CA Final September 2025 Suggested Answers Paper 6 Integrated Business Solutions

FOR CA FINAL EXAM PREPARATION

CA Final 2025
Suggested Answers ·
Paper 6 Integrated
Business Solutions
EXAM YEAR TYPE

CA Final 2025 Suggested Answers
SUBJECT DATE

Paper 6 Integrated Business Solutions September 2025

Notes · Sample Papers · Previous Year Papers · Mock Tests

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PAPER – 6: INTEGRATED BUSINESS
SOLUTIONS
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e mThe Question Paper comprises five case study questions. l a
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The candidates are required to answer any four case study questions out of five.

CASE STUDY - 1

DSL is a listed Indian technology company that develops, sells, repairs, and
supports computers and related products and services. DSL is owned by its parent
company, DSL Technologies.
DSL designs, develops, manufactures, markets, sells, and supports information

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technology infrastructure such as laptops, desktops, mobiles, workstations,

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storage devices, software, cloud solutions, and notebooks. The company is known

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for how it manages its supply chain and electronic commerce. This includes DSL

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selling directly to customers and delivering PCs that the customer wants. DSL was

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a pure hardware vendor until 2019 when it acquired Power Storage Systems. DSL
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then entered the market for IT services. The company has expanded storage and
networking systems. In 2021, it began expanding from offering computers only to
delivering a range of technology for enterprise customers. DSL serves corporate
businesses, government, educational institutions, law enforcement agencies,
healthcare organizations, and small and medium-sized businesses. Mainly
Company is catering to domestic markets only with little exports of FOB Value
INR 25 lakhs and 35 lakhs done during the financial years 2023 and 2024
respectively.
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Management's innovative business strategies transformed the company into a

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significant player in the Indian economy. The latest invention company did was

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to introduce cold wallets (hardware) to be used by crypto currency users. For
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las manufacturing these wallets, machinery was imported from Japan by arranging
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funds through ECB's issued. A hardware wallet is a physical device that aims to

a store cryptocurrencies offline securely. Users of crypto currency can lose
cryptocurrency tokens due to theft, computer failure, loss of access keys, and
more. Cold storage (or offline wallets) is one of the safest methods for holding
crypto, as these wallets are not accessible via the internet, but hot wallets are still

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FINAL EXAMINATION: SEPTEMBER 2025

convenient for some users. Same way hot storage wallets has also been developed
by company's product development team which has been approved by concerned
regulatory authority.
While selling the first production batch of cold and hot wallets, DSL charged GST
@ 12% as per advice of the inhouse legal department and reported the same in
condensed interim financial statements (six months) for the period ended
30.09.2024. The said financial statements were pending for approval and in the
meantime, DSL received a notice from GST department that GST rate applicable
for such wallets is 18% and not 12%. Though DSL management had made a view
to contest the demand but in the meantime, government issued a clarification to
tax such wallets @ GST 18%. The said decision was taken by government to bring
clarity on wallets, taxability under GST and clear the increasing disputes on those
kinds of items. Management however refused to adjust the interim financial
statements for creating the provision of difference of GST liability or adding
information in notes to accounts on account of government notification.
DSL further received notice from GST department for GST audit of the company
for two years (2021-22 to 2022-23). A detailed notice was received from the
department requiring the company to provide GST returns, invoices, stock
register, financial statements and ledgers to verify the compliances relating to
correct claim of input tax credit and payment of GST on sales at the applicable
rates. Company engaged CA. Avinash for handling the audit. After going through
documents submitted by the company and conducting necessary verification,
following issues were raised by GST Superintendent at the time of finalization of
audit in June 2025:
(i) While scrutinizing the creditor's ledgers it was pointed out by the concerned
GST officer that company had not made payment to one of the suppliers
within 180 days from the date of invoice. Taxable value of invoice dated
25.10.2021 was ` 78,00,000 on which GST @ 18% was charged (CGST: 9%
and SGST: 9%) and payment was made on 20.08.2022. It was found that
company had availed and utilized GST input of ` 14,04,000 in GST 3B filed
on 20.11.2021. GSTR-3B for August 2022 was filed on 18.09.2022.
(ii) Company had claimed GST input of ` 6,72,000 and ` 7,50,000 on purchase
of food and beverages used in a canteen in the factory premises during 2021-
22 and 2022-23 respectively and expenditure on purchase of food and
beverages was debited under the head Staff welfare expenses A/c.

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(iii) Company had debited a sum of ` 36,00,000 in Staff Welfare Account on
account of payment to a travel company to provide home travel facility to its
employees when they were on leave. Travel Company charged IGST of
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` 6,48,000 on the bills raised during the year 2022-23 and company availed
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and utilized the IGST as mentioned above in GSTR 3B.
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m capacity of 30 persons) purchased in 2021-22 for transportation la
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(iv) Company had availed and utilized ITC of 12,96,000 on four buses (each
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of its employees from their residence to office and back. ITC of ` 96,000a
with

ag availed and utilised in 2022-23 on general insurance and repair &
maintenance of cars used by employees for official purposes.
(v) ITC of ` 1,26,000 availed and utilized on outdoor catering services for a
marketing event organized for its current and prospective customers during
2022-23.
Superintendent intimated the company to deposit required interest on delay in

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payment within 180 days as pointed out at point (i) and reverse the input tax

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credit claimed being blocked credit as pointed out at point (ii) to (v) and deposit

eupmmeeting of production department head
the amount along with interest.

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Group CFO, CA. G, has recently taken

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aproduction done. Total Cost estimate given by the
(in relation to new products manufacturing)
between the orders taken and
for ensuring that there is no gap

production department also includes waste disposal cost of ` 2.00 Crores. CA. G
analysed the list of expenses and came to know that size of floatable solids
(generated and disposed, during production process) is 4 mm as against
prescribed norms of 3mm. He instructed the production head to bring the same
within the norms prescribed under relevant environmental regulations and ask
him to submit the report within three months about the same as this can lead to

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huge environmental penalties. No further investigation was done and the meeting

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closed. After six months, company received the notice from the government

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department about the same issue of floatable solids and was having no response

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to submit. When enquired, management came to know that CFO was aware of
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this fact but failed to disclose the same to the management.
DSL is upgrading one of the chips required to be used asa input in new laptops
ag being produced at its factory. The said chip has to be imported from Germany
where its sole distributor is located. It was decided to import the required quantity
of Chips under Advance Authorization scheme and accordingly DSL applied for

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FINAL EXAMINATION: SEPTEMBER 2025

advance authorization for importing chips having FOB Value being ` 95 Lakhs.
Company expected to receive the licence by 01.08.2024. To meet the export
obligation arising out of advance authorization, DSL plans to supply the laptops
(with existing technology chip) to Noida Technology SEZ for being used by them.
Production of new laptops started and company wants to make sure that there
should be continuous flow of production and with zero waiting time (means the
product should not wait on next production step) zero defects, avoiding
unnecessary transportation cost, zero inventory etc.
During the current financial year, company decided to use a Logo "$Z" which was
launched by Mr. B when he was carrying on the same business in proprietorship
form. Company has entered into an agreement with Mr. B (currently director of
DSL) to use the same on the following terms and conditions:
- Mr. B grants DSL a non-exclusive, non-transferable license to use
- DSL agrees to pay Mr. B an annual license fee of ` 25,00,000
- The license fee is subject to revision upon mutual agreement after three years
Payment for first year was made in advance. The said transaction was not entered
in the register maintained for recording contracts or arrangements in which
directors are interested. Internal auditor observed the same and discussed it with
the concerned persons in charge for dealing with audit queries in DSL. Statutory
Auditor was also present there and listened to the entire conversation. He noted
down the point and decided to incorporate the same while preparing CARO.
ABC & Associates have been appointed as statutory and tax auditors for the
F.Y 2024-2025. Till last financial year, DEF & Associates were carrying out both
the audits. The new audit firm assigned statutory and tax audit to two different
teams.
Statutory audit team headed by CA. Shankar attended physical counting of
inventory on 30th and 31st March, 2025. During the course of statutory audit,
certain deficiencies in the internal control system relating to inventory were
noticed by CA. Shankar as regards the inventory value as on 1st April, 2024. Audit
team is in dilemma as regards the weak internal control system in place in the
inventory physical verification observed by it.
Tax Audit team also raised some issues for the year ending 31st March 2025. The
following points emerge from the audit:

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(a) The company received ` 80 lakhs as an Inter-Corporate Deposit (ICD) on 10th
April 2024 from a group company, through account payee cheque.

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(b) A provision of ` 18 lakhs was made for product warranties (for which law suit
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is pending as on 31.03.2025) and the same had been debited to Profit & Loss

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account.
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e (on accrual basis) but paid ` 60,000 in cash in FY 2024-25 on a single gl a
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(c) Company

lday.
claimed deduction of ` 60,000 in FY 2023-24 towards transport
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charges
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(d) Company owns an industrial plot (held as investment). It entered into a
negotiation with XYZ Ltd. for sale of the plot. XYZ Ltd. paid ` 20 lakhs as
advance. The said amount is outstanding in books as an advance since last
three years and has become time barred in the current financial year.
As ECB was raised successfully, one of the directors, Mr. John, who is also a
director of BNC Limited (a company under corporate insolvency resolution

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process), suggested the ECB route to that company also for meeting the funds
requirement.
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Multiple Choice Questions
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[Provide the correct option to the following questions]
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1.1 What, in your opinion, is the liability of CA. G in relation to non-compliance
of environmental regulations notice received by the company from
government department?
(A) CA. G cannot be held liable for environmental issues as the same is the
responsibility of production head and production head should have
informed the management about floatable solids size issue. Also, CA. G
is not a member in practice.
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(B) As CFO is a Chartered Accountant, he has the responsibility for
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investigating the same and informing the same to those charged with

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governance about the investigation results and keeping the
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(C) CA. G has the responsibility of informing the sameato those charged with
ag governance and keeping the documentation of the same.
(D) CA. G cannot be held liable for environmental issues as he is not a
member in practice and has no responsibility for intimating non-

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FINAL EXAMINATION: SEPTEMBER 2025

compliance with these types of regulations. Being an employee, on moral
grounds, he should have informed those charged with governance.
1.2 What is your opinion on the payment of ` 25,00,000 made to Mr. B?
(A) The said payment is neither required to be entered in register maintained
nor require reporting by statutory auditor under CARO.
(B) The said payment is required to be entered in register maintained and
requires reporting by statutory auditor under CARO.
(C) The said payment is required to be entered in register maintained but do
not require reporting by statutory auditor under CARO.
(D) The said payment is not required to be entered in register maintained
but require reporting by statutory auditor under CARO.
1.3 Whether DSL will be able to import chips without payment of duty and fulfill
the export obligations arising on account of advance authorisation by selling
the goods to Noida Technology SEZ?
(A) No, advance authorisation cannot be issued to the company as DSL has
not made exports for continuous period of three years.
(B) Yes, DSL is eligible for advance authorisation up to ` 90 Lakhs but supply
of goods to Noida Technology SEZ cannot be considered for fulfillment
of export obligation.
(C) Yes, DSL will be able to get authorisation for entire ` 95 Lakhs goods
under advance authorisation and supply of goods to Noida Technology
SEZ can be considered for fulfillment of export obligation.
(D) Yes, DSL will be able to get authorisation for entire ` 95 Lakhs goods
under advance authorisation but supply of goods to Noida Technology
SEZ cannot be considered for fulfilment of export obligation.
1.4 Do you agree with the stand of management for not amending the interim
financial statements (Prepared in accordance with Ind AS) on account of
change in GST output?
(A) Yes, as these interim financial statements are in condensed form, so such
type of events occurring after the reporting date need not be adjusted.

