
continue to be owner of shares. His rights are not affected in anyway.
Transferee does not become owner of shares and therefore he has no right.
If a company registers a forged transfer, the original owner of the shares can
compel the company to restore his name on the Register of members and he is
entitled to dividends, if declared, by company.
If the company has suffered loss by forged transfer, it can no doubt claim an
indemnity from the person presenting the instrument of transfer for registration
even though he is quite innocent of the forgery.
Rights of X
He can compel the company to restore his name on the Register of members
(sinceaforgedtransferiswithoutanylegaleffectandthetrueownercontinues to be the
member of the company).
Liabilities of Z
Z is liable to compensate the loss caused to the company since he had lodged the
forged transfer deed, even though he was not aware of the forgery.
Rights of J
The company can refuse to register J as a member.
ThecompanyisliabletoJsincethecompanyhadissuedsharecertificatetoZ, and
therefore, the company shall be stopped from denying the liability accruing to it
from its own default.
(5 Marks)
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(b) Section 119 of Companies Act, 2013 contains provision for inspection of
Minute Book of General Meeting.
MinuteBookofGeneralMeetingshouldbemadeavailableforinspectionofany member
at registered office of company, (not allowed to outsiders)
It should be available for inspection during business hours, subject to
reasonable restriction as specified in Articles or in General Meeting.
Minute book must be available for inspection for at least 2 hours in aday.
Copy of minute book should be provided to any member within 7 days on
payment of prescribed charge.
Directors are entitled to inspect minute book of all meetings.
Auditor or Cost Auditor or Secretarial Auditor may inspect minutes in course of
audit or certification.
(5 Marks)
Question 2:
(a) Therighttoclaimcompensationforlossordamagesustainedbyreasonofany untrue
statement in a prospectus is available only to a person who has subscribed securities
based on the faith of the prospectus containing untrue statement.
Person who has purchased securities from open market has no remedy against the
company or its directors or promoters. - Peek vs. Gurney.
Mr. X is not the original allottee of shares, since he purchased shares from the
secondary market, viz. stock exchange.
Mr. X is liable to pay the unpaid calls, since he holds partly paid shares and he is
liable as a contributory
Mr. X cannot sue the directors to recover damages, since Mr. X has no cause of
action against the company or the directors as he did not subscribe for the shares
on the faith of a misleading prospectus.
(5 Marks)
(b). A cannot sue X as there is no consideration between A and X.
It is an accommodation bill drawn by A and accepted by X without consideration.
According to section 43 of Negotiable Instruments Act, 1881, an instrument
without consideration creates no obligation between parties to the transaction.
Hence, there is no obligation to pay.
Section 43 further provides that if accommodation bill is transferred to holder for
consideration, holder may recover amount due on such instrument from the
transferor for consideration or any prior party thereto.
Moreover, according to section 59,in case of accommodation bill, defect in title of
transferor does not affect the title of holder acquiring after maturity.
Accordingly, P can sue A and X as he is holder for consideration.
Even if A had transferred the bill after maturity answer would remain same.
(5 Marks)
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Question 3
(a) Appointment
Written consent of trustee should he obtained before appointment
Company should execute trust deed 7 days before issue of circular in
FormDPT-2.
Statement that consent of deposit trustee is obtained shall be inserted in
circular.
Who can be appointed as Trustee?
Following person cannot be appointed as trustee:
Director, KMP, employee of company, its holding company, its subsidiary
company or its associate company
Who is indebted to company
Who is depositor
Who has pecuniary relationship with company
Who has provided guarantee?
(5 Marks)
(b)
'Ejusdem generis’ rule of interpretation is useful tool in construction of
general words.
It is also known as ‘rule of lord tenderson’.
Ejusdem Generis means ‘Same kind, Species, class or nature’.
This rule suggests that general words following specific words should be
construed with reference to the previous words and its meaning should be
narrowed down.
However, the specific words must for madistinctgenus or category'. It is not a
universal rule of law. but is only permissible inference in the absence of any
indication to the contrary.
General words, such as ‘etc’ and the like’ following specific words are limited
by such specific words.
(5 Marks)
Question 4
(a) Red-herring prospectus means a prospectus which does not have complete
particulars on the price of securities offered and the quantum of securities
offered.
Generally, RHP is used in case of public issue by way of Book-Building method.
RHP may be issued by company before issue of prospectus.
It may give a band or minimum figure of issue size and issue price.
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It should be filed with ROC at least 3 days before opening of subscription list and offer.
On closing of public offer of securities, the details of information which are not
included in RHP are required to be filed with ROC and SEBI.
RHP carries same obligation as are applicable to a prospectus
(5 Marks)
(b) Repeal means revoke or cancel. Section-6 of General Clauses Act, 1897 explain
following effects of repeal of an existing Act by Central Legislature:
Where any Central Act repeals any enactment, the repeal shall not affect:
I. Any legal proceeding, obligation, liability, penalty, forfeiture or
punishment arising out of, or imposed under the repealed enactment
II. Any investigation or legal proceeding or remedy in respect of right, privilege.
Such investigation, legal proceeding or remedy may be instituted,
continued or enforced, and any such penalty, forfeiture or punishment may
be imposed as if the repealing Act had not been passed.
Repeal of a provision will not affect the continuance of the enactment so repealed
and in operation at the time of repeal unless different intention appears.
(5 Marks)
Question 5
(a) Reasonable construction suggests that the words of deeds must be construed so as
to lead to a sensible meaning.
Generally the words or phrases of a statute are to be given their ordinary
meaning.
In case there is a conflict between two or more clauses in the Deed, an effort
should be made to resolve the conflict by interpreting the clauses so that both
the clauses are given effect to.
An effort should be made to read both the parts of the deed harmoniously, if
possible, if that is not possible, then the earlier part will prevail over the latter
one which should be dis regarded.
It is rule of construction that the same word cannot have two different meanings
in the same document, unless the context compels the adoption of such a
course.
(5 Marks)
(b) Preliminary contract means contract entered by the promoters on behalf of company
before incorporation of company.
Following are two possible positions of pre-incorporation contract:
The contract is binding. It is binding, if it is adopted as per sections 15 & 19 of the
Specific Relief Act, 1963; or
The contract is not binding. If the contract is not binding, promoters are personally
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liable for such contract.
