CA Final November 2024 Suggested Answers Paper 6 Integrated Business Solutions

FOR CA FINAL EXAM PREPARATION

CA Final 2024
Suggested Answers ·
Paper 6 Integrated
Business Solutions
EXAM YEAR TYPE

CA Final 2024 Suggested Answers
SUBJECT DATE

Paper 6 Integrated Business Solutions November 2024

Notes · Sample Papers · Previous Year Papers · Mock Tests

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

CASE STUDY – 1
CVV & Co., a Chartered Accountant firm, has been into practice since 2005 in
Chandigarh. CA. Harsh Aggarwal and CA. Sandeep Jain started their firm after
practicing individually for almost 10 years, CA. Anirudh joined the firm in 2010
and now the firm has grown into big firm of six partners. Over the years, the firm

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has flourished its practice in the areas of auditing, Direct and Indirect Taxation,

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FEMA consultancy and other related matters. Firm has some renowned clients

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and in order to ensure quality of services delivered, proper discussions take place

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between audit team members and audit manager. Currently Kamal, Mukesh,

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Rajesh and Kunal being articles of the firm are working with CA. Mayank Gupta,
CA. Rahul Jain, CA. Sandeep Jain and CA. Ashish Gupta respectively for
prestigious clients of the firm.
Mukesh assisting CA. Rahul Jain
Mr. Karan, the director of HCP Limited has called a meeting with CA. Rahul Jain
who is handling all GST related works of clients for past 5 years to discuss some
issues faced by the Accounts Department relating to GST. Meeting was joined by
the General Manager-Accounts, who provided the following information:

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(i) Company purchased three machines namely Machine X, Y and Z in March

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2024. Necessary details of three machines are as follows :

s em Z
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Particulars Machine X Machine Y Machine

las Date of Purchase 01.03.2024 01.03.2024
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and installation

a Purchase price ₹ 50,00,000 ₹ 60,00,000 ₹ 75,00,000
IGST@ 18% ₹ 9,00,000 ₹ 10,80,000 ₹ 13,50,000

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FINAL EXAMINATION: NOVEMBER 2024

Invoice Value ₹ 59,00,000 ₹ 70,80,000 ₹ 88,50,000
Usage Exclusively for For exempt as well For exempt
taxable supply as taxable supply supply

As due date of GSTR 3B for the month of March 2024 is approaching, General
Manager - Accounts wants to enquire about the eligible input tax credit on
three machines. Value of taxable supplies and exempt supplies for the month
of March 2024 is ₹ 1,500 lakhs and ₹ 300 lakh respectively.
(ii) Company has supplied goods on delivery challan for ₹ 5,00,000 on approval
for sale or return basis to DEF & Co. on 01.03.2024 with the option of
returning within 60 days. DEF & Co. signifies his approval for the whole of
the above-mentioned goods on 15.05.2024.
(iii) Company sent 600 units of goods outside India for exhibition on 01.09.2023
accompanied with a delivery challan issued in accordance with the provisions
contained in the CGST Rules. 400 units of goods were brought back on
20.02.2024 and remaining goods were not returned till 31.03.2024. Company
has not raised any invoice in respect of goods not brought back till the end
of the year.
CA. Rahul Jain delegated the said work to Mukesh to start initial working and
then revert to him with his opinion.
Kamal assisting CA. Mayank Gupta
CA. Mayank Gupta is working on the applicability of Ind AS for various clients.
VCM Limited is one of the prestigious clients of the firm. The accounts team of
the company wants clarity on the treatment of the following transactions in the
books of the accounts of the company as per the relevant Ind AS :
(i) A customer has instituted a lawsuit against VCM Limited with personal injury
using the company's product. The company's lawyers estimate from the
experience that as on 31.03.2024, the company has 35% chance of being
ordered to pay the customer compensation of ₹ 16,00,000 and a 65% chance
of being ordered to pay compensation of ₹ 5,00,000. The ruling is expected
to take place by 31.03.2026. The risk-free rate on three years Government
Bonds is 6%. Management estimates that 7% is an appropriate discount rate
that reflects the risk specific to the liability.

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INTEGRATED BUSINESS SOLUTIONS

(ii) To encourage entities to expand their operations in a specified development

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zone, Local government has offered entities, loan at concessional rate of

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interest of 6%. On 1st April 2023, Company has received a loan of ₹ 75,00,000

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payable at the end of the 5th year. The prevailing market rate of interest is
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e Mayank Gupta delegated the said work to Kamal to start initial working
10%. Interest is payable at the end of each year.

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l then revert to him with his opinion.
CA.
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a WECARE Educational and Medical Trust
and

WECARE Educational and Medical Trust (WCEMT) is registered under FCRA Act,
2010. Mr. Kamal Grover, Secretary of the trust visited the office to meet CA.
Anirudh who is handling all FEMA related works of clients for past 6 years. He
shared a notice received from Central Government regarding enquiry before
cancellation of registration and suspension of certificate till the enquiry is
completed. He informed that amount of ₹ 66,00,000 is lying in the bank account

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out of the total foreign contribution received as on date of receipt of notice. He
wanted to enquire whether trust can continue to receive foreign contributions and

Rajesh assisting CA. Sandeep Jain e
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how much of the amount they can spend for meeting the objectives of the trust.

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g of two clients with CA. Sandeep Jain and
provided him the audit filesaprepared during the course of audit. On reviewing
Rajesh discussed the audit findings

each file, it is noticed as under :
(i) Moon Ltd.'s net profit is ₹ 250 lakhs on a turnover of ₹ 750 lakhs. There is a
trade receivable of ₹ 120 lakhs outstanding in financial statement for which
there is no chance of recovery as party has gone bankrupt and is absconding
as on date. Debt has not been written off by Moon Ltd. despite being
communicated.

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(ii) Management of Prime Ltd. has not undertaken the physical verification of

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inventories at regular intervals. Inventories constitutes 30% of the total assets

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of the company. Due to non-maintenance of adequate inventory records at

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the factory, audit team could not undertake the physical verification of

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inventory. Hence value of inventory as on 31st March, 2024 could not be

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verified.

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FINAL EXAMINATION: NOVEMBER 2024

Kunal assisting CA. Ashish Gupta
CA. Ashish Gupta handles work relating to direct tax matters of its various clients
and has a vast experience of 8 years. Mr. Karanveer, a non-resident visited CA.
Ashish Gupta to discuss all the details of his income for the financial year
2023-24. He arrived in India on 25.02.2024. He has provided the following
information:

Equity Equity GDRs of Z GDRs of A
shares of X shares of Y Ltd. Ltd.
Ltd. Ltd.
(Listed (Listed
Indian Co.) Indian Co.)
Date of purchase 01.07.2020 01.08.2023 01.07.2020 01.07.2020
Cost of acquisition ₹ 90,00,000 ₹ 50,00,000 ₹ 20,00,000 ₹ 12,00,000
Sale consideration ₹ 1,30,00,000 ₹ 65,00,000 ₹ 26,00,000 ₹ 15,00,000
Date of transfer 28.02.2024 28.02.2024 15.03.2024 15.03.2024
Expenditure on ₹ 26,000 ₹ 13,000 ₹ 5,000 ₹ 3,000
transfer

He acquired shares in both the companies by remitting US dollars on 15.06.2020.
GDRs of Z Ltd. were sold to Mr. Sanjay, a non-resident outside India. Security
transaction tax is paid at the time of transfer as well as at the time of acquisition
of shares of X Ltd. and Y Ltd.
Exchange rates on various dates were as under:
Date TT Buying TT Selling
(1 US$) (1 US$)
15.06.2020 ₹ 73.50 ₹ 74.10
01.07.2020 ₹ 75.50 ₹ 76.20
01.08.2023 ₹ 80.60 ₹ 81.30
28.02.2024 ₹ 82.80 ₹ 83.50
15.03.2024 ₹ 84.00 ₹ 84.80
On 1 st March, 2024, Mr. Karanveer purchased a shop for ₹ 60,00,000 (Stamp duty
value was ₹ 65,00,000). He also got a small plot of land by way of gift from his
wife's cousin (Stamp duty value was ₹ 2,48,000). On 5th March, 2024, he purchased

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INTEGRATED BUSINESS SOLUTIONS

1,000 shares in Bright Limited from his friend at ₹ 125 (outside stock exchange).

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The lowest market quotation in the Bombay Stock Exchange and the National

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Stock Exchange on the date of purchase was ₹ 210 and ₹ 218 respectively. He

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received ₹ 1,25,000 as interest on Non-Resident External Account maintained with
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bank in India and ₹ 1,75,000 as interest on Debentures of X Ltd. (Subscribed in

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convertible foreign exchange).

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a [Provide the correct option to the following questions]
Multiple Choice Questions :

1.1 What is the amount of provision to be recognized in books of accounts as at
31st March, 2024 in respect of lawsuit filed against VCM Limited? (Take PV
factor up to three decimals)
(A) ₹ 8,85,000
(B) ₹ 8,27,475

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(C) ₹ 7,72,605

m grant to be recognized in books of
(D) ₹ 7,87,650

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s of concessional loan received from the
accounts as on 01.04.2023 inarespect
1.2 What is the amount of Government

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local Government?
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(A) NIL as the facility offered by Local Government is in the nature of Loan
(B) ₹ 11,37,000
(C) ₹ 28,42,500
(D) ₹ 17,05,500
1.3 Which of the following options correctly state the date of issue of invoice in

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case of goods sent on sale or return basis to DEF Co.?

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(A) 15.05.2024

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(B) 14.07.2024

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(C) 30.04.2024

ag (D) 28.08.2024

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FINAL EXAMINATION: NOVEMBER 2024

1.4 Which of the following statements are incorrect in relation to the
consequences of suspension certificate of registration as per the provision of
FCRA, 2010?
I. WCEMT shall not receive any foreign contribution during the period of
suspension of certificate except on such terms and conditions, as
specified by the Central government on the basis of application made by
it.
II. WCEMT can receive foreign contribution upto $ 25,000 during the period
of suspension of certificate with the prior permission of Reserve Bank of
India.
III. WCEMT can spend up to ₹ 16,50,000 of the unutilized amount lying with
it for the declared aims and objects without the prior approval of Central
Government and remaining unutilized foreign contribution shall be
utilized after revocation of suspension of the certificate of registration.
IV. WCEMT can spend up to ₹ 16,50,000 of the unutilized amount lying with
it for the declared aims and objects with the prior approval of Central
Government and remaining unutilized foreign contribution shall be
utilized after revocation of suspension of the certificate of registration.
(A) I and II
(B) I, II and III
(C) II and III
(D) III and IV
1.5 What is the income from other sources of Mr. Karanveer for the A.Y.
2024-25?
(A) ₹ 12,41,000
(B) ₹ 5,08,000
(C) ₹ 8,85,000

(D) ₹ 3,85,000 (5 x 2 = 10 Marks)
Descriptive Questions :
1.6 How CA. Sandeep Jain should deal with the issues in the respective audit
report of Moon Ltd. and Prime Ltd.? (4 Marks)

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INTEGRATED BUSINESS SOLUTIONS

1.7 Compute the taxable income and tax liability of Mr. Karanveer for the
Assessment year 2024-25. (Assume he has not exercised the option to shift
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out of the default tax regime u/s 115BAC)
1.8 (a) Advice o
(5 Marks)
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correct treatment of IGST paid on purchase of machines by HCP

m provisions of CGST/IGST Act, 2017.
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Limited 3B to be filed for the month of March 2024 as per the

la(b) With reference to goods sent out of India by HCP Limited for exhibition, a
(3 Marks)
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ag you are required to answer the following with explanation of relevant
provision of CGST Act/rules :
(i) When is the supply of goods sent outside India said to take place?
Whether invoice is required to be issued by HCP Limited in respect of
goods not brought back?
(ii) Whether refund can be preferred by HCP Limited in respect of goods
sent outside India but not brought back? (3 Marks)
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Tax Slab under new regime :

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Income Tax Slab
Up to ₹ 3,00,000
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₹ 3,00,001 to ₹ 6,00,000
₹ 6,00,001 to ₹ 9,00,000
a 5%
10%
₹ 9,00,001 to ₹ 12,00,000 15%
₹ 12,00,001 to ₹ 15,00,000 20%
More than ₹ 15,00,000 30%
Surcharge Rate:

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Income Slab Surcharge Rate

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Up to ₹ 50 Lakh NIL

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Above ₹ 50 Lakh and up to ₹ 1 Crore 10%

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Above ₹ 1 Crore and up to ₹ 2 Crore 15%

gla Above ₹ 2 Crore and up to ₹ 5 Crore 25%

a Health and Education Cess is 4%
Cost inflation index: F.Y. 2020-21: 301 and F.Y. 2023-24: 348.