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(B) Yes, adjustments of such type of events need not be made and disclosure
can be made in notes to accounts for the information of the users of
financial statements.
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(C) No, these are adjusting events and interim financial statements need to

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be adjusted even if they are in condensed form.
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(D) eNo, these are events which need to be either incorporated in the financial
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a s statements or disclosed in notes to accounts. Management has to see the g
l gravity and amounts involved and amend/disclose accordingly ina
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a condensed interim financial statements. Had there been full set of
financial statements, this event should have been adjusted in the same.
1.5 Which of the issues raised by tax auditor requires reporting in form 3CD?
(A) Issues (a), (b) and (d)
(B) Issues (b), (c) and (d)
(C) Issues (a), (c) and (d)
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(D) Issues (a), (b) and (c)
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Descriptive Questions

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1.6 State the additional audit procedures to be conducted by CA. Shankar to
obtain evidence in respect of opening balance of inventory as on 1st April,
2024. In case, he does not get audit evidence in this regard, what should he
do? If the evidence suggests material misstatement in opening inventory,
what would be the course of action available to him? In case, it is claimed as
a change in accounting policy by the company, what would be the
appropriate course of action available with CA. Shankar? (5 Marks)
1.7 What are your views on suggestion of Mr. John to BNC Limited? Whether the

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same is permissible? Support your answer with legal background.
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c. o 1.8 Explain how CA. Avinash will respond to the issues raised m
(5 Marks)

m s e by the GST
s e g l a GST law. Also,
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Superintendent, considering relevant provisions of the
determine the amount of Input Tax Credit (ITC) toabe reversed and the
ag interest payable due to non-reversal of ITC on account of non-payment to
the supplier within 180 days and GST Form to be used to pay the demand?
(5 Marks)

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FINAL EXAMINATION: SEPTEMBER 2025

ANSWER TO CASE STUDY 1

1.1 Option (B) As CFO is a Chartered Accountant, he has the responsibility for
investigating the same and informing the same to those charged with
governance about the investigation results and keeping the documentation
of the same.
OR
Option (C): CA G has the responsibility of informing the same to those
charged with governance and keeping the documentation of the same.
1.2 Option (A): The said payment is neither required to be entered in register
maintained nor require reporting by statutory auditor under CARO.
OR
Option (B): The said payment is required to be entered in register
maintained and requires reporting by statutory auditor under CARO.
1.3 Option (D): Yes, DSL will be able to get authorisation for entire ` 95 Lakhs
goods under advance authorisation but supply of goods to Noida
Technology SEZ cannot be considered for fulfilment of export obligation.
1.4 Option (C): No, these are adjusting events and interim financial statements
need to be adjusted even if they are in condensed form.
1.5 Option (D): Issues (a), (b) and (c)
1.6 SA 510, “Initial Audit Engagements – Opening Balances”, states that in
conducting an initial audit engagement, one of the objectives of the auditor
with respect to opening balances is to obtain sufficient appropriate audit
evidence about whether opening balances contain misstatements that
materially affect the current period’s financial statements. The auditor has
to evaluate whether audit procedures performed in the current period
provide evidence relevant to the opening balances or specific audit
procedures are required to be performed to obtain evidence regarding the
opening balances.
In the case of inventories, however, the current period’s audit procedures
on the closing inventory balance provide little audit evidence regarding
inventory on hand at the beginning of the period. Therefore, additional

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audit procedures may be necessary, and one or more of the following may
provide sufficient appropriate audit evidence:

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• Observing a current physical inventory count and reconciling it to the
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opening inventory quantities.

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Performing audit procedures on the valuation of the opening inventory
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• Performing audit procedures on gross profit and cut-off.

evidence regarding the opening balances, the auditor shall express a
qualified opinion or a disclaimer of opinion, as appropriate, in accordance
with SA 705.
Further, in case if CA Shankar concludes that the opening balances contain
a misstatement that materially affects the current period’s financial
statements, and the effect of the misstatement is not properly accounted
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for or not adequately presented or disclosed, the auditor shall express a
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qualified opinion or an adverse opinion, as appropriate, in accordance with

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SA 705.

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Furthermore, in case If CA Shankar concludes that the accounting policies
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are not consistently applied in relation to opening balances in accordance
with the applicable financial reporting framework; or a change in
accounting policies is not properly accounted for or not adequately
presented or disclosed in accordance with the applicable financial reporting
framework, CA Shankar shall express a qualified opinion or an adverse
opinion as appropriate in accordance with SA 705. Alternatively, it may be
noted that if DSL has resorted to change in accounting policy, then it must
have been consistently applied in relation to all the applicable figures of
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opening balances and the changes have to be properly accounted for. In
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which case, CA Shankar can mention the same in his audit report and need

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not issue a qualified opinion or adverse opinion, if the changes are proved as

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warranted and justified by the management and the fact of change is brought
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FINAL EXAMINATION: SEPTEMBER 2025

1.7 ECB by entities under restructuring/ ECB facility for refinancing
stressed assets:
1. An entity which is under a restructuring scheme/ corporate insolvency
resolution process can raise ECB only if specifically permitted under the
resolution plan.
2. Eligible corporate borrowers who have availed Rupee loans
domestically for capital expenditure in manufacturing and
infrastructure sector and which have been classified as SMA-2 or NPA
can avail ECB for repayment of these loans under any one time
settlement with lenders. Lender banks are also permitted to sell,
through assignment, such loans to eligible ECB lenders, provided, the
resultant external commercial borrowing complies with all-in-cost,
minimum average maturity period and other relevant norms of the ECB
framework. Foreign branches/ overseas subsidiaries of Indian banks are
not eligible to lend for the above purposes. The applicable MAMP will
have to be strictly complied with under all circumstances.
3. Eligible borrowers under the ECB framework, who are participating in
the Corporate Insolvency Resolution Process under Insolvency and
Bankruptcy Code, 2016 as resolution applicants, can raise ECB from all
recognised lenders, except foreign branches/subsidiaries of Indian
banks, for repayment of Rupee term loans of the target company. Such
ECB will be considered under the approval route
In the instant case, BNC Limited has to follow the above procedure for the
ECB route for meeting the funds requirement.
Alternative
Mr. John's suggestion to BNC Limited to use ECB as a funding route is not
permissible. This is because BNC Limited is currently undergoing a Corporate
Insolvency Resolution Process (CIRP).
Legal Background
According to the Insolvency and Bankruptcy Code, 2016 (IBC), once a
company enters the CIRP, the powers of its Board of Directors are suspended
and are exercised by the Interim Resolution Professional (IRP) or Resolution
Professional (RP). During the CIRP, the company is under a moratorium, and
the management's role is to assist the RP in managing the company's affairs,

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INTEGRATED BUSINESS SOLUTIONS

which primarily involves maintaining the company as a going concern until a
resolution plan is approved.

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The company, as a corporate debtor, cannot enter into any new transactions

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that are not in the ordinary course of business without the explicit approval of

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the Committee of Creditors (CoC). Suggesting and arranging an External

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Commercial Borrowing (ECB) is not an action in the ordinary course of business
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and requires approval. Furthermore, Section 29A of the IBC restricts certain
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persons from submitting a resolution plan. While Mr. John's suggestion might
be seen as an attempt to save the company, his authority as a director of BNC
Limited is suspended, and he cannot take such decisions. Therefore, his
suggestion is in violation of the legal framework of the IBC.
1.8

S No. Particulars Amount of
reversal (`)

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(i) If a registered person, who has availed of ITC

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on any inward supply fails to pay to the supplier

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thereof, the amount towards the value of such

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supply along with the tax payable thereon,
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within 180 days from the date of issue of
invoice by supplier, shall pay or reverse an
amount equal to the ITC availed in respect of
such supply along with interest payable
thereon under section 50, while furnishing the
return in Form GSTR-3B for the tax period
immediately following the period of 180 days
from the date of the issue of the invoice.
Date of issue of invoice-25.10.2021
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m Period of 180 days expire on 23rd April, 2022 1
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c. o Amount of input tax credit to be reversed in
s em14,04,000
s em respect of (i) (` 78,00,000 x 18%)
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1
[6 days of October + 30 days of November + 31 days of December + 31 days of January
+ 28 days of February + 31 days of March + 23 days of April]

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FINAL EXAMINATION: SEPTEMBER 2025

The amount of ` 14,04,000 to be reversed in the
Form GSTR-3B. 2
Interest payable due to non-reversal of ITC
from the date of utilisation of credit till the date
of reversal.
` 14,04,000 x 18% x 181/365 (Date of
availment of ITC, i.e. 20.11.2021 till
20.05.2022] = ` 1,25,321 (rounded off)
This answer is based on the view that input tax
credit availed by DSL has been reversed after
the expiry of 180 days from the date of invoice
since company had not made payment of value
and tax to the Supplier within the prescribed
period of 180 days.
Henceforth, the interest payable due to non -
reversal of ITC on account of non payment to
the supplier within 180 days shall be calculated
for the period starting from the date of
utilisation of such input tax credit (20.11.2021)
till the date of reversal of such credit (i.e.
20.05.2022 3 being the due date of filing of
return for the month of April, 2022 as the
period of 180 days expires on 23.04.2022).
Alternatively, it is also possible that input tax
credit availed by DSL has NOT been reversed
after the expiry of 180 days from the date of
invoice and it came to the notice of the
company only upon Superintendent’s
intimation.
In that case, the interest payable due to non -
reversal of ITC on account of non payment to

2
Since no demand has been raised from DSL, company will deposit the GST on account of
reversal of ITC and payment of interest in Form GSTR-3B only.
3
It has been presumed that return for the month of April, 2022 has been filed on
20.05.2022.

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the supplier within 180 days shall be calculated
for the period starting from the date of
utilisation of such input tax credit (20.11.2021)
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till the date of filing of GSTR-3B for August,
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em filing of return for the month of August, 2022).
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` 14,04,000 x 18% x 302/365 (Date of
availment of ITC, i.e. 20.11.2021 till
18.09.2022] = ` 2,09,100 (rounded off)
(ii) The input tax credit in respect of food and
beverages used in a canteen amounting to is
blocked as the same is not obligatory for an 14,22,000
employer to provide the same to its employees [` 6,72,000 +
under any law. ` 7,50,000]

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Thus, ITC in respect of the same need to be
reversed and interest as applicable will be paid.
ITC in respect of travelm
(iii)
s esuch
benefits extended to

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employees on vacation as leave is blocked
under GST law asgthe same is not obligatory for
an employer ato provide the same to its 6,48,000
employees under any law.
Thus, ITC in respect of the same need to be
reversed and interest as applicable will be paid.
(iv) ITC of ` 12,96,000 in respect of buses is allowed
as seating capacity is 30 persons.

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ITC is not allowed on services of general

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96,000

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insurance and repair and maintenance relating

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to cars, ITC on which is not allowed.

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Thus, same needs to be reversed.
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las (v) ITC outdoor catering services is blocked as the
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the same to its employees under any law.
1,26,000

Total amount of input tax credit to be reversed 36,96,000

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FINAL EXAMINATION: SEPTEMBER 2025

GST Form to be used to pay demand:
Company will deposit the GST on account of reversal of ITC and payment
of interest in Form GSTR-3B

CASE STUDY - 2

Kevin Group is one of India's oldest and most influential multinational
conglomerates. Founded in 1950 by Ronnie Kevin, the company has expanded
across industries and geographies, becoming a globally recognized brand. Kevin
Group has built a legacy of innovation, ethical business practices, and global
expansion.
Kevin Agro Limited (KAL), a part of Kevin Group and a listed entity (in top 1000 listed
companies) and based in Mumbai, offers a comprehensive range of products
designed to enhance efficiency and quality in agriculture. Their offerings include
grain moisture meters, mobile grain cleaners, grain analyzers, and grain graders,
which are essential for seed and grain testing, processing, and cleaning. These
products serve various clients, including grain procurement organizations, seed
companies, warehouses, and milling industries such as rice, dal, and flour mills. KAL
boasts a modern manufacturing setup equipped with CAD facilities, CNC machines,
and precision machine shops. Their in-house R&D department, approved by the
Government of India, focuses on continuous product design and process
improvements. This dedication to innovation ensures that KAL remains at the
forefront of technological advancements in their fields. Consolidated Financial
statements are prepared at the end of financial year complying with legal guidelines
(incorporating all subsidiaries) and placed before shareholders for approval.
Capital structure of KAL includes Corporate Bonds issued two years back.
Maturity period was five years. As on date, external credit rating of the securities
issued by KAL has improved, making company eligible for issuing new bonds with
lower interest rate which will result in cost savings in the form of reduced costs,
optimizing the debt structure and enhancing the financial flexibility for the
company. Accordingly, CFO suggested feasibility analysis and engage financial
advisors to explore refunding options.
The most recent invention of KAL has been the development of Al-Powered
Robotic Arms. These machines use cameras and sensors to identify ripe fruits and

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pluck them gently without damaging them. The three important functions of new
invention are:

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- Harvesting & Picking Al arms pick fruits and vegetables based on ripeness.

