CA Final November 2023 Suggested Answers Paper 6F Multidisciplinary Case Study (Old Scheme)

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CA Final 2023
Suggested Answers ·
Paper 6F
Multidisciplinary Case
Study (Old Scheme)
EXAM YEAR TYPE

CA Final 2023 Suggested Answers
SUBJECT DATE

Paper 6F Multidisciplinary Case Study (Old Scheme) November 2023

Notes · Sample Papers · Previous Year Papers · Mock Tests

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This Suggested Answer hosted on the website does not constitute the basis for evaluation of

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the student’s answers in the examination. The answers are prepared by the Faculty of the Board
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of Studies with a view to assist the students in their education. Alternate Answers have been
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Further, in the Elective Papers which are Case Study based, the solutions have been worked

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em to work out the solution to the case studies
out on the basis of certain assumptions/views derived from the facts given in the question or

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language used in the question. It may be possible

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in a different manner based on the assumptions

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2 FINAL EXAMINATION: NOVEMBER, 2023

PAPER – 6F: MULTI-DISCIPLINARY CASE STUDY
The question paper comprises five case study questions. The candidates are required to
answer any four case study questions out of five.
All your workings should form part of your answer.
CASE STUDY – 1
Fashion India Limited (FIL), based in Chandigarh is one of the globally leading textile
manufacturing company in India since last 40 years and is driven by its differentiation strategy
based on innovation, branding & sustainability. As a leading textile company in India, FIL's key
focus is on the domestic market with sustainable textiles and on building a strong B2C
presence while continuing to grow its export business. The Company's manufacturing
facilities, located in India, are equipped to deliver high-quality products as per international
standards. The strong, ethical and compliant corporate governance mechanism is one of the
core aspects of its policy structure. Management of the Company consists of well qualified and
experienced professionals who are responsible for driving growth whilst ensuring compliance
with the laws of land.
Due to competition in the market, the Company continuously reviews its product range and
enhances its existing products by developing new models to meet the demands of its
customers. FIL's research and development team developed a new product "Gladden" which
has lifelong anti-microbial properties and odour prevention benefits and can keep the linens
fresh for a longer time. This new product was approved by the management in July 2022 and
was launched in December 2022. Gladden is now about to enter the maturity stage of its life
cycle. Research by the marketing team indicates that demand of the product ‘Gladden’ in the
domestic market is price sensitive. The likely market responses are as follows:
Selling price per unit (`) 1,550 1,400 1,325 1,260 1,100
Sales demand per week (units) 6,000 8,500 10,500 11,750 12,500

The variable cost per unit for manufacturing 'Gladden' is ` 850 and the attributable fixed cost is
` 2,50,000 including all overheads and administrative expenses. Also, the price charged by
competitors is in the range of ` 1,250.
The Production department believes that for producing "Gladden" existing machinery cannot be
used and a specific type of machinery is required. The required machinery is being
manufactured in India only by two companies namely RFD Ltd. (a company engaged in the
manufacturing and exports of textile machinery) and SED Ltd. (a subsidiary of German company
engaged in manufacturing all types of machinery according to the requirements of customer).
Upon evaluation, FIL concluded that as RFD Ltd takes a period of 2 to 3 months, they would
approach RFD Ltd for buying the machinery. An agreement to purchase the machinery was

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 3

entered on August 10, 2022 with a clause that FIL will have to settle the consideration of
machinery purchased by issuing its equity shares. FIL agreed to the clause and order was

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confirmed. Machinery was supplied vide invoice dated October 25, 2022 and delivered on

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November 1, 2022. Agreed purchase consideration was ` 150 Lakhs and the fair value of the

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machinery supplied was estimated to be ` 160 Lakhs. As agreed, FIL issued 1,00,000 equity

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shares of face value ` 100 each to RFD Ltd.
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One of the product, 'Slimmer' introduced in the year 2016, is at the end of its life cycle and
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Company's revenue from it is declining at a very fast pace. The Company's marketing team in
Mumbai has been approached by M/s Tulip Exports Limited (TEL), a merchandise exporter, to
buy 500,000 units of its product 'Slimmer' at the rate of ` 750 each. Historically, the Company
did not venture into such type of business and whenever goods were exported, the same was
done directly and not through any merchant exporter. One of the clauses of purchase, imposed
by TEL is that the product will be supplied by FIL at the concessional rate of GST (normal GST
rate is 5%). This proposal was discussed and approved by the management and the legal team
was entrusted to ensure all the legal compliances pertaining to offer of TEL would be
satisfactorily vetted. Specified goods were supplied vide invoice dated June 1, 2023 and

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received by TEL in its warehouse for further packing on June 5, 2023. Payment for goods was

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received as per the agreed terms on June 15, 2023. During the Statutory Audit, the statutory

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auditors sought evidence of goods exported to TEL (which were supplied at concessional rate).

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FIL replied to the auditor that, TEL neither supplied any export proof to them nor they have
demanded it.
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M/s Cotton Garments Inc. (buyer) from (a US based company dealing in high end garments)
was regularly getting customer queries about availability of "Gladden" in its retail stores. Senior
Management of Cotton Garments Inc. contacted FIL for supply of 10,000 units. Price per unit
agreed was ` 1500, making total contract value ` 1.5 crores as per contract dated December
1, 2022. As Cotton Garments Inc. was professionally managed, during the finalization of the
purchase agreement, a clause was inserted stating that if goods were not supplied within
3 months (March 1, 2023), FIL will pay interest at the rate of LIBOR + 100 basis points on the

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advance of 1 crore given on December 31, 2022. FIL could only supply 2,000 units of Gladden

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on time and could not supply remaining 8,000 units due to paucity of raw material. Management

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of FIL met the top leaders of Cotton Garments Inc. and explained the reasons for not being able

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to supply the remaining units and requested for waiver of interest. However, the management

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of Cotton Garments Inc. waived the interest with a condition that the remaining advance be

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returned to them immediately. FIL requested for a period till January 31, 2024, to which buyer

a agreed.
FIL earned good profits by launching the product "Gladden" and overall profitability was also
good for the financial year 2022-2023. As a result, the management decided to pay interest of
3 years upfront on the debentures outstanding in books of accounts (with a balance maturity

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4 FINAL EXAMINATION: NOVEMBER, 2023

period of 3 years). Total interest payment amounted to ` 600 Lakhs. While preparing financial
statements for the year ended March 31, 2023, the management treated 2/3rd interest as
deferred revenue expenditure and recorded an expense of ` 200 Lakhs only for the financial
year 2022-2023. The statement of Profit and Loss of the Company reflected a profit of
` 2,000 Lakhs before adjustment of interest of ` 200 Lakhs and charge of depreciation on new
machinery purchased (depreciation rate - 15%). The final profit for tax purposes was yet to be
computed by the Finance team of the Company.
As FIL is having surplus funds, one of its directors, Mr. S proposed an investment of ` 100
Lakhs in equity shares of reputed companies as part of Company's investment plan. For
seeking approval for the said proposal, the board meeting of the Company was called which
was attended by five directors out of seven directors and the proposal was agreed by only
three directors present.
MCQs: Provide the correct option to the following Questions:
1.1. Which of the above five selling prices should be charged for product 'Gladden' in domestic
market and what will be the status of established selling price when it moves from
growth stage to maturity stage?
(a) Selling price to be adopted is ` 1,325 and price is likely to be reduced gradually when
the product moves from growth stage to maturity stage.
(b) Selling price to be adopted is ` 1,550 and price is likely to remain constant when the
product moves from growth stage to maturity stage.
(c) Selling price to be adopted is ` 1,260 and price is likely to be in line with the price
charged by competitors.
(d) Selling price to be adopted is ` 1,325 and price is unlikely to be reduced and
likely to be fairly constant when the product moves from growth stage to maturity stage.
1.2 As per Ind AS 102 - Share Based Payment, what should be the price and the date for
recording the machinery purchased from RFD Ltd.?
(a) ` 150 Lakhs on November 1, 2022
(b) ` 160 Lakhs on November 1, 2022
(c) ` 100 Lakhs on November 1, 2022
(d) ` 150 Lakhs on October 25, 2022
1.3 By which date FIL should have exported all the goods and whether it is possible to refund
advance outstanding on January 31, 2024 without intervention of any authority as per
Foreign Exchange Management Act, 1999?
(a) FIL should have exported all the goods by December 31, 2023 and no permission from
any authority is needed to refund the advance amount on January 31, 2024.

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 5

(b) FIL should have exported all the goods by December 1, 2023 and no permission
from any authority is needed to refund the advance amount on January 31, 2024.

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(c) FIL should have exported all the goods by December 31, 2023 and permission from

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Reserve Bank of India is needed to refund the advance amount on January 31, 2024.

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(d) FIL should have exported all the goods by December 1, 2023 and permission from

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Reserve Bank of India is needed to refund the advance amount on January 31, 2024.
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1.4. As the investment proposal of Mr. S was approved by only three directors out of five
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directors present in the board meeting:

present at the board meeting agreed to the proposal of investing funds amounting to
` 100 Lakhs in equity shares of reputed companies.
(b) The Company cannot invest funds amounting to ` 100 Lakhs in equity shares of
reputed companies as all the 5 directors present at the meeting did not agree to such
investment plan.
(c) The Company cannot invest funds amounting to ` 100 Lakhs in equity shares of

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reputed companies as the total strength of 7 directors must attend the board meeting

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. to ` 100 Lakhs in equity shares of reputed
and all must consent to such investment plan.

companies as the investment planedid
(d) The Company cannot invest amounting
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directors present i.e., four outaof present.
receive the consent of 3/4th majority of the

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1.5 Which of the following statements
between TEL and FIL?
(a) Goods need to be exported by December 31, 2023 and TEL needs to provide copy of
shipping bill or bill of export to FIL along with proof of export general manifest.
(b) TEL shall be registered with an Export Promotion Council and can export the goods
only under LUT / bond and cannot export on payment of IGST.
(c) TEL needs to indicate the GSTIN of FIL and the tax invoice number issued by FIL in

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shipping bill or bill of export.