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FINAL EXAMINATION: NOVEMBER 2024

ANSWER TO CASE STUDY 1
1.1 Option (C): ₹ 7,72,605
1.2 Option (B): ₹ 11,37,000
1.3 Option (C): 30.04.2024
1.4 Option (C): II and III
1.5 Option (B): ₹ 5,08,000
1.6 CA. Sandeep Jain should deal with the issues outlined in the case of Moon
Ltd. and Prime Ltd. in the following manner:
(i) In case of Moon Ltd.: As per SA 705, “Modifications to the Opinion
in the Independent Auditor’s Report”, the auditor shall express an
adverse opinion when the auditor, having obtained sufficient
appropriate audit evidence, concludes that misstatements, individually
or in the aggregate, are both material and pervasive to the financial
statements.
In the given case of Moon Ltd., there is a trade receivable of ₹120
lakhs outstanding in the financial statement for which there is no
chance of recovery as the party has gone bankrupt and is absconding
as on date. In addition, the net profit of Moon Ltd. is 250 lakh rupees
and Moon Ltd. has not written off the debt despite being
communicated.
In such circumstances, CA. Sandeep Jain should express an adverse
opinion in his audit report because the effects on the financial
statements of such non recovery are material and pervasive.
(ii) In case of Prime Ltd.: In the present case, CA. Sandeep Jain is unable
to obtain sufficient and appropriate audit evidence with respect to
inventory of the company, neither the physical verification has been
done by the management nor adequate inventory records are being
maintained by the Prime Ltd. The audit team is also unable to
undertake the physical inventory count and as such the value of
inventory could not be verified. Further, inventory constitutes 30% of
the total assets of Prime Ltd., which is significant.
In the above case, the auditor is unable to obtain sufficient appropriate
audit evidence on which to base the opinion, and the possible effects

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INTEGRATED BUSINESS SOLUTIONS

on the financial statements of undetected misstatements, if any, could

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be both material and pervasive. Thus, CA. Sandeep Jain should give

mCompanies Auditors’ Report Order 2020 (CARO 2020) dated .
a Disclaimer of Opinion.

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m25th. Feb 2020, the audit report shall include a statement on the se
As per

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l Whether the physical verification of the inventory has been conducted a
a at reasonable intervals by the management and whether, in the opinion
of the auditor, the coverage and procedure of such verification by the
management is appropriate. In view of the above the auditor should
give a qualification in his report narrating the situation.
1.7 Computation of total income and tax liability of Mr. Karanveer for
A.Y. 2024-25 under default tax regime

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Particulars Amount (₹) Amount (₹)

Long term capital gain on sale. of
Capital Gains
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Full value of considerationla
equity shares of X Ltd.
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Less: Expenditure on Transfer
1,30,00,000
26,000
Net consideration 1,29,74,000
Less: Cost of Acquisition [Since tax 90,00,000
liability is to be computed as per
115BAC, no foreign currency and
indexation benefit available u/s 112A]
39,74,000

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Short term capital gain on sale of

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equity shares of Y Ltd.

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Full value of consideration $78,171.98

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[₹65,00,000/83.15, being average of

gla TTBR and TTSR on 28.2.2024]

a Less: Expenditure on Transfer
[₹13,000/83.15, being average of TTBR
$ 156.34

and TTSR on 28.2.2024]

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FINAL EXAMINATION: NOVEMBER 2024

Net consideration $ 78,015.64
Less: Cost of Acquisition [₹ 50,00,000/ $ 61,766.52
80.95, being average of TTBR and TTSR
on 1.8.2023]
$ 16,249.12
TTBR as on 28.2.2024 82.80
Short term capital gains [$ 16,249.12 × 13,45,427
82.80]
Capital gains on sale of GDRs of Z Ltd.
Transfer of GDR by a non-resident to -
another resident outside India is not
regarded as transfer
Long term capital gains on sale of
GDRs of A Ltd.
Full value of consideration 15,00,000
Less: Expenditure on Transfer 3,000
Net consideration 14,97,000
Less: Cost of Acquisition 12,00,000
Long term capital gains [No indexation 2,97,000
benefit would be available]
Income from Other Sources
Gift of plot from wife’s cousin [Taxable, 2,48,000
since stamp duty value exceeds ₹ 50,000
and wife’s cousin does not fall within the
definition of relative]
Difference of ₹ 85,000 [₹ 85 (₹ 210, 85,000
being lowest market quotation in
recognized stock exchange – ₹ 125,
being purchase price) × 1,000] in the
value of shares of Bright Limited
purchased from his friend [Taxable,
since difference exceeds ₹ 50,000]
Interest of ₹ 1,25,000 on NRE Account -

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INTEGRATED BUSINESS SOLUTIONS

[Exempt under section 10(4)(ii)]

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Interest on debentures of X Ltd. 1,75,000 5,08,000

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[Subscribed in convertible foreign

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exchange]

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Gross Total Income/Total Income 61,24,427

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Gross Total Income/Total Income 61,24,430

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Tax Liability
 Tax @10 u/s 112A on ₹ 38,74,000, 3,87,400
being the amount in excess of ₹ 1
lakh on sale of equity shares of X
Ltd.

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 Tax @15% u/s 111A on ₹ 13,45,427 2,01,814

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on sale of equity shares of Y Ltd.

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 Tax @10% u/s 115AC on ₹ 2,97,000 29,700

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on sale of GDRs of A Ltd.

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Tax @20% u/s 115A on ₹ 1,75,000, 35,000

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
being interest on debentures
 Tax at slab rates on other income of 1,650
₹ 3,33,000
6,55,564
Add: Surcharge@10% [Since the total 65,556
income exceeds ₹ 50 lakhs but does not
exceed ₹ 1 crore]

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7,21,120

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Add: Health & Education Cess@4% 28,845

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e 7,49,970
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Tax liability 7,49,965

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Tax liability (Rounded off)
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FINAL EXAMINATION: NOVEMBER 2024

ALTERNATIVE
The facts of the case study state that Mr. Karanveer is a non-resident Indian 1 and
he has not exercised the option to shift out of the default tax regime. As he has
purchased the specified asset, being shares of an Indian company in convertible
foreign exchange, he is eligible to be governed by the provisions under Chapter XII-
A unless he chooses to opt out of it.
Since there is no information in the facts about Chapter XII-A, the main solution is
given by computing total income and tax liability of Mr. Karanveer as per the default
tax regime ignoring the provisions of Chapter XII-A. However, considering that he
has not opt out either of default tax regime or Chapter XII-A, alternate solution is
given by computing the total income and tax liability of Mr. Karanveer under default
tax regime along with the provisions of Chapter XII-A.

Computation of total income and tax liability of Mr. Karanveer for A.Y.
2024-25 under default tax regime with Chapter XII-A
Particulars Amount (₹) Amount (₹)
Capital Gains
Long term capital gain on sale of
equity shares of X Ltd.
Full value of consideration $1,56,343.96
[₹1,30,00,000/ 83.15, being average of
TTBR and TTSR on 28.2.2024]
Less: Expenditure on Transfer [₹ $ 312.69
26,000/ 83.15, being average of TTBR
and TTSR on 28.2.2024]
Net consideration $ 1,56,031.27
Less: Cost of Acquisition [₹ 90,00,000/ $ 1,18,655.24
75.85, being average of TTBR and TTSR
on 1.7.2020] [No indexation benefit
would be available]
$ 37,376.03
TTBR as on 28.2.2024 82.80
Long term capital gains [$ 37,376.03 × 30,94,735
82.80]

1
Since Mr. Karanveer has a NRE account maintained in India, he is an Indian citizen or Person of Indian
Origin

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INTEGRATED BUSINESS SOLUTIONS

Less: Exemption u/s 115F 29,817

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[₹ 30,94,735 × 1,25,000/1,29,74,000

Short o m capital gain on sale of 30,64,918

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. shares of Y Ltd.
term
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seFull value of consideration [₹65,00,000/ l
equity

la on 28.2.2024]
$78,171.98
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a Less: Expenditure
83.15, being average of TTBR and TTSR

on Transfer $ 156.34
[₹ 13,000/ 83.15, being average of TTBR
and TTSR on 28.2.2024]
Net consideration $ 78,015.64
Less: Cost of Acquisition $ 61,766.52
[₹ 50,00,000/80.95, being average of
TTBR and TTSR on 1.8.2023]

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$ 16,249.12
TTBR as on 28.2.2024 82.80

s
Short term capital gains [$16,249.12 ×
em 13,45,427
82.80]

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Capital gains on sale of GDRs of Z
Ltd.
Transfer of GDR by a non-resident to -
another resident outside India is not
regarded as transfer
Long term capital gains on sale of
GDRs of A Ltd.
Full value of consideration 15,00,000

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Less: Expenditure on Transfer 3,000

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Net consideration 14,97,000

c. o em2,97,000
Less: Cost of Acquisition 12,00,000

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Long term capital gains [No indexation

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benefit would be available]

gla Income from Other Sources

a Gift of plot from wife’s cousin [Taxable,
since stamp duty value exceeds
2,48,000

₹ 50,000 and wife’s cousin does not fall

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FINAL EXAMINATION: NOVEMBER 2024

within the definition of relative]
Difference of ₹ 85,000 [₹ 85 (₹ 210, 85,000
being lowest market quotation in
recognized stock exchange – ₹ 125,
being purchase price) × 1,000] in the
value of shares of Bright Limited
purchased from his friend [Taxable,
since difference exceeds ₹ 50,000]
Interest of ₹ 1,25,000 on NRE Account -
[Exempt under section 10(4)(ii)]
Interest on debentures of X Ltd. 1,75,000 5,08,000
[Subscribed in convertible foreign
exchange]

Gross Total Income/Total Income 52,15,345

Tax Liability
 Tax @10 u/s 115E on ₹ 30,64,918, 3,06,492
being the LTCG on sale of equity
shares of X Ltd.
 Tax @15% u/s 111A on ₹ 13,45,427 2,01,814
on sale of equity shares of Y Ltd.
 Tax @10% u/s 115AC on ₹ 2,97,000 29,700
on sale of GDRs of A Ltd.
 Tax @20% u/s 115E on ₹ 1,75,000, 35,000
being investment income
 Tax at slab rates on other income 1,650
of ₹ 3,33,000
5,74,656
Add: Surcharge@10% [Since the total 57,466
income exceeds ₹ 50 lakhs but does
not exceed ₹ 1 crore]
6,32,122
Add: Health & Education Cess@4% 25,285
Tax liability 6,57,407
Tax liability (Rounded off) 6,57,410