I. A company cannot ratify pre-incorporation contract entered into by the
promoters on its behalf. The promoter will be liable for it as company has not
entered into fresh contract. Adoption of contract means ratify contract.
II. If company after incorporation enters into fresh contract with same terms and
conditions, liability of promoters will be over.
(5 Marks)
Question 6
(a) Floating charge does not attach to any definite property but covers the property of a
circulating and fluctuating nature such as stock-in-
trade, debtors, etc.
It attaches to the property charged in the varying conditions which happen from
time to time.
Such a charge remains dormant until the person in whose favor charge is created
takes steps to crystallize the floating charge.
Circumstances:
A floating charge crystallizes or becomes fixed in following situation:
Where the company ceases to carry on the business, whether the principal money
has become payable or not Payable or not, unless the debenture or trust deed
contains the stipulation to the contrary.
On commencement of winding up of the company.
If a debenture holder, having become entitles to realise the securities by reason of
the fact that principal money has become payable, intervenes for the purpose by
appointing receiver or by making an application to the court for appointment of
receiver.
On happening of event specified in the deed.
(5 Marks)
(b). The Annual General Meeting must be held during business hours. [Business hours
means – 9a.m to6p.m]
• The Annual General Meeting has to be called before 6p.m. However, once meeting
commences, it can continue even after 6p.m
• A company may, by appropriate provisions in its articles, fix the time for its
annual general meeting and may also by a resolution passed in one Annual
General Meeting fix the time for its subsequent Annual General Meetings.
(5 Marks)
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Question 7:
(a) According to section 52 of the Companies Act, 2013, where a company issues shares
at a premium, whether for cash or otherwise, a sum equal to the aggregate amount
of the premium received on those shares shall be transferred to a "securities
premium account" and the provisions of this Act relating to reduction of share
capital of a company shall, except as provided in this section, apply as if the
securities premium account were the paid-up share capital of the company.
The securities premium account may be applied by the company—
(a) towards the issue of unissued shares of the company to the members of the
company as fully paid bonus shares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any
issue of shares or debentures of the company;
(d) in providing for the premium payable on the redemption of any redeemable
preference shares or of any debentures of the company; or
(e) for the purchase of its own shares or other securities under section 68
(5 Marks)
(b)
Acceptance of deposit from public: According to section 76 of the Companies Act,
2013, a public company, having net worth of not less than 100 crore rupees or
turnover of not less than 500 crore rupees, can accept deposits from persons other
than its members subject to compliance with the requirements provided in sub-
section (2) of section 73 and subject to such rules as the Central Government may,
in consultation with the Reserve Bank of India, prescribe.
Provided that such a company shall be required to obtain the rating (including its
net-worth, liquidity and ability to pay its deposits on due date) from a recognised
credit rating agency for informing the public the rating given to the company at the
time of invitation of deposits from the public which ensures adequate safety and the
rating shall be obtained for every year during the tenure of deposits.
Provided further that every company accepting secured deposits from the public
shall within thirty days of such acceptance, create a charge on its assets of an
amount not less than the amount of deposits accepted in favour of the deposit
holders in accordance with such rules as may be prescribed.
Since, Ashish Ltd. has a net worth of ` 80 crores and turnover of ` 30 crores, which
is less than the prescribed limits, hence, it cannot accept deposit from public other
than its members. If the company wants to accept deposits from public other than
its members,
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49TH SESSION PROGRESS TEST
COST AND MANAGEMENT ACCOUNTING
TIME ALLOWED : 2 HOURS MAXIMUM MARKS 75
PART A (25 MARKS)
Question 1 to 15 carry 1 Mark each and 15 to 20 carry 2 Marks each
1. Which of the following is included in both the prime cost and conversion cost?
(A) Direct Material (B) Direct Labour (C) Indirect Material (D) Indirect Labour
2. The cost which has already been incurred and cannot be avoided by decisions
taken in the future is :
(A) Fixed cost (B) Sunk cost (C) Opportunity cost (D) Imputed cost
3. The following information are given: 10,000 units of material are consumed per
year; per unit cost is Rs.20; cost of processing an order is Rs.50; Annual interest
rate is 5%; Annual carrying cost of material per unit is 15% (other than interest).
What would be the Economic Order Quantity (EOQ)?
(A) 200 units (B) 500 units (C) 400 units (D) 100 units
4. V Ltd. is the manufacturer of picture tubes for TV. The following are details of
their operation. Minimum usages 50 tubes per week, Maximum usages 200
tubes per week; Normal usages 100 tubes per week; lead time to supply 4-6
weeks; and Re-order quantity 400 tubes. What would be the maximum and
minimum level of stock?
(A) 1400 units and 700 units (B) 1200 units and 700 units
(C) 1300 units and 600 units (D) 1100 units and 600 units
5. Weekly time sheets are used as a method for :
(A) Time Keeping (B) Time Booking (C) Preparation of Payrolls (D) Measuring
Idle Time
6. Labour turnover rate for the quarter ended 31st Dec. 2018 as 16%, 8% and 6%
under flux, replacement and separation methods respectively. If the number of
workers replaced during the quarter is 60. What number of workers left and
discharged and what number of workers recruited and joined?
(A) 48 and 112 (B) 45 and 75 (C) 45 and 15 (D) 40 and 100
7. Cars, jeeps, buses etc. produced by an automobile industry are classified as :
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(A) Joint products (B) By-products (C) Co-products (D) None of the above
8. A transport company is running five buses between two towns, which are 50
km apart. Seating capacity of each bus is 50 passengers. Actual passengers
carried by each bus were 75% of seating capacity. In April, 2017, all the buses
ran on all days of the month. Each bus made one round trip per day. Total
passenger km for the month April, 2017 would be :
(A) 2,81,250 (B) 1,87,500 (C) 5,62,500 (D) None of the above
9. Which of the following items are purely financial incomes —
(A) Discount on issue of shares
(B) Interest on bank loan
(C) Transfer fees received
(D) All of the above
10. 4,000 Kgs. of material is purchased @ 2 per Kg. Normal wastage is estimated at
the rate of 10%. The wastage has recovery value of 1.10 per Kg. Calculate cost
of material of work order of 600 units, if each unit requires 1.5 Kg. of material
(A) 1,260
(B) 1,800
(C) 1,620
(D) 1,890
11. When costing loss is Rs.6,500, administrative overhead under absorbed being
Rs. 500, the loss as per financial accounts should be (Rs.) :
(A) 7,000
(B) 6,500
(C) 6,000
(D) 8,000
12. A worker is allowed 2 hours to produce 5 units of a product. Wages are paid to
the worker @ 20 per hour. In a 48 hours week, the worker produced 150 units.