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- Weeding & Planting - Automate seeding and removing weeds.

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The new invention will replace the processes which were earlier done by labour gl
Sorting &
s
Grading Classify produce based on size, shape, and quality.
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ainefficiency and also the overall cost to the Companies (having their own farm
supplied

fields and engaged in manufacturing) will reduce. The brain of Robotic Arms
consists of various made up of electronic control systems and uses various items
like Micro-controllers, Embedded Processors, Motor Drivers & Controllers etc.
Besides this Motion Planning software (developed in house) will be used for
intelligent automation. Stainless Steel required for body parts will be purchased
from Steels Kevin Limited (SKL), one of the wholly owned subsidiaries and whose

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accounts are consolidated with KAL, engaged in manufacturing and export of

.
stainless steel. The total purchase done from SKL was ` 62 Crores. SKL entered in

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sale transactions with KAL without getting the approval from any authority

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(shareholders or Board of directors) and at a price less than market price.

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However, KAL placed the said transaction before the shareholders at the general
meeting and ordinary resolution was also passed by Members.
For meeting functional requirements, Real-time inverse kinematics (IK)
calculations for precise movement are needed. These will be provided by Novelty
Inc. based in USA. The manufacturing of Robotic Arms is wholly dependent on
technology provided by Novelty Inc. During the year, KAL exported its product
named "UNO" to TVIDIA based in USA. Novelty Inc. is holding company of TVIDIA
and exercises significant control over the TVIDIAs management for decision-

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making. Assessing Officer applied transfer pricing provisions under Sections 92-

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92F on supply of UNO and issued demand notice considering price of uncontrolled
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transaction relating to financial year immediately preceding the current year.

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Later on during the assessment proceedings, AO used the price of uncontrolled

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transaction during the year of transaction. Management has asked the accounts

ag department to prepare a detailed presentation indicating the calculation of Arm's
Length Price in relation to transactions with TVIDIA, GM Accounts knows that
there are various methods to calculate the arm length price but has got no idea
about which is the most appropriate method and how he should select it.

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FINAL EXAMINATION: SEPTEMBER 2025

KAL also has stock market investment portfolio. Management decided to diversify
its investment portfolio to leverage stock investments for better financial returns
and liquidity. After evaluating several stockbrokers based on service quality,
brokerage fees, technological support, and advisory services, KAL Ltd. chose
ABC Securities Ltd., a reputed brokerage firm (based in Bangalore) known for its
AI driven research-based approach and customer service. As expected, portfolio
generated good returns and KAL paid brokerage of ` 10 Lakh + GST @ 18% i.e.
` 1,80,000. Broker raised invoice charging CGST and SGST treating Bangalore as
place of supply. KAL made the payment and took ITC for ` 1,80,000.
Audit committee of KAL has been facing pressure from investors and stakeholders
to enhance its sustainability performance. The company had previously followed
Business Responsibility Reporting (BRR) but found it insufficient in addressing the
increasing demand for detailed ESG disclosures.
Last Year's BRSR failed to disclose the efforts of the company towards community
investments, partnerships, local employment, and social impact initiatives. The
following disclosures were made:
D1 Company collaborates with international artisans to provide training and
access to international markets.
D2 Supports government efforts in vaccination drives and disease prevention
programs.
D3 Participation in renewable energy policy discussions.
D4 Adoption of electric vehicles for logistics and employee transport.
KAL invested in a CPL franchise by acquiring a controlling stake (70%) in GSB
Warriors, an existing team in the Cricket Premier League (CPL). The deal is valued
at ` 2,500 crores, which includes:
• ` 1,500 crores for the franchise rights (intangible asset)
• ` 500 crores for existing player contracts
• ` 500 crores as working capital and other assets
Key Investment Considerations
1. Strategic Rationale for Investment
• High revenue potential from broadcasting rights, sponsorships, ticket
• sales, and merchandise
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• CPL's rapid commercial growth and global audience
• Brand-building and cross-promotion with KAL's other businesses
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2.
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Investment Structure
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•
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KAL acquires 60% equity stake in GSB Warriors
s em
s em remaining 40% stays with the previous owners l a
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• The

g l•a The deal is structured through a mix of cash and equity financing.
a • GSB warriors has also leased a stadium and training facility
Multiple Choice Questions
[Provide the correct option to the following questions]
2.1 Whether SKL correctly entered in sale transaction with KAL if total turnover
of SKL during the year is ` 610 Crores?
(A) No, the transaction should have been approved by the company by
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passing a special resolution as it is exceeding limit of 10% of the

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turnover.
(B) No, the transaction should ehave been approved by the company by
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a as it is exceeding limit of 10% of the
turnover. a g
passing an ordinary resolution

(C) No, the transaction should have been entered after obtaining consent of
the Board of Directors given by a resolution at a meeting.
(D) No, the transaction does not require any approval as the same is
between holding company and the wholly owned subsidiary and also the
consolidated accounts are being prepared.

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2.2 Comment on applicability of provisions under Sections 92-92F and the action

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of Assessing Officer.
c o
. and
c. o (A) Novelty Inc. and KAL will be deemed associated enterprises
consequently TVIDIA will also be covered under s
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e pricing
s em g la is not valid
transfer

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provisions. However, action of. AO at the time of assessment

ag as per the provisions.
(B) Novelty Inc. and KAL will be deemed associated enterprises but not KAL
and TVIDIA and thus not covered under transfer pricing provisions.
Action of AO is not valid.

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FINAL EXAMINATION: SEPTEMBER 2025

(C) Novelty Inc. and KAL will be deemed associated enterprises and
consequently TVIDIA will also be covered under transfer pricing
provisions. Action of AO at the time of assessment is valid as per the
provisions.
(D) Neither Novelty Inc. and KAL will be deemed associated enterprises nor
KAL and TVIDIA and thus not covered under transfer pricing provisions.
Action of AO is not valid.
2.3 How will you categorize the use of AI Powered Robotic Arms from the view
point of their customers?
(A) Transformation
(B) Disruptive Innovation
(C) Automation
(D) Advanced Manufacturing
2.4 Which of the BRSR disclosure made by the company violated Principle of
promoting inclusive growth and equitable development promotion?
(A) D1
(B) D2
(C) D3
(D) D4
2.5 Whether Invoice raised by ABC Securities Ltd. is proper and whether KAL is
eligible to take ITC?
(A) Place of supply is Mumbai and thus invoice incorrectly raised. KAL is
eligible to take ITC.
(B) Place of supply is Bangalore and thus invoice correctly raised. KAL is not
eligible to take ITC.
(C) Place of supply is Mumbai and thus invoice incorrectly raised. KAL is not
eligible to take ITC.
(D) Place of supply is Bangalore and thus invoice correctly raised. KAL is
eligible to take ITC. (5 x 2 = 10 Marks)

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Descriptive Questions
2.6 In your opinion, what does the term most appropriate (used by GM Accounts)

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means? Also guide him by quoting some factors that he can consider while

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selecting/determining the most appropriate method? (5 Marks)

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2.7 If you are financial advisor, advice under what circumstances suggestion of
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CFO is feasible? Which method will you use to decide about the suggestion

l a
of CFO? Whether any extra interest cost is also involved in such exercise?
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a2.8g Can you highlight how a CPL franchise investment is structured, (5accounted
Marks)

for under Ind AS, and impacts financial statements? (5 Marks)
ANSWER TO CASE STUDY 2
2.1 Option (C): No, the transaction should have been entered after obtaining
consent of the Board of Directors given by a resolution at a meeting

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2.2 Option (C): Novelty Inc. and KAL will be deemed associated enterprises

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and consequently TVIDIA will also be covered under transfer pricing

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provisions. Action of AO at the time of assessment is valid as per the
provisions.
l a s
2.3 Option (C): Automation
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2.4 Option (A): D1
2.5 Option (C): Place of supply is Mumbai and thus invoice incorrectly raised.
KAL is not eligible to take ITC.
2.6 Rule 10C deals with the determination of most appropriate method. Under
this Rule, the method which is best suited to the facts and circumstances
and which provides the most reliable measure of an arm’s length price in

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relation to the international transaction will be considered to be the most

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appropriate method.

s em following
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For the purpose of selecting the most appropriate method, the

s
factors should be taken into account.
g la
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(i) The nature and class of the international transaction;
a (ii) The class, or classes of associated enterprises entering into the
transaction and the functions performed by them taking into account

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FINAL EXAMINATION: SEPTEMBER 2025

assets employed or to be employed and risks assumed by such
enterprises;
(iii) The availability, coverage and reliability of data necessary for
application of the method;
(iv) The degree of comparability existing between the international
transaction and the uncontrolled transaction and between the
enterprises entering into such transactions;
(v) The extent to which reliable and accurate adjustments can be made to
account for difference, if any, between the international transaction
and the comparable uncontrolled transaction or between the
enterprises entering into such transactions;
(vi) The nature, extent and reliability of assumptions required to be made
in application of a method.
2.7 Under the following circumstances suggestion of CFO is feasible:
- Bonds should have been issued with call features as it gives them the
right or choice to redeem bonds before their due date of maturity
especially when market conditions are favourable to them.
- However, Call feature is not free of cost because companies are
supposed to repay higher amount than the face value of bonds which
is called ‘Call Premium’.
- New bonds to be issued at lower interest rate.
The Net Present Value (NPV) method is used to evaluate such types of Bond
Refunding decisions. If the Present Value of Cash Inflows (in form of net
cash saving) exceeds the Present Value of cash outflow (call premium,
interest during transition period etc.) then existing bonds can be refunded
and new bonds carrying lower coupon interest rate can be issued resulting
in overall saving of cash outflows.
To ensure the smooth functioning of the organisation, new bonds are
generally issued before refunding old bonds.
Yes, this process involves extra interest cost as new bonds are generally
issued before refunding old bonds. This often results in interest payments
on both categories of bonds during the overlapping period.
2.8 Under Ind AS, KAL will consolidate GSB Warriors in its financial statements.
Franchise rights will appear as a major intangible asset (non-amortised but

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tested for impairment since definite term of the franchise rights has not
been given in the question), while player contracts will be amortised.
Stadium lease will bring in ROU assets and lease liabilities. Profit & Loss will
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reflect new revenue streams but also amortisation, depreciation, finance
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cost, and potential impairment charges. NCI will also appear in
s em
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consolidated equity and P&L.
l a
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Accounting under Ind AS
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ag combination under Ind AS 103 ‘Business Combinations’.
Since KAL acquired 70% controlling stake in GSB Warriors, this is a business

Total consideration paid is ` 2,500 crores (cash + equity financing).
Identifiable Assets & Liabilities (Fair Value)
1. Franchise Right (Intangible Asset) of ` 1,500 crores is assumed as
having indefinite life; hence, not amortised but tested annually for
impairment under Ind AS 38.