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1.8 (a) Computation of ITC credited to Electronic Credit Ledger and

m
co
amount of ITC to be added to the output tax liability in GSTR-3B

m .
for the month of March 2024

.c o e m
m s
Particulars (₹)

se [Since used exclusively for taxable supply, full ITC is
Capital goods used exclusively for taxable supply 9,00,000
g l a
l a a
ag
available]
Capital goods used exclusively for exempt supply Nil
[Since used exclusively for exempt supply, ITC is not
available]
Capital goods used for both taxable and exempt supply -
Common credit 10,80,000
[Commonly used for taxable and exempt supplies]
Total ITC credited to Electronic Credit Ledger for the 19,80,000

m
c. o
month of March
Common credit for the month of March 18,000

e mto exempt supplies in a
s credit for the month of March
= Total common credit ÷ 60 = 10,80,000 ÷ 60

l a
Common credit attributable

g
3,000

where, ‘E’ is the a
month = (E ÷ F) × Common
aggregate value of exempt supplies,
made, during the tax period, and ‘F’ is the total turnover
in the State of the registered person during the tax period
= (300 lakh/1,800 lakh) × ₹ 18,000 (rounded off)
Amount to be added to the output tax liability for the 3,000
month of March

(b) (i) The activity of sending specified goods out of India for exhibition

m
c. o
is not a supply, but is in the nature of "sale on approval basis".

m
c. o
The specified goods sent out of India are required to be either sold

em
or brought back within the stipulated period of 6 months from

em
the date of removal.
s
la neither sold
las g
a from the date of
Therefore, the supply of the 200 units which were

ag abroad nor brought back within 6 months
removal is deemed to have taken place on the expiry of said 6
months, i.e. on 01.03.2024.

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FINAL EXAMINATION: NOVEMBER 2024

Invoice in respect of said 200 units will be issued on expiry of 6
months from the date of removal, i.e. on 01.03.2024.
(ii) HCP Limited may claim refund of accumulated input tax credit
in accordance with the provisions contained in section 54(3) of the
CGST Act, 2017 read with rule 89(4) of the CGST Rules, 2017 in
respect of zero-rated supply of 200 units after he has issued the
tax invoice on the date specified above.

CASE STUDY - 2
Green Energy Ltd. (GEL) based in Chennai is well established player in
manufacturing and export of power storage equipment. GEL was incorporated in
August, 2010 with technology driven business model in mechanical engineering
founded by energetic entrepreneurs by name Vijay and Rishi. Vijay is a
management graduate from leading management institute in India and Rishi
who is slightly older, is a person with engineering background and holding MBA
qualification from an American university. They were childhood friends and they
thought that their educational background would have synergetic effect to
success and glory in the long run. Considering the thrust of the Government of
India in green energy to make our country power surplus and reduce
environmental damage happening through traditional coal based power
generation method, the duo decided to do backend support as their contribution
to nation building by engaging in the business of manufacturing of solar panels
and solar modules, for storing solar power.
Product of GEL would provide enormous comfort and support to companies
moving to green energy to have reasonable power cost with efficient long-term
operations and survival. However, the trickle-down effect of the venture is in
nascent stage and the business is poised for making giant strides in near future.
The time period between the purchase of raw materials and completion of final
product to make the buyers ready for power storage would take 10 months for
GEL. Customers purchased them immediately once they were ready for
installation but the payment was made with a credit period of 6 months. The
company took a long-term loan from ABC Ltd. for managing capital expenditure
pertaining to new project. However, the installments due in the financial year
2023-2024 could not be paid on time and as a consequence the loan became
repayable on demand on 31 st day of March, 2024. GEL negotiated in June, 2024
with the lender ABC Ltd for not demanding the entire payment of loan as a
consequence of its breach. The lending institution appreciated the attitude and

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aptitude of entrepreneurs and wanted their journey to blossom in to a great

m
co
success story. It was decided between the borrower and the lender before approval

om .
of audited financial statements of GEL, such that the lender ABC Ltd. will not

.c
demand repayment of loan in spite of the breach of repayment terms by GEL.
e m
e m
The duo thought over the matter of having some financial crunch and considering
l a s
l a s
many elite international business houses prefer to support such new angel units
ag
ag
decided to raise funds through External Commercial borrowing (INR
denominated) by issuing Non-Convertible Debentures with maturity period of 7
years. The foreign investors who will be subscribing to the said debentures
requested for interim financial report (to be prepared as per IND AS). GEL
instructed GM Finance to prepare the same and provide a copy of the same to
auditors for overall review. On reviewing the same, one of the audit team
members, Robin, observed the following and is of the view that the
treatment/disclosure done for all four issues mentioned below in interim financial
report is not as per guidelines prescribed under IND AS :

m
co
- one item of extraordinary nature has not been shown (Issue I)

.
em
- reversal of impairment loss recognized in a previous interim period in respect

a s
of goodwill (Issue II)
-
g l
disclosure of only basic earnings per share has been made (Issue Ill)
- a
Insignificant changes in contingent ·liabilities has not been disclosed (Issue IV)
GEL submitted the same interim financial report to investors and went ahead with
ECB issue.
Proceeds from issue (INR 4 Crores) will be used for repayment of outstanding
balance of Loan of ABC Ltd. (INR 2.50 Crores and working capital purposes INR
1.50 Crores). GEL however did not hedge the exposure of ECBs (principal as well
as the coupon) and used the exchange rate prevailing on the date of settlement

o m
(01.06.2024) for conversion to rupee as against the exchange rate on the date of

m
agreement (20.05.2024).
. c
c. o s
m
e by GEL in
GEL is working continuously on improving the production efficiency for a particular

em g a recently
the market. Market accepted the product with both hands and lcompany
product "SAT". SAT was an innovative product introduced for the first time

las regular orders for the same. However, existence of competitiveaproducts
received

ag
has
forced GEL not to increase the price for some time. In order to maintain good margin,
GEL adopted change in technology by which its productivity increased by 25% due
to labour efficiency such that it can produce 10 units in 10 hours. The revised
17

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FINAL EXAMINATION: NOVEMBER 2024

standard labour requirement is 0.75 hours per unit. The details of actual and budget
for the month of January, 2024 is given below :
Particulars Original standard Revised standard Actual
No. of units 3,000 3,000 3,600
Labour rate (per hr.) ₹ 30 ₹ 30 ₹ 25

While implementing new technology, GEL availed the technical services of Mark
Ltd., UK on 20 th December, 2023 who raised the invoice for GBP 1,00,000 on 28th
December, 2023. GEL made payment on 22nd January, 2024.
Once the efficiency was established by costing department of GEL, company
started filing its quotations with various government departments for supply of
'SAT' at a price par with its competitors. One of the friends of Rishi, Raman, who
has been working with Kerala State Electricity Board (KSEB) for last few years met
him in the market and invited him to his office. To his surprise, Raman was
heading the purchase department and asked him to submit the quotation for
supply of 'SAT' with KSEB. After getting the required approvals, officials of KSEB
issued a purchase order and entered into a contract with GEL for supply of twenty
lakh units of product with total supply value of ₹ 20 Crores. GEL supplied the
product as per terms and conditions of the purchase order and that too· before
the deadline. KSEB withheld ₹ 2 Crores which is payable after 12 months and paid
the balance after deducting TDS under the Income-tax Act and under GST. GEL
earned net profit of ₹ 2 Crores from this supply.
Vijay always had passion in stock market operations. He thought that close study
of stock market provided enough and more ideas to improve his overall business
acumen and appreciate macro-economic variables. Further the rising level of
stock market made him like fear of missing out (FOMO) on making quick money.
He could not curb his FOMO and did the following transactions of shares and
commodities during the financial year 2023-24 in recognized stock exchange:

Aggregate Profit (loss)
value
Day trade transactions in BSE ₹ 85,00,000 ₹ 7,00,000
Day trade transactions in NSE ₹ 67,00,000 ₹ (6,00,000)
Commodity derivative trade in recognized ₹ 52,00,000 ₹ 2,00,000
stock exchange

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After getting some experience of stock and commodity market, Vijay formed a

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co
view that professionals only could handle the investments and there is no point

om .
in burning the hard earned money through unprofessional techniques.

.c
Accordingly, he discussed the same with Rishi and proposed that a portfolio may
e m
em
be created of the profit earned by GEL from supplies made to KSEB and CA. Kiran,

l a s
a s
who is an expert in handling such portfolios, should be appointed for managing

l ag
ag
it. The terms of his remuneration will be that CA. Kiran is eligible for 0.20% of
portfolio as fee. Also, he is eligible for a fee incentive @ 1% which will be linked
to gross return in excess of the portfolio maximum value since its inception. The
Maximum value of the portfolio reached ₹ 2.20 Crores in last 6 months.
Multiple Choice Questions :
[Provide the correct option to the following questions]
2.1 How income of Vijay from day trade in shares and commodity derivatives
trade is liable to tax under the Income-tax Act, 1961?

m
co
(A) Regular business income (non-speculation income) ₹ 3,00,000

.
em
(B) Business income (non-speculation) from commodities derivative

s
₹ 2,00,000 and speculation business income from day trade in share
₹ 1,00,000
l a
ag
(C) ₹ 3,00,000 being speculation income consisting of both day trade in
shares and commodities derivative trade
(D) Non-speculation business income from day trade in shares ₹ 1,00,000
and business income being speculation income from commodities
derivative ₹ 2,00,000
2.2 Which of the following statements is/are correct in relation to ECBs raised by
GEL?

m
c. o
I. Use of ECB proceeds for repayment of Loan of ABC Ltd. is not permitted.

m
c. o em
II. Use of ECBs proceeds for working capital is not permitted.

em s
lafor conversion.
III. GEL has not followed the guidelines by not hedging the ECB exposure.

las a g
IV. Exchange rate as on 20.05.2024 should have been used

ag Options:
(A) Only Statement I

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FINAL EXAMINATION: NOVEMBER 2024

(B) Statement I and III
(C) Only Statement II
(D) Statement I, II and IV
2.3 Whether the issues raised by Robin on interim financials submitted were valid
and required changes in such interim report?
(A) Only Issue I and IV have been validly raised and required changes in
interim financial report
(B) All the issues raised were valid and the effect of all four issues required
changes in interim financial report
(C) Only Issue II and Issue III have been validly raised and required changes
in interim financial report
(D) Only Issue I have been validly raised and required changes in interim
financial report
2.4 If returns on the portfolio for the specified period is 20%, how much fee is
payable by GEL to CA. Kiran?
(A) ₹ 60,000
(B) ₹ 2,04,000
(C) ₹ 68,000
(D) ₹ 86,000
2.5 How much of the amount would have been deducted by KSEB as TDS under
Income-tax Act and under the applicable GST law?
(A) ₹ 36 lakhs each under the Income tax Act, 1961 and under the IGST Act.
(B) ₹ 40 lakhs under the Income-tax Act, 1961 and, 36 lakhs under the IGST
Act.
(C) ₹ 40 lakhs each under the Income tax Act, 1961 and under the IGST Act.
(D) ₹ 36 lakhs under the Income-tax Act, 1961 and, 40 lakhs under the IGST
Act. (5 x 2 = 10 Marks)
Descriptive Questions :
2.6 Will you classify the inventory and trade receivables of GEL as current assets?