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c. o Descriptive Questions
(d) FIL will be eligible for refund of ITC on account of inverted tax structure as per the

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provisions of GST Act. (5 x 2 = 10 Marks)

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1.6 Compute the profit of FIL for tax purposes, along with detailed notes,

ag eligible deductions based on the facts mentioned in the case
1.7 One of the Marketing Managers believes that a product can also be sold below
(5 Marks)

marginal cost. Is his view appropriate? Indicate the situations where pricing below
marginal cost can be adopted. (5 Marks)

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6 FINAL EXAMINATION: NOVEMBER, 2023

1.8 "Historically, FIL had not exported through a merchant exporter." Explain the meaning of
Merchant exporter. Under what circumstances goods can be supplied to merchant exporter
at concessional rate of GST? (5 Marks)
ANSWER TO CASE STUDY 1
Answer to MCQs
1.1 (a)
1.2 (b)
1.3 (c)
1.4 (b)
1.5 (a)
1.6 Computation of Profit of FIL
Particulars ` (in lakh)
Net profit as per Statement of Profit and Loss 2,000
Less: Upfront interest on debentures of 3 years
[Under section 36(1)(iii), the entire amount of interest paid (600)
upfront in respect of debentures issued for the purposes of
business or profession, is allowable as deduction#]
Less: Normal depreciation on new machinery [` 150 lakhs x 15% x
50% since machinery is purchased and used for less than 180 (11.25)
days]
Less: Additional depreciation on new machinery [` 150 lakhs x 20%
x 50% since machinery is purchased and used for less than (15)
180 days]
Profits and Gains from Business or Profession 1,373.75
# Decided in Taparia Tools Ltd. v. JCIT (2015) 372 ITR 605(SC)
1.7 Pricing Below Marginal Cost
Yes, the views of the Marketing Managers is appropriate.
Firm may also be justifiable to sell the product at a price below marginal cost for a limited
period provided the following conditions prevail:
a Where materials are of perishable nature.
b Where stocks have accumulated in large quantities and the market prices have fallen.
This will save the carrying cost of stocks.
c To popularize a new product.

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 7

d Where such reduction enables the firm to boost the sales of other products having a
larger profit margin.

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1.8 Meaning of Merchant Exporter

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Merchant exporter means a person engaged in trading activity and exporting or intending
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to export goods.
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Circumstances when goods can be supplied to Merchant exporter at concessional rate of
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GST.
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Goods can be supplied to merchant exporter at concessional rate of GST if fo llowing

(a) the registered supplier (manufacturer) shall supply the goods to the registered
recipient (merchant exporter) on a tax invoice;
(b) the registered recipient shall export the said goods within a period of 90 days from
the date of issue of a tax invoice by the registered supplier;
(c) the registered recipient shall indicate the GSTIN of the registered supplier and the
tax invoice number issued by the registered supplier in respect of the said goods in

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the shipping bill or bill of export;

emorder on registered supplier for procuring goods
(d) the registered recipient shall be registered with an Export Promotion Council;

at concessional rate and a copy s
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(e) the registered recipient shall place an

tax officer of the registeredgsupplier;
of the same shall also be provided to the jurisdictional

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(f) the registered recipient shall move the said goods from place of registered supplier –
i. directly to the Port, Inland Container Depot, Airport or Land Customs Station
from where the said goods are to be exported; or
ii. directly to a registered warehouse from where the said goods shall be moved to
the Port, Inland Container Depot, Airport or Land Customs Station from where
the said goods are to be exported;

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(g) if the registered recipient intends to aggregate supplies from multiple registered

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suppliers and then export, the goods from each registered supplier shall move to a

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registered warehouse and after aggregation, the registered recipient shall move

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goods to the Port, Inland Container Deport, Airport or Land Customs Station from

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where they shall be exported;

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(h) in case of situation referred to in condition (g), the registered recipient shall endorse

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goods in the registered warehouse from the warehouse operator and the endorsed
tax invoice and the acknowledgment of the warehouse operator shall be provided to
the registered supplier as well as to the jurisdictional tax officer of such supplier; and

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8 FINAL EXAMINATION: NOVEMBER, 2023

(i) after goods have been exported, the registered recipient shall provide copy of
shipping bill or bill of export containing details of GSTIN and tax invoice of the
registered supplier along with proof of export general manifest or export report having
been filed, to the registered supplier as well as jurisdictional tax officer of such
supplier.
Merchant exporters may exclude commercially sensitive information while providing
copies of shipping bills to registered suppliers.
CASE STUDY - 2
Power Equipment Limited (PEL), headquartered in New Delhi, is engaged in production of
various electrical, electronic, and mechanical equipments for various sectors, including
transmission, transportation, oil & gas and other allied industries. PEL is also engaged in the
designing, engineering, manufacturing, construction, testing, commissioning and servicing of a
wide range of products, systems and services for the core sectors of the economy. The
Company has capacity to deliver 10,000 MW power equipment p.a. to address the growing
demand for power generation equipment.
The Company has also started exporting its power and industry segment products and
services since year 2019. Till now, Company mainly carried out its operations using internal
funds, bank borrowing and unsecured loans. Newly appointed CFO of the Company, Mr. Guru
in his first meeting with board of directors, proposed an IPO to gets the Company's shares
listed on the stock exchanges in India, rather than increasing debt.
Management was convinced with the presentation given by Mr. Guru and was positive of the
recommendations made by him. Consultants were appointed to assist the Company for
preparation and necessary filings for IPO as the management knew that it is a technical process
and requires preparedness in terms of business model, listing down Company's strengths and
weaknesses, reason for public issues, arranging for various permissions, disclosures to be
made in various documents etc. Consultants worked day and night to meet the deadline and
were ready with draft prospectus and other documents. The documentation and draft prospectus
included certification of current and past years' financial statements. Since Mr. Guru had joined
recently as CFO of the Company, he was apprehensive about signing the documents containing
financial information relating to earlier periods. When he expressed his apprehension, the
management suggested that he could appoint a CA Firm, to review the documents he was
supposed to sign-off, which would provide him additional comfort.
Accordingly, Mr. Guru took help of M/s RP & Associates, Chartered Accountants (an
independent CA Firm) to review and validate the details disclosed in the financial information
prepared for the purposes of IPO. Further, this review also included evaluation of non-
compliances, if any, relating to direct taxes, indirect taxes, corporate laws and other financial

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 9

regulations. After carrying out a detailed review, M/s RP & Associates, informed Mr. Guru about
the following issues:

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Issue 1

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PEL regularly sent material to its job worker, ABC for technical work relating to high end

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electric wires. As and when required, the Company also gets certain machinery parts
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manufactured by job worker JHN for which dies & moulds are sent to JHN by PEL. As on

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March 31, 2023, the following data was made available by department handling GST for the
Company:
Taxable Date of Date of receipt Status as on
No. value ` sending by Job worker March 31,
(Excl. GST) 2023
1 Material sent 2,50,000 March 25. 2022 March 28, 2022 Material lying
to ABC with job worker
2 Material sent 1,50,000 March 28, 2022 April 2, 2022 --do--
to ABC

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3 Moulds & dies 5,00,000 March 1, 2022

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Supplied to worker

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Both moulds and material sent to job workers attract goods and service tax at the rate of
18%
Issue 2
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PEL has adopted Ind AS for the financial year 2022-23 and also calculated minimum alternate
tax. Mr. Guru asked for details on the basis of which MAT was determined. DGM
(Accounts), Mr. Rajan has provided the following information for the same:
Transition date: April 1, 2022
Convergence amount i.e. amount adjusted in other equity on convergence date ` 120 Lakhs

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Adjustment to be made in book profit of the year of convergence and each of the following
m m. to MAT
c. o Both Mr. Guru and CA firm are skeptical about the data provided by Mr. Rajanserelating
five years ` 20 Lakhs each.

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computation.

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Issue 3
During the financial year 2022-23, the Company received the following amounts by issuing share
capital and debentures:

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10 FINAL EXAMINATION: NOVEMBER, 2023

Transaction ` Lakhs Towards
A 11.50 Shares
B 9 .50 + 1.50 as application money Shares
C 25.00 Debentures
D 9.75 Shares (Other than the amount of
` 2.25 Lakhs received on account of
renewal of Debentures)

In relation to above, the Company has not filed any statement with Income tax department,
as the management believes that no obligation arises for filing any statement relating to
transactions of shares and debentures issued.
Issue 4
Company has made the following payments to various directors:
Name of Director ` Lakhs Nature of a payment
Promoter directors (3) 15 Sitting fee for attending four board meetings
(equal payment to all three directors
Shobhit - Independent Director 3 Sitting fee for attending four board meetings
Ms. Seema - Woman 3 Sitting fee for attending four board meetings
independent Director

Company has received a notice from Registrar of Companies that sitting fee paid is not
as per the provisions of the Companies Act, 2013.
Issue 5
The Company has entered into a contract with a government corporation to supply certain
equipment for ` 500 lakhs. There has been a short supply in the market and cost of the
equipment had also increased. If the Company makes the supply, it will incur a loss of ` 50
lakhs. The penalty for non-performing of the contract is expected to be ` 30 lakhs. The supply
is required to be made by June 30, 2023.
Issue 6
PEL while preparing financial statements for the financial year 2021 -22, made an error by not
recording the clearing and forwarding expenses amounting to ` 20 crores, pertaining to exports
made during the said year. While preparing financial statements for the financial year 2022-23,
management has corrected the error by recording those expenses as current year expenses.
Tax team pointed out that these expenses will be disallowed while computing income of the
Company as prior period expenses. Management agreed to it stating this action of paying taxes
by recording in current year will save them from any non-compliance from accounting

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 11

perspective and also at the end of current year, the balances of clearing and forwarding agent
will be reflected appropriately.

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Issue 7

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After a detailed discussion about the issues in the financial statements, Mr. Guru and Mr. RP

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partner of M/s RP & Associates, had a casual chat about general matters.
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During the conversation, Mr. RP mentioned to Mr. Guru that CA Safe, partner of Safe CA LLP
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a Chartered Accountant firm, which the Company was evaluating to appoint internal auditors
was well known to him through his common friend. He asked Mr. Guru, whether he was aware
about the case filed against Mr. Safe for forgery of his uncle’s Will. Mr. Guru said he was aware
about the case and that the Court had pronounced Mr. Safe guilty of forgery, however, it was
his personal matter and had no impact on his professional work.
MCQs: provide the correct option to the following Questions:
2.1 Mr. Guru is of the opinion that all job work transactions outstanding on March 31, 2023
attract GST liability. Which of the following statements is correct?
(a) Yes, GST will apply on all three transactions as specified period has elapsed and total
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GST liability will be ` 1,62,000.

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(b) Yes, GST will apply on transactions of material only as specified period has elapsed

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and total GST liability will be ` 72,000. Transaction of moulds & dies are excluded
from the provisions.