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2. Player Contracts (Intangible Asset) of ` 500 crores has a finite life
(over contract term), hence, are amortised annually over the contract

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term.
3. Working Capital & Other s
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Assets of ` 500 crores is recognised at fair
value.
a g
4. Leased Stadium & Training Facility is recognised as Right-of-Use
Asset (ROU) with corresponding Lease Liability under Ind AS 116.
Annual depreciation on ROU and finance cost on lease liability will be
charged/recognised in P/L.
If purchase consideration is more than fair value of net assets acquired, KAL
will recognise Goodwill otherwise Bargain Purchase Gain would be
recognised.
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Since KAL acquired 70% (controlling stake), the remaining 30% is NCI. NCI
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measured at fair value or proportionate share of net assets (policy choice

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under Ind AS 103).
la se
las Impact on Financial Statements
g
a (Franchise rights +
ag i. In Consolidated Balance Sheet: Intangible assets
Player contracts), ROU assets (leased stadium/training facility) and
Goodwill, if any, will be shown as non-current item in the Balance

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FINAL EXAMINATION: SEPTEMBER 2025

Sheet. Working capital will appear as current item in the balance
sheet.
Under Equity, any purchase consideration paid to GSB warriors forms
part of Equity share capital while NCI of 30% will be recognised under
Equity. Other Equity will include consolidated Profit and Loss. Lease
Liability will be recognised as non-current item.
ii. In the Consolidated Statement of Profit and Loss: Revenue streams
from CPL franchise (broadcasting, sponsorships, ticket sales,
merchandise) will be recognised. Amortisation of player contracts,
Depreciation of ROU asset, finance cost on lease liability and any
Impairment loss on franchise right and goodwill will appear as
expenses item in the Statement of Profit and Loss.
Note: Alternative presentation is also possible.

CASE STUDY - 3

Established in 2010 and headquartered in Vadodara, Gujarat, ABC Fashions Ltd.
(AFL), has built a strong reputation as a leading manufacturer, wholesaler, and
exporter of high-quality shirts and T-shirts for men, women, and children. AFL
operates three textile plants in remote areas of Vadodara, contributing to local
community development. Through continuous process improvements and
workforce training to minimize rework, the company has successfully enhanced
quality and reduced costs.
Cotton and viscose, essential materials for manufacturing shirts and T-shirts, were
cost-effective for AFL due to their local availability. However, the production of
these materials has significant environmental and social impacts. Cotton
cultivation requires a substantial amount of water. Additionally, conventional
cotton farming relies heavily on pesticides and fertilizers, which adversely affect
the health of farmers and nearby communities. Viscose, a semi-synthetic fiber
derived from wood pulp, is converted into fabric through the intensive use of
chemicals and water. In response to these concerns, AFL has begun incorporating
organic cotton into its production process. Organic cotton significantly reduces
the need for chemical pesticides and fertilizers but its cultivation tends to require
more water than conventional cotton, posing an additional environmental
concern.

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AFL is deeply committed to sustainable water usage across its processing
operations. In collaboration with local municipalities, the company has launched
an innovative water management project that includes a 50 million litres per day
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(MLD) sewage treatment plant. This facility collects, transports, and treats public
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sewage, enabling AFL to recycle approximately 6 billion litres of water annually
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for use in its operations.
l a
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To further enhance water availability, especially in the Vadodara region, AFL has
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developed multiple rainwater harvesting ponds. AFL's commitment to
environmental responsibility extends beyond water. The company uses high-
quality materials that ensure longer-lasting textiles. This approach reduces the
frequency of purchases and improves the overall clothing experience for
consumers. In line with its environmental goals, AFL diverted 75% of its textile
waste from landfills through comprehensive reuse and recycling programs.
As part of its broader sustainability strategy, AFL has:

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- Planted 1,00,000 trees during the financial year 2024-25
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Installed solar panels across its facilities, reducing energy consumption by

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25%
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Conducted a comprehensive carbon audit and committed to achieving net
zero emissions by 2030
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In the past two years, AFL has entered the poly clothing segment, successfully
capturing a 5% market share. In addition to its environmental initiatives, AFL
supports community development. The company has organized training
programs for approximately 9,000 farmers, providing on-field assistance,
productivity enhancement strategies, and access to government schemes. Nearly
60% of the workforce employed across AFL's three plants is drawn from local
communities. A significant portion of the labour force resides in residential areas
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adjacent to the factory sites. By addressing the livelihood needs of its employees
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such as food, clothing, education, and healthcare - AFL has contributed to the

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economic development of these towns, creating alternative sources of income and

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supporting community welfare. The Human Resources (HR) department regularly
g la
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conducts training programs aimed at enhancing employee skills and productivity.

a The company ensures compliance with local labour laws and provides fair wages
to all workers.

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FINAL EXAMINATION: SEPTEMBER 2025

Mr. Sridhar, management accountant, has been assigned the task by CEO to work
out the factors responsible for increase in operating income by ` 710 lakhs in
2024-25. For analysing increase in operating income, he spread analysis into
three main areas i.e. Growth Component, Price Recovery Component and
Productivity Component and worked out the following:

Revenue & Cost Revenue & Cost Cost Effect of
effect of Growth effect of Price Productivity
Component in Recovery Component
2024-25 Component in in 2024-25
(` in lakhs) 2024-25 (` in lakhs)
(` in lakhs)
Revenue 6,800(F) 360(F) --
Cost 6,500(A) 110(A) 160(F)
Net effect on 300(F) 250(F) 160(F)
Operating Income

'AFL' sold ` 44 lakh and ` 48 lakh pieces of shirts & T-shirts during the year
2023-24 and 2024-25 respectively. The market for shirts and T-shirts grew by 4%
during 2024-25 and all other increase in AFL's sales were the result of its own
strategic actions. AFL's export turnover in 2024-25 reached USD 7 million,
marking an increase from the preceding three financial years, during which it was
USD 2 million, USD 3 Million and USD 4 Million respectively. Based on its export
performance, the Directorate General of Foreign Trade (DGFT) granted AFL a
Status Holder Certificate, thereby conferring various privileges and benefits to the
company under the Foreign Trade Policy.
During the year 2024-25, a sitting fee of ` 2.4 lakhs was paid to Mr. Raman
(independent director). Mr. Purva, the CEO, resides in a luxurious property owned
by AFL. This property was acquired 10 years ago, and an annual depreciation of
` 1 lakh is provided for in the company's Profit & Loss account. The market rental
value of a similar property is ` 12 lakhs per annum. Mr. Harish, a director of the
company, is also a partner at the legal firm HKN & Associates, which specializes
in GST and income tax matters. During the year, AFL paid ` 6 lakhs to HKN &
Associates for legal services related to GST matters. These services were rendered
by Mr. Gaurav, a senior partner at the firm, and Mr. Harish neither supervised nor
had any influence over the services provided to the company.

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On 1st April 2024, the company entered into a lease agreement with PQR Inc. for
the acquisition of machinery on lease for a period of five years. The lease
arrangement stipulates annual lease payments of USD 18,000, payable at the end
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of each year. At the commencement date of the lease, the exchange rate was USD
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1 = ` 83. The average exchange rate during the financial year 2024-25 was ` 84,
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and the closing rate as on 31st March 2025 was ` 86. The applicable incremental
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borrowing rate for a USD-denominated borrowing on the lease commencement
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date was 8% per annum. For entering this agreement services of Gordon Inc. of
the USA were availed. The commission payable was 6% to be remitted by AFL to
the Gordon Inc. in USA. At the same time some old machinery was also disposed.
Statutory auditor while going through the machinery sale transaction also
requested for review of the internal financial controls over such transaction.
The matter was discussed with accounts department and accounting department
head, Mr. Shashi, submitted the following:
(a) Accounting policy Item of PPE is derecognized on disposal or when no future

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economic benefits are expected from its use.
c
. - The gain or loss on disposal is
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(b) Presentation in financial statements
recognized in profit and loss.
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a by inspection, confirmation, vouching etc.
(c) Internal Financial Controls implemented - The disposed PPE item and its gain
on derecognition is verified
(d) Relevant calculation to be made - Difference between net disposal proceeds
and carrying amount will depict the gain or loss on derecognition.
'AFL' has export receivables amounting to £ 2,50,000 as on 31.03.2025, which are
due to be received from a U.K.-based customer in three months. The Finance
Manager is concerned about potential adverse movements in the exchange rate
due to recent volatility in the foreign exchange market. As of March 31, 2025, the
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spot exchange rate stands at 1 £ = ` 115.00/` 115.40, and the 3-month forward
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rate is 1£ = ` 116.70/` 117.00. Interest rates in India are 6% p.a. for deposits and

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8% p.a. for borrowings, whereas in the United Kingdom, the deposit rate is 2%

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p.a. and the borrowing rate is 4% per annum. To hedge against currency risk, the
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company is also evaluating the use of currency options. A 3-month call option

a with an exercise price of ` 116 per pound is available at a premium of ` 1.40 per
pound, and a put option at the same exercise price costs ` 1.60 per pound. The
manager has forecasted possible spot exchange rates for the end of the 3-month

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FINAL EXAMINATION: SEPTEMBER 2025

period with the following probabilities: ` 114 with a probability of 0.20, ` 116
with a probability of 0.50, and ` 118 with a probability of 0.30.
Multiple Choice Questions
[Provide the correct option to the following questions]
3.1 What is the effect of product differentiation and industry market size factor
on operating income of 'AFL'?
(A) Operating income in 2024-25 increase by ` 168 lakh due to increase in
market size and ` 382 lakh due to product differentiation.
(B) Operating income in 2024-25 increase by ` 132 lakh due to increase in
market size and ` 418 lakh due to product differentiation.
(C) Operating income in 2024-25 increase by ` 110 lakh due to increase in
market size and ` 440 lakh due to product differentiation.
(D) Operating income in 2024-25 increase by ` 300 lakh due to increase in
market size and ` 250 lakh due to product differentiation.
3.2 Which of the following statements regarding disclosure requirements under
Ind AS-24 are incorrect?
(i) Payment of ` 2.4 lakhs as sitting fees to Mr. Raman need not to be disclosed
separately as he is not considered key management personnel (KMP).
(ii) The annual depreciation of ` 1 lakh on the property used by Mr. Purva need
not to be disclosed in notes to accounts, as no cash out flow is involved.
(iii) AFL need not disclose the estimated market rental value of the property
(` 12 lakh per annum) in the notes to the financial statements.
(iv) ` 6 lakh paid to HKN & Associates for GST-related legal services is a not
a related party transaction and need not be disclosed regardless of role
of Mr. Harish in supervising the services.
Options
(A) Statement (i) and (iii)
(B) Statement (ii), (iii), (iv)
(C) Statement (i) and (ii)
(D) Statement (i), (ii) and (iv)

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3.3 Which of the submissions made by Mr. Shashi are correct?
(A) Submission (a), (b) and (c)
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(B) Submission (b), (c) and (d)
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(C) Submission (a), (c) and (d)
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(D) Submission (a), (b) and (d)
g l a
a of the following statement is most appropriate as regards compliancea
3.4 lWhich
g
a with the legal provisions of FEMA, 1999 for remittance of commission payable
by AFL to Gordon Inc. of the USA?
(A) Prior permission of RBI is required for the remittance of entire
commission of USD 54,000.
(B) Prior permission of RBI is not required for the remittance of entire
commission of USD 54,000 as the nature of transaction is Current
Account transaction and payment is being made in the course of
ordinary course of foreign trade.
o m
c
. for remittance upto USD 25,000
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(C) Prior permission of RBI is not required

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but for the balance commission of USD 29,000 prior permission of RBI is

g
required.
a is not required remittance up to USD 45,000 but
(D) Prior permission of RBI
for the balance commission of USD 9,000 prior permission is required.
3.5 Which of the following statements are correct as per the Foreign Trade Policy
in relation to 'AFL'?
(i) Company is permitted to establish export warehouses in India to
facilitate the storage and handling of goods intended for export.
(ii) Company is eligible to self-certify their manufactured goods as
m
m c. o
originating from India with a view to qualify for preferential treatment

c. o under specified agreements.
s emand training
s em laeach year based
(iii) Company is eligible to be partner in providing mentoring
g
la a
in international trade to specified number of trainces

ag on status they achieve.
(iv) Company is eligible for fixation of input output norms on priority i.e.
within 60 days by norms committee.