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Would your answer be different if the production time is 13 months and the

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co
credit period allowed to the customers is 15 months?

c om m .
How would you classify the liability due to ABC Ltd. as on 31st March, 2024

.
in spite of the default in repayment of installment of loan?
2.7 Do m
(5 Marks)
s e
s e Goods and Service Tax Act? If Yes, then who has to deposit GST and in gl
you think that transaction between GEL and Mark Ltd. attracts any GST a
g a
l which month? If no, state the relevant legal provision for the same.
under
a
a (5 Marks)
2.8 Calculate the variances for GEL in respect of manufacture of part 'SAT' by
(i) Traditional variance analysis ; and
(ii) Operational variances including planning variances. (5 Marks)

ANSWER TO CASE STUDY 2

m
c. o
2.1 Option (B): Business income (non-speculation) from commodities
derivative ₹ 2,00,000 and speculation business income from day trade in

2.2 Option (C): Only Statement II se
share ₹ 1,00,000
m
g laIssue III have been validly raised and required
a
2.3 Option (C): Only Issue II and
changes in interim financial report
2.4 Option (A): ₹ 60,000
2.5 As far as the answer to GST law is concerned, TDS is required to be
deducted under GST law is ₹ 36 lakhs under the IGST Act. In respect of
Income tax law, KSEB entered into a contract with GEL for the supply of 20
lakhs unit of product "SAT" with total value of ₹ 20 crores. There should be

m
a work contract to deduct tax u/s 194C. However, in this case, since there

m c. o
is no information regarding usage of the raw material provided by KSEB for

c. o m
manufacturing the product, this contract is a contract for 'sale'. Hence, tax

s e
em
u/s 194C would not be deducted. For purchase of goods, section 194Q cast

s la
ag
a responsibility on any person, being a buyer who is responsible for paying

la
any sum to any resident-seller for purchase of goods of the value or

ag aggregate of such value exceeding ₹ 50 lakhs in a previous year, to deduct
tax at source @0.1% of such sum exceeding ₹ 50 lakhs. In this case, KSEB is

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FINAL EXAMINATION: NOVEMBER 2024

required to deduct tax at source u/s 194Q @0.1% on ₹ 19,50,00,000, being
the sum exceeding ₹ 50 lakhs. Tax to be deducted is ₹ 1,95,000.
2.6 (i) Inventory and debtors need to be classified in accordance with the
requirement of Ind AS 1, which provides that an asset shall be classified
as current if an entity expects to realise the same or intends to sell or
consume it in its normal operating cycle. In this case, time lag between
the purchase of inventory and its realisation into cash is 16 months
[10 months + 6 months]. Both inventory and the debtors would be
classified as current if the entity expects to realise these assets in
its normal operating cycle.
(ii) No, the answer will be the same as the classification of debtors and
inventory depends on the expectation of the entity to realise the same
in the normal operating cycle. In this case, time lag between the
purchase of inventory and its realisation into cash is 28 months
[13 months + 15 months]. Both inventory and debtors would be
classified as current if the entity expects to realise these assets in the
normal operating cycle.
(iii) As per para 74 of Ind AS 1, where there is a breach of a material
provision of a long-term loan arrangement on or before the end of the
reporting period with the effect that the liability becomes payable on
demand on the reporting date, the entity does not classify the liability
as current, if the lender agreed, after the reporting period and
before the approval of the financial statements for issue, not to
demand payment as a consequence of the breach.
In the given case, ABC Ltd. (the lender) agreed not to demand payment
after the reporting date but before the financial statements were
approved for issuance. Hence, the liability should be classified as
non-current in the financial statement as at 31st March, 2024.
2.7 In the given case, the since service provider – Mark Ltd. is outside India,
and the service recipient – GEL is in India and given service does not get
covered under any of the specific provisions of section 13, place of supply
will be governed by the default provision, i.e. location of recipient of
service, which in this case is Chennai (India).

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Further, the given case is import of service as the supplier of service is
located outside India, the recipient of service is located in India and the
o m
m
place of supply of service is in India.
Since theoservices are imported for a consideration from an unrelated
. c
c
person,. the same tantamounts to supply and are liable to GST. e m
em l a s
s
lasupplied by a person located in a non-taxable territory to a person located a g
g
As per Notification No. 10/2017 IT(R) dated 28.06.2017, if a service is

a in the taxable territory, other than non-taxable online recipient, the tax is
payable by the recipient of service under reverse charge.
Therefore, GEL Ltd. will pay GST under reverse charge on £ 1,00,000 paid
by it to Mark Limited in UK.
The time of supply of services taxable under reverse charge is the earlier of
the following:

m
Date of payment, or

c. o


Date immediately following 60 days since issue of invoice by the

m 2024.


e
supplier.

l a
nd
Thus, time of supply is 22 January,s
Since tax liability arises ingJanuary, 2024, payment is to made in the month
of February, 2024.
a
2.8 Workings
To calculate the original time required for 10 units, we can use the fact that
productivity increased by 25%, meaning the new time is 75% of the original
time.
Let the original time for 10 units be x. After a 25% productivity increase, the

m
c. o
new time is 0.75x, and we know this equals 10 hours:

m
c. o m
0.75x = 10

s e
em la
Solving for x:

las x = 10/0.75
ag
ag x = 13.33 hours
The original time to produce 10 units was 13.33 hours.

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FINAL EXAMINATION: NOVEMBER 2024

Original Standards Revised Standards Actual
(ex-ante) (ex-post) (3,600 units)
3,600 units ₹ 1,44,000 3,600 units × ₹ 81,000 3,600 ₹ 90,000
× 1.33. hr. 0.75 hr.×₹ 30.00 units x 1
×₹ 30.00 hr. ×₹ 25
Computation of Variances
(i) Traditional Variances
Efficiency Variance = (4,800 hrs. – 3,600 hrs.) × ₹ 30
= ₹36,000 (F)
Rate Variance = (₹ 30 – ₹ 25) × 3,600 hrs.
= ₹ 18,000 (F)
Total Variance = ₹ 36,000 (F) + ₹ 18,000 (F) = ₹ 54,000 (F)
(ii) Operational Variances
Efficiency Variance = (2,700 hrs. – 3,600 hrs.) × ₹ 30.00
= ₹27,000 (A)
Rate Variance = (₹ 30 – ₹25) × 3,600 hrs.
= ₹ 18,000 (F)
Total Variance = ₹ 27,000 (A) + ₹ 18,000 (F) = ₹ 9,000 (A)
Planning Variances
Efficiency Variance = (4,800 hrs. – 2,700 hrs.) × ₹ 30
= ₹ 63,000 (F)
Rate Variance = (₹ 30 – ₹ 30) × 2,700 hrs. = ₹ 0
Total Variance = ₹ 63,000 (F) + ₹ 0 = ₹ 63,000 (F)
Note:
While solving this question actual hourly rate of production has been considered 1
hour per unit as question clearly states that GEL adopted change in technology (by
which its productivity increased by 25%) due to labour efficiency such that it can produce
10 units in 10 hours. Therefore, computation of original standard time is required to
be computed by doing reverse calculations as given in working. The Standard Time
arrived to 1.33…hour per unit. Revised standard time is given 0.75 hour per unit.
However, this question can also be solved by taking alternative assumptions.

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CASE STUDY - 3

m
om . co
Maximo Ltd., Kolkata was promoted by Anand a renowned Industrialist in the

c m
year 2008. In the initial years Anand incubated the venture closely and later opted

m .
for professional management which was successfully carried out besides listing of
se
s e
the company's shares in Bombay stock exchange. Paid-up share capital of
g l a
l a
Maximo Limited is ₹ 100 Crores, comprising of 100 Lakhs equity shares of ₹ 100
a
ag
each, held by ₹ 1,000 shareholders. The company is a manufacturing company,
engaged in manufacture of dairy products and fruit concentrates. The company
has activities at various locations based on raw material source and availability
of appropriate competent work force and other key factors. The geographical
spread was advantageous to the company to swap raw materials, finished goods,
employees besides product supply and distribution.
Maximo Ltd. imported new machineries from USA by air on CIF basis for USD
1,00,000. The air freight was USD 12,000; insurance USD 8,000. Later, it

m
negotiated the price again with the supplier and the re-negotiated price was fixed

. co
as USD 95,000. The exchange rate on the date of bill of entry (25.06.2023) was 1

em
USD = ₹ 84 and on the date of arrival of aircraft (07.07.2023) was 1 USD = ₹ 82.

a s
Both the exchange rates are as notified by CBIC. BCD rate on 25.06.2023- 8% and

l
g
on 07.07.2023- 10%. There is no change in Social Welfare Surcharge between

a
date of filing of Bill of Entry and date of arrival of aircraft.
Maximo Ltd. was interested in expanding its operations outside India and in
pursuit of the same planned to install a manufacturing facility at Australia where
the Indian diaspora evinced enormous interest for the products since it was with
Indian technique of manufacture of eatables. For the proposed project, it requires
a net fund (after fund raising expenses) of 20 million Australian Dollars. In order
to fund this project, it proposes to issue GDRs by issuing foreign currency bonds
through an approved intermediary in Australia. The entire GDRs issued would be
m
c. o
purchased by non-residents in Australia. The expenses and flotation cost of GDRs

m
c. o m
would be 5% of the gross proceeds. Further, the following additional information
is also given:
s e
s em (i)
g
the expected market price of each share at the time of issue of GDR ₹ 300
la
gla (face value =₹ 100 each);
a
a (ii) 2 shares shall underly each GDR and shall be priced at 10% discount to
market price;

25

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FINAL EXAMINATION: NOVEMBER 2024

(iii) Expected exchange rate 1 Australian Dollar= ₹ 60;
(iv) Dividend expected to be paid is 30% with growth rate 12%.
For packing its products in a unique way, Maximo Ltd. incorporated a 100%
owned subsidiary company by name Hi-Quality (P) Ltd at Chennai. Hi-Quality (P)
Ltd. is meant to manufacture empty containers through automated machine
enabled production process, ensuring its production process meets world class
performance standard under TPM approach. It works double shift a day of 8 hours
each which includes 30 minutes lunch/dinner break and 15 minutes tea break.
The following information is per shift for 10th March, 2024 :

Unplanned down time 20 minutes
Standard cycle time 2 minutes per bottle
Quality loss, scrap, rejection 10%
Total quantity produced 200 bottles

90 shareholders holding 10 Lakhs equity shares of Maximo Ltd., are concerned
with the flouting of norms fixed for extraction and usage of ground water, beyond
permissible limits in various plants of Maximo Limited. Despite repeated
representations from shareholders, Maximo Ltd. has not taken any corrective
action. Therefore, group of these 90 shareholders have made a petition before
NCLT in Dec 2023. NCLT, on receipt of the petition, has commenced proceedings
in Feb 2024. However, out of these 90 shareholders, 40 shareholders holding 4
Lakhs shares, have withdrawn their consent in March 2024, for filing petition
before NCLT.
The CFO of Maximo Ltd. resigned in July 2023 due to some personal reasons.
There was no replacement to the post. Mittal Associates a firm of CAs acted as
statutory auditors of the company. The auditors have stated that the financial
statements for the year ended 31 st March, 2024 are not IND AS compliant. The
financial statements have not yet been approved by the Board. It was pointed out
that there were errors in the financial statements of preceding account year i.e.
2022-23 also. The Finance Manager claimed that there was a retrospective
change in accounting policy which was made in FY 2022-23 but it was not
followed or disclosed properly in the financial statements of accounting years
2022-23 and 2023-24.
Maximo Ltd. having its manufacturing and distribution plant in Thane,
Maharashtra has in the month of November, 2023 collected GST at a rate lower

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than what is prescribed in law. Thus, there was error in collection and remittance

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of GST (after ITC). A show cause notice (SCN) was issued under section 73(1) of

om .
CGST Act for payment of tax of ₹ 6,00,000 and interest amounting to ₹ 1,08,000.