The earnings of the worker as per Rowan plan will be —
(A) 1,940
(B) 1,450
(C) 1,553
(D) 1,152
13. ............................. is a location, person or item of equipment for which cost
may be determined and used for the purpose of cost control.
(A) Profit centre
(B) Cost centre
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(C) Cost unit
(D) Cost driver
14. If the loss as per financial accounts is Rs.1,65,000 and opening stock is
overvalued in cost accounts by Rs.25,000 and closing stock is undervalued in
cost accounts by Rs.32,000, the loss as per cost accounts will be :
(A) Rs.1,08,000 (B) Rs.1,58,000 (C) Rs.1,72,000 (D) Rs.2,22,000
15. Which of the following is a situation in which the bonus under Halsey 50% Plan
as well as under Rowan Plan will be same?
(A) When time saved is less than time taken (B) When time saved is more than
time taken (C) When time saved is equal to time taken (D) No such situation is
possible
16. Q company manufactures ring binders which are embossed with the customer’s
own logo. A customer has ordered a batch of 700 binders. The following
illustrates the cost of a typical batch of 100 binders: Direct Material ₹70 Direct
Labour ₹25 Machine set up ₹10 Design and Art work ₹35 Prime Cost₹ 140
Direct employees are paid on a piecework basis. Q Company absorbs
production overheads at a rate of 24% of direct wages cost. 6% is added to the
total production cost of each batch to allow for selling, distribution and
administration overheads. Q Company requires a profit margin of 20% on sales
value. The selling price for 700 units (to the nearest ₹) will be : (A) Rs.1,354 (B)
Rs.1,300 (C) Rs.1,083 (D) Rs.1,325
17. The following details are given to you : Raw materials consumed Rs.1,60,000
Direct wages ? Factory overheads 60% of direct wages Office overheads 10% of
factory cost Cost of production Rs.3,52,000 The amount of direct wages will be :
(A) Rs.1,36,000 (B) Rs.1,20,000 (C) Rs.1,00,000 (D) Rs.1,76,000
18. Contract price Rs.18,00,000, 70% of the contract was completed. Architect gave
certificate for 60% of the contract price on which 80% was paid. Cost incurred
till date Rs.10,50,000. Cost of work uncertified will be :
(A) Rs.1,50,000 (B) Rs.1,80,000 (C) Rs.2,10,000 (D) Rs.3,90,000
19. P Ltd. operates a process costing system. The process is expected to lose 20% of
input and this can be sold for Rs.10 per kg. Inputs for the month of April, 2019
are : Direct material 4,000 kg at a total cost of Rs.66,000, Direct labour
Rs.11,120 for the month. There is no opening and closing WIP. Actual output
was 3,600 kg. What is the valuation of the output?
(A) Rs.62,208 (B) Rs.77,760 (C) Rs.69,120 (D) Rs.85,120
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20. In a manufacturing concern, the joint expenses of products X, Y and Z are
Rs.25,000. Subsequent expenses of products X, Y and Z are Rs.5,900, 4,000 and
4,450 respectively. Sales values are : X Rs.30,000, Y Rs.20,000 and Z Rs.15,000.
Estimated profit on sales are : X 40%, Y 30% and Z 25%. What is the amount of
share in the joint expenses of product X, Y and Z respectively if the selling
expenses are 6% on sales value?
(A) Rs.12,100, Rs.10,000 and Rs.6,800 (B) Rs.10,300, Rs.8,800 and Rs.5,900 (C)
Rs.11,538, Rs.7,692 and Rs.5,769 (D) Rs.10,405, Rs.8,092 and Rs.6,503.
PART B (50 Marks)
Answer ANY FOUR questions. All questions carry equal marks.
1. PQR manufacturers – a small scale enterprise, produces a single product and has
adopted a policy to recover the production overheads of the factory by adopting
a single blanket rate based on machine hours. The annual budgeted production overheads for the year 2015-16 are ` 44,00,000 and budgeted annual machine
hours are 2,20,000.
For a period of first six months of the financial year 2015 -2016, following information were extracted from the books: Actual production overheads ` 24,88,200
Amount included in the production overheads:
Paid as per court’s order ` 1,28,000
Expenses of previous year booked in current year ` 1,200
Paid to workers for strike period under an award ` 44,000
Obsolete stores written off ` 6,700
Production and sales data of the concern for the first six months are as under: Production:
Finished goods 24,000 units Works-in-progress
(50% complete in every respect) 18,000 units Sale:
Finished goods 21,600 units The actual machine hours worked during the period were 1,16,000 hours. It is revealed from the analysis of information that ¼ of the under/ over absorption was due to defective production policies and the balance was
attributable to increase/decrease in costs. Required: (i) Determine the amount of under/over absorption of production
overheads for the six months period of 2015-16.
(ii) Show the accounting treatment of under/ over absorption of production overheads, and
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(iii) Apportion the under/ over absorbed overheads over the items.
2. Your advertising firm has got an offer for an advertisement job. You are required to
submit a quotation for the job for which relevant data are provided below:
Material requirements for the job:
Paper 12 reams at a price of Rs.1,500 per ream
Paints, ink and other printing materials Rs.12,000
Binding materials and other consumables Rs.8,000
Primary packing materials Rs.6,000
Labour requirements:
Services of the following employees will be required for the job:
Required hours Monthly pay
Artist 80 18,000
Painter 96 10,000
Copy writer 60 12,000
Client servicing 120 8,000
Further, you need to hire service of a photographer for 7 days at a charge of Rs.1,500
per day. Besides, overhead costs are to be considered as follows:
Production overheads are 40% of Direct Cost and Selling & Distribution Overheads
are 25% of Production Cost. You keep 12.5% margin on quoted price. Your firm
works 20 days a month and 8 hours a day.
3. From the following Information for the month ending October, 2017, prepare Process
Cost accounts for Process III. Use First–in–first–out (FIFO) method to value equivalent
production.