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(c) Yes, GST will apply on first transaction of material and transaction of moulds & dies,
as specified period has elapsed and total GST liability will be ` 1,35,000
(d) Yes, GST will apply but only on first transaction of material as for transaction
amounting to ` 1,50,000, specified period has not elapsed and transaction of moulds
& dies are excluded from the provisions. Total GST liability will be ` 45,000.
2.2 Whether the data provided by Mr. Rajan is inappropriate as regards the terms he has used
in relation to MAT computation?
(a) Yes, April 1, 2022 is convergence date and not transition date. Also adjustment in the

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book profits need to be made of transition amount and not of convergence amount.

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The adjustment amount and period is correctly mentioned.
(b) Yes, April 1, 2022 is correctly mentioned as transition date. Adjustmentm

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in book profits

adjustment amount is ` 24 Lakhs as adjustment will be madelinafive years including
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needs to be made of transition amount and not of convergence

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year of convergence.
(c) Yes, April 1, 2022 is convergence date and not transition date. Adjustment in book
profits needs to be made of convergence amount, as correctly mentioned. The
adjustment amount and period is correctly mentioned.

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12 FINAL EXAMINATION: NOVEMBER, 2023

(d) Yes, April 1, 2022 is convergence date and not transition date. Adjustment in the
book profits needs to be made of transition amount and not of convergence
amount. The adjustment amount is ` 24 Lakhs as adjustment will be made in five
years including year of convergence.
2.3 ls the management's contention that no obligation arises for filing any statement in relation
to transactions of shares and debentures issued appropriate?
(a) Management's contention is incorrect, as Statement of financial transactions is
required to be filed and all the transactions of shares and debentures issued, are
to be reported.
(b) Management's contention is incorrect, as Statement of financial transactions is
required to be filed and the transactions of shares issued (A and D) are to be
reported.
(c) Management's contention is incorrect, as Statement of financial transactions is
required to be filed and only the transactions of shares (A, B and D) issued are
to be reported.
(d) Management's contention is incorrect, as Statement of financial transactions is
required to be filed and the transactions of shares and debentures issued (A, B
and C) are to be reported.
2.4 Whether the sitting fee paid by Company to its directors as per the provisions of Companies
Act, 2013?
(a) No, sitting fee paid by Company to Independent directors cannot be less than that
payable to other directors. Sitting fee paid to the other directors is in line with
provisions of Companies Act, 2013.
(b) No, sitting fee paid by Company to woman director cannot be less than those paid to
other directors. Sitting fee paid to the other directors is in line with provisions of
Companies Act, 2013.
(c) Sitting fee paid to directors cannot exceed ` 1 Lakh per meeting and sitting fee paid
to independent directors cannot be less than that payable to other directors.
(d) No, sitting fee paid by Company to Independent and woman directors cannot be less
than that payable to other directors. Sitting fee paid to the other directors is in line
with provisions of Companies Act, 2013.
2.5 What should have been the management's action on recording of clearing and
forwarding expenses pertaining to the financial year 2021-22, while preparing the
financial statements for the year ended March 31, 2023, to comply with the Indian
Accounting Standards?
(a) Management is correct in its action and there is no non-compliance.

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 13

(b) Management should have corrected the previous year figures in the financial
statements for the year ending March 31, 2023.

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(c) Management should have corrected the previous year figures to correct the error

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and it needs to prepare third balance sheet at the beginning of the preceding

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period.

eandm it needs to prepare third balance sheet at the end of the preceding period. glas
(d) Management should have corrected the previous year figures to correct the error

la s (5 x 2 = 10 Marks)a
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aDescriptive Questions
2.6 PEL proposed to pay 5% of net profits as commission to its directors (other than managing
and whole time directors). Comment whether PEL can pay such commission, as per the
Companies Act, 2013. (4 Marks)
2.7 Instead of sending material for job work, if capital goods were sent to the job worker, would
any GST liability arise as on March 31, 2023? On what date goods will be deemed to be
supplied in case of capital goods sent to job work are not received within the stipulated

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time period? Which document needs to be issued when goods are sent for job work and

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. 5 above, explain the accounting for such
how many copies of that document are required to be made? (3 Marks)

contracts, with reference to the relevantem
2.8 In the background of facts mentioned in the issue

2.9 In the background of provisions ofla
s Ind AS. (4 Marks)

of misconduct. Also, comment a g the Chartered Accountants Act, 1949, explain the types
whether Mr. Safe is guilty of any professional misconduct.
(4 Marks)
ANSWER TO CASE STUDY 2
Answer to MCQs
2.1 (b)
2.2 (d)

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2.3 None of the options are correct

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2.4 None of the options are correct.

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Provision: Under Section 197 (1) of the Companies Act, 2013a(the Act), the limit of total
2.6 Whether PEL can pay 5 % of the Net Profits as commission to its

ag managerial remuneration payable by a public company, to its directors, including managing
director and whole-time director, and its manager in respect of any financial year shall not
exceed eleven per cent of the net profits of that company for that financial year
computed in the manner laid down in section 198.

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14 FINAL EXAMINATION: NOVEMBER, 2023

Further, the third proviso to Section 197 (1) of the Act provides that except with the
approval of the company in general meeting by a special resolution, the remuneration
payable to directors who are neither managing directors nor whole-time directors shall not
exceed one per cent of the net profits of the company, if there is a managing or whole -
time director or manager.
Whereas in any other case, the remuneration payable to directors shall not exceed three
per cent of the net profits.
Conclusion: Therefore, in the given case, the commission of 5% is beyond the limit
specified, and the same should be approved by the members by passing a special
resolution.
2.7 On what date goods will be deemed to be supplied in case of capital goods sent to
job work are not received within the stipulated time period ?
Capital goods [other than moulds and dies, jigs and fixtures, or tools] sent to a job - worker
are required to be returned to the principal within 3 years from the date of sending such
goods to the job-worker.
Thus, no GST liability would arise as on March 31,2023 if capital goods were sent to the
job worker as the period of 3 years have not elapsed on March 31, 2023.
If capital goods sent for job work are not received back by the principal within a period of
three years of being sent out, it shall be deemed that such capital goods had been
supplied by the principal to the job worker on the day when the said capital goo ds
were sent out.
Since capital goods sent to job work are not received back, within specified time limit, it
shall be deemed to be a supply from Principal [PEL] to the Job worker [ABC] from the day
when it was sent for Job Work.
Documents that needs to be issued and number of copies
The inputs or capital goods shall be sent to the job worker under the cover of a delivery
challan issued by the principal. Three copies of delivery challan are required to be made.
Along with the delivery challan, an e- way bill is also required to be issued.
2.8 Ind AS 37 “Provisions, Contingent Liabilities and Contingent Assets” defines an
onerous contract as a contract in which the unavoidable costs of meeting the obligations
under the contract exceed the economic benefits expected to be received under it.
Paragraph 68 of Ind AS 37 states that the unavoidable costs under a contract reflect the
least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and
any compensation or penalties arising from failure to fulfill it.
In the instant case, cost of fulfilling the contract is ` 50 lakhs and cost of exiting from the
contract by paying penalty is ` 30 lakhs.

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 15

In accordance with the above reproduced paragraph, it is an onerous contract as cost of
meeting the contract exceeds the economic benefits.

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Since the supply is required to be made by 30 th June, 2023, the provision should be

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recognised in the financial statements ended on 31 st March, 2023 at the best estimate of

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the unavoidable cost, which is lower of the cost of fulfilling it and any compensation or

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penalties arising from failure to fulfill it, i.e., at ` 30 lakhs (lower of ` 30 lakhs and ` 50

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lakhs).

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2.9 Types of Misconduct: Professional or Other Misconduct
to Section 22 of the Chartered Accountants Act,1949 (the Act) for the
purposes of this Act, the expression “professional or other misconduct” shall be deemed
to include any act or omission provided in any of the Schedules, but nothing in this section
shall be construed to limit or abridge in any way the power conferred or duty cast on the
Director (Discipline) under sub-section (1) of Section 21 of the Act to inquire into the
conduct of any member of the Institute under any other circumstances.
A member is liable to disciplinary action under Section 21 of the Chartered Accountants
Act, 1949 if he is found guilty of any Professional or Other Misconduct.

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1. Professional Misconduct: Professional misconduct has been defined in part I, II and

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III of the First Schedule; and part I and II of the Second Schedule. A member who is

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engaged in the profession of accountancy whether in practice or in service should

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conduct/restrict his actions in accordance with the provisions contained in the

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respective parts of the schedules. If the member is found guilty of any of the acts or
omissions stated in any of the respective parts of the Schedul e, he/she shall be
deemed to be guilty of professional misconduct.
2. Other Misconduct: Other misconduct has been defined in part IV of the First
Schedule and part III of the Second Schedule. These provisions empower the Council
to inquire into any misconduct of a member even it does not arise out of his
professional work. This is considered necessary because a chartered accountant is
expected to maintain the highest standards of integrity even in his personal affairs
and any deviation from these standards, even in his non-professional work, would

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expose him to disciplinary action. For example, a member who is found to have

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forged the will of a relative would be liable to disciplinary action even though

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the forgery may not have been done in the course of his professional duty.

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Whether Mr. Safe is guilty of professional Misconduct ?

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In the given situation, a case was filed against Mr. Safe, for forgery of his uncle’s will.

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Contention of Mr. Guru that court has pronounced Mr. Safe guilty of forgery, however, it
was his personal matter and no impact on professional work is not tenable and CA. Safe
will be held guilty of other misconduct.

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16 FINAL EXAMINATION: NOVEMBER, 2023

CASE STUDY - 3
G K N H & Co. LLP, Chartered Accountants (Firm), a five-decade old CA firm is headquartered
in Mumbai and has offices across key cities in India. It caters to clients across diverse
market segments including Industrial, Infrastructure, Consumer Products, Financial Services,
Technology, Media and Entertainment and Telecommunications. It is led by a robust team
comprising 15 Partners with rich experience, supported by over 100 talented professionals
focused on providing high-quality audits, integrated with strong technical expertise, technology
and data driven insights. The firm has established a system of quality control designed to
provide it with reasonable assurance that the firm and its personnel comply with professional
standards and regulatory I legal requirements, and that the reports issued by the firm or
engagement partners are appropriate in the circumstances.
Benz India Limited (BIL), a listed entity engaged in the manufacturing and exports of speciality
chemicals, has appointed the firm as its auditor for the financial year 2022-23, after its auditor
resigned due to some negative media reports about BIL. Managing partners of the firm
accepted the audit after internal discussions and assigned the engagement to its senior
most partner, CA K who has prior experience of handling these types of assignments. CA K
along with his audit team planned and commenced the audit for completing the work on
time. The audit team drilled records, documents filed with legal authorities and stock
exchanges and books of accounts maintained at the head office and identified the following
five key areas at the initial stages of the audit. The following key areas were identified for
review by the audit team, for their discussions with CA K:
Area 1
BIL submitted to stock exchanges that it has constructed a new building for its factory premises.
The new building construction started on April 1, 2022 and was completed by March 31, 2023.
The expenditure incurred is as follows:
April 2022 - ` 1.50 Crores
August 2022 - ` 1.50 Crores
October 2022 - ` 3 .50 Crores
January 2023 - ` 1.00 Crore
To finance the construction of building, BIL obtained a specific loan of ` 3.00 Crores from its
banker at an interest rate of 10% per annum, which was spent in April and August as mentioned
above. The Company's other outstanding loans were ` 20.00 crores at an interest rate of 11%
per annum and ` 10.00 crores at an interest rate of 12% per annum. Company has capitalized
interest of ` 80.99 Lakhs in its books of accounts.