.c
Maximo Ltd. is aware of the short collection and short payment of output tax by
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it. It neither paid the GST tax demand in response to the show cause notice nor

l a s
a s
offered any explanation for the same, even after passing 30 days from the date

l a g
g
of issuing SCN.

a year 2010. The ·activity of Shortspan (P) was manufacture of CD Players, which
Shortspan (P) Ltd. was promoted by Mukund, younger brother of Anand, in the

has become outdated in the recent times. Thus, there was a huge recession in
business. The company Shortspan (P) Ltd. applied for insolvency and bankruptcy
resolution process. Its application for corporate insolvency process has been
admitted by the adjudicating authority in June, 2023 under the Insolvency and
Bankruptcy Code, 2016. Shortspan (P) Ltd. has the following amounts brought
forward as per the Income-tax Act, 1961 on 1st April, 2023 which are to be

m
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considered for set off while computing book profit under section 115JB :

.
em
Year ended Business Loss Unabsorbed

s 16,00,000
₹ depreciation ₹
31.03.2021 11,00,000
l a
g 10,00,000
31.03.2022 Nil a
31.03.2023 4,00,000 3,00,000

Multiple Choice Questions:
[Provide the correct option to the following questions]
3.1 How many GDRs have to be issued by Maximo Ltd. to fund its expansion of
operations by installing a manufacturing facility at Australia?

m
c. o
(A) 27,21,000

m
c. o m
(B) 22,22,222

s e
em la
(C) 23,39,181

las (D) 46,78,362
ag
ag 3.2 Assuming Maximo Ltd. issued GDRs in accordance with the scheme notified
by the Central Government and was acquired by non-residents in Australia
in foreign currency, what is the rate of tax at which Maximo Ltd. must deduct

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FINAL EXAMINATION: NOVEMBER 2024

at source on the interest on GDRs issued by it under the provisions of Income
Tax Act, 1961?
Note : Ignore surcharge.
(A) 5.20%
(B) 10.40%
(C) 4.16%
(D) 20.80%
3.3 How much of the business loss and/or unabsorbed depreciation brought
forward as per Income-tax Act, 1961 would be considered in computing the
book profit under section 115JB of Shortspan (P) Ltd. for the assessment year
2024-25?
(A) ₹ 14,00,000
(B) ₹ 29,00,000
(C) ₹ 15,00,000
(D) ₹ 44,00,000
3.4 How much is the customs duty payable by Maximo Ltd. on import of new
machineries from USA?
(A) ₹ 8,77,800
(B) ₹ 9,24,000
(C) ₹ 9,02,000
(D) ₹ 6,93,000
3.5 How much is the quantum of penalty leviable on Maximo Ltd. for not paying
the GST due or offer explanation in response to the SCN issued by the
Assessing Authority?
(A) ₹ 10,000
(B) ₹ 50,000
(C) ₹ 60,000

(D) ₹ 70,800 (5 x 2 = 10 Marks)

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Descriptive Questions :

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3.6 Suggest the prescribed correction required under IND-AS to deal with errors

c om m .
discovered in Financial Statement of Maximo Limited. Please also suggest the

m .
treatment for the situation, if it is arising out of incorrect application of
se
s e
Accounting Policy as claimed by Finance Manager of Maximo Limited.
g l a
g l a (5 Marks)
a
a whether Hi-Quality (P) Ltd. has achieved world class performance under TPM
3.7 Based on the available production data for shifts in case study, evaluate

Approach? (5 Marks)

3.8 State whether a petition u/s 241 of Companies Act, 2013 by the minority
shareholders is maintainable. Also state whether there is any impact on the
maintainability of petition due to withdrawal of consent by a group of

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members after commencement of proceedings. (5 Marks)

.
em
ANSWER TO CASE STUDY 3
3.1 Option (C): 23,39,181
l a s
3.2 Option (B): 10.40%
a g
3.3 Option (D): ₹ 44,00,000
3.4 Option (A): ₹ 8,77,800; OR Option (B): ₹ 9,24,000
This question can be solved in two alternative ways. Firstly, it can be considered that
the re-negotiation took place before importation was completed. Secondly, it can
be considered that the re-negotiation took place after importation was completed.

3.5 Option (C): ₹ 60,000

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3.6 As per the definition given in Ind AS 8, prior period errors are omissions

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c. o m
from, and misstatements in, the entity’s financial statements for one or

s e
em
more prior periods arising from a failure to use, or misuse of, reliable

s la
information that:

gla (a) was available when financial statements for those periods were
ag
a approved for issue; and

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FINAL EXAMINATION: NOVEMBER 2024

(b) could reasonably be expected to have been obtained and taken into
account in the preparation and presentation of those financial
statements. Such errors include the effects of mathematical mistakes,
mistakes in applying accounting policies, oversights or
misinterpretations of facts, and fraud.
Further, paragraph 41 of Ind AS 8 states that errors can arise in respect of
the recognition, measurement, presentation or disclosure of elements of
financial statements
Financial statements do not comply with Ind AS if they contain either
material errors or immaterial errors made intentionally to achieve a
particular presentation of an entity’s financial position, financial
performance or cash flows. Potential current period errors discovered in
that period are corrected before the financial statements are approved for
issue. Material errors are sometimes not discovered until a subsequent
period, and these prior period errors are corrected in the comparative
information presented in the financial statements for that subsequent
period.
Unless impracticable, an entity shall correct material prior period errors
retrospectively in the first set of financial statements approved for issue
after their discovery by restating the comparative amounts for the prior
period(s) presented in which the error occurred.
Brief Description on Ind AS 8
As per para 42 of Ind AS 8, an entity shall correct material prior period
errors retrospectively in the first set of financial statements approved for
issue after their discovery by:
(a) restating the comparative amounts for the prior period(s) presented in
which the error occurred; or
(b) if the error occurred before the earliest prior period presented,
restating the opening balances of assets, liabilities and equity for the
earliest prior period presented.
(i) Incorrect application and disclosure of retrospective application
and disclosure of change in accounting policy

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In case retrospective application of change in accounting policy or

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disclosures related to it have not been followed appropriately, it will

m in the financial statements for the year ended 31 March, .
also be considered as prior period errors.

c o
. the comparative amounts as at 31 March 2023 would be e m
s
st
Accordingly,

m
e restated to reflect the correct retrospective application and disclosure l a
s of change in accounting policy. An entity is also required to present a a
st
2024,

l a g
ag third balance sheet as at the beginning of the preceding period i.e., as
st
at 1 April 2022 in addition to the minimum comparative financial
statements for the financial year 2022-2023, if the restatement has a
material effect on the information in the balance sheet at the beginning
of the preceding period.
Further, financial statements of subsequent periods need not repeat
these disclosures.

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(ii) Incorrect application of accounting policy

.
em
Even the incorrect application of accounting policy will constitute as prior

s
period error and needs to be treated as per para 42 of Ind AS 8 as discussed
above.

g l a
a
Accordingly, incorrect application of accounting policy requires
retrospective correction of an error under Ind AS 8 assuming that
the correct accounting policy is to be followed since beginning of
the recognition of the transaction. Accordingly, in the financial
statements for the year ended 31st March, 2024, the comparative
amounts as at 31st March, 2023 would be restated to reflect the
correct application and disclosure along with the restated third
balance sheet as at the beginning of the preceding period, i.e., as at

m
1st April 2022.

m c. o
c. o
When an entity is required to present an additional balance sheet as
at the beginning of the preceding period, it must disclose the
e m
em
information as required by Ind AS 8 and also the information as

la s
las explained in subsequent points. However, it need not present the

ag
g
related notes to the opening balance sheet as at the beginning of the

a preceding period.

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FINAL EXAMINATION: NOVEMBER 2024

3.7 Calculation of Planned Production Time
Mins.

Total time 480
Less: Planned downtime
tea break 15
lunch break 30
Planned Production Time 435

Availability Ratio = (435-20)/ 435×100
= 95.4%
Actual Production = 200 BOTTLES per shift
Standard time = 2 minutes
Standard Time Required = 200 units × 2 minutes
= 400 minutes
Actual Time Taken = 435 mins. – 20 mins.
= 415 minutes
Performance Ratio = 400/ 415×100
= 96.39%
Quality Ratio = (200-20)/ 200×100
= 90%
Thus, OEE = 0.954 × 0.9639 × 0.90
= 82.76%
Evaluation
The Overall Equipment Effectiveness (OEE) for the given scenario stands at
82.76%, which falls short of the globally recognized benchmark of 85%, as
proposed by Seiichi Nakajima. A closer analysis reveals that while the
Availability Ratio (95.4%) and the Performance Ratio (96.39%) surpass
the ideal benchmarks of 90% and 95%, respectively, the Quality Ratio is
notably deficient at 90%, significantly below the target of 99%. This

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disparity highlights a critical issue with product quality, as a defect rate of
10% (20 defective units out of 200) undermines the equipment's overall
o m
m
oAvailability Ratio reflects that the equipment is well-maintained
effectiveness, despite strong performance in other areas.
. c
.c e m
em and operational reliability. Similarly, the Performance Ratio gla s
The high

s
and experiences minimal downtime, indicating effective maintenance

lasuggests that the production speed closely matches the standard, with only a
practices

g
a a slight deviation in actual time taken (415 minutes) compared to the
standard time required (400 minutes). These metrics demonstrate that the
machine is being used efficiently and with minimal delays.
However, the Quality Ratio indicates substantial challenges in achieving
defect-free production. This could stem from several factors, including
process inefficiencies, substandard input materials, insufficient operator
training, or inadequate quality control measures. The significant gap in

m
c. o
quality performance has a compounding effect on the OEE, as even minor
defects can lead to wasted resources, increased rework, and diminished
customer satisfaction.
e m
l a s world-class performance, it is critical to
To bridge this gap and achieve

ag supplier audits to ensure raw material
address the root causes of quality issues. Implementing stricter quality
assurance protocols, enhancing
compliance, and training operators to adhere to quality standards are
immediate steps to consider. Additionally, leveraging advanced monitoring
tools, such as real-time quality checks using IoT or automated systems, can
help detect and address defects during the production process. These
measures will not only improve the Quality Ratio but also contribute to
sustained operational efficiency and reliability.

m
c. o
In conclusion, while the strong Availability and Performance ratios

m
contribute positively to the OEE, the subpar Quality Ratio is a bottleneck

c. o e m
that must be resolved to meet the ideal benchmark of 85% and achieve

em
world-class manufacturing standards. By focusing on quality

la s
las improvements, the overall effectiveness of the equipment can be

ag
g
optimized, aligning the company with global best practices in Total

a Productive Maintenance (TPM).
Note: Any 2 points for evaluation are sufficient.