Direct materials added in process III (Opening WIP) 2,000 units at Rs. 25,750
Transfer from Process II 53,000 units at Rs. 4,11,500
Transferred to Process IV 48,000 units
Closing stock of Process III 5,000 units
Units scrapped 2,000 units
Direct material added in Process III Rs. 1,97,600
Direct wages Rs. 97,600
Production Overheads Rs. 48,800
Materials Labour Overheads
Opening Stock 80% 60% 60%
Closing Stock 70% 50% 50%
Scrap 100% 70% 70%
The normal loss in the process was 5% of production and scrap was sold at Rs. 3 per
unit.
4. Giant Construction Ltd. has been constructing a flyover for 15 months and is under
PRIME ACADEMY
PRIME ACADEMY
P a g e | 6
progress. The following information relating to the work on the contract has been
prepared for the period ended 31st March, 2017.
Amount (Rs.)
Contract price 65,00,000
Value of work certified at the end of the year 57,20,000
Cost of work not yet certified at the end of the year 1,20,000
Opening balances:
Cost of work completed 8,00,000 Materials on site 80,000
Costs incurred during the year:
Material delivered to site 15,90,000 Wages 14,95,000 Hire of plant 2,86,000 Other expenses 2,30,000
Closing balance: Material on site 40,000
As soon as materials are delivered to the site, they are charged to the contract account. A record is kept on actual use basis, periodically a stock verification is
made and any discrepancy between book stock and physical stock is transferred
to a general contract material discrepancy account. The stock verification at the year end revealed a stock shortage of Rs. 15,000.
In addition to the direct charges listed above, general overheads are charged to
contracts at 5% of the value of work certified. General overheads of Rs. 35,000
had been absorbed into the cost of work completed at the beginning of the year. It has been estimated that further costs to complete the contract will be Rs. 5,72,000. This estimate includes the cost of materials on site at the end of the
year (31.3.2017) and also a provision for rectification. Required: (i) Determine profitability of the above contract and recommend how much
profit should be taken for the year just ended. (Provide a detailed schedule
of costs).
(ii) State how your recommendation in (i) would be affected if the contract price was Rs. 80,00,000 (rather than Rs. 65,00,000) and if no estimate has been made of costs to completion.
5. The financial books of a company reveal the following data for the year
ended 31st March, 2017:
(Rs.)
Opening Stock: Finished goods 875 units
76,525
Work-in-process 33,000
01.04.2016 to 31.3.2017
PRIME ACADEMY
PRIME ACADEMY
P a g e | 7
Raw materials consumed 7,84,000
Direct Labour 4,65,000
Factory overheads 2,65,000
Goodwill written off 95,000
Administration overheads 3,15,000
Interest paid 72,000
Bad Debts 21,000
Selling and Distribution Overheads 65,000
Interest received 18,500
Rent received 72,000
Sales 14,500 units 20,80,000
Closing Stock: Finished goods 375 units 43,250
Work-in-process 48,200
The cost records provide as under: Factory overheads are absorbed at 60% of direct wages. Administration overheads are recovered at 20% of factory cost. Selling and distribution overheads are charged at Rs. 5 per unit sold. Required:
Prepare Raw material control a/c, wages control a/c, factory overheads control a/c, , WIP control a/c, Finished goods control a/c, Costing P&L a/c and
Financial P & L a/c for the year ended 31st March, 2017 under integral system.
PRIME ACADEMY
IPC/49PT/PAPL Page 1
PRIME ACADEMY
49TH SESSION PROGRESS TEST
COST AND MANAGEMENT ACCOUNTING SUGGESTED ANSWERS
PART A
1 2 3 4 5 6 7 8 9 10
B B B A A B C C D D 11 12 13 14 15 16 17 18 19 20
A D B D C A B A B B
PART B
1. Amount of under/ over absorption of production overheads during the period of first
six months of the year 2015-2016:
Budgeted Machine hour rate (Blanket rate) = Rs. 44,00,000/2,20,000 hours Rs. 20 per hour (ii) Accounting treatment of over absorbed production overheads: As, one fourth of the over absorbed overheads were due to defective production policies, this being abnormal, hence should be transferred to Costing Profit and Loss Account. Amount to be transferred to Costing Profit and Loss Account = (11,700 * ¼) = 2,925 Balance of over absorbed production overheads should be distributed over Works in progress, Finished goods and Cost of sales by applying supplementary rate*. Amount to be distributed = (11,700 * ¾) Rs. 8,775
Amount (`)
Amount (`)
Total production overheads actually incurred during the period
Less: Amount paid to worker as per court order
Expenses of previous year booked in the current year
Wages paid for the strike period under an award
Obsolete stores written off
Less: Production overheads absorbed as per
machine hour rate (1,16,000 hours × `20*)
Amount of over absorbed production overheads
1,28,000
1,200
44,000
6,700
24,88,200
(1,79,900)
23,08,300
23,20,000
11,700 PRIME ACADEMY
IPC/49PT/PAPL Page 2
Supplementary rate = ` 8,875/ 33,000 units = Rs. 0.2689 per unit (iii) Apportionment of under absorbed production overheads over WIP, Finished goods and Cost of sales
Equivalent completed units
Amou
nt
(`) Work-in-Progress (18,000 units × 50% ×
9,000 2,420 ` 0.2689)
Finished goods (2,400 units × ̀ 0.2689) 2,400 646
Cost of sales (21,600 units × ̀ 0.2689) 21,600
5,809 Total 33,00
0 8,875
2. Job Cost Sheet :
Cost items Amount Amount ` `
Material Costs:
Paper =1 2×1 500 1 8,000
Paints 1 2,000
Binding 8,000
Packing 6,000
Total Material Cost (A) 44,000
Labor Costs:
Artist=80× 1 8000/(20×8) 9,000
Painter=96× 1 0000/(20×8) 6,000