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 17

Area 2
During the financial year 2022-23, the share capital of the Company changed as follows:

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Date Particulars No. of

c. o Opening balance of outstanding equity shares m
Shares

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April 1, 2022 10,00,000

a s
April 1, 2022
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Opening balance of outstanding preference shares of 1,00,000
a g
g 1, 2022 Issue of equity shares
` 10 each
aJuly
January 1, 2023 Buy back of equity shares
1,00,000
50.000
January 1, 2023 Redemption of preference shares at ` 15 each 100,000
March 31, 2023 Closing balance of outstanding equity shares 10,50,000

Net profit as per the Statement of Profit and Loss Account is ` 735.00 Lakhs and retained
earnings was ` 2,495 Lakhs after adjusting premium of ` 5.00 Lakhs charged to it. EPS

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calculated by the Company is ` 70.00.
Area 3
c o
. in relation to compliance of Corporate
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e regulations. Though the other areas of
The management has requested us to provide certification

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Governance matters listed in SEBI (LODR)
s
a non-compliances were noted in relation to
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certification seem to be complied with, certain
formation of various committees and the audit team listed the following for further discussions:
Name of Committee Chaired by Meetings during
the year
Audit Committee Ms. Samantha - a non- executive director 3
Nomination & remuneration Mr. John - an independent director 1
committee
Stakeholders relationship Mr. Pawan - a non-executive director 1
committee
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c. o BIL has supplied 10,000 MT of Chemical to Sysma Inc. in London duringsethemfinancial
Area 4

em a Tax department
year

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2022-23. Price per MT was ` 2,000. Management has treated this transaction as normal

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exports and was confident that this view will be accepted as it is
a
by Income

a as well. While reviewing the financial statements, it was found that:
Book value of assets of BIL: ` 500 Crores
Market value of assets of BIL: ` 750 Crores

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18 FINAL EXAMINATION: NOVEMBER, 2023

Liabilities outstanding in books: ` 135 Crores (excluding contingent liabilities of ` 15 Crores)
Sysma Inc. has advanced loan of ` 260 crores to BIL and further CHEM Ltd. (a foreign company)
hold 25% share capital of both BIL and Sysma Inc.
Area 5
During the year, BIL has received dividends from the following:
Name of Company Status ` Lakhs
TIL Limited Domestic company 50
MIL Limited (100% subsidiary) Domestic company 20
Forge Limited Foreign company 65
Benz Trust Resident 15

On June 30, 2023 BIL declared and distributed dividend amounting to ` 200 Lakhs to its
shareholders.
BIL’s legal team is of the view that it can claim deduction for dividends u/s 80 M of the
Income-tax Act, 1961 for an amount of ` 20 Lakhs, being dividend received from the subsidiary
and Company followed the recommendation of legal department.
Area 6
The Company wants to analyze its overheads and provides you the following information:
Particulars Budgeted Actual
Overheads (`) 6,000 5,800
Output (units) 3,000 3,200
Customer's deliveries (nos.) 30 28

The overhead relates to deliveries to customers.
MCQs: Provide the correct option to the following Questions:
3.1 Whether BIL has correctly capitalized interest as per the Ind AS 23, assuming that
expenditure is incurred at the beginning of the month?
(a) Interest amount capitalized ` 80.99 Lakhs is correct.
(b) Interest amount capitalized should have been ` 52.66 Lakhs
(c) Interest amount capitalized should have been ` 51.05 Lakhs
(d) Interest amount capitalized should have been ` 47.66 Lakhs

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 19

3.2 Whether view of legal department is correct about the deduction available to the Company
u/s 80 M of the Income-tax Act, 1961?

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(a) Deduction recommended is wrong, as the correct eligibility is ` 135.00 Lakhs

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(b) Deduction recommended is wrong, as the correct eligibility is ` 70.00 Lakhs

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(c) Deduction recommended is wrong, as the correct eligibility is ` 85.00 Lakhs

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a of the following statement appropriately indicates the transaction between BIL andag
(d) Deduction

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3.3 Which
Inc as per the provisions of Income-tax Act, 1961?
(a) BIL and Sysma Inc will be deemed to be associated enterprises as substantial voting
power is controlled by CHEM Ltd, even though loan advanced by Sysma Inc is less
than specified percentage of market value of total assets of BIL and thus transfer
pricing provisions will get attracted for the transaction.
(b) BIL and Sysma Inc will not be deemed to be associated enterprises as substantial
voting power is not controlled by CHEM Ltd and also loan advanced by Sysma Inc is
less than specified percentage of market value of total assets of BIL and thus transfer

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pricing provisions will not get attracted for the transaction.

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(c) BIL and Sysma Inc will be deemed to be associated enterprises as loan advanced by

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Sysma Inc is more than specified percentage of book value of total assets of BIL even

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though, substantial voting power is not controlled by CHEM Ltd and thus transfer

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pricing provisions will get attracted for the transaction.
(d) BIL and Sysma Inc will be deemed to be associated enterprises as loan advanced
by Sysma Inc is more than specified percentage of book value of total assets of BIL
and substantial voting power is also controlled by CHEM Ltd and thus transfer
pricing provisions will get attracted for the transaction.
3.4 What qualifications will you recommend to the auditor that should be given in relation to
certification of compliance of corporate governance conditions?
(a) Audit Committee and Stakeholders relationship committee is not chaired by

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Independent Director.

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(b) Audit Committee is not chaired by Independent Director and also number of meetings

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(c) Audit Committee and Stakeholders relationship committee issenot chaired by
held are less than the number of times prescribed.

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Independent Director and also number of meetings are less than

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prescribed.
(d) Stakeholders relationship committee is not chaired by an executive director and all
the committees have met less than the number of times prescribed.

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20 FINAL EXAMINATION: NOVEMBER, 2023

3.5 Considering the details mentioned in Area 6 above, the expenditure and efficiency
variance will be
(a) Expenditure variance ` 200 (A) and Efficiency variance ` 800 (F)
(b) Expenditure variance ` 800 (F) and Efficiency variance ` 200 (A)
(c) Expenditure variance ` 200 (F) and Efficiency variance ` 800 (A)
(d) Expenditure variance ` 800 (F) and Efficiency variance ` 200 (F)
(5 x 2 = 10 Marks)
Descriptive Questions
3.6 (a) Recompute the EPS of the Company for the financial year 2022-23
(b) Shares are usually included in the weighted average number of shares from the date
consideration is receivable. What will be the date of inclusion in the following
circumstances?
(i) shares issued on the voluntary reinvestment of dividend on ordinary or
preference shares
(ii) shares issued as a result of the conversion of a debt instrument to ordinary
shares
(iii) shares issued in place of interest or principal on other financial instruments
(iv) shares issued as consideration for the acquisition of an asset other than cash
(6 Marks)
3.7 If BIL and Sysma Inc are covered under transfer pricing and arm's length price is required
to be determined for their transactions, what will be the factors for the purpose of selecting
the most appropriate method for determining most reliable measure of an arm's length
price? (4 Marks)
3.8 For shares issued during the year, whether the Company is required to submit any
statement to Stock exchange under SEBI (LODR) Regulations 2015? Which authority of
the Company should review those filings? (5 Marks)
ANSWER TO CASE STUDY 3
Answer to MCQs
3.1 (b)
3.2 (d)
3.3 (c)
3.4 (b)
3.5 (a)

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 21

3.6 (A) EPS calculated by BIL is based on normal addition and subtraction of equity shares.
However, as per weighted average concept as discussed in Ind AS 33, one has to

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find out for how many months each share was actually held during the year.

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Further, BIL had 1,00,000 preference shares at ` 10 each. ` 5,00,000 premium on

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redemption of preference shares is charged to retained earnings. No amount is

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recorded in the statement of profit and loss for this transaction. However, for EPS

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purposes, ` 5,00,000 is charged to the statement of profit or loss for the period of the

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transaction.
Computation of weighted average number of shares for calculation of EPS for
the year 2022-2023:
Date Particulars No of No of Weighted
shares months average
shares were no of
outstanding shares
1 st April, 2022 Opening balance 10,00,000 12 10,00,000

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of outstanding

c. o1,00,000
equity shares

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1 st July, 2022 Issue of equity 9 75,000

s of
shares
1 st January, 2023
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Buy back
l a (50,000) (3)* (12,500)

a
shares
31st March, 2023 Closing balance 10,50,000 10,62,500
of outstanding
equity shares

*These shares had already been considered in the shares issued. The same has
been deducted assuming that the bought back shares have been extinguished
immediately.