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FINAL EXAMINATION: NOVEMBER 2024

3.8 As per the provisions of Section 244, linked to Section 241, of the
Companies Act, 2013, in the case of a company having share capital,
members eligible to apply for oppression and mismanagement shall be
lower of the following:
 100 members; or
 1/10th of the total number of members; or
 Members holding not less than 1/10th of the issued share capital of
the company.
The share holding pattern of Maximo Limited is as follows:
₹ 1,00,00,00,000 equity share capital held by 1,000 members.
The petition alleging oppression and mismanagement has been made by
some members as follows:
(i) No. of members making the petition – 90
(ii) Amount of share capital held by members making the petition –
₹ 10,00,00,000
The petition shall be valid if it has been made by the lowest of the following:
 100 members; or
 100 members (being 1/10th of 1,000); or
 Members holding ₹ 10,00,00,000 share capital (being 1/10th of
₹ 1,00,00,00,000)
As it is evident, the petition made by 90 members meets the eligibility
criteria specified under section 244, linked to Section 241, of the Companies
Act, 2013 as it meets the minimum requirement of members holding not
less than 1/10th of the issued share capital of the company in this case.
Therefore, the petition is maintainable.
The consent to be given by a shareholder is reckoned at the beginning of
the proceedings. The withdrawal of consent by any shareholder during the
course of proceedings shall not affect the maintainability of the petition
[Rajamundhry Electric Corporation Vs. V. Nageswar Rao A.I.R.].

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ALTERNATIVE

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As per the provisions of Section 244, linked to Section 241, of the

c om m .
Companies Act, 2013, in the case of a company having share capital,

.
members eligible to apply for oppression and mismanagement shall be

m se
s e 100 members; or
lower of the following:

g l a
l a a
ag


 1/10th of the total number of members; or
 Members holding not less than 1/10th of the issued share capital of
the company.
The paid-up share capital of Maximo Limited is as follows:
₹ 1,00,00,00,000 equity share capital comprising of 100 Lakhs equity shares
of ₹ 100 each held by 1,000 shareholders / members.

m
The petition alleging oppression and mismanagement has been made by
some members as follows:
c o
. – 90
m
e held by members making the petition
(i) No. of members making the petition

l a s
(ii) Amount of paid-up share capital
– ₹ 10,00,00,000
The petition shall be valid
g
a if it has been made by the lowest of the following:
 100 members; or
 100 members (being 1/10th of 1,000); or
 Members holding not less than 1/10th of the issued share capital of
the company.
The third condition in the provisions of Section 244 of the Companies

m
c. o
Act, 2013 is based on ‘Members holding not less than 1/10th of the

m
c. o
issued share capital of the company’. The information of share capital

e m
s
represents the “Paid-up Share Capital.” The issued share capital figure

em la
is not given nor the expression “Issued and Paid-up Share Capital” is

las ag
used therein. As a result, the third condition cannot be tested/applied.

ag Hence, based on the information provided, it is evident that the petition
should have been made by at least 100 shareholders/members under
section 244, linked to Section 241, of the Companies Act, 2013. (i.e. least of

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FINAL EXAMINATION: NOVEMBER 2024

minimum 100 members or 1/10th of total 1,000 members) to make it
admissible. However, as the petition is made by 90 shareholders which
is less than the required number of 100 shareholders, the petition shall
not be maintainable.
The consent to be given by a shareholder is reckoned at the beginning of
the proceedings. The withdrawal of consent by any shareholder during
the course of proceedings shall not affect the maintainability of the
petition [Rajamundhry Electric Corporation Vs. V. Nageswar Rao A.I.R.].

CASESTUDY - 4
Welcome Industries Limited (WIL) is a two decade old company engaged in
various businesses like Yarn manufacturing, petrochemicals, telecommunications
and general insurance. Company is headed by Ms. Singhania. She is respected in
the business world as sharp business women and is a firm believer in core business
fundamentals and strong ethical values. WIL has its headquarters in Mumbai.
Melody Inc. (a U.S. based company) which runs retail chain stores worldwide is
trying to setup its operations and enter in Indian market since last two years but
could not frame proper entry policy. Its investments outside the U.S. have seen
mixed results. Its operations and subsidiaries in Canada, the United Kingdom,
Central America, South America and China are successful. Considering WIL's pan
India offices and operations, Melody Inc. decided to start a partially owned
subsidiary company with WIL. Accordingly, a new company, Welcome Melody
Private Limited (WMPL) is formed by Melody Inc. as its largest shareholder
holding 75% of the paid up share capital. WMPL will have its head office and
registered office in Mumbai (Maharashtra).
WMPL will be operating retail chain stores throughout India in the times to come.
To start with, first store will be opened in Mumbai. All the arrangements are being
made to ensure that first visit of the customer in its first store should be a
memorable one. Operations team suggested that billing counter (POS) should be
technology driven and accordingly, new software has been purchased with the
following details:
The cost for the software was ₹ 15,00,000 out of which ₹ 10,00,000 to be paid
immediately and balance ₹ 5,00,000 in one-year time. The other related
expenditure incurred was :
Legal fees : ₹ 72,000

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Consultancy fees for implementation : ₹ 1,50,000

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Cost of capital of the company is 10%.

.c om
The launch of the first store was successful and encouraging for the management.

e m .
m s
WMPL became a one-stop supermarket chain that offered its customers a wide

se
range of basic home and personal products under one roof. Each WMPL store
g l a
l a
stocks of home utility products including food, toiletries, beauty products,
a
ag
garments, kitchenware, bed and bath linen, home appliances and more -
available at competitive prices that its customers appreciate.
With its mission to be the lowest priced retailer in the regions it operates, WMPL
business continues to grow with new locations planned in more cities. As per
plans, three new stores were opened in Nasik, Nagpur and Aurangabad. It was
decided that WMPL will buy all the immovable properties and no rent expenditure
will be incurred. Capital outlay of opening new stores was in Crores, so WMPL
borrowed funds from its holding company Melody Inc. The details of the funds

m
borrowed are as follows:

. c o
Amount Borrowed : ₹ 35 Crore at Rate of Interest : 8% p.a.

m
ethe same period was ₹ 9 Crore and Interest
s
MPL opened 25 stores throughout India and earned net profit (before tax) ₹ 6

a
l For the same period Profit after tax was ₹
Crore for F.Y. 2023-24. The EBITDA for

g
4.50 Crore (Tax Rate 25%). a
paid to Melody Inc. was ₹ 2.80 Crore.

WMPL has decided to open a new store in Pune in April 2024. Land was purchased
and establishment work was completed. Separate GST registration for Pune was
taken in April 2024 and stock purchase for new store has also been done. The
following further details were available on the date of registration :-
(Value in ₹ Crores)

m
Entire Pune

c. o22
Business
m
c. o e m 50
Value of Fixed Assets 400

em
Value of Current Assets
la
500
s
las Value of Assets on which GST ITC has been taken (out
ag160
ag of fixed assets and current assets reported above)
Unutilised GST 25
40
2

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FINAL EXAMINATION: NOVEMBER 2024

As per management projections, the new store at Pune will achieve good sales
and accordingly it was decided to transfer some part of GST credit outstanding in
electronic credit ledger of Mumbai to electronic credit ledger of separate Pune
registration.
Accounts department has drafted a letter stating that credit of ₹ 2.50 Crore (on
the basis of ratio of current assets) can be transferred to Pune registration.
Total current asset of WMPL as at 31.03.2023 were ₹ 500 Crore which included
inventories amounting to ₹ 300 Crore. The carrying amount of inventories is after
considering allowances for inventory shrinkages of ₹ 14.50 Crore. These
inventories are held at the stores and distribution centres of the Company.
Allowance for inventory shrinkage was an audit focus area since inventory counts
were carried out at periodical intervals during the year and further judgmental
factors are involved in identifying the amount of provision for shrinkages. Audit
team of the company addressed the issue by obtaining an understanding,
evaluating the design and testing the operating effectiveness of controls that the
company has in relation to allowance for inventory shrinkage.
In order to improve its profitability, WMPL is looking to buy securities of XYZ
Limited which is near bankruptcy. When the proposal came up for discussion in
the meeting of board of directors, they unanimously decided to seek professional
consultancy on investment in such securities. The appointed consultant did agree
that such transactions can be profitable provided the strategy of investment
followed involves the proper allocation of amount to be invested between debt
and equity securities.
Multiple Choice Questions :
[Provide the correct option to the following questions]
4.1 At what amount software purchased for POS should be capitalised initially
using the principles of concerned Ind AS?
(A) Total Cost to be capitalised is ₹ 15,26,545
(B) Total Cost to be capitalised is ₹ 16,04,545
(C) Total Cost to be capitalised is ₹ 16,76,545
(D) Total Cost to be capitalised is ₹ 17,22,000

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4.2 Do you think company will be able to claim deduction of full amount of
interest paid to Melody Inc. while filing ITR under the provisions of Income
o m
m
Tax Act, 1961? If not, what will be the amount of disallowance as deduction?
. c
.co interestof ₹ 0.40 Cr. will be disallowed as deduction on account of
(A) No, amount
s e m
s emNo, amount of ₹ 1.80 Cr. will be disallowed as deduction on account of gla
excess

g la excess interest
(B)
a
a (C) No, amount of ₹ 0.16 Cr. will be disallowed as deduction on account of
excess interest
(D) No, amount of ₹ 0.10 Cr. will be disallowed as deduction on account of
excess interest
4.3 What strategy should be followed by WMPL Management to ensure that
proposed investment in securities XYZ Ltd is profitable?

m
c. o
(A) Taking Long Position in Debt and Short Position in Equity

m Long Position in Equity
(B) Taking Long Position in Equity and Short Position in Debt
(C) Taking Long Position in Debteand
a s and short Position in Equity
(D) Taking short Position inlDebt
ag on draft letter of accounts department stating
4.4 What will be your comments
that GST input credit of ₹ 2.50 Crores can be transferred to Pune registration?
(A) The amount calculated is incorrect as the amount which can be
transferred to Pune registration is ₹ 1.375 Crores
(B) The amount calculated is incorrect as the amount which can be
transferred to Pune registration is ₹ 2 Crores

o m
(C) The amount calculated is incorrect as the amount which can be

m c
(D) The amount calculated is correct as output liability will arise .on sales
transferred to Pune registration is ₹ 6.25 Crores

c. o s em
em la report, in case
and stock is a part of current assets

las a g
4.5 How the shrinkage in inventories should be reported in audit

ag WMPL was the listed company?

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FINAL EXAMINATION: NOVEMBER 2024

(A) The auditor should report the issue of shrinkages in inventories in
'Emphasis of matter paragraph' and also state how the matter has been
dealt with by audit team
(B) The auditor should report the issue of shrinkages in inventories in 'Other
matter paragraph' and also state how the matter has been dealt with by
audit team
(C) The auditor should report the issue of shrinkages in inventories in 'Other
matter paragraph'
(D) The auditor should report the issue of shrinkages in inventories in 'Key
Audit matter paragraph' and also state how the matter has been dealt
with by audit team (5 x 2 = 10 Marks)
Descriptive Questions :
4.6 How WMPL will be able to earn profit by taking position in debt and equity
securities of XYZ Limited? (4 Marks)
4.7 Accounts department of WMPL is filing GSTR 3B for the month of September
2024 wherein total Taxable supplies reported are ₹ 50 Crore with output GST
liability of ₹ 6.25 Crores. Input tax available in electronic credit ledger is
₹ 7.50 Crore and balance in electronic cash ledger is ₹ 75 Lakh. Whether
WMPL is mandatorily required to utilize the balance in the electronic cash
ledger while paying GST liability for the month of September 2024? Also state
the nature of documents on the basis of which ITC would have been taken by
WMPL. (5 Marks)
4.8 WMPL is having intangible assets (including software purchased for POS).
Guide the accounts department about the general disclosures to be made in
financial statements relating to such intangible assets. Also list down the
conditions, if any, for derecognition of intangible assets. (6 Marks)

ANSWER TO CASE STUDY 4
4.1 Option (C): Total Cost to be capitalised is ₹ 16,76,545
4.2 Option (D): No, amount of ₹ 0.10 Cr. will be disallowed as deduction on
account of excess interest
4.3 Option (A): Taking Long Position in Debt and Short Position in Equity

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4.4 Option (B): The amount calculated is incorrect as the amount which can be

m
co
transferred to Pune registration is ₹ 2 Crores

c om m .
4.5 Option (D): The auditor should report the issue of shrinkages in inventories

.
in 'Key Audit matter paragraph' and also state how the matter has been

m se
s e
dealt with by audit team

g l a
g l a
4.6 An investor can earn profit from distressed securities by taking long
a
a Following are the examples of earning arbitrage profit:
position in Debt and Short position in equity.