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FINAL EXAMINATION: SEPTEMBER 2025

Options
(A) (i), (ii), (iii)
(B) (i), (iii), (iv)
(C) (ii), (iii), (iv)
(D) (i), (ii), (iv) (5 x 2 = 10 Marks)
Descriptive Questions
3.6 As a management accountant of the company, list some areas for preparing
a report evaluating company's performance using Triple Bottom Line (TBL)
Framework. (4 Marks)
3.7 Finance manager is considering various hedging strategies including forward
contracts, money market hedging, options, or remaining unhedged, to
determine the most appropriate course of action to mitigate exchange rate
risk. Suggest the best choice for the Finance manager. (Make calculations to
nearest rupees) (6 Marks)
3.8 What is the correct accounting treatment under relevant Ind AS for 'AFL' in
relation to a lease arrangement for machinery taken on lease, including
initial recognition, subsequent measurement, and presentation and
disclosure in the financial statements for the year ending 31 March 2025?
Explain with relevant figures.

Year 1 2 3 4 5
PV @ 8% 0.926 0.857 0.794 0.735 0.681

(5 Marks)

ANSWER TO CASE STUDY 3
3.1 Option (B): Operating income in 2024-25 increase by `132 lakh due to
increase in market size and `418 lakh due to product differentiation.
3.2 Option (C): Statement (i) and (ii)
OR
3.2 Option (D): Statement (i), (ii) and (iv)
3.3 Option (D): Submission (a), (b) and (d)
3.4 Option: No Correct Option

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3.5 Option (B): (i), (iii), (iv)
3.6 Areas for Preparing Triple Bottom Report
m
1.
m
Economic Performance
c. o
•
.co
Strong market presence: AFL has established itself as a leading
s em
e m manufacturer, wholesaler, and exporter of shirts and T-shirts for men,
l a
l a s women, and children.
a g
ag • Operational efficiency: Through continuous process improvements
and workforce training, the company has minimized rework, reduced
costs, and enhanced product quality.
• Diversification: By entering the poly clothing segment, AFL has
successfully captured a 5% market share in just two years, showing
adaptability to market trends.
• Sustainable practices as a competitive edge: Use of durable, high-

m
quality materials ensures longer product life, strengthening customer

c
loyalty and brand reputation.
o
. AFL recorded an increase in
•
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e lakhs.
Increase in operating revenue:
operating income by `s710

g a
l turnover: AFL’s export turnover in 2024-25
•
a
Increase in export
reached USD 7 million, marking an increase from the three financial
years.
Overall: AFL demonstrates healthy financial growth, cost
efficiency, and market adaptability, while aligning profitability with
sustainability.
2. Environmental Performance

o m
c
Water stewardship:
m . 6 billion
•

c. o o Installed a 50 MLD sewage treatment plant, recycling
s em
em laenhancing water
litres of water annually for internal use.

las Developed rainwater harvesting ponds,
a g
g
o

a
availability in a water-scarce region.
• Materials management:
o Transitioning towards organic cotton (less pesticide use, but

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FINAL EXAMINATION: SEPTEMBER 2025

water-intensive — AFL must balance trade-offs).
o Uses high-quality, durable fabrics to reduce consumption
cycles.
• Waste management: 75% of textile waste diverted from landfills
via reuse and recycling programs.
• Energy and climate commitments:
o Installed solar panels, cutting energy use by 25%.
o Conducted carbon audit and pledged net zero by 2030.
• Afforestation: Planted 100,000 trees in FY 2024–25.
Overall: AFL shows strong environmental responsibility, with
innovative water reuse, renewable energy adoption, and climate
commitments. The main challenge lies in addressing the water
intensity of organic cotton.
3. Social Performance
• Community development:
o Trained 9,000 farmers, offering on-field assistance, productivity
support, and access to government schemes.
o 60% of workforce drawn from local communities, strengthening
rural livelihoods.
o Employee welfare programs cover food, clothing, education, and
healthcare, supporting holistic development.
• Labour standards: Ensures compliance with labour laws, provides
fair wages, and conducts regular HR training for skill enhancement.
• Social equity: Residential facilities for workers near plants improve
quality of life and reduce migration stress.
Overall: AFL demonstrates strong social responsibility, improving
livelihoods, skill development, and local community welfare.
Conclusion
Evaluated through the Triple Bottom Line framework:
• Economic Bottom Line: AFL maintains competitiveness, efficiency, and

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growth while innovating into new product lines.
• Environmental Bottom Line: The company is a leader in sustainable
m
c. o
water management, waste reduction, renewable energy, and climate

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commitments — though organic cotton’s water use remains a concern.

. em
•

e m
Social Bottom Line: AFL creates inclusive growth through farmer support,

l a s
s ag
local employment, fair labour practices, and community welfare programs.

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Final Assessment: AFL reflects a balanced and sustainable business model,
aligning profitability with environmental stewardship and community well-
being. It can further strengthen its TBL performance by addressing the water
intensity of organic cotton and scaling sustainable raw material sourcing.
3.7 (a) Forward contract: Dollar needed in 3-months = £ 2,50,000 x ` 116.70
= ` 2,91,75,000/-
(b) Money market hedge: Borrow £, convert to `, invest `, repay £ loan in
3-months

o m
c
Amount in £ to be borrowed = £ 2,50,000/1.01 = £ 2,47,525

m .
e
With Spot Rate of ` 115/£ the converted
amount shall be
a s = ` 2,84,65,375

a gl amount @ 6% p.a.
Add: Interest on the same ` 4,26,981
Amount available after the period of 3-months ` 2,88,92,356
(c) Option:
Expected Prem./ Exercise Net per £ Total price for Prob. pi xi
Spot rate unit Option £2,50,000 xi pi `
in 3- in `
months £2,50,000 X

m
(Col 4) (7)

m
(1) (2) (3) (4) (5) (6)
.c o (5 X 6)

c. o 114 1.60 Yes 114.40* 2,86,00,000 0.20
m
0.50 e 1,43,00,000
57,20,000

s 87,30,000
em l a
116 1.60 No 114.40* 2,86,00,000

las 118 1.60 No 116.40 2,91,00,000
ag
0.30

ag Less: Interest on Premium @ 8% for 3-months
2,87,50,000
8,000
2,87,42,000
* (` 116 - ` 1.60)

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FINAL EXAMINATION: SEPTEMBER 2025

(d) No hedge option:
Expected Receivable Receivable in ` Prob. pi xi
Future in £ xi pi `
spot rate (3) (5)
(1) (2) (1) X (2) (4) (3 X 4)
114 2,50,000 2,85,00,000 0.20 57,00,000
116 2,50,000 2,90,00,000 0.50 1,45,00,000
118 2,50,000 2,95,00,000 0.30 88,50,000
2,90,50,000

The most appropriate action to mitigate the exchange rate risk shall be
to take Forward Cover.
3.8 On initial measurement, AFL will measure the lease liability and ROU
asset as under:

Year Lease Present Present Conversion ` value
Payments Value Value of rate (spot
(USD) factor Lease rate)
@ 8% Payment
1 18,000 0.926 16,668 83 13,83,444
2 18,000 0.857 15,426 83 12,80,358
3 18,000 0.794 14,292 83 11,86,236
4 18,000 0.735 13,230 83 10,98,090
5 18,000 0.681 12,258 83 10,17,414
Total 71,874 59,65,542
* Add: Commission @ 6% 4,48,200
Total ROU 64,13,742
*Commission Payable Workings
Total lease payments = USD 18,000 x 5 years = USD 90,000
Commission payable = USD 90,000 x 6% = USD 5,400
Commission in INR at the commencement date's exchange rate:
USD 5,400 x 83 = INR 4,48,200

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As per Ind AS 21 The Effects of Changes in Foreign Exchange Rates,
monetary assets and liabilities are restated at each reporting date at the
closing rate and the difference due to foreign exchange movement is
m
m
recognised in profit and loss whereas non-monetary assets and liabilities
c. o
.co
carried measured in terms of historical cost in foreign currency are not
s em
e m
restated.
l a
l a s
Accordingly, the ROU asset in the given case being a non-monetary asset
ag
ag measured in terms of historical cost in foreign currency will not be restated
but the lease liability being a monetary liability will be restated at each
reporting date with the resultant difference being taken to profit and loss.
At the end of Year 1, the lease liability will be measured in terms of USD as
under:
Lease Liability:

Year Initial Value Lease Interest Closing Value
m
c. o
(USD) Payment @ 8% (USD)

em
(a) (b) (c) = (a x 8%) (d = a + c - b)
1 71,874
a s
18,000 5,750 59,624

a gl be accounted for in profit and loss at average
Interest at the rate of 8% will
rate of ` 84 (i.e., USD 5,750 x 84) = ` 4,83,000.

Particulars Dr. (`) Cr. (`)
Interest Expense Dr. 4,83,000
To Lease liability 4,83,000

Lease payment would be accounted for at the reporting date exchange rate,

m
i.e. ` 86 (i.e., USD 18,000 x 86) at the end of year 1

m c. o
c. o 15,48,000 em
Particulars Dr. (`) Cr. (`)

em
Lease liability Dr.

l a s 15,48,000
las To Cash
g
g As per the guidance above under Ind AS 21, thealease liability will be
a restated using the reporting date exchange rate i.e., ` 86 at the end of
Year 1. Accordingly, the lease liability will be measured at ` 51,27,664
(59,624 x ` 86) with the corresponding impact due to exchange rate

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FINAL EXAMINATION: SEPTEMBER 2025

movement of ` 2,27,122 (51,27,664 – (59,65,542 + 4,83,000 – 15,48,000)
taken to profit and loss.
At the end of year 1, the ROU asset will be measured as under:

Year Opening Balance Depreciation Closing Balance
(`) (`) (`)
1 64,13,742 12,82,748 51,30,994

CASE STUDY - 4

Motor Bikes Limited (MBL) based at Mumbai is an unlisted public company and
carrying out operations since year 2001. The total paid up share capital of the
company and annual turnover for last three years is as follows:

Particulars/Year 2022 2023 2024
Share Capital (Paid up) 80 90 95
Reserves and Surplus 55 65 65
Turnover 225 250 350

(All amounts in Crores)
MBL has a robust accounting system supported by ERP package. Since the company
has a unique operation and distribution system, it maintained a software team for
accounting and ERP. The accounting software was updated frequently to comply
with all the legal requirements. The company was previously engaged in
manufacture and sale of two-wheeler motor cycles only. Since the market for two-
wheeler petrol vehicle is not vibrant, the Board of Directors decided to diversify into
manufacture of solar powered motor vehicles. It specialised in unique indigenous
technology being the outcome of huge outlay in R&D. The solar powered vehicle
segment has the power to change the landscape of a country. Given the
dependence on OPEC, the uncertainty in political scenario prevalent therein, the
prices of petroleum products keep on spiralling over a period of time. The electric
vehicle with add on feature of solar energy could make India self-reliant in addition
to presenting a pollution-free environment. The solar powered vehicle manufacture
and its wide spread use could provide abundant scope to strengthen the economy
which is already having V shape recovery post-Covid-19 pandemic. The company
is presently focused on manufacture of 2 wheeled solar powered motor vehicles