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Revised Profit and loss for the purpose of calculation of Earnings per share

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= ` 7,35,00,000 – ` 5,00,000 = ` 7,30,00,000

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Revised EPS = Earnings per Share / Weighted average number of shares

las = ` 7,30,00,000 / 10,62,500
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Note:
The above solution has been provided taking into consideration the number of
months the shares were outstanding. Alternatively, weighted average number of

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22 FINAL EXAMINATION: NOVEMBER, 2023

shares may be calculated based on number of days, the shares were outstanding.
In such a situation, the answer would be as follows:

Computation of weighted average number of shares for calculation of EPS for the
year 2022-2023:
Date Particulars No of No of days Weighted
shares shares were average
outstanding no of
shares
1 st April, 2022 Opening balance of 10,00,000 365 10,00,000
outstanding equity
shares
1 st July, 2022 Issue of equity 1,00,000 274 75,068
shares
1 st January, 2023 Buy back of shares (50,000) (90)* (12,329)
31st March, 2023 Closing balance of 10,50,000 10,62,739
outstanding equity
shares

*These shares had already been considered in the shares issued. The same has
been deducted assuming that the bought back shares have been extinguished
immediately.
Revised Profit and Loss for the purpose of calculation of Earnings per Share
= ` 7,35,00,000 – ` 5,00,000 = ` 7,30,00,000
Revised EPS = Earnings per Share / Weighted average number of shares
= ` 7,30,00,000 / 10,62,739
= ` 68.69 per share
(B) The date for inclusion in weighted average number of shares under following
situation are:
S. Situation Date for consideration in
No. weightage number of
shares
(i) Shares issued on the voluntary The date when dividend
reinvestment of dividend on ordinary or are reinvested
preference shares

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 23

(ii) Shares issued as a result of the The date that interest
conversion of a debt instrument to ceases to accrue

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ordinary shares
(iii)
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Shares issued in place of interest or The date that interest
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m(iv). Shares issued as consideration for the The date on which the e
principal on other financial instruments ceases to accrue

e acquisition of an asset other than cash acquisition is recognised gla s
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a the purpose of selecting the most appropriate method for determining most reliablea
3.7 lFor
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a measure of arm’s length price, the following factors should be taken into account.
(i) The nature and class of the international transaction;
(ii) The class, or classes of associated enterprises entering into the transaction and the
functions performed by them taking into account 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;

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(iv) The degree of comparability existing between the international transaction and the

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uncontrolled transaction and between the enterprises entering into such transactions;

s e international transaction and the comparable
(v) The extent to which reliable and accurate

g la the enterprises entering into such transactions;
difference, if any, between the

(vi) The nature, extent and a
uncontrolled transaction or between
reliability of assumptions required to be made in application
of a method.
3.8 Yes, as per the SEBI (LODR) Regulations, 2015, company is required to submit the
following statements as regards the shares issued during the year to the stock Exchange:
Prior Intimation for alteration of securities [Regulation 29(3) of SEBI (LODR)
Regulations, 2015

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1. The listed entity shall give intimation to the stock exchange(s) at least 11 working

c. o
days before any of the following proposal is placed before the board of directors:

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Any alteration in the form or nature of any of its securities that are listed on the

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stock exchange or in the rights or privileges of the holders thereof.

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Any alteration in the date on which, the interest on debentures or bonds, or the

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redemption amount of redeemable shares or of debentures or

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payable.
2. Regulation 31(1): Holding of Specified Securities and Shareholding Pattern.
A listed entity shall submit a statement showing holding of securities and shareholding
pattern separately for each class of securities:-

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24 FINAL EXAMINATION: NOVEMBER, 2023

(a) One day prior to listing of its securities on the stock exchange(s);
(b) On a quarterly basis, within 21 days from the end of each quarter; and,
(c) Within 10 days of any capital restructuring of the listed entity resulting in a
change exceeding 2% per cent of the total paid-up share capital.
3. Regulation 32(1): Statement of Deviation(S) Or Variation(S)
A listed entity shall submit to the stock exchange the following statement(s) on a
quarterly basis for public issue, rights issue, preferential issue etc.,
(a) indicating deviations, if any, in the use of proceeds from the objects stated in
the offer document or explanatory statement to the notice for the general
meeting, as applicable;
(b) indicating category wise variation (capital expenditure, sales and marketing,
working capital etc.) between projected utilization of funds made by it in its offer
document or explanatory statement to the notice for the general meeting, as
applicable and the actual utilization of funds.
Authority of the Company who reviews those filings: As per Regulation 6, a listed
entity shall appoint a qualified company secretary as the compliance officer who shall
be responsible for ensuring that correct procedures have been followed that would
result in correctness of information filed by listed entity under the regulations.
CASE STUDY - 4
Make in India initiative of Government of India has attracted investments from various
corporates around the world and has given impetus to the indigenous entrepreneurs . Inspired
by this initiative and a change in government policies, Mr. Shyam, Mr. Abraham and Ms. Kavita
who have studied together in IIT, had formed a company SAK Private Limited (SAK). SAK has
been in the business of manufacturing and export of foot wear including premium sports shoes.
It has become a known name in the last decade and is on a growth trajectory. Ms. Devika,
Chartered Accountant, has been their CFO since the Company was founded and was a trusted
advisor of the founder promoters. While finalizing accounts for the financial year 2022-23, she
has doubts in respect of certain matters and approached you for your opinion.
I. The Company has a property with a carrying value of ` 50 Lakhs which was purchased in
June 2018. For purchasing this property, the Company had issued share capital which was
subscribed by two other companies. The Company received a show cause notice from
Initiating Officer (IO) under the Prohibition of Benami Property Transactions Act, 1988 for
treating the said property as benami property.
II. The Company has offered discount voucher on sale of its sports shoes for every sale of
` 1500 on sales made through its retail outlet. This discount voucher entitles the holder to
a discount of 30% which can be used for any future purchase up to ` 1500 in the next 60
days. During the coming 60 days, the Company also intends to offer a general festival

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 25

discount of 15% on all sales. This 15% discount cannot be used in addition to 30% discount
voucher. The Company estimates that there is 80% likelihood that a customer will redeem

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III. The Company purchased a building for ` 20 lakhs on April 1, 2020 and was using it as its

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corporate office. The life of the building was estimated to be 20 years. On March 31, 2022,

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the fair value of the building was ` 16.40 lakhs, and the remaining useful life of the building

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was also estimated to be 20 years. The Company has been following the cost model for

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accounting of its property, plant and equipment and follows straight line method for
provision of depreciation. During the year, the Company shifted its corporate office to a
bigger place and decided to let out the old property. The property has been given on rent
to a multinational company on October 1, 2022.
IV. The Company has made purchases and sales of Bitcoins, during the year as under:
Date Particulars Units Amount `
June 15, 2022 Purchase 5,000 50,000
July 15, 2022 Sale 2,500 22,500

m 10,000
July 20, 2022 Sale 2,500 28,750
August 1, 2022 Purchase
. co 1,50,000

s em
August 16, 2022 Sale 5,000 77,500
August 31, 2022 Sale
g l a 4,000 56,000
V.
a
The Company is planning to invest its surplus funds in the bonds and provides the
following information:
Face Value ` 10,000 to be redeemed at par at maturity.
Coupon rate 9% per annum
Years to maturity 7 years
Yield to maturity (YTM) 10%

m
Years 1 2 3 4 5 6 7

m
PVIF (10%, n) 0.909 0.826 0.751
c o
. the
0.683
0.513 0.621 0.564

c. o VI. The s
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e and building
Company had applied to bank for a loan. Credit team of bank while reviewing

em l a
loan application has observed that the Company already has machinery

l as a g
term loan accounts, though all of them were regular and no default of any nature has

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occurred. The only issue was, whether the boards of directors have the power to borrow
more funds without any approval from the shareholders as per the provisions of the
Companies Act, 2013. For this purpose, Company's financial statements were analyzed
with the Following details –

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26 FINAL EXAMINATION: NOVEMBER, 2023

Particulars ` Lakhs
Share capital 100
Reserves and Surplus 250
Share premium 10
Secured loans 133
Cash credit limit 125
Unsecured loans 225
VII. Meanwhile, Shyam reached out to CFO with a personal query. His son Rohan wanted to
pursue post graduate degree in hotel management from a leading university A in
Switzerland. With his efforts, he was able to secure admission in other university B and
response from university A was awaited. As per rules of University A, if Rohan gets
admission he will be required to deposit the first year fee by December 1, 2023. Shyam
got forward contract from BAZ Bank Limited on September 1, 2023 for fee amount i.e.
8,000 Swiss Francs @ of ` 30.00 expiring on December 1, 2023. On November 1, 2023,
Rohan got news that University A has not given admission to him. Though he was
disappointed but was happy with University B. Shyam now went to bank and cancelled the
forward contract on November 1, 2023. The rates prevailing were
November 1, 2023 December 1, 2023
Spot CHF 1 = ` 30.30 ` 30.35
One-month forward ` 30.45 ` 30.55
MCQs: Provide the correct option to the following Questions:
4.1 In respect of notice received for benami property, the Company is required to make the
following compliance:
(a) The board of directors is required to make a disclosure in its Directors' Report.
(b) The Company is required to make the disclosure in notes to financial statements as
additional regulatory information and Directors Report. The Statutory Auditors are not
required to make any specific comments.
(c) The Company is required to make a disclosure in notes to financial statements as
additional regulatory information and the Statutory Auditors are also required to report
in Company (Auditors' Report) Order, 2020.
(d) Neither the Company nor the Statutory Auditors are required to report.
4.2 Determine how many performance obligations the Company has and what will be the
allocated transaction price?
(a) Two performance obligations, allocated price for sports shoes sale is ` 1,415 and
discount voucher ` 85.

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 27

(b) One performance obligation, allocated price for sports shoes sale is ` 1,500.
(c) Two performance obligations, allocated price for sports shoes sale is ` 1,275 and

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discount voucher ` 225.

o m
(d) Two performance obligations, allocated price for sports shoes sale is ` 1,320 and
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eofmchange and the depreciation to be charged in statement of profit and loss for the glas
discount voucher ` 180.

s
4.3 At which value, on change in use of property, Investment property is recognized on the

g a ending March 31, 2022?
lyear
date
a
a (a) ` 17.50 lakhs, depreciation ` 1,00,000
(b) ` 17.55 lakhs, depreciation ` 90,000
(c) ` 15.94 lakhs, depreciation ` 92,000
(d) ` 15.99 lakhs, depreciation ` 82,000
4.4 Whether the contention of bank that the Directors of the Company cannot borrow
further money from the bank, for importing machinery is correct considering the

m
requirements of Companies Act, 2013?

c. o
(a) Bank's contention is correct as the borrowings excluding cash credit has exceeded

(b) Bank's contention is correct as e mtotal borrowings has exceeded the maximum
the maximum permissible limit ` 350 Lakhs.

l a s the

g
a as the borrowings excluding cash credit are within the
permissible limit of ` 350 Lakhs.
(c) Bank's contention is incorrect
permissible limit of ` 700 Lakhs.
(d) Bank's contention is partially correct as the borrowings excluding cash credit are
` 358 Lakhs and maximum permissible limit is ` 360 Lakhs.
4.5 What would be the loss incurred by Shyam on cancellation of the forward contract on
November 1, 2023.
(a) ` 3,600

m
c. o
(b) ` 2,800

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c. o m
(c) ` 4,400

em
(d) ` 2,400

la s(5ex 2 = 10 Marks)
las Descriptive Questions
a g
ag 4.6 With reference to information given in point V above:
(a) Compute the current market price of the bond
(b) Explain Maculay's duration and compute the duration. (4 + 4 = 8 Marks)