Copywriter=60× 1 2000/(20×8) 4,500
Client servicing=1 20×8000/(20×8) 6,000
Photographer=7× 1 500 1 0,500
Total Labour Cost (B) 36,000
Direct Cost (A+B) 80,000
Production Overhead = 40% of Direct Cost (C) 32,000
Production Cost (A+B+C) 1,12,000 Selling &Distribution Overhead 25% of 28,000
Production Cost(D)
Cost of Sales 1,40,000
Profit 1 2.5% on Quoted Price 20,000
Quoted Price 1,60,000
3.Step-1: STATEMENT OF PRODUCTION
Particulars Units
Opening stock 2000
PRIME ACADEMY
IPC/49PT/PAPL Page 3
Add : Transfer from Previous Process 53,000
Total Input 55,000
Less : Closing stock (5,000)
Process Production 50,000
Less : Normal Loss ( 5% ) (2,500)
Expected Output 47,500 Actual Output 48,000
Abnormal Gain 500
TOTAL SCRAP = NORMAL LOSS – ABNORMAL GAIN = 2500 - 500 = 2000 units
Step -2 UNITS TRANSFERRED & COMPLETED
Particulars Units
Actual Units transferred 48,000
Less : Opening stock (2,000)
Units completed this month 46,000
Step -3 STATEMENT OF EQUIVALENT PRODUCTION
Details Units Material I Material II Labour Overheads
% Units % Units % Units % Units
Opening stock 2,000 - - 20 400 40 800 40 800
Units produced This month
46,000 100 46,000 100 46,000 100 46,000 100 46,000
Normal Loss 2,500 - - - - - - - - Closing WIP 5,000 100 5,000 70 3,500 50 2,500 50 2,500
Abnormal Gain (500) 100 (500) 100 (500) 100 (500) 100 (500)
EQUIVALENT UNITS
55,000 50,500 49,400 48,800 48,800
Step – 4: STATEMENT OF COST
Particulars Materials I Material II Labour Overheads
Input 4,11,500 1,97,600 97,600 48,800
Less : Normal Loss ( 2,500 * 3)
7,500 - - -
4,04,000 1,97,600 97,600 48,800
Equivalent Units 50,500 49,400 48,800 48,800
Cost / Units 8 4 2 1
PRIME ACADEMY
IPC/49PT/PAPL Page 4
Step – 5 STATEMENT OF EVALUATION
Details Computation Results
Opening stock 180028004400 4000
Units started and completed 46,000 units 1248 6,90,000
Abnormal Gain 500 units 1248 7,500
Closing stock 1500,22500,24500,38000,5
61,500
Transfer To Warehouse = 7,19,750
(Opening stock : 25,750 + work done this month 4,000 + units introduced completed and transferred:
6,90,000)
Step – 6 PROCESS A/C
Particulars Units Rs. Particulars Units Rs.
To Opening Stock 2,000 25,750 By Normal Loss 2,500 7,500 To transfer from Previous Process
53,000 4,11,500
By Closing Stock
5,000 61,500
To Material 1,97,600 By transfer to Warehouse ( B /f)
48,000 7,19,750
To Labour 97,600
To Overheads 48,800
To Abnormal Gain 500 7,500
7,88,750 7,88,750
4. Schedule of costs
Amount (Rs.) Amount (Rs.)
Cost incurred: Opening balance 8,00,000
During the year Material consumed:
Opening Stock 80,000
Add: Material delivered during the year 15,90,000
16,70,000
Less: Closing stock 40,000 16,30,000
Wages 14,95,000
Hire of plant 2,86,000
Other expenses 2,30,000
Material discrepancy (Actual) 15,000
General overheads 5% of Rs. 57,20,000 2,86,000
Less: Absorbed at the beginning of the year 35,000 2,51,000 47,07,000
Estimated further cost to complete 5,72,000
PRIME ACADEMY
IPC/49PT/PAPL Page 5
Estimated Total Cost 52,79,000
Contract Price 65,00,000
Estimated Total Profit 12,21,000
(i) Profit to be transferred to Profit and loss account:
Estimated Profit x Value of work certified
x 12 months
Contract price 15 months
= Rs. 12.21L x 57.20𝐿
65𝐿 x
12
15 = Rs. 8,59,584
(ii) If contract price was Rs. 80 lakhs and if no estimate has been made of costs to completion
Value of work certified at the end of year = Rs. 57,20,000 i.e. 71.5% of work has been completed. In such case notional profit has to be calculated
instead of estimated profit.
Value of work certified Rs. 57,20,000 Add: Cost of work not certified Rs. 1,20,000
58,40,000
Less: Cost of work upto the end of year 47,07,000
Notional Profit 11,33,000
Recommendation in (i) above would be affected as follows: Assumption: Cash received is assumed as 90% of value of work certified. Then, the following formula is to applied for the profit to be credited to Profit and loss A/c. for the year just ended.
2
3∗ 𝑁𝑜𝑡𝑖𝑜𝑛𝑎𝑙 𝑝𝑟𝑜𝑓𝑖𝑡𝑠 ∗ (
12 𝑚𝑜𝑛𝑡ℎ𝑠
15 𝑚𝑜𝑛𝑡ℎ𝑠) ∗ (
𝑐𝑎𝑠ℎ 𝑟𝑒𝑐𝑒𝑖𝑣𝑒𝑑
𝑤𝑜𝑟𝑘 𝑐𝑒𝑟𝑡𝑖𝑓𝑖𝑒𝑑)
= Rs. 5,43,840
Answer to Q.NO:5
Raw Material control account
To Creditors 7,84,000 By WIP 7,84,000
Wages control account
To Bank 4,65,000 By WIP 4,65,000
Factory overheads control account
To Bank 2,65,000 By WIP 2,79,000 “ Costing P & L a/c 14,000
2,79,000
2,79,000
PRIME ACADEMY
IPC/49PT/PAPL Page 6
WIP control account
To Bal b/d 33,000 By Finished goods 15,12,800 “ Raw materials 7,84,000
Bal c/d 48,200
“ wages control 4,65,000
“ Factory overheads 2,79,000
15,61,000
15,61,000
Finished goods control account
To Bal b/d 76,525 By Cost of sales 15,46,075
WIP 15,12,800
Bal c/d 43,250
15,89,325
15,89,325
Cost of Sales account
To Finished goods 15,46,075 By Costing P & L a/c 19,21,135 “ Adm Oveheads 3,02,560
“ Selling Oveheads 72,500
19,21,135
19,21,135
Costing P & L account
To Cost of sales 19,21,135 By Sales 20,80,000 “ Adm oh (under) 12,440 “ Factory Oh (over abs) 14,000 “ Profit c/f 1,67,925 “ Selling OH (over) 7,500
21,01,500
21,01,500
Financial P & L account
To interest paid 72,000 By Profit b/f 1,67,925 “ goodwill w/off 95,000 “ rent received 72,000 “ bad debts 21,000 “ Interest received 18,500 “ Profit c/f 70,425
2,58,425
2,58,425
Workings:Computation of under/Over absorption:
Administration: Incurred 315000 Absorbed 3,02,560 (15,21,800 x 20%)
Under absorption 12,440
Selling
Incurred 65000 Absorbed 72,500
over absorption 7,500
PRIME ACADEMY
PRIME/49th PT/IPC 1
PRIME ACADEMY 49thSESSIONPROGRESS TEST – IPC
PAPER 4 - TAXATION
No. of Pages: 5 Total Marks: 75 Time Allowed: 2 hrs
PART – A – Income Tax
1) Mr. Raman is a co-owner of a house property along with his brother.