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with new bike named as "Powerhouse". There are only 3 other companies engaged
in similar kind of product and that too not having superior technology and market
visibility. The technology used by Motor Bikes Limited is unique that it is superior
m
m
to that of all the existing companies.
c. o
.co
The spare parts of Motor Bikes Limited would be available only with its
s em
e m l a
s
distributors which are patented and hence it would not be possible others to

l a ag
replicate such model in the open market. Promotional expenditure for Motor Bikes

ag
Limited would not be huge since the company already has market presence and
logistics. The launch of 'Powerhouse' and other solar powered motor vehicles is
of course a giant leap in the annals of two-wheeler vehicle manufacture in India
and it is going to revolutionize the two wheeler market. The marketing
department and costing department had a joint meeting where it was decided
that the mark-up must be 50% of the direct cost of production as Powerhouse
have the potential of being a market leader.
Motor Bikes Limited's Board of directors though had prescribed number of
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directors but it did not appoint any women director till 31.03.2024. Also, the policy

.
of the company is that a person proposed to be appointed as director should not

s em
be a director in more than 12 companies. The said policy is as per the special

l a
resolution passed by the members of a company. Legal department of the
g
a
company advised to have at least one women director on the board of the
company and accordingly it was proposed to appoint Ms. Nadar as a director. Ms.
Nadar is already a director in fifteen other companies with nine being public
companies. One of the directors also suggested the name of Ms. Priya who is
already a director in eleven other companies with ten being public companies.
The following issues/statements have been presented before appointment of
women director:
(i) Ms. Nadar can be appointed.

o m
m is mandatory for MBL to appoint women director as per. average
c
(ii) It is mandatory for MBL to appoint women director as per turnover criteria.

c. o (iii) Itshareholder s em
em l a
funds criteria.

las (iv) Ms. Priya cannot be appointed as a director.
a g
ag Motor Bikes Limited wanted to commence yet another manufacturing unit in rural
area in Baddi, Himachal Pradesh. It incurred ` 200 lakhs towards civil
construction expenses and 300 lakhs towards acquisition and installation of plant

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FINAL EXAMINATION: SEPTEMBER 2025

& machinery. The civil construction expenses include ` 20 lakhs towards materials
purchased for constructing the foundation bed for erecting plant and machinery.
One conveyance/vehicle to be used for transferring material within the factory
premises was also purchased for ` 18 lakhs. Further, company availed the outdoor
catering services (Billed amount ` 10 lakhs) for inaugural ceremony of new Baddi
unit in which the products were displayed for prospective customers. The CGST
and SGST are 9% each for civil construction, plant and machinery, conveyance
and outdoor catering services.
Motor Bikes Limited in order to augment its production capacity decided to
acquire all the shares of TPS Limited for cash. The date of shareholder agreement
was 1st December, 2024. The appointed date as per shareholder agreement was
1st January, 2025. The date of obtaining control over Board representation was 1st
February, 2025. The date of payment of consideration was 28th February, 2025.
The date of transfer of shares in favour of Motor Bikes Limited was 15th March,
2025. It was entitled to all the profits from 1st day of February, 2025. The purchase
price was based on TPS Limited's net asset position as on 1st December, 2024. The
acquisition agreement further stated that an additional 2 million of cash would
be paid to TPS's former shareholders if TPS succeeds in achieving certain specified
performance targets. MBL determines the fair value of such consideration to be
` 1.5 million at the acquisition date.
Motor Bikes Limited appointed Data Solutions LLP to provide the data base of
users of electric motor vehicle with other characteristic features such as age,
region, occupation, economic background and other data to plan and position its
product vis a vis the marketing strategies. There are about 20 such players
presently existing in such manufacture of electric vehicles but only 3 are engaged
in solar powered motor vehicles. The investment to set up a similar unit viz.
manufacture solar powered motor vehicles would entail investment of ` 100
crores on research and development before considering the cost of regular
operations such as raw material procurement, manufacture, design, staffing,
marketing and branding. The Board of Directors of Motor Bikes Limited wants to
analyse their strategy to launch solar powered motor vehicle as per Porter's Five
Forces Model.
Motor Bikes Limited exported traditional motor cycles to Nigeria on regular basis.
On 31st March, 2025 it has export exposure of ` 300 lakhs Naira (currency of
Nigeria). The currency Naira is not directly quoted against Indian Rupee. The

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forex consultant recommended taking a forward cover which would be helpful to
Motor Bikes Limited.

m
c. o
The current spot rates are:

o m m
c
Naira/USD =. 1400
INR/USD = ` 84

m s e
s e g l a
l a
It is estimated that the Nigerian Naira would depreciate to 1600 level and INR
g a
a
to depreciate against USD to ` 85.
Forward rates for March 2025 are:
INR/USD=` 86
Naira/USD = 1550
Auditor of MBL while carrying out audit for the F.Y. 2024-2025
(I) has made extensive use of Computer-Assisted Audit Techniques (CAATs) for
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conducting both compliance tests and substantive audit procedures and
.
em
submitted his audit report for the year 2024-25. A fraud involving unrecorded

s
liabilities and assets, along with fabricated vendor contracts, was later

g l a
uncovered through whistleblower reports, despite the absence of any red

a
flags being identified by the Computer Assisted Audit Techniques (CAATs)
used during the audit. In Detailed discussion, the following things were
discussed about use of Computer-Assisted Audit Techniques (CAATs):
(i) The fraud went undetected because CAATs cannot identify transactions
that are intentionally excluded from the accounting system or supported
by falsified physical documentation.
(ii) CAATs failed because they cannot perform recalculations or analytical
procedures involving ratios and trends making them ineffective for
m
m substantive testing.
c. o
c. o (iii) CAATs are ineffective for both compliance and substantive m
e
strong internal controls exist and the audit relies solelys on automated
testing when

s em g la
la a
procedures.

ag (iv) CAATs are capable of detecting collusion if enough system anomalies
are analysed using advanced algorithms, so this fraud indicates auditor
negligence.

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FINAL EXAMINATION: SEPTEMBER 2025

(II) identified the following expenses incurred by company which involves
applicability of TDS:
(i) paid dividend to shareholders ` 500 lakhs (which includes dividend to
non-resident shareholders ` 200 lakhs);
(ii) paid ` 60 lakhs to Roger Borg (non-resident) tennis player who attended
the function for launch of one of its model on 1st January, 2025;
(iii) gave one solar powered motor vehicle manufactured by it to a cine actor
as influencer for the purpose of promoting the product. It will be used by
him and retained by him subsequently free of cost (cost being ` 2 lakhs);
(iv) paid fee for technical services to Marina GmbH of Germany ` 110 lakhs
(for which DTAA prescribes the withholding tax at 15%); and
(v) conducted sales promotion meeting in Thailand for 200 distributors @
` 4 lakhs being the expenditure for each distributor for 2 days meeting
plus 2 days sight-seeing expenses (expenditures equally spread for 4
days).
Multiple Choice Questions
[Provide the correct option to the following questions]
4.1 Which of the issues are correct in relation to appointment of women director
(Ms. Nadar/ Priya)?
(A) Statement (i) and statement (iii)
(B) Statement (i), statement (iii) and statement (iv)
(C) Statement (i), statement (ii) and statement (iv)
(D) Statement (ii) and statement (iv)
4.2 Which of the statements referred about CAATs incorrectly explains why the
fraud was not detected through the use of Computer-Assisted Audit
Techniques (CAATs)?
(A) (i), (ii), (iii)
(B) (i), (ii), (iv)
(C) (i), (iii), (iv)
(D) (ii), (iii), (iv)

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4.3 In your opinion, Motor Bikes Limited has followed which type of pricing policy
for Powerhouse?

m
c. o
(A) Skimming pricing

o m m
.c
(B) Premium pricing

m s e
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(C) Penetration
s
pricing

g l a
g l a
(D) Revolutionary pricing
a
a in respect of its acquisition of TPS Limited and how should the future
4.4 What is the date of acquisition as per relevant Ind AS for Motor Bikes Limited

consideration based on performance be classified?
(A) 28th February, 2025, Equity
(B) 1st December, 2024, Financial Liability
(C) 15th March, 2025, Equity

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(D) 1st February, 2025, Financial Liability

.
em
4.5 How much total amount of input tax credit under GST (CGST + SGST) can be

s
claimed by Motor Bikes Limited in respect of goods and services
purchased/availed in Baddi unit?
g l a
(A) ` 98.64 lakhs a
(B) ` 86.40 lakhs
(C) ` 60.84 lakhs
(D) ` 62.64 lakhs (5 x 2 = 10 Marks)
Descriptive Questions

m
4.6 Briefly state with reason the amount of tax deductible at source for the

m
expenses incurred by Motor Bikes Limited.
c o
(5 Marks)
. Limited.
c. o 4.7 Calculate m
eforward cover?
the expected loss, if the hedging is not done by Motor Bikes
s
em If the spot rates on 31 March, 2025 are INR/USD = ` 86.5;la
How would the position change, if Motor Bikes Limited takes a

las st

a g Naira/USD=1600,

ag will you say that taking forward cover is justified? (5 Marks)
4.8 Write a summary of the issues to be tackled by Motor Bikes Limited as per
Porter's Five Forces Model. Note: Your answer must be with reference to the facts
of the case study and not a mere abstract reference of the Model. (5 Marks)

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FINAL EXAMINATION: SEPTEMBER 2025

ANSWER TO CASE STUDY 4
4.1 Option (D): Statement (ii) and statement (iv)
4.2 Option (D): (ii), (iii), (iv)
4.3 Option (B): Premium pricing
4.4 Option (D): 1stFebruary, 2025, Financial Liability
4.5 Option (C): ` 60.84 lakhs
4.6 (i) Motor Bikes Ltd. is required to deduct tax at source under section 194
@10% on ` 300 lakhs, being dividend paid to resident shareholders
assuming dividend paid to each shareholder exceeds ` 5,000 and at
rates in force i.e., @20% on ` 200 lakhs, being dividend paid to non-
resident shareholders. The rate of tax for non-residents would be
increased by HEC @4%.
Accordingly, Motor Bikes Ltd. has to deduct tax of ` 71.60 lakhs [` 30
lakhs (10% of ` 300 lakhs) + ` 41.60 lakhs (20.8% of ` 200 lakhs).
(ii) Motor Bikes Ltd. is required to deduct tax at source under section 194E
@20% on ` 60 lakhs, being amount paid to Roger Borg, a non-resident
assuming he is not a citizen of India for attending the launch of one of
its model assuming the same is in the nature of advertisement. The
rate of tax would be increased by surcharge @10% and HEC @4%.
Accordingly, Motor Bikes Ltd. has to deduct tax of ` 13.728 lakhs
[` 22.88% of ` 60 lakhs.
Alternative
The above solution is worked out considering that the amount
paid to Roger Borg, a tennis player for attending launch of a model
is in the nature of advertisement. However, it is also possible to
consider that amount paid to Roger Borg, a tennis player for
attending launch of a model is not in the nature of advertisement.
Accordingly, Motor Bikes Ltd. is required to deduct tax at source @30%
plus surcharge@10% plus HEC @4% under section 195 and not under
section 194E on ` 60 lakhs, being amount paid to Roger Borg, a non-
resident for attending the launch of one of its model assuming he is
not a citizen of India and payment is not for advertisement.