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28 FINAL EXAMINATION: NOVEMBER, 2023

4.7 Explain 'Virtual Digital Asset' as per the Income-tax Act, 1961 and the taxability of such
assets. Also, compute the tax liability of SAK for the sale and purchase of bitcoins made
during the year. (4 + 3 = 7 Marks)
ANSWER TO CASE STUDY 4
Answer to MCQs
4.1 (c)
4.2 (a)
4.3 No correct option
4.4 (d)
4.5 (a)
4.6 (a) Current Market Price of Bond
= Interest x PVIFA (10%,7 Yrs) + Maturity value x PVIF (10% ,7)
= ₹ 10,000 x 9% x 4.867 + ₹ 10,000 x 0.513
= ₹ 4,380.30 + ₹ 5,130 = ₹ 9,510.30 or ₹ 9,510
(b) Macaulay Duration measures the number of years required to recover the true cost
of a bond, considering the present value of all coupon and principal payments
received in the future.
Duration of bond
Year Cash flow PVIF @ 10% AxB=C Proportion of CxD
(A) (B) Bond value (D)
1 900 0.909 818.10 0.086 0.086
2 900 0.826 743.40 0.078 0.156
3 900 0.751 675.90 0.071 0.213
4 900 0.683 614.70 0.065 0.260
5 900 0.621 558.90 0.059 0.295
6 900 0.564 507.60 0.053 0.318
7 10900 0.513 5591.70 0.588 4.116
Total 9510.30 5.444
Duration of Bond is 5.44 Years.

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 29

1st Alternate Answer:
Alternatively, it can also be computed as follows:

m
m 900 c. o
Year Cash flow PVIF @ 10% AxB

co m
(A) (B) = (C) (c) x Year

m . s e
e a
1 0.909 818.10 818.10

a s 2 900 0.826 743.40
2027.70 a
1486.80
g l
l 3
ag
900 0.751 675.90
4 900 0.683 614.70 2458.80
5 900 0.621 558.90 2794.50
6 900 0.564 507.60 3045.60
7 10900 0.513 5591.70 39141.90
4.867 9510.30 51773.40
51773.40
Duration of Bond = = 5.44 Years.
9510.30

o m
c
. as follows:
2nd Alternate Answer

e m
Alternatively, it can also be computed

s
la -1]+YTM
1+YTM (1+YTM)+t (c-YTM)

g
Duration = –

= (1+0.10)/0.10a– (1+0.10) + 7(0.09-0.10)
YTM C[(1+YTM) t

0.09[(1+0.10) 7-1] +0.10
= 11 – (1.03/0.185)
= 5.432 Years.
4.7 Virtual Digital Asset means

m
(a) any information or code or number or token (not being Indian currency or foreign

m .co
currency), - generated through cryptographic means or otherwise, by whatever name

c. o m
called, - providing a digital representation of value exchanged with or without

em se
consideration, - with the promise or representation of having inherent value, or -

s la
functions as a store of value or a unit of account including its use in any financial

la a g
transaction or investment, but not limited to investment scheme; and - can be

ag transferred, stored or traded electronically;
(b) a non-fungible token or any other token of similar nature, by whatever name called;
The non-fungible token means such digital asset as may be notified by the Central
Government.

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30 FINAL EXAMINATION: NOVEMBER, 2023

Accordingly, the Central Government has, vide notification no. 75/2022 dated
30.6.2022, specified a token which qualifies to be a virtual digital asset as non-
fungible token. However, it shall not include a non-fungible token whose transfer
results in transfer of ownership of underlying tangible asset and the transfer of
ownership of such underlying tangible asset is legally enforceable.
(c) any other digital asset, as may be notified by the Central Government.
However, the Central Government may, by notification, exclude any digital asset from
the definition of virtual digital asset subject to specified conditions.
Accordingly, the Central Government has, vide notification no. 74/2022 dated
30.6.2022, notified that the following virtual digital assets would be excluded from the
definition of virtual digital asset –
(i) Gift card or vouchers, being a record that may be used to obtain goods or
services or a discount on goods or services;
(ii) Mileage points, reward points or loyalty card, being a record given without direct
monetary consideration under an award, reward, benefit, loyalty, incentive,
rebate or promotional program that may be used or redeemed only to obtain
goods or services or a discount on goods or services;
(iii) Subscription to websites or platforms or application
Taxability of virtual digital assets -
Where the total income of an assessee includes any income from the transfer of any
virtual digital asset, such income would be taxed @30% under section 115BBH. In
computing the income from transfer of virtual digital asset, no deduction would be
allowed under any provisions of the Act in respect of any expenditure or allowance
except cost of acquisition, if any. Further, no set off of any loss is allowed to the
assessee from such income.
Computation of tax liability of SAK
Particulars Amount (in `)
Sale consideration [22,500 + 28,750 + 77,500 + 56,000] 1,84,750
Less: Cost of acquisition [50,000 + 9,000 x 1,50,000/10,000] 1,85,000
Loss on sale of Bitcoins [Neither set off of loss nor carry (250)
forward of such loss is allowed]
Note: As per section 115BBH(20, no set off of any loss is allowed in computing the
income from virtual digital asset and no set off of loss from transfer of the virtual digital
asset is allowed against any other income computed under any provisions of the Act.
The main solution has been worked on the view that there is no restriction in set off
of loss from the transfer of a virtual digital asset against the income from the transfer
of same virtual digital asset. However, it is possible to take a view that set off of loss

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 31

from the transfer of virtual digital asset is neither allowed against the same virtual
digital asset nor against another virtual digital asset. Accordingly, due credit may be

m
given to any candidate who has answered on this basis. In such a case, the alternative

m c. o
answer would be:

.co e m
Computation of tax liability of SAK

m
e Sale of 2,500 units of Bitcoins on 15.7.2022 la s
s
Particulars Amount (in `)

l a a g
ag Sale consideration
Less: Cost of acquisition [50,000 x 2,500/5,000]
22,500
25,000
Loss on sale of Bitcoins [Neither set off of loss nor carry 2,500
forward of such loss is allowed]
Sale of 2,500 units of Bitcoins on 20.7.2022
Sale consideration 28,750
Less: Cost of acquisition [50,000 x 2,500/5,000] 25,000
Gain
o m 3,750

. c
Sale of 5,000 units of Bitcoins on 16.8.2022
m
e x 5,000/10,000]
s
Sale consideration 77,500

g la
Less: Cost of acquisition [1,50,000 75,000
Gain
a
Sale of 4,000 units of Bitcoins on 31.8.2022
2,500

Sale consideration 56,000
Less: Cost of acquisition [1,50,000 x 4,000/10,000] 60,000
Loss on sale of Bitcoins [Neither set off of loss nor carry 4,000
forward of such loss is allowed]
Total gain on transfer of virtual digital asset [3,750 + 2,500] 6,250

o m
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c. o CA Gudia is a qualified Chartered Accountant and in practice since year 2007
CASE STUDY - 5

m
e & Associates,
m a s
and has set up

s e g l so good contacts
her own practice in Ludhiana, Punjab. She did her training from M/s H Singh

l a a and grow good number
ag
Chartered Accountants, Delhi. CA H is son of sitting Member of Parliament,
and professional services have helped M/s H Singh & Associates earn
of clients in all fields of professional services.
CA Gudia was in good books of managing partner, so she got good exposure of various high
profile assignments (like auditing listed companies, forensic audit of large borrowers of various

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32 FINAL EXAMINATION: NOVEMBER, 2023

nationalized and private sector banks, international taxation, corporate governance issues etc.).
But the area which was close to her heart was rendering consultancy to high net -worth
individuals (HNIs). She was so interested in this area that she kept herself updated on these
issues on daily basis and knew that India is a preferred destination for HNIs and so decided to
practice mainly in consultancy field. Her major expertise is in the field of consultancy to her
clients regarding Foreign Exchange related matters (whether under FEMA or Indirect Taxation),
Income tax matters including international taxation, Investment decision making and corporate
matters pertaining to these areas. One of her colleague during training times, landed a good job
in a top listed company of India. Since she was in regular touch with CA Gudia, she referred
many clients to her.
Over a period of time, CA Gudia had a flourishing practice and she appointed four other
Chartered Accountants as assistants. Every week CA Gudia, had a meeting with her team of
CAs for updates on issues with various clients. In one such weekly meeting, the following issues
relating to key clients of the firm were discussed:
Client 1
XYZ Ltd, a listed company is a paper manufacturing company based at Surat, Gujrat, which has
been in business for more than half a century. The Company has a good reputation in industry
and was founded by Mr. Hanum in the year 1973. As years passed by, the Company has now
gone global and has been in exports also. Presently, his grandson, Mr. Devesh an MBA from
IIM Bangalore, is leading the business, as its Managing Director. CA Gudia is the Company's
consultant on various tax and accounting issues. Mr. Devesh approaches CA Gudia for seeking
advice on various accounting and taxation related matters in the business. XYZ Ltd acquired
80% shares in its foreign subsidiary, QR Ltd, four years ago. In the current year, the Company
sold its entire investment in QR for ` 3,000 lakhs. The net assets of QR Ltd are ` 2,500 lakhs
and the non-controlling interest in QR is ` 500 lakhs. The cumulative exchange differences that
have arisen during the Company's ownership were gains of ` 500 lakhs, resulting in foreign
currency translation reserve in respect of the subsidiary QR Ltd, having a credit balance of
` 400 lakhs, while the cumulative amount of exchange differences that have been attributed to
the non-controlling interest is ` 100 lakhs.
The Company has a total number of 11 directors and Mr. Rakha, the Chairperson of the Board
is a non-executive director. Out of 11 directors, 5 were independent directors. During the year,
the Company also received a Show Cause Notice from the State Pollution Control Board and
the Company was in the process of responding to the same.
Client 2
Alphan Ltd imported machinery costing ` 70 lakhs from a reputed manufacturer of Malaysia. In
accordance with the terms of payment, the Company was required to pay the cost of machinery

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 33

in 6 equal monthly installments. The Company paid the installments as per terms and the
machinery was delivered and installed at their new factory site.