Municipal value of the property INR 1,60,000
Fair Rent INR 1,50,000
Standard Rent Under the Rent Control Act INR 1,70,000
Rent received INR 15,000p.m.
The loan for the construction of this property is jointly taken and the interest charged by the bank is INR 25,000 out of which INR 21,000 have been paid. Interest on the unpaid interest is INR450. To repay this loan, Raman and his brother have taken a fresh loan and interest charged on this loan is INR 5,000. The Municipal taxes of INR 5,100 have been paid by the tenant. Compute the income from this property chargeable in the hands of Mr. Raman. (7 Marks)
2) Compute the tax liability in the following cases-
3) Compute the gross Total Income in the hands of an individual, if he is
(a) A resident and ordinary resident; and (b) A non-resident for theA.Y.2019-20.
Assessee Status Total income
(in INR)
a) Mr. Mohan Resident Individual of 40 Years 2,90,000
b) Mrs. Swati Non-resident Individual of 65 Years 2,75,000
c) Mr. Bansal Resident Individual of 25 Years 3,50,000
d) Mrs. Priyanka Resident Individual of 21 Years 5,10,000
e) Mrs. Resham Resident individual of 60 Years 12,00,000
f) Mrs.Radhika Resident Individual of 80 Years 18,00,000
g) Mr. Ganshyam Resident Individual of 40 Years 50,00,000
h) Ms. Madhuri Resident Individual of 21 Years 2,50,000
(15 Marks)
PRIME ACADEMY
PRIME/49th PT/IPC 2
Multiple Choice Questions
1. J LTD is registered in India but it has Place of Effective Management in Nepal. D Ltd. Is registered
in Nepal but it has Place of effective Management in India. Choose the correct answer. a) J Ltd is resident of India but D Ltd is non-resident of India. b) J Ltd is non-resident of India but D Ltd is resident of India. c) J Ltd is resident of India and D Ltd is resident of India. d) J Ltd is non- resident of India and D Ltd is non-resident of India.
2. Distribution of assets at the time of complete partition of HUF shall-
a) Be regarded as a transfer in the hands of HUF for capital gain purpose b) Be regarded as a transfer in the hands of copartners c) Not be regarded as transfer in the hands of HUF d) Neither be regarded as transfer in the hands of HUF nor in the hands of coparceners.
3. Any person who has taken loan before 1/4/1999 for purchase or construction of the house which
is self-occupied, maximum deduction for the interest shall be: a) INR1,20,000 b) INR30,000 c) INR2,00,000 d) INR1,50,000 (10 Marks)
S.No Particulars Amount(INR)
(i) Interest from German Derivatives Bonds(1/3rdreceived in India) 21,000
(ii) Income from agriculture land situated in Malaysia, remitted to India 51,000
(iii) Income earned from business in Dubai, controlled from India (INR20,000 received in India)
75,000
(iv) Profit from business in Mumbai, controlled from Australia 1,75,000
(v) Interest received from Mr. Ashok (NRI) on loan provided to
him for business in India
35,000
(vi) Dividend from Brown Ltd., an Indian Co. u/s 115 O of
Income-tax Act.
30,000
(vii) Profit from business in Canada controlled from Mumbai (60% of profits deposited in a bank in Canada and 40% remitted to India)
60,000
(viii) Amount received from an NRI for the use of Know-how for his business in Singapore.
8,00,000
(ix) Dividend received from foreign company in India 25,000
(x) Past years untaxed foreign income brought to India. 50,000
PRIME ACADEMY
PRIME/49th PT/IPC 3
Part B – GST
1. Determine the amount of Input tax credit admissible to PQR Ltd. in respect of the following goods procured by it in the month of January,2019
Sl. No Inward supplies GST (INR)
1 Goods used in constructing an additional floor of office Building 28,800
2 Packing Materials used in a factory 6,000
3 Goods destroyed due to natural calamities 12,500
4 Goods used for repairing the office building and cost of such repairs is debited to profit and loss account.
12,000
5 Paper for photocopying machine used in Administrative Office 950
6 Goods given as gifts 25,000
7 Inputs used for tests or quality control check 15,600
All the conditions necessary for availing the ITC have been fulfilled. Registered Person is not eligible for any threshold exemption. (6 Marks)
2. A) Explain the procedure for assignment of unique identity number to certain special entities. (4 Marks) b). Comment the following:
I. GST- A cure for ills of existing indirect tax regime. (3 Marks) II. Explain the provisions relating to tax invoice in respect of supplier of services. (3 Marks)
3 a) Examine whether the following activities would amount to supply under Sec.7 of the CGST act: (i) Mr. X (an unregistered person) plans to pursue his higher education in US. He receives career
consultancy services from a US based consultant for INR 5,00,000. Does it qualify as a supply? (ii) XYZ & Co. a manufacturer of goods donated old computers to Charitable Schools on account
of renovation of office. The company has taken input tax credit on the computers so donated. Does it qualify as a supply?
(iii) ABC Motors Ltd. engages Sunshine Cars Ltd. as an agent to sell cars on its behalf. For the purpose, ABC Motors Ltd. has supplied 200 cars to the showroom of Sunshine Cars Ltd. located in Rajasthan. Does it qualify as supply? (6 Marks)
b) Explain the conditions for appearance as GST practitioner. (Marks-6+4) (4 Marks)
4. Determine the time of supply in the following cases assuming that GST is payable under reverse charge:
SL. No.