(i) In case company’s condition improves because of priority, the investor
will get his interest payment which will be more than dividend on his
short position in equity shares.
(ii) If company’s condition further deteriorates the value of both share and
debenture goes down. He will make good profit from his short

m
position.
ALTERNATIVE
. c o
e m
s
The WMPL will take long position in Debt and Short Position in Equity
of XYZ Ltd.
g a
l because if XYZ Ltd. go bankrupt though both
a
This strategy will be profitable
Debt and Equity will lose value but since debt has a priority over Equity in
repayment it will be a safe bet.
However, if financial position of company improves any loss on account of
short position in Equity will be compensated by gain in the Debt position.
4.7 Since value of taxable supply of WMPL for the month of September 2024
exceeds ₹ 50 lakh, rule 86B of the CGST Rules, 2017 is applicable to it.

m
c. o
Thus, as per rule 86B, amount available in the electronic credit ledger will

m
c. o
be utilized only to the extent of 99% of the output tax liability while

em
discharging such tax liability. Balance 1% of the output tax liability needs

em
to be discharged from electronic cash ledger.
s
ladischarge 99%
las of its output tax liability, i.e. ₹ 6.1875 crores (99% of ₹a
In terms of the restriction imposed by rule 86B, WMPL can
g
ag 6.25 crores) from the
amount available in electronic credit ledger. However, it has to mandatorily

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FINAL EXAMINATION: NOVEMBER 2024

discharge the balance 1% of the output tax liability i.e. ₹ 6,25,000 (1% of
₹ 6.25 crores) through electronic cash ledger only.
The nature of documents on the basis of which ITC would have been taken
by WMPL are:
(i) Invoice or revised invoice issued by the supplier of goods and/or
services
(ii) Invoice issued by the recipient receiving goods and/or services from
unregistered supplier in case of reverse charge, subject to payment of
tax
(iii) Debit note issued by the supplier
(iv) Bill of entry or similar document prescribed under the Customs Act
(v) Document issued by input service distributor
4.8 (i) General disclosures w.r.t. intangible assets including acquisition of
software
An entity should disclose the following for each class of intangible
assets:
(a) whether the useful lives are indefinite or finite and, if finite, the
useful lives or the amortisation rates used;
(b) the amortisation methods used for intangible assets with finite
useful lives;
(c) the gross carrying amount and any accumulated amortisation
(aggregated with accumulated impairment losses) at the
beginning and end of the period;
(d) the line item(s) of the statement of profit and loss in which any
amortisation of intangible assets is included; and
(e) a reconciliation of the carrying amount at the beginning and end
of the period showing:
(i) additions, indicating separately those from internal
development, those acquired separately, and those acquired
through business combinations;

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(ii) assets classified as held for sale or included in a disposal group

m
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classified as held for sale in accordance with Ind As 105 and

omincreases or decreases during the period resulting from .
other disposals;

c. (iii) e m
e m revaluations and from impairment losses recognized or l a s
l a s reversed in other comprehensive income;
ag
ag (iv) impairment losses recognized in profit or loss during the
period;
(v) impairment losses reversed in profit or loss during the period;
(vi) any amortisation recognized during the period;
(vii) net exchange differences arising on the transaction of the
financial statements into the presentation currency, and on
the translation of a foreign operation into the presentation

m
currency of the entity; and

. c o
(viii) other changes in the carrying amount during the period.
Note: Any 4m
s e of intangible assets
out of the 8 disclosures are sufficient.

a
gl be derecognized:
(ii) Conditions for derecognition
An intangible assetashould
(a) on disposal; or
(b) when no future economic benefits are expected from its use or
disposal.
The disposal of an intangible asset may occur in a variety of ways (e.g.
by sale, by entering into a finance lease, or by donation).

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CASESTUDY - 5

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c. o m
Royal Enterprises Ltd. (REL), incorporated in 1996, is a public listed company

s
headquartered in Mumbai, India. It has carved a niche for itself in the production
e
s em la
of high quality industrial spare parts and railway coach components. Products of

la ag
the company are sold both in domestic and international markets and thus

ag company has good exposure in the domestic as well as foreign market. REL boasts
a state of the art manufacturing facility equipped with advanced machinery and
technology. Their production process adheres to stringent quality control

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FINAL EXAMINATION: NOVEMBER 2024

measures, ensuring their spare parts and rail coach components meet the highest
standards of durability, functionality, and efficiency. The company's commitment
to quality has earned them the trust and loyalty of its customers, establishing
them as a reliable and dependable supplier in the industry. Financial statements
of the company for the financial year 2023-24 have not yet been prepared.
Business of the company is growing and so does the requirement of accounting
staff to be headed by qualified Chartered Accountant. Deepak Sharma, Chief
Financial Officer (CFO) of the company has been asked by the company to create
a position of GM Accounts and appoint qualified CA. for managing the accounting
and compliances function effectively. Advertisement was given in all leading
newspapers detailing the company's requirement and role the proposed job will
need to cater. Numbers of applications were received by the company and all the
candidates were competent and had good exposure in the fields of financial
reporting, MIS reporting, FEMA, direct and indirect tax matters. CVs of all the
candidates were analysed and twenty candidates were shortlisted.
As per policy of the company, candidates first have to appear for written test and
then appear before interview panel to get selected. CFO has been asked to prepare
a practical approach based case study involving recent developments in various
areas relating to the operations of the Company, accounting and other technical
aspects of Companies Act, GST, Custom, Direct taxes etc. CFO of the company
took clues from the operations and areas of the company and using fictional data
prepared a well drafted case study having the following issues. All the shortlisted
candidates were asked to appear in written test on a particular date. CA. J also
appeared in the written test and attempted well and was hoping for an interview
call. To his surprise, he has not received a call and decided to have your opinion
on the issues discussed in the written test. Accordingly, the discussion took place
on the following issues:
Issue 1
REL in order to improve production efficiency imported machinery valuing ₹ 150
lakhs in June 2023 from Japan on which import duty at the rate of 15% was paid.
Machinery was used in the factory to produce rail coach components for sale.
After the installation of new machinery, no changes in the product price were
made. When the statutory auditors were carrying out audit in March 2024, they
observed this transaction of import of machinery and were of the view that import
duty was payable at the rate of 12.5% and not 15%. Management asked for
reason to which they responded that one of their clients (without naming it)

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imported the same machinery and paid duty @ 12.5% only. Management decided

m
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to take a second opinion and second opinion also confirmed the view point of

om .
statutory auditors. REL then filed a claim in March 2024 for refund of excess

.c
import duty paid. However, the refund claim was rejected by the customs
e m
e m
authorities.

l a s
l a s
REL imported one Steel cutting machine on 01.03.2021 which required some
ag
ag
customization. REL identified that for customization of such machines, authorized
dealer was JB enterprises who will carry out the necessary modifications. REL sent
the machinery directly from the port to JB enterprises for job work and the same
was received by JB Enterprises on 06.03.2021. Company had also sent moulds and
dies having total invoice value of ₹ 94,400 (CGST 9% and SGST 9% included) on
02.03.2021 and was received by JB Enterprises on 05.03.2021. Machinery was
received back on 04.03.2024 from JB Enterprises, but moulds and dies were not
received till 31.03.2024.

m
Issue 2

. co
REL entered into a contract with Prism motors Limited for sale of specific

em
industrial spare parts and supplied the same having transaction value of ₹ 82

a s
Crores during the year. Total Net worth and paid up share capital of Prism Limited

g l
was ₹ 90 Crores and ₹ 40 Crores (40,00,000 equity shares of ₹ 100 each)

a
respectively. Mr. Raman, Director of REL holds 65,000 shares, his wife holds 12,000
and his brother's wife holds 4,000 shares of Prism Limited. He is also the director
in Prism Motors Limited. Mr. Raman had disclosed his interest at the appropriate
Board meeting. Goods have been supplied to Prism Limited on arm length' basis
and no difference in price as compared to normal sales transactions price has
been found. No prior approval has been obtained in respect of contract from
Board of Directors and Shareholder. Total turnover of the REL for the year 2022-
23 and 2023-24 is ₹ 800 Crores and ₹ 900 Crores respectively.

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Issue 3

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REL filed its return of income for the P.Y. 2021-22 on 30th October 2022 declaring

e m
s
income of ₹ 3,60,00,000. The return was processed by Central Processing Centre

em la
making an addition of ₹ 2,50,000 on account of arithmetical error and income

las ag
was computed at ₹ 3,62,50,000 u/s 143(1). The return of income was selected for

ag
scrutiny assessment and order was passed under section 143(3) making the
following additions to the returned income :

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FINAL EXAMINATION: NOVEMBER 2024

₹
Addition on an estimated basis (not representing under reported 3,00,000
income)
Addition on account of under reported income 12,00,000
Addition on account of claim of expenditure not supported by any 9,00,000
documentary evidence

Tax rate applicable to company is 30%. Rate of surcharge is 7% and Health and
Education Cess is 4%.
Issue 4
Company has placed an order for the CNC machine with the MNC Ltd., a German
company. The delivery of machine is expected after three months from now. MNC
Ltd. has quoted rate of € 85,000. It is anticipated that the exchange rate will
decline by 4% over the three months period and in order to protect the euro
payments after three months, Finance manager of the company has decided to
hedge the risk involved in foreign currency transaction. He is looking forward to
two options to hedge the transaction risk i.e. either Forward cover or Money
market cover. The relevant spot and forward rates are:

Spot 3 month's Forward
₹/€ 90.15/90.50 92.20/92.60

The borrowing rates in India and Germany are 8% and 5.5% respectively and
deposit rates are 6.5% and 4% respectively.
Issue 5
REL, being managed by Mr. Srivastav, Managing Director proposes to pay
commission at the rate of six percent of the net profits to Mr. Srivastav. The
company also proposes to pay suitable additional remuneration to Mr. Charan, a
director for professional services rendered as industrial engineer, whenever such
services are utilized.
The Article of Association of the company has fixed payment of sitting fee for each
meeting of directors subject to a maximum of ₹ 50,000. In view of the increased
responsibilities, the company proposes to increase the sitting fee to ₹ 75,000 per
meeting for all the directors including independent directors.