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Client 3

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Duno Ltd declared and paid an interim dividend for the half year ended September 30, 2023.

m a s
Dividend was paid to shareholders including NRIs and foreign company after deducting TDS

s e
@10%. The following data was available for dividend payments:
g l
g la Shareholders: ` 50 Lakhs (before TDS deduction) and TDS deducted ` 5 Lakhs. a
aNon-Resident Shareholders - John: ` 25 Lakhs (before TDS deduction) and TDS deducted
Resident

` 2.5 Lakhs.
During the year, Duno Ltd in order to increase sales of its product Polycotton, launched a mass
advertising campaign. For the purpose of online advertisement, it utilized the services of Tel Inc
(USA based online advertising company and not having any permanent establishment in India)
and Superb (UK based online advertising company and not having any permanent
establishment in India) which also owns and operates a digital platform. During the month ended

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October 31, 2023, the Company made payment of ` 2.50 Lakhs to Tel Inc and ` 0.75 Lakhs to

.
Superb. Tax amounting to ` 0.975 Lakhs was withheld by the Company on these payments u/s

em
195 of the Income-tax Act, 1961.
Client 4
l a s
are the details of the transaction: a
Raj, a HNI entered into agreement withg Tanu, to purchase a vacant plot in Kochi. The following
Consideration agreed - ` 260 Lakhs Stamp duty value - ` 285 Lakhs Date of transfer -
October 10, 2023
He enquired with his friends and colleagues and decided to enter into an agreement with Manu
for construction of house on his plot. The following are the details of the agreement:
Total contract value - ` 175.00 Lakhs (Ready to move in house will be provided by contractor

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and Raj will only install TV and CCTV cameras at his own expense).

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Construction will be completed in 11 months and payment terms will be 30% advance and

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balance in ten equated monthly payments.

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la For visit to London, Ranjan will be getting the tickets booked and a
Client 5

ag asked his travel agent M/s
PTG Holidays to submit quotations. After going through the quotations of various airlines, flight
of British Airways was selected and travel agent submitted the fare break up as follows:
Basic air fare: ` 45,000

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34 FINAL EXAMINATION: NOVEMBER, 2023

Convenience fee: ` 1,500
Airport charges: ` 1,000
Misc. charges: ` 500
Total: ` 48,000
As regards foreign currency to be carried during his visit, Ranjan had US $10,000 (in hand, out
of currency left during his short visit of 5 days to US in July 2023). Ranjan decided to get those
USDs converted into GBP from Yono Forex Services. He expects to receive 7,800 GBP on
conversion of currencies. Rate he is getting for conversion are:
US $ Rate = ` 75 and GBP Rate = ` 95
Client 6
CA Gudia's firm was appointed as a joint auditor of Zemka Limited, along with M /s ABC & Co.,
and M/s KAP & Co. The scope of audit was agreed upon with other joint auditors as per the
relevant Auditing Standards. As the Company has a substantial amount involved in property,
plant and equipment (PPE), it was decided that all the three auditors will verify the records
relevant to PPE. While forming an opinion, CA M, partner of M/s ABC & Co., was having a
different opinion on PPE but CA N, partner of M/s KAP & Co., and CA Gudia were having same
opinion. CA M wants to qualify capitalisation of post-acquisition costs incurred on PPE, whereas
CA N and CA Gudia are of the opinion that the accounting treatment followed by the Comp any
is correct.
Client 7
Mr. Siraj was an old friend of CA Gudia, whose income-tax returns were prepared and filed by
CA. Gudia's office. Apart from remuneration from employment, he also had a part-time business.
He had earned well for himself and had two properties. One is self-occupied and the second
one was let out for part of the year. He also invested in shares and had capital gains during the
year. He provided the following information for the year ended March 31, 2023:
a. He received Salary of ` 45,000 per month from his employer.
b. In business, he suffered a loss of ` 1,00,000.
c. He has paid interest of ` 2,50,000 for property 1 which was self-occupied.
Second property was let out for 3 months @ ` 25,000 per month. For this property, he has
paid interest of ` 3,00,000.
d. He earned interest from the saving bank of ` 15,000 and on Fixed deposits of ` 45,000
e. During the year, he was having long-term capital gain of ` 50,000 and Short-term capital
loss of ` 10,000.

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 35

He has no other tax savings during the year and does not opt for Section 115BAC.
MCQs: Provide the correct option to the following Questions:

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5.1 Whether the tax deducted by the Company on payments to resident shareholders, John,

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Tel Inc. and Superb is deducted correctly?

m . s e
a
(a) Yes, except for TDS on payment to John which should have been ` 5.00 Lakhs.

s e g l
l(c)a No, TDS on payment to John should have been ` 5.00 Lakhs and payments to Tela
(b) Yes, except for TDS on payment to John which should have been ` 7.50 Lakhs.

ag Inc and Superb are liable for equalisation levy.
(d) No, TDS on payment to John should have been ` 5.00 Lakhs and payments to Tel
Inc is liable for equalisation levy. Payments to Superb are neither liable for tax
deduction nor for equalisation levy.
5.2 Raj is not sure as to whether the transactions entered into with Tanu and Manu attract any
tax withholding provisions?
(a) Tax is required to be deducted @ 1% on consideration payable to Tanu and 5% on

m
payment to be made to Manu. Raj is required to obtain TAN to comply these

c o
(b) Tax is required to be deducted @ 1% .on stamp duty value of transaction with Tanu
provisions.

s emto Manu. Raj is not required to obtain TAN to
la@ 1% on consideration payable to Tanu and @ 1% on
and @ 5% on payment to be made

g
comply these provisions.

a
(c) Tax is required to be deducted
payment to be made to Manu. Raj is not required to obtain TAN to comply these
provisions.
(d) Tax is required to be deducted @ 1% on consideration payable to Tanu but not on
payment to be made to Manu. Raj is not required to obtain TAN to comply these
provisions.
5.3 Is XYZ Ltd compliant with the requirements of appointment of independent directors?

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(a) No, there is no non-compliance, as independent directors were more than 2 directors

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specified in the Companies Act, 2013.
.c o
c. o em
(b) Yes, there is non-compliance, as there should have been more than 6 independent

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directors specified in Regulation 17 and Regulation 17A.
a s
l which is more
las a g
(c) No, there is no non-compliance, as there are 5 independent directors,

g
than 1/3 of the total directors in accordance with Regulations 17.
a (d) Yes, there is non-compliance, as all the directors should have been independent
directors except the Chairman of the company.

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36 FINAL EXAMINATION: NOVEMBER, 2023

5.4 As per the facts indicated under Client 2 above, relating to import of machinery from
Malaysia by Alphan Ltd and its payment of cost in 6 equal monthly installments, which of
the following statements is correct?
(a) Import of machinery is a 'Capital Account' transaction since the imported machinery
is a fixed asset and shall be used for a long period by the Company.
(b) Import of machinery is a 'Current Account' transaction since machinery shall be used
in the production of saleable items by the Company.
(c) Import of machinery is a 'Current Account' transaction since a short-term credit facility
in the ordinary course of business was availed by the Company.
(d) Import of machinery is a 'Capital Account' transaction since a long-term credit facility
was availed by the company and the payment was made in more than three months.
5.5 What will be the valuation under GST, on which GST will be paid for the transactions with
PTG Holidays and Yono Forex Services?
(a) ` 4,800 and ` 7,500
(b) ` 2,250 and ` 7,500
(c) ` 2,400 and ` 14,820
(d) ` 4,500 and ` 7,410 (5 x 2= 10 Marks)
Descriptive Questions
5.6 As a joint auditor of Zemka Ltd, how should CA. Gudia address the disagreement with other
joint auditors? Explain in the background of relevant Standards on Auditing. (4 Marks)
5.7 Compute the total income of Mr. Siraj for the financial year 2022-23. (4 Marks)
5.8 Compute the gain from disposal of shares of QR Ltd, which XYZ Limited has to record in
its Consolidated Financial Statements. (4 Marks)
5.9 As the Statutory Auditor of the XYZ Limited, what audit procedures should CA Gudia
perform for the Show Cause Notice received from the State Pollution Board? (3 Marks)
ANSWER TO CASE STUDY 5

Answer to MCQs
5.1 (d)
5.2 (b)
5.3 (c)
5.4 (c)
5.5 (d)

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 37

5.6 Difference of Opinion Among Joint Auditors: SA 299 on, “Joint Audit of Financial
Statements” deals with the professional responsibilities, which the auditors undertake in

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accepting such appointments as joint auditors. In respect of the work divided amongst the

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joint auditors, each joint auditor is responsible only for the work allocated to him, whether

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or not he has made a separate report on the work performed by him. On the other hand

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the joint auditors are jointly and severally responsible in respect of the audit conducted by
s e
s ein respect of the audit work which is not divided among the joint auditors and is carried gla
them as under:

la out by all of them; a
ag (ii) in respect of decisions taken by all the joint auditors under audit planning in respect
(i)

of common audit areas concerning the nature, timing and extent of the audit
procedures to be performed by each of the joint auditors;
(iii) in respect of matters which are brought to the notice of the joint auditors by any one
of them and on which there is an agreement among the joint auditors;
(iv) for examining that the financial statements of the entity comply with the requirements
of the relevant statute;

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(v) for ensuring presentation and disclosure of the financial statements as required by

(vi) for ensuring that the audit report m
the applicable financial reporting framework;

s e complies with the requirements of the relevant

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statutes, the applicable Standards on Auditing and the other relevant

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pronouncements issued by ICAI.
(vi) it is the separate and specific responsibility of each joint auditor to study and evaluate
the prevailing system of internal control relating to the work allocated to him, the
extent of enquiries to be made in the course of his audit;
(vii) the responsibility of obtaining and evaluating information and explanation from the
management is generally a joint responsibility of all the auditors;
(viii) each joint auditor is entitled to assure that the other joint auditors have carried out
their part of work in accordance with the generally accepted audit procedures and

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therefore it would not be necessary for joint auditor to review the work performed by

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other joint auditors.