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Accordingly, Motor Bikes Ltd. has to deduct tax of ` 20.592 lakhs
[` 34.32% of ` 60 lakhs].

m
c. o
(iii) Since Motor Bikes Ltd. has given one solar powered motor vehicle
m
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manufactured by it to an influencer for promoting the product and the

. em
s
product is retained by him, it would be in the nature of benefit/

em l a
s
perquisite and tax is required to be deducted by Motor Bikes Ltd. under

l a a
section 194R @10% on ` 2 lakhs, being the value exceeding ` 20,000.g
ag Accordingly, Motor Bikes Ltd. has to, before releasing the solar
powered motor vehicle, ensure that tax of ` 20,000 has been paid in
respect of the benefit or perquisite.
(iv) Motor Bikes Ltd. is required to deduct tax at lower of withholding tax
rate provided in the DTAA i.e., 15% or at rates in force i.e., 35% on
payment for fee for technical service to Marina GmbH of Germany
assuming it is not pursuance of an agreement approved by the Central

m
Government. Since withholding tax rate provided in the DTAA of 15%

. co
is lower, Motor Bikes Ltd. is required to deduct tax of ` 16.50 lakhs

em
(` 110 lakhs x 15%). In case DTAA rate is applied, surcharge and HEC

l a s
would not be added to the DTAA rate.

a g
(v) 2 days sight-seeing expenses of ` 4 crores (200 distributor x ` 2 lakhs)
during the sales promotion meeting in Thailand for 200 distributors
would be considered as benefit or perquisite even if it is incidental to
the meeting. On such ` 4 crores, Motor Bikes Ltd. tax is required to
deduct tax at source under section 194R @10% since the value of
benefit of each distributor exceeds ` 20,000. Tax to be deducted at
source would be ` 40 lakhs, assuming the amount of tax deducted at
source is collected from the distributors.

o m
However, if the amount of TDS is borne by Motor Bikes Ltd., the

m .c
c. o
amount of TDS would be ` 44.44 lakhs i.e., 10% on ` 4.4444 crores.
(` 4 crores/90 x 100).
m
e it will be
em l a s
s g
4.7 Since the direct quote for Naira and ` is not available

gla calculated by cross exchange rate as follows:
a
a `/$ x $/Naira = `/Naira
84.00/1400 = 0.0600
Spot rate on date of export 1 Naira = ` 0.0600

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FINAL EXAMINATION: SEPTEMBER 2025

Expected Rate of Naira for March 2025 = ` 0.0531 (` 85/Naira 1600)
Forward Rate of Naira for March 2025 = ` 0.0555 (` 86/Naira 1550)
(i) Calculation of expected loss without hedging
Value of export at the time of export (` 0.0600 x Naira ` 18,00,000
3,00,00,000)
Estimated payment to be received on March 2025 ` 15,93,000
(` 0.0531 x Naira 3,00,00,000)
Loss ` 2,07,000
Hedging of loss under Forward Cover

Value of export at the time of export (` 0.0600 x Naira ` 18,00,000
3,00,00,000)
Payment to be received under Forward Cover ` 16,65,000
(` 0.0555 x Naira 3,00,00,000)
Loss ` 1,35,000

By taking forward cover loss is reduced to ` 1,35,000.
(ii) Actual Rate of Naira on March 2025 = ` 0.0541(` 86.50/Naira 1600)

Value of export at the time of export (` 0.0600 x Naira ` 18,00,000
3,00,00,000)
Estimated payment to be received on March 2025 ` 16,23,000
(` 0.0541 x Naira 3,00,00,000)
Loss ` 1,77,000

The decision to take forward cover is still justified.
Note- This question can also be solved by rounding the Rupee–Naira
exchange rate to three, four, or five decimal places.
4.8 Motor Bikes Limited’s strategy to diversify into solar-powered two-
wheelers through its unique indigenous technology can be evaluated
using Porter’s Five Forces Model.
The threat of new entrants is low because manufacturing solar-powered
vehicles demands significant upfront R&D investments (`100 crores),
advanced technology, and regulatory approvals, which create high entry

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barriers. However, the existing 20 electric vehicle players indicate that entry
in adjacent markets is feasible, making continuous innovation essential.

m
c. o
The threat of substitutes is moderate, as conventional two-wheelers
m
co
(petrol/diesel) and electric bikes without solar add-ons still exist, though
. em
s
rising fuel costs and environmental concerns strengthen customer

e m l a
s
preference for solar-powered vehicles.

l a ag
ag
The competitive rivalry is currently limited, with only three players in the
solar-powered vehicle space and none with superior technology, providing
MBL an opportunity to position itself as a market leader. Nevertheless,
rivalry could intensify as global auto manufacturers enter the Indian EV
segment.
The bargaining power of suppliers for MBL is relatively low, since the
company manufactures patented spare parts in-house, ensuring that raw
material vendors have limited influence. The uniqueness of MBL’s

m
technology and captive production reduces dependence on external

. co
suppliers for critical inputs. However, reliance on high-quality solar panels

em
and advanced batteries—often sourced from global markets—creates

l a s
potential vulnerability if supply chains fluctuate or prices surge.

a g
On the other hand, the bargaining power of buyers (including distributors
and end consumers) is moderate. Customers are attracted by eco-friendly,
cost-efficient mobility solutions, but their price sensitivity could increase if
competitors launch cheaper alternatives, while distributors remain bound
to MBL’s exclusive channel, limiting their negotiating leverage.
From these forces, key issues emerge:
Possible entry of global competitors with deep pockets, dependency on

m
co
specialized solar/battery inputs, and customer resistance if prices remain

m .
c. o
too high despite premium positioning.
m
em
Solutions may include:

la se
las (i)
g
a for critical inputs
leveraging patents and continuous R&D to stay technologically ahead,

ag (ii) securing long-term contracts or backward integration
like solar panels and batteries,

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FINAL EXAMINATION: SEPTEMBER 2025

(iii) engaging in customer awareness campaigns highlighting long-term
cost savings and sustainability, and
(iv) adopting a selective premium pricing strategy initially but gradually
introducing cost-effective variants to broaden market penetration. By
aligning its unique technological advantage with strategic control over
supply chains and customer engagement, MBL can sustain its
competitive edge in the evolving solar-powered two-wheeler market.
NOTE- This solution is based on most appropriate interpretation; however,
alternative views may also be possible.

CASE STUDY - 5

Time Jewellers Ltd. (TJL), Chandigarh, was started by Ms. Seema Bahl in the year
2018. TJL is engaged in the manufacture and sale of gold and diamond jewellery.
Company has chain of retail stores in Chandigarh, Mumbai, Delhi, Cochin, Jaipur
and Kolkata. The company runs jewellery business in the trade name 'TJ
Jewellers'. After analysing the growth prospects and carrying out various due
diligence exercises, TJL diversified into hospitality industry by name ‘TJ residency'
in various tier 2 cities of India. The uniqueness of its jewellery business was the
reliability and buy-back arrangement with substantial concession for waste due
to erosion being limited to 50% in respect of the jewellery purchased from it
previously. In the hospitality industry it created a niche for itself by competitive
pricing and customer friendly service. The company simply acquired or took on
long term lease the existing boarding and lodging units subject to meeting the
minimum requirements like 100 rooms and 3-star facilities. The company has
identified that tourism and hotel industry is bound to have galloping growth since
the fruits of economic growth could be found in people resorting to travel with
comfortable stay and leisure. The trend of companies engaged in jewellery or
computer software diversifying into hospitality industry is already prevalent and
the action of Time Jewellers Ltd. is not first of its kind. However, the manner in
which it is scripting its journey with success is the testimony of its past business
practices and organisational philosophy.
The following are the details submitted by Time Jewellers Ltd. for the year ended
31st March, 2025 and want to know book profit under section 115JB for the
assessment year 2025-26:

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Particulars ` in lakhs
Profit as per Statement of Profit and Loss 1425.00
m
m c. o
Items debited to Statement of Profit and Loss: 180.00

.co
Bank term loan interest (actually paid upto the due date of return

s em
m
under section 139(1) ` 150 lakhs)
e l a
a s
l paid and payable to MSME
Provision for income-tax 105.00
ag
g
a(Amount outstanding as on 31.03.2025 ` 200 lakhs. Paid the
Amounts 500.00

entire amount only in June, 2025)
Depreciation (includes ` 150 lakhs on account of revaluation of 360.00
assets)
Provision for gratuity (based on actuarial valuation) 200.00
Arrear of wages paid to employees relating to F.Y.2022-23 on 150.00

m
c. o
settlement of dispute with trade union
Items credited to Statement of Profit and Loss: 720.00
Long-term capital gain on sale ofmcommercial apartments
s e` 900 lakhs).
l a
referred later. (Stamp duty valuation
Agricultural income ag 20.00
Additional information: 280.00
Depreciation allowable as per Income-Tax Rules, 1962

As strategic move, Time Jewellers Ltd. in its business had announced Gold Card
scheme to customers for the recreation park owned by it. In the first year each
customer has to pay ` 12,000 and the option to renew is given to the customers
for ` 10,000 and ` 8,000 for the 2nd year and 3rd year respectively. There were 500

o m
c
members who accepted the scheme upon its launch. The company estimates the
m .
c. o Demand for some specific diamond jewellery (from newly wedded m
attrition rate @ 40% each year.

m s e couples) was
e increasing and that diamond and other accessories can onlyla
l as a g
be procured from

ag
Paris. Time Jewellers Ltd. imported that specific diamonds in September, 2024.
The bill of entry was presented on 20 September, 2024 and the goods were
th

cleared from port for warehousing. The order permitting the deposit of goods in
warehouse was issued for 4 months on 27th September, 2024. The assessable value
on 20th September 2024 was USD 5,00,000. The goods were accordingly deposited
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FINAL EXAMINATION: SEPTEMBER 2025

in the warehouse on the same day but were not cleared before 27th March, 2025. A
notice was issued under section 72 of the Customs Act, 1962 demanding duty and
interest. The goods were finally cleared on 30th March, 2025.

Particulars 20th September 10th December 30th March
Rate of exchange per ` 81 ` 82 ` 85
USD (as notified by CBIC)
Basic Customs Duty 15% 10% 12%

In addition, the precision with which such specific jewellery is made requires a
machine "Pluto". The said machine is manufactured in India by one company
only, Glow Engineers Limited. The cost of the machinery is around ` 3.5 Crores
and additional working capital will also be required due to this new addition in
product range. The funds will be arranged by selling its residential apartment
(earlier used by officers of the company to stay when they come for meetings) in
Mumbai. For balance amount, it has been decided to approach the existing
bankers of the company both for the machinery term loan and additional working
capital credit facilities.
Bankers requested for projected cash flow and profitability statements examined
and signed by the Chartered accountants. Management of TJL prepared the
required information clearly disclosing the basis of forecast and underlying
assumptions. XYZ LLP, a firm of Chartered Accountants based in Mumbai is
entrusted with the assignment of examining the same. Partner, CA Ravi,
examining the projected cash flow and profitability statements has raised the
following concerns for discussion amongst the team members.
(i) There is no mandatory requirement to state UDIN in such type of reports.
(ii) There is no requirement to give any type of opinion on projected cash flow
and profitability statements examined.
(iii) Accuracy of projections is not at all vouched for in an assurance report
provided for the given assignment.
(iv) Intended use of projection has to be disclosed along with caution to the users
regarding inappropriateness of projections for other purposes.
Though the entire manufacturing process is inhouse but one of the processes
"process FGH" is being done by outside job workers. One of the board members
suggested to look for acquisition of some company which is specialized in carrying

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out process FGH. All the board members agreed to the suggestion and entrusted
the job of identifying such company to Boston LLP, Delhi (a consultancy company)
to identify a company for acquisition with reasonably moderate scale of operation
m
m
and market presence. Boston LLP identified 5 such companies mainly driven by
c. o
.co
ultra-modern technology and the Committee constituted by the Board of
s em
e m
Directors of TJL finally decided to acquire VMS Ltd., by means of merger. The
l a
a s
technical feasibility including synergy has been analyzed by a team of competent
l ag
ag
people and it was approved both by the Committee and the Board. However, they
want to know the position from investor's perspective. The following are the
details of earnings of both the companies in this regard:

Name After-tax No. of equity Market price
earnings (`) shares per share (`)
TJL 30 crores 60 lakhs 75
VMS Ltd. 6 crores 30 lakhs 50

m
co
Time Jewellers Ltd. also manufactures a specific stone to be used in jewellery