Date of issue of invoice by supplier of goods
Date of receipt of goods
Date of payment by recipient of goods
1 30-11-2018 2-12-2018 25-01-2019
2 30-11-2018 2-12-2018 25-11-2018
3 30-11-2018 2-12-2018 Part payment made on 25-11-2018 and balance amount paid on 28-12-2018
4 1-11-2018 5-12-2018 Payment is entered in the books of
PRIME ACADEMY
PRIME/49th PT/IPC 4
account on 25-11-2018 and debited in recipient’s bank account on 28-11-2018
5 30-11-2018 2-12-2018 Payment is entered in the books of account on 25-11-2018 and debited in recipient’s bank account on 20-11-2018
6 30-11-2018 2-01-2019 10-01-2019
(6 Marks)
MCQ
1. M/s ABC made an arrangement with M/x PQR for supply of goods on 15th July, at this time
goods didn't cross frontiers. The payment of goods has been made on 16th July, while the invoice was made on 18th July. What will be the time of supply in such a case?
a. 15thJuly b. 16thJuly c. 18thJuly d. 16th July or 18th July whichever is suitable to supplier
2. State which of the following statements are not true? A taxpayer who makes delayed payment of tax is liable to pay interest at the rate of 18% for a month or part of the month I. A taxpayer who makes delayed payment of tax is liable to pay interest at the rate of 15%
for a month or part of the month, if he has bona fide reasons for delay. II. A tax payer whom a dedelayed payment of tax shall be liable to pay interest at the rate of
24% for a month or part of the month, if he has mala fide reasons for delay. III. A tax payer whom a dedelayed payment of tax shall be liable to pay interest at the rate of
18% per annum. a. (I) b. (I), (II),(III) c. All of the above d. None of the above
3. ITC of motor vehicles used for is allowed.
a. Transportation of goods b. Transportation of passengers c. Imparting training on driving d. All of the above e.
4. ITC of IGST can be utilised for payment of a. Only CGST b. Only SGST c. Only CGST &SGST d. 1st IGST, 2nd CGST & then SGST
5. Output tax in relation to a taxable person under the CGST Act, 2017includes:
a. Tax chargeable on taxable supplies made by him b. Tax chargeable on taxable supplies made by his agent c. Tax payable by him under reverse charge d. Both (a) and(b)
PRIME ACADEMY
PRIME/49th PT/IPC 5
6. When is the person eligible to claim the tax in case of RCM? a. Same month b. Next month c. Any of the two months d. In any month of the year
7. Which of the following will be excluded from the computation of turnover?
a. Value of taxable supplies b. Value of exempt Supplies c. Non-taxable supplies d. Value of inward supplies on which tax is paid on reverse charge basis
8. Value of supply is considered to exclude:
a. Taxes, duties, cesses and fees levied under any other Act b. SGST and UT GST c. Compensation Cess d. Both (b) and(c)
PRIME ACADEMY
IPC/49th/PAPL Page 1
Prime Academy
49th Session Progress Test
IPC- New Scheme – Taxation
Suggested Answers
Part A – Income Tax
1) Computation of Income from House Property chargeable in the hands of Mr. R (amount in
`) —
Expected Rent [WN-1] 1,60,000
Actual Rent Received or Receivable (`15,000 x 12) 1,80,000
Gross Annual Value (GAV)(higher of above two) 1,80,000
Less: Municipal Taxes[WN-2] -
Net Annual Value(NAV) 1,80,000
Less: -Standard Deduction u/s 24@ 30% of NAV (54,000)
-Joint interest on loan taken for the property (allowed on
accrual basis) (25,000)
-Interest on unpaid interest [WN-3] -
-Interest on fresh loan taken to repay the original loan (allowed
as
deduction)
(5,000)
Income from house property 96,000
Income taxable in Raman’s hands (income from house x 50%) 48,000
Working Notes:
(1) ER= Municipal Value or fair rent, whichever is higher subject to maximum of Standard
rent.
(2) Municipal taxes have been paid by the tenant and not by the owner, hence no deduction shall be allowed in respect of the same.
(3) Interest on unpaid interest cannot be regarded as interest on capital borrowed, hence not deductible.
(4) Raman is a co-owner. Hence, as per Section 26, he will be liable to income tax only in
respect of his share in the property. It is assumed that such share is definite and ascertainable and is50%.
2) The computation of tax liability is given below-
Assessee Total income
(`) Income- tax
Rebate u/s 87A
Income tax after
rebate
HFC
@4%
Total Tax (rounded
off)
Mr. Mohan 2,90,000 2,000 2,000 ------ ----- -------
Mrs. Swati 2,75,000 1,250 ------ 1,250 50 1,300
Mr. Bansal 3,50,000 5,000 2,500 2,500 100 2,600
PRIME ACADEMY
IPC/49th/PAPL Page 2
Mrs. Priyanka 5,10,000 14,500 ------ 14,500 580 15,080
Mrs. Resham 12,00,000 1,70,000 ------ 1,70,000 6,800 1,76,800
Mrs. Radhika 18,00,000 3,40,000 ------ 3,40,000 13,600 3,53,600
Mr. Ganshyam 50,00,000 13,12,500 ------ 13,12,500 52,500 13,65,000
Ms. Madhuri 2,50,000 ----------- ------- ------- ------ -------
3) Computation of Gross total income (amount in `)
S.No Particulars Resident Non
Resident
(i) Interest from German Derivatives Bonds(1/3re received
India) [WN-1]
21,000
7,000
(ii) Income from agriculture land situated in Malaysia,
remitted to India [WN-1&3]
51,000 --------
(iii) Income earned from business in Dubai, Controlled from
India (`20,000 received in India)[WN-1]
75,000 20,000
(iv) Profit from business in Mumbai, Controlled from
Australia [WN-1]
1,75,000 1,75,000
(v) Interest received from Mr. Ashok (NRI) on loan provided
to him for business in India[WN-1]
35,000 35,000
(vi) Dividend from Brown Ltd., an Indian Co. u/s 115
O of Income-tax Act
Exempt Exempt
(vii) Profit from business in Canada controlled from Mumbai
(60% of profits deposited in a bank in
Canada and 40% remitted to India)
60,000 -----
MCQ:
1) c 2) d
3) b Part B - GST
1 Computation of Input tax credit available with PQR Ltd:
Inward supplies GST(`)
Goods used in construction of an additional floor of office building {WN-1} Nil
Packing Materials used in a factory (Since used in course of business hence, ITC shall
be available)
6,000
Goods destroyed due to natural calamities {WN-2} Nil
Goods used for repairing the office building and cost of such repairs is debited to profit and loss account {WN-3}
12,000
PRIME ACADEMY
IPC/49th/PAPL Page 3
Paper for photocopying machine used in Administrative Office (since used in course of business hence, ITC shall be available)
950
Goods given as Gifts{WN-2} Nil
Inputs used for tests or quality control check (since used in course of business hence, ITC shall be available)
15,600
Total Input Tax credit available 34,550
Notes:
As per Section 17(5)(d), input tax credit shall not be available in respect of goods or
service or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Hence, input tax
credit shall not be available in respect of goods used in construction of an additional floor of office building
Section17(5)(h), input tax credit shall not be available in respect of goods lost, stolen,
destroyed, written off or disposed of by way of gift or free samples. Hence, no ITC shall be
available in respect of goods destroyed due to natural calamities.