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e attention, or
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Where, in the course of the audit, a joint auditor comes across matters which are

em a judgment by other
which require disclosure or require discussion with, or applicationlof
to the areas of responsibility of other joint auditors and which deserve their

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a to all the other joint
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joint auditors, the said joint auditor shall communicate the same
a auditors in writing prior to the completion of the audit.
Normally, the joint auditors are required to issue common audit report, however, where the
joint auditors are in disagreement with regard to the opinion or any matters to be covered
by the audit report, they shall express their opinion in a separate audit report. A joint auditor

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38 FINAL EXAMINATION: NOVEMBER, 2023

is not bound by the views of the majority of the joint auditors regarding the opinion or
matters to be covered in the audit report and shall express opinion formed by the said joint
auditor in separate audit report in case of disagreement. In such circumstances, the audit
report(s) issued by the joint auditor(s) shall make a reference to the separate audit report(s)
issued by the other joint auditor(s). Further, separate audit report shall also make reference
to the audit report issued by other joint auditors. Such reference shall be made under the
heading “Other Matter Paragraph” as per Revised SA 706, “Emphasis of Matter
Paragraphs and Other Matter Paragraphs in the Independent Auditor’ s Report”.
In the instant case, there are three auditors, namely, CA. Gudia’s Firm, M/s. ABC & Co.
and M/s. KAP & Co., jointly appointed as an auditor of ZEMKA Ltd. The scope of audit was
agreed upon with other join auditors in accordance with relevant Standards on A uditing. It
was decided all three auditors to verify the records relevant to PPE as substantial amount
was involved in the same.CA. M partner of M/s. ABC & Co. was having different opinion
whereas CA. Gudia and CA. N partner of M/s. KAP & Co were having same opinion.
Hence, as per SA 299, Mr. M is suggested to express his own opinion through a separate
report whereas CA. Gudia and CA. N may provide their joint report for the same.
5.7 Computation of total income of Siraj for A.Y. 2023-24
Particulars Amount (in `) Amount (in `)
I Salaries
Salary from employer [`45,000 x 12] 5,40,000
Less: Standard deduction under section 50,000
16(ia)
4,90,000
Less: Set off of loss from house property to (2,00,000) 2,90,000
the extent of ` 2,00,000 under section
71(3A)
II Income from house property
Self occupied property
Net annual value Nil
Less: Deduction under section 24 of interest 2,00,000
on loan of ` 2,50,000 to the extent of
(2,00,000)
Let out property
Net annual value [`25,000 x 3] [Refer Note 75,000
to Examiner below for alternative answer]
Less: Deduction under section 24

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 39

(a) 30% of NAV 22,500
(b) Interest on loan 3,00,000 (3,22,500)

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(2,47,500)

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Loss under the house property (4,47,500) -

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III Profit and gains from business or

s e Business loss
profession
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ag IV Capital
(1,00,000) -
Gains
Long term capital gains 50,000
Less: Set off of short term capital loss (10,000)
40,000
Less: Set off of business loss to the extent (40,000) -
of ` 40,000
V Income from other sources

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Interest from saving bank 15,000
Interest on fixed deposits
. c 45,000

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60,000

Gross Total income gl
a
Less: Set off of balance business loss (60,000) -

a
Less: Deduction under section 80TTA
2,90,000
10,000
Total Income 2,80,000
Note:
In the facts given on page no 28 related to Mr. Siraj, it is given that second house was let
out by Siraj for part of the year i.e., for 3 months. However, it is not mentioned whether for
the remaining part of the year i.e., for 9 months, it was vacant or self-occupied. The main

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solution has been worked out assuming it was vacant in which case, gross annual value

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would be ` 75,000 (` 25,000 x 3). However, due credit may be given to a candidate who

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has assumed that it was self-occupied for rest of the year in which case higher of expected

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rent for whole of the year or actual rent would be the net annual value. Since expected rent

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is not given, rent of ` 25,000 would be deemed to be the expected rent and ` 3,00,000

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(`25,000 x 12) would be the net annual value.
a g
ag The alternative answer in such case is given below.

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40 FINAL EXAMINATION: NOVEMBER, 2023

Alternative answer
Computation of total income of Siraj for A.Y. 2023-24
Particulars Amount (in `) Amount (in `)
I Salaries
Salary from employer [`45,000 x 12] 5,40,000
Less: Standard deduction under section 50,000
16(ia)
4,90,000
Less: Set off of loss from house property to (2,00,000) 2,90,000
the extent of ` 2,00,000 under section
71(3A)
II Income from house property
Self occupied property
Net annual value Nil
Less: Deduction under section 24 of interest 2,00,000
on loan of ` 2,50,000 to the extent of
(2,00,000)
Let out property
Net annual value [`25,000 x 12] [Higher of 3,00,000
expected rent of ` 3,00,000 i.e., for 12
months or actual rent of ` 75,000]
Less: Deduction under section 24
(a) 30% of NAV 90,000
(b) Interest on loan 3,00,000 (3,90,000)
(90,000)
Loss under the house property (2,90,000) -
III Profit and gains from business or
profession
Business loss (1,00,000) -
IV Capital Gains
Long term capital gains 50,000
Less: Set off of short term capital loss (10,000)
40,000

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 41

Less: Set off of business loss to the extent (40,000) -
of ` 40,000

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V Income from other sources

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Interest from saving bank 15,000

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Interest on fixed deposits 45,000
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60,000
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(60,000)
Gross Total income 2,90,000
Less: Deduction under section 80TTA 10,000
Total Income 2,80,000

5.8 Paragraph 25 of Ind AS 110 states that, “if a parent loses control of a subsidiary, the
parent:
(a) de-recognises the assets and liabilities of the former subsidiary from the consolidated

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balance sheet.

.
(b) recognises any investment retained in the former subsidiary at its fair value when

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control is lost and subsequently accounts for it and for any amounts owed by or to

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the former subsidiary in accordance with relevant Ind AS.

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(c) recognises the gain or loss associated with the loss of control attrib utable to the
former controlling interest.
Paragraph B98(c) of Ind AS 110 states that, on loss of control over a subsidiary, a parent
shall reclassify to profit or loss, or transfer directly to retained earnings if required by other
Ind AS, the amounts recognised in other comprehensive income in relation to the
subsidiary on the basis specified in paragraph B99 of Ind AS 110.
As per paragraph B99 of Ind AS 110, if a parent loses control of a subsidiary, the parent
shall account for all amounts previously recognised in other comprehensive income in

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relation to that subsidiary on the same basis as would be required if the parent had directly

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disposed of the related assets or liabilities.
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Therefore, if a gain or loss previously recognised in other comprehensive income would be

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reclassified to profit or loss on the disposal of the related assets or liabilities, the parent

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shall reclassify the gain or loss from equity to profit or loss (as a reclassification

la a Ltd. shall reclassify the
adjustment) when it loses control of the subsidiary.

ag In view of the basis in its consolidated financial statements, XYZ
foreign currency translation reserve of ` 400 lakhs attributable to the owners of the parent
to statement of profit or loss as per paragraph 48 of Ind AS 21, which specifies that the

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42 FINAL EXAMINATION: NOVEMBER, 2023

cumulative amount of exchange differences relating to the foreign operation, recognised
in OCI, shall be reclassified from equity to profit or loss on the disposal of foreign operation.
This is reflected in the gain on disposal. Remaining ` 100 lakhs relating to the NCI is
included as part of the carrying amount of the NCI that is de-recognised in calculating the
gain or loss on the loss of control of subsidiary, but is not reclassified to profit or loss in
pursuance of paragraph 48B of Ind AS 21, which provides that the cumulative exchange
differences relating to that foreign operation attributed to NCI shall be de -recognised on
disposal of the foreign operation, but shall not be reclassified to profit or loss.
The impact of loss of control over QR Ltd. on the consolidated financial
statements of XYZ Ltd. is summarized below:
(Rupees in lakhs)
Particular Amount Amount P&L
(Dr) (Cr) Impact
Gain / Loss on Disposal on Investments
Bank 3,000
Non-controlling interest (De-recognised) 500
To Gain on Disposal (P&L) balancing figure 1,000 1,000
To De-recognition of total net assets of 2,500
subsidiary
Foreign currency translation reserve
reclassified to profit or loss
Foreign currency translation reserve (FVOCI) 400
To Profit and loss 400 400
Total 1,400
5.9 Audit Procedures that should be followed for the show cause notice received from
the State Pollution Board
When Non-Compliance is Identified or Suspected:
In the given situation, XYZ Ltd., is a listed company, has received a Show Cause Notice
from the State Pollution Board and the Company was in the process of responding to the
same. As a Statutory Auditor of XYZ Limited, CA. Gudia is required to perform certain audit
procedures in this context.
When the auditor becomes aware of the existence of, or information about, the following
matters, it may be an indication of non-compliance with laws and regulations like
investigations by regulatory organisations and government departments or payment of
fines or penalties.

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PAPER – 6F: MULTIDISCIPLINARY CASE STUDY 43

As per SA 250, Considerations of Laws and Regulations in an audit of financial statements,
if the auditor becomes aware of information concerning an instance of non -compliance or

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suspected non-compliance with laws and regulations, the auditor shall obtain:

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(a) An understanding of the nature of the act and the circumstances in which it has
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occurred; and

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eauditor
(b) Further information to evaluate the possible effect on the financial statements.

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If the
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ag If management or, as appropriate, those charged with governance do not provide sufficient
with management and, where appropriate, those charged with governance.

information that supports that the entity is in compliance with laws and regulations and, in
the auditor’s judgment, the effect of the suspected non-compliance may be material to the
financial statements, the auditor shall consider the need to obtain legal advice.
If sufficient information about suspected non-compliance cannot be obtained, the auditor
shall evaluate the effect of the lack of sufficient appropriate audit evidence on the auditor’s
opinion.

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The auditor shall evaluate the implications of non-compliance in relation to other aspects

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of the audit, including the auditor’s risk assessment and the reliability of written

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representations, and take appropriate action.
Alternative Solution
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Non-compliance with laws and regulations [NOCLAR]: In the course of providing a
professional service to a client or carrying out professional activities for an employer, a
Professional accountant may come across an instance of non-compliance with laws and
regulations (NOCLAR) or suspected NOCLAR committed or about to be committed by the
client or the employer, or by those charged with governance, management or employees
of the client or employer.
SA 250 talks of auditor’s responsibilities for laws having direct effect on the determination
of material amounts and disclosures in the financial statements (such as tax and labour
laws); and other laws and regulations that do not have a direct effect on the determination

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of the amounts and disclosures in the financial statements, but compliance with which may

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be fundamental to the operating aspects of the business. NOCLAR, while being alike to

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SA 250 till this point, is further ahead of it in that it takes into account non-compliance that

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causes substantial harm resulting in serious consequences in financial or non-financial

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terms.

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Steps to be taken for responding to Non-compliance with Laws and Regulations are:
a • Obtaining an understanding of the matter
• Addressing the matter
• Seeking Advice

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44 FINAL EXAMINATION: NOVEMBER, 2023

• Determining whether further action is needed
• Determining whether to disclose the matter to an Appropriate Authority
• Imminent Breach
• Documentation

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