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Issue 6

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New Project at Specified Development Zone

.c om
REL Limited is set to launch a new project for setting up a plant at Specified

e m .
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Development Zone due to various incentives provided by the State Government.

se
Finance team of the company prepared a detailed project report for seven years
g l a
l a
for submission to bankers for borrowing purposes. The bankers of the company
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ag
required an assurance report from a professional accountant on information
contained in the project report. It has approached AKM and Associates, Chartered
Accountants for an assurance report in respect of prospective information of a
project. On-going through the project details, it is noticed that depreciation on
fixed assets to be acquired has been calculated in accordance with provisions of
Income Tax Act, 1961 and stock of finished goods has been valued at selling price.
No disclosure has been made in this respect in the project report. AKM &
Associates signed the given project report as it is without generating the UDIN

m
with a view that UDIN is required for facts and figures of past period only and

c. o
not for the events and actions that have not yet occurred.

m questions]
Multiple Choice Questions :
e
sof import duty by the customs authorities is
l a
[Provide the correct option to the following

ag
5.1 Whether the rejection of refund
correct?
(A) Rejection is not justified and authorities should grant the refund of excess
import duty paid on machinery, as the machinery was not sold, hence
the principle of unjust enrichment will not apply
(B) Rejection is justified as machinery is used for the manufacture of goods
and the duty paid on the import of machinery has gone into the costing
of the goods manufactured and sold, and thus passed on to the buyers.

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The principle of unjust enrichment will apply

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(C) Rejection is not justified as no changes in the prices of products were

s e
em
made. The principle of unjust enrichment will not apply
(D) Rejection is justified as period for claim of refund has a
s g l
la
expired and the

g a
customs authorities can retain the excess payment of duty

a 5.2 How much expected loss is likely to be avoided by REL if it takes forward
cover?

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FINAL EXAMINATION: NOVEMBER 2024

(A) ₹ 3,06,510
(B) ₹ 1,29,200
(C) ₹ 1,32,260
(D) ₹ 1,63,200
5.3 In light of provisions of GST and rules made thereunder, consider the
following statements:
I. Machinery has been received back by REL within the stipulated time as
per the GST Act, 2017, hence it will not be deemed as supply.
II. Machinery has not been received back by the company within the stipulated
time as per the CGST Act, 2017, hence it will be deemed as supply to JB
enterprises. Such supply is required to be included in form GSTR 1 and REL
is required to pay tax on the same along with applicable Interest.
III. Moulds and Dies not received back within the stipulated time as per the
CGST Act, 2017 will be deemed as supply on the day when received by
JB enterprises. Such supply is required to be included in form GSTR 1 and
REL is required to pay tax on the same along with applicable Interest.
IV. Detail of challan in respect of machinery received back from JB
enterprises is required to be reported in Form GST ITC-03 to be furnished
for the half year Oct 2023 to March 2024 on or before 25 th April 2024.
Which of the above statement(s) is/are not in accordance with the provisions
of CGST Act, 2017 and rules made thereunder?
(A) I only
(B) I and Ill
(C) I and II
(D) II, III and IV
5.4 Which of the following statement is correct in relation to contract for sale
specific industrial spare parts entered with Prism Motors Limited as per the
section 188 of Companies Act 2013?
(A) Contract for sale of goods with Prism Motors Limited is not valid as it is
a related party transaction and transaction value exceeds 10% of the
turnover of 2022-23 and requires the prior approval of the company by
passing an ordinary resolution

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(B) Contract for sale of goods with Prism Motors Limited is valid, though it

m
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is a related party transaction but transaction value does not exceed 10%

om .
of the turnover of 2023-24, hence does not require the prior approval of

.c
the company by passing an ordinary resolution
e m
e m l a s
s
(C) Contract for sale of goods with Prism Motors Limited is not valid as it is

l a
a related party transaction and requires consent of Board of Directors
ag
ag
given by resolution at a meeting of the Board even if entered at arm
length's basis
(D) Contract for sale of goods with Prism Motors Limited is valid as it is not
a related party transaction
5.5 What is the amount of penalty that can be levied as per the relevant
provisions of Income Tax Act, 1961, on REL for AY 2022-23?
(A) ₹ 9,51,444

m
(B) ₹ 7,01,064
(C) ₹ 8,51,292
. co
em
las
(D) ₹ 8,01,216 (5 x 2 = 10 Marks)

ag
Descriptive Questions:
5.6 Examine with reference to the provisions of the Companies Act, 2013, the
validity of the proposal regarding remuneration and sitting fee to directors.
(5 Marks)
5.7 Advise the company whether it should adopt forward cover or money market
cover? Under what circumstances, money market hedge is advantageous to
forward hedge? (4 Marks)

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5.8 Advise how AKM and Associates will proceed in its assurance report, with

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matter relating to inconsistency in application of accounting policies in

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project report? Whether non generation of UDIN is justified? If not, then what

s e
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are the consequences for not generating UDIN? (6 Marks)

las ANSWER TO CASE STUDY 5
ag
ag 5.1 Option (B): Rejection is justified as machinery is used for the manufacture
of goods and the duty paid on the import of machinery has gone into the

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FINAL EXAMINATION: NOVEMBER 2024

costing of the goods manufactured and sold, and thus passed on to the
buyers. The principle of unjust enrichment will apply.
5.2 Option (B): ₹ 1,29,200
5.3 Option (D): II, III and IV
5.4 Option (D): Contract for sale of goods with Prism Motors Limited is valid
as it is not a related party transaction
5.5 Option (D): ₹ 8,01,216
5.6 Commission at the rate of 6% of the net profits to its Managing
Director, Mr. Srivastav: Part (i) of the Second Proviso to Section 197(1) of
the Companies Act, 2013, provides that except with the approval of the
company in general meeting by a special resolution, the remuneration
payable to any one managing director or whole time director or manager
shall not exceed 5% of the net profits of the company and if there is
more than one such director then remuneration shall not exceed 10%
of the net profits to all such directors and manager taken together.
In the present case, since the REL is being managed by a Managing Director,
the commission at the rate of 6% of the net profit to Mr. Srivastav, the
Managing Director is not allowed and hence approval of company in
general meeting is required by way of a special resolution.
Additional remuneration in capacity of professional services: The
company also proposes to pay suitable additional remuneration to Mr.
Charan, a Director, for professional services to be rendered by him as
industrial engineer, whenever such services are utilized by the company:
(1) According to section 197(4), the remuneration payable to the directors
of a company, including any managing or whole-time director or
manager, shall be determined, in accordance with and subject to the
provisions of this section, either
(i) by the articles of the company, or
(ii) by a resolution or,
(iii) if the articles so require, by a special resolution, passed by the
company in general meeting, and

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(2) the remuneration payable to a director determined aforesaid shall be
inclusive of the remuneration payable to him for the services rendered
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by him in any other capacity.
. c
(3) Anycremuneration
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em(i) the services rendered are of a professional nature; and s
for services rendered by any such director in other

s
capacity shall not be so included if—
g l a
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a the company is covered under sub-section (1) of section 178, or
the Board of Directors in other cases, the director possesses the
requisite qualification for the practice of the profession.
Hence, in the present case, the additional remuneration payable to Mr.
Charan, a Director, for professional services rendered by him as
industrial engineer will not be included in the maximum managerial

m
remuneration. Accordingly, such additional remuneration shall be allowed

c. o
but an opinion of Nomination and Remuneration Committee needs to be

m
obtained.
Sitting Fee: Section 197(5) of ethe Companies Act, 2013 provides that a
l a s by way of fee for attending the
a g or for any other purpose as may be decided by
director may receive remuneration
Board/Committee meetings
the Board provided that the amount of such fees shall not exceed the
prescribed amount. As per Rule 4 of the Companies (Appointment and
Remuneration of Managerial personnel) Rules, 2014 the amount of sitting
fees payable for attending meetings of the Board or Committees thereof
may be decided by the Board but such sitting fees shall not exceed 1
lakh rupee per meeting. Further, the sitting fee payable to an independent
director shall not be less than that payable to other directors.

m
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From the above, it is clear that sitting fees can be increased from 50,000

c. o m
rupees to 75,000 rupees per meeting by passing a resolution in the

s e
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Board Meeting and altering the Articles of Association by passing a

s ag
Special Resolution. When sitting fees stands increased for other directors,

gla
it shall automatically be increased in case of independent directors because

a the latter cannot be paid less than that payable to former.
5.7 Amount Payable under Forward Cover (€ 85,000 × ₹ 92.60) ₹ 78,71,000

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Money Market Hedge
To pay € after 3 months' company shall requires to borrow in ₹ and
translate to € and then deposit in €.
For payment of € 85,000 in 3 months @ 4.00% interest p.a. the amount
required to be deposited now (€ 85,000/1.01) = € 84,158.42
With spot rate of 90.50 the ₹ loan needed will be = ₹ 76,16,337.01
Loan repayable after 3 months @ 8.00% p.a. interest will be ₹ 76,16,337.01
(1.02) = ₹ 77,68,663.75
Net Benefit = ₹ 78,71,000 – ₹ 77,68,663.75 = ₹ 1,02,336.25
In this case the money market hedge is a cheaper option.
Money market hedge is advantageous to forward cover as under:
(i) When forward contracts are not available or forward rates are not
attractive.
(ii) As soon as we create money market hedge, we fix the future rate. This
eliminates downside risk due to adverse exchange rate movements.
(iii) It is more flexible if we consider the amount to be covered.

5.8 (I) As per SAE 3400, “The Examination of Prospective Financial
Information”, it is the duty of a professional accountant to see that
prospective financial information is based on a consistent basis with
historical financial statements using appropriate accounting principles.
Thus, AKM & Associates should consider whether: -
(a) the presentation of prospective financial information is informative
and not misleading
(b) the accounting policies are clearly disclosed in the notes to the
prospective financial information;
(c) The assumptions are adequately disclosed in the notes to the
prospective financial information. It needs to be clear whether the
assumptions represent management’s best-estimates or are
hypothetical and, when assumptions are made in areas that are
material and are subject to a higher degree of uncertainty, this

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uncertainty and the resulting sensitivity of results needs to be

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adequately disclosed.

c om m .
(d) the date as of which the prospective financial information was

m . prepared is disclosed. Management needs to confirm that the
se
s e
assumptions are appropriate as of this date, even though the

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underlying information may have been accumulated over a period

ag of time.
(e) the basis of establishing points in a range is clearly indicated and
the range is not selected in a biased or misleading manner when
results shown in the prospective financial information are
expressed in terms of a range and
(f) if there is any change in the accounting policy of the entity from
that disclosed in the most recent historical financial statements,
whether reason for the change and the effect of such change on

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the prospective financial information has been adequately
disclosed.

s em
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In the given case, REL limited has provided for depreciation on fixed

a
assets to be acquired in accordance with provisions of Income-tax Act,
1961 and valued the stock of finished goods at selling price which
are not consistent with historical financial statements. In addition,
no disclosure has been made in this respect in the project report.
In such a case, when presentation and disclosure are not adequate, a
qualified or adverse opinion should be given or withdrawal from
engagement should be made as appropriate by AKM & Associates.

m
(II) Apart from the above, AKM & Associates signed the given project

c. o
report without generating the UDIN which is not correct.

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Contention of AKM & Associates that UDIN is required for facts and
figures of past period only and not for the events and actions that
s e
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have not yet occurred is not tenable.

gla ag
(III) As per Chapter XIV, Unique Document Identification Number (UDIN)

a Guidelines, a member of the Institute in practice shall generate Unique
Document Identification Number (UDIN) for all kinds of the

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certification, GST and Tax Audit Reports and other Audit, Assurance
and Attestation functions undertaken/signed by him mandatorily.
Further, as per Clause (1) of Part-II of Second Schedule to the Chartered
Accountants Act, 1949 a member of the Institute, whether in practice
or not, shall be deemed to be guilty of professional misconduct, if
he contravenes any of the provisions of this Act or the regulations
made there under or any guidelines issued by the Council.
The consequences for not generating UDIN are that concerned
Chartered Accountant who had signed the assurance report shall
be held liable for professional misconduct under Clause (1) of Part-
II of the Second Schedule to the Chartered Accountants Act, 1949.

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