.
manufacture. It has a good market presence though the product was launched

em
only 3 years ago. The budgeted and actual data for the financial year 2024-25
s
are as follows:
g l a
Particulars a Budget Actual Variation
Sales/production (units) 20,00,000 17,25,000 (2,75,000)
Sales (in lakhs) 210.00 189.75 (20.25)
Less: Variable cost (in lakhs) 126.00 120.75 5.25
Less: Fixed cost (in lakhs) 50.00 52.00 (2.00)
Profit (in lakhs) 34.00 17.00 (17.00)

o m
c
The budget data given above is based on the assumption that the total market
m .
c. o Time Jewellers Ltd. decided to invite a corporate strategist, Mr. Mandeep
m
size would be ` 40 lakh units but it turned out to be ` 37.50 lakh units.

m s e Vohra,
s e g l aVohra laid down
la
to take the company to its next level and team of Mr. Mandeep
certain bench-marks as the objectives to be achieveda in reality. He gave
ag prominence to areas of business development such as (i) contributing to revenue
and earnings; (ii) customer satisfaction, acquisition and loyalty; (iii) satisfying
customer requirements and maintain net earnings; (iv) thought leadership to take

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FINAL EXAMINATION: SEPTEMBER 2025

quick decisions; and (v) improving employee capabilities, information system
capabilities and organizational procedures.
TJL planning to go public has provided the following financial details for the last
three full financial years (all figures are on a restated and consolidated basis):
• Net Tangible Assets: ` 3.25 crores, ` 3.10 crores, and ` 3.50 crores
respectively. Of this, 60% is held in monetary assets. However, the company
has made firm commitments to utilise 70% of the monetary assets for a new
expansion project.
• Operating Profits: ` 18 crore, ` 16 crore, and ` 17 crore respectively.
• Net Worth: ` 1.5 crore in each of the three years.
• The company changed its name 10 months ago, and 52% of its revenue in
the last year came from the new line of business reflected in the new name.
Multiple Choice Questions
[Provide the correct option to the following questions]
5.1 Which of the statements made by CA Ravi are incorrect?
(A) Statement (i), (iii) and (iv)
(B) Statement (i), (ii) and (iv)
(C) Statement (i) and (ii)
(D) Statement (i) and (iv)
5.2 If the merger between TJL and VMS Ltd. is carried out by means of exchange
of shares and the exchange ratio is set according to current market prices,
what would be the earnings per share of TJL post-merger?
(A) ` 72
(B) ` 65
(C) ` 45
(D) ` 40
5.3 Which of the objectives set by Mandeep Vohra forms part of the Balanced
Scorecard Model?
(A) (i), (ii) and (iii)

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(B) (i), (ii), (iii) and (v)
(C) (i), (iv) and (v)
m
m
(D) (i), (ii) and (v)
c. o
c. o
5.4 Is TJL eligible to make an Initial Public Offer under SEBI (ICDR) Regulations?
s e m
m because all key financial thresholds are met, and excess monetary la
eassets
s g
(A) Yes,

l a are committed to business use.
a
ag (B) No, because more than 50% of the net tangible assets are held in
monetary assets.
(C) No, because the operating profit condition is not satisfied in all three
years.
(D) No, because the company changed its name within a year and less than
60% of its revenue came from the new business activity.

m
5.5 How much of the income and contract liability should be recognized by Time

. co
Jewellers Ltd. under Gold Card Scheme as per applicable Ind AS?
(A) ` 60,00,000, ` Nil
s em
l a
ag
(B) ` 53,26,530, ` 6,73,470
(C) ` 52,36,350, ` 7,63,650
(D) ` 54,13,045, ` 5,86,955 (5 x 2 = 10 Marks)
Descriptive Questions
5.6 Prepare a statement showing a reconciliation of budget profit to actual profit
through marginal costing approach for the financial year 2024-25 for Time
Jewellers Ltd. in respect of its stone manufacturing unit with as much as detail

m
as possible. (5 Marks)

m .co
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5.7 Compute the amount of duty and interest payable by Time Jewellers Ltd. as
m
se
regards removal of imported goods. Ignore agriculture and infrastructure

em l a
development cess. Integrated tax leviable under section 3(7) of the Customs

las Tariff Act is exempt.
a g (5 Marks)

ag 5.8 Compute the book profit under section 115JB of the Income-tax Act, 1961
for Time Jewellers Ltd. for the assessment year 2025-26. (5 Marks)

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FINAL EXAMINATION: SEPTEMBER 2025

ANSWER TO CASE STUDY 5
5.1 Option (C): Statement (i) and (ii)
5.2 Option (C): ` 45
5.3 Option (B): (i), (ii), (iii) and (v)
5.4 Option (A): Yes, because all key financial thresholds are met, and excess
monetary assets are committed to business use.
5.5 Option (B): ` 53,26,530, ` 6,73,470
5.6 Statement of Reconciliation - Budgeted Vs Actual Profit

Particulars `
Budgeted Profit 34,00,000
Less: Sales Volume Contribution - Planning Variance 5,25,000
(Adverse)
Less: Sales Volume Contribution - Operational Variance 6,30,000
(Adverse)
Add: Sales Price Variance (Favourable) 8,62,500
Less: Variable Cost Variance (Adverse) 12,07,500
Less: Fixed Cost Variance (Adverse) 2,00,000
Actual Profit 17,00,000

Workings
Basic Workings
Budgeted Market Share (in %) = 20,00,000/ 40,00,000
= 50%
Actual Market Share (in %) = 17,25,000/ 37,50,000
= 46%
Budgeted Contribution = ` 210,00,000 – ` 126,00,000
= ` 84,00,000
Average Budgeted Contribution (per unit) = ` 84,00,000/ ` 20,00,000
= ` 4.20

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Standard Sales Price per unit = ` 210,00,000/ 20,00,000
= ` 10.50
m
m
Actual Sales Price per unit = ` 189,75,000/ 17,25,000
c. o
c. o = ` 11.00
s em
s em Variable Cost per unit l a
ag
Standard = ` 126,00,000/ 20,00,000

g la = ` 6.3
a Actual Variable Cost per unit = ` 120,75,000/ 17,25,000
= `7
Calculation of Variances
Sales Variances
Volume Contribution Planning* = Budgeted Market Share % × (Actual
Industry Sales Quantity in units –
m
co
Budgeted Industry Sales Quantity in
.
em
units) × (Average Budgeted

s = 50% × (37,50,000 units – 40,00,000
Contribution per unit)

g l a
a units) × ` 4.20
= ` 5,25,000 (A)
(*) Market Size Variance
Volume Contribution Operational**
= (Actual Market Share % –

m
Budgeted Market Share %) ×

co
(Actual Industry Sales Quantity in
m .
c. o m
units) × (Average Budgeted

em
Contribution per unit)

la se
las =
a g
(46% – 50 %) × 37,50,000 units ×

ag =
` 4.20
` 6,30,000 (A)
(**) Market Share Variance

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FINAL EXAMINATION: SEPTEMBER 2025

Price = Actual Sales – Standard Sales
= Actual Sales Quantity × (Actual
Price – Standard Price)
= 17,25,000 units × (` 11.00 – ` 10.50)
= ` 8,62,500 (F)
Variable Cost Variances
Cost = Standard Cost for Production –
Actual Cost
= Actual Production × (Standard
Cost per unit – Actual Cost per unit)
= 17,25,000 units × (`6.3 – `7.0)
= ` 12,07,500 (A)
Fixed Cost Variances
Expenditure = Budgeted Fixed Cost – Actual Fixed
Cost
= ` 50,00,000 – ` 52,00,000
= ` 2,00,000 (A)
5.7 Computation of duty and interest payable by Time Jewellers Ltd.

Particulars Amount
(USD)
Assessable value 5,00,000
Amount (`)
Value in Indian currency (USD 5,00,000 x ` 81) 4,05,00,000
[Assessable value has to be calculated with reference to
the rate of exchange prevalent on the date on which the
into bond bill of entry is presented for warehousing.]

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Customs duty @ 10% 4 40,50,000
[Goods which are not removed within the permissible
m
c. o
period are deemed to be improperly removed in terms of
m
co
section 72 of the Customs Act, 1962 on the day they

. em
s
should have been removed. The applicable rate of duty

e m l a
s
in such a case is the rate of duty prevalent on the last date

a
l Add: Social welfare surcharge @ 10% on ` 40,50,000
on which the goods should have been removed.]
a g
ag 4,05,000
Total customs duty payable 44,55,000
Period of 90 days commencing from the date of order 26th
made under 60 expires on December
[If goods remain in a warehouse beyond a period of 90
days from the date on which the order permitting deposit
of goods in warehouse under section 60 is made, interest
m
co
is payable @ 15% p.a., on the amount of duty payable at

.
the time of clearance of the goods, for the period from

em
the expiry of the said 90 days till the date of payment of
s
l a
duty on the warehoused goods.]
g shall be payable [5 days of
a
No. of days for which interest
December + 31 days of January + 28 days of February +
94 days

30 days of March]
Interest payable = ` 44,55,000 X 15% x 94/365 1,72,097
(rounded off)

Note- It has been considered that the rate of Basic Customs Duty
provided as on 10th December continued to remain the same on

m
co
26th December.

m .
c. o se
m
s em g la
gla a
a 4
The rate of Basic Customs Duty as given on 10th December has been assumed to be of the
date 26th December, i.e. the date prevalent on the last date on which the goods should
have been removed.

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FINAL EXAMINATION: SEPTEMBER 2025

5.8 Computation of book profit under section 115JB for Time Jewellers
Ltd. for A.Y. 2025-26

Particulars Amount Amount
(`) In lakhs (`) In lakhs
Profit as per Statement of Profit and Loss 1,425
Add: Net profit to be increased by the
following amounts as per Explanation 1
to section 115JB
- Bank term loan interest [Only specific Nil
items mentioned under Explanation 1
to section 115JB can be adjusted
while computing book profit. Since
bank term loan interest unpaid upto
due date of return of income is not a
specified item, no adjustment is
required.]
- Provision for income-tax 105
- Amount paid or payable to MSME Nil
[Only specific items mentioned under
Explanation 1 to section 115JB can be
adjusted while computing book
profit. delayed payment to MSME is
not a specified item, no adjustment is
required.]
- Depreciation 360
- Provision for gratuity based on Nil
actuarial valuation [Provision for
gratuity based on actuarial valuation
is an ascertain liability 5. Hence, the
same should not be added back.]

5
CIT v. Echjay Forgings (P) Ltd. (2001) 251 ITR 15 (Bom.)

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- Arrears of wages paid to employees Nil
relating to F.Y. 2022-23 [Only specific

m
c. o
items mentioned under Explanation 1

m
co
to section 115JB can be adjusted

.
while computing book profit. Since
em
em
arrears of wages paid on settlement 465
l a s
l a s of dispute is not a specified item, no
ag
ag
adjustment is required.]
1,890
Less: Net profit to be decreased by the
following amounts as per Explanation 1
to section 115JB
- Depreciation debited to statement of 210
profit and loss excluding depreciation

m
c. o
on account of revaluation of assets
(` 360 lakhs – ` 150 lakhs)
- Long term capital gain onm
e
s specific
sale of Nil

l a
commercial apartment [Only
g Explanation 1
to section 115JB a
items mentioned under
can be adjusted
while computing book profit. Since
long-term capital gain is not a
specified item, no adjustment is
required.]
- Agricultural income [Exempt Income 20
by virtue of section 10(1)]
m
m c. o
- Depreciation allowable as per Nil

c. o m 230
Income-tax rules `280 lakhs not to be

em
considered for the purpose of book
la se
las profit under section 115JB.
a g
ag Book Profit under section 115JB 1,660

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