As per the explanation, the expression “Construction” includes re-construction,
renovation, additions or alternations or repairs, to the extent of capitalisation, to the immovable property. Goods used for Revenue repairs are considered as an eligible input
and credit shall be allowed on the same. 2:
(a). Assignment of unique identity number to certain special entities (Rule 17 of CGST Rules, 2017]:
E-Application for grant of UIN [Rule 17(1)] : Every person required to be granted a
Unique Identity Number (UIN) may submit an application electronicallyinFORMGSTREG-13,dulysignedorverifiedthroughEVCatthe common portal, either directly or through a
Facilitation Centre notified by the Commissioner.
UIN applicable to the territory of India [Rule 17(1A)]: The Unique Identity Number granted to a person under Section 25(9)(a) shall be applicable to the territory of India.
UIN to be assigned and RC to be given within 3 working days [Rule 17(2)] : The proper officer may, upon submission of an application in FORM GST REG- 13 or after filling up
the said form or after receiving a recommendation from the Ministry of External Affairs, Government of India, assign a UIN to the said person and issue a certificate in FORM GST REG-06 within a period of 3 working days from the date of the submission of the
application.
(b) (i) A comprehensive tax structure covering both goods and services viz. Goods and Service
Tax (GST) addresses these problems. Simultaneous introduction of GST at both Centre and State levels has integrated taxes on goods and services for the purpose of set-off relief and ensures that both the cascading effects of CENVAT and service tax are removed and
continue us chain of set- off from the original producer's point/ service provider's point upto the retailer's level/consumer's level is established.
In the GST Regime, the major indirect taxes have been subsumed in the ambit of GST.
The erstwhile concepts of manufacture or sale of goods or rendering of services are no
longer applicable since the tax is now levied on "Supply of Goods and/or services".
(ii) Tax invoice (Section 31]: The provisions relating to tax invoice are as under
Supplier of taxable services to issue tax invoice within prescribed time (Section 31(2)]:
A registered person supplying taxable services shall,
PRIME ACADEMY
IPC/49th/PAPL Page 4
---before, or ---after the provision of service but within a prescribed period,
issue a tax invoice, showing—
--- the description,
---value, ---tax charged thereon, and ---such other particulars as may be prescribed.
Issuance of invoice at the time of cessation of supply [Section 31(6)] : In a case where the
supply of services ceases under a contract before the completion of the supply, the invoice shall be issued at the time when the supply ceases and such invoice shall be issued to
the extent of the supply made before such Cessation. 3:
(a) (i) Yes. As per Section 7(1)(b) of CGST Act, 2017, Supply includes import of services for a
consideration whether or not in the course or furtherance of business. Hence, in the
above case it will be treated as supply
(ii) Yes. As per Section7 (1) (c) read with Schedule I of CGST Act , 2017 ,Permanent transfer
or disposal of business assets where input tax credit has been availed shall be treated as supply even if made without consideration. Hence, donation of old computers to
charitable schools shall qualify as supply since input tax credit has been availed by XYZ &Co
(iii) As per Section7 (1)(c)read with Schedule I of CGST Act,2017, Supply of goods by a
principal to his agent where the agent under takes to supply such goods on behalf of the
principal shall be treated as supply even if made without consideration. In view of the same supply of cars by ABC Motors Ltd. to Sunshine Cars Ltd. will qualify as supply
(b Conditions for purposes of appearance [Rule 84]:
Name in Register of practitioners Rule 84(1)]: No person shall be eligible to attend before any authority as a goods and services tax practitioner in connection with any proceedings
under the Act on behalf of any registered or un-registered person unless he has been enrolled under rule 83.
Authorization copy [Rule 84(2)]: A goods and services tax practitioner attending on behalf
of a registered or an unregistered person in any proceeding sunder the Act before any authority shall produce before such authority, if required, a copy of the authorization
given by such person in FORM GSTPCT-05.
Question 4:
The time of supply shall be determined as under----
S.No. Date of issue of
invoice by
supplier of goods
Date of
receipt of
goods
Date of payment by recipient of
goods
Date immediately
following 30
days from date of invoice
Time of supply of
goods {Earlier
of(2),(3)&(4)}
(1) (2) (3) (4) (5)
(i) 30-11-2018 2-12-2018 25-01-2019 31-12-2018 2-12-2018
(ii) 30-11-2018 2-12-2018 25-11-2018 31-12-2018 25-11-2018
PRIME ACADEMY
IPC/49th/PAPL Page 5
(iii) 30-11-2018 2-12-2018 Part payment
made on 25- 11-2018 and
balance amount paid on 28-12-2018
31-12-2018 25-11-2018 for part
payment made and 02-12-2018 for
balance amount
(iv) 1-11-2018 5-12-2018 Payment is
entered in the books of account
on 25-11- 2018 and debited in
recipient’s bank
account on
28-11-2018
2-12-2018 25-11-2018 i.e. the
date when payment is
entered in books of accounts of the
recipient
(v) 30-11-2018 2-12-2018 Payment is entered in the
books of account on 25-11- 2018 and debited in
recipient’s bank
account on
20-11-2018
31-12-2018 20-11-2018 (i.e., when payment is
debited in the recipient bank account)
(vi) 30-11-2018 02-01-
2019
10-01-2019 31-12-2018 31-12-2018 (ie., 31st
day from issuance of
invoice)
1. c. 18thJuly
2 b. (I), (ii),(iii)
3. (a) Transportation of goods
4. (d) 1st IGST 2nd CGST & then SGST
5. d. Both (a) and(b)
6. a. Same month
7. d. Value of inward supplies on which tax is paid on reverse charge basis
8. d. Both (b) and(c)
(8 Marks)
PRIME ACADEMY
