CA Final January 2026 Suggested Answers Paper 6 Integrated Business Solutions

FOR CA FINAL EXAM PREPARATION

CA Final 2026
Suggested Answers ·
Paper 6 Integrated
Business Solutions
EXAM YEAR TYPE

CA Final 2026 Suggested Answers
SUBJECT DATE

Paper 6 Integrated Business Solutions January 2026

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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l candidates are required to answer any four case study questions out of five. a g
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CASE STUDY - 1

Renewable Energy Systems Limited (hereinafter referred to as "RESL" ·or "the
Company") is a prominent, publicly listed company incorporated in' India having
its registered Office in Noida. RESL has established itself as a leader in the
manufacturing and export of advanced components, particularly those used in

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renewable energy systems. RESL also provides maintenance services of solar

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systems and sells its products through e-commerce platform, TRICON.
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Incorporated in 2008, RESL has consistently maintained robust growth,

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underpinned by technological innovation and strategic market penetration.

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As of 31st March 2025, RESL is a large-scale entity with a complex operational

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structure, requiring stringent adherence to the Companies Act, 2013, Securities
and Exchange Board of India (SEBI) regulations, and Indian Accounting Standards
(Ind AS). The Company maintains a strong equity position, with its equity shares
listed on a recognized stock exchange, demanding high quality and timely
financial disclosures.
The Board of Directors (BoD) of RESL comprises 14 Directors, including both
Executive and Non-Executive members. Currently, RESL's Articles of Association
permit a maximum strength of 15 Directors. Recognizing the need for diverse

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expertise to oversee its complex financial structure (RESL's operational efficiency

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and stringent regulatory requirements), the BOD plans to induct two new
specialized directors (Mr. P and Mr. Q) subject to necessary approvals.
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The Chief Financial Officer (CFO) is tasked with the advanced role of balancing

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financial goals vis-a-vis sustainable growth, overseeing adequate ·financial

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opportunities. Traditionally focused on wealth maximization, the management
now embraces and advises CFO to use an overall approach, Strategic Financial

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FINAL EXAMINATION: JANUARY 2026

Management, focusing on applying financial management techniques to strategic
decisions, to maximize the organization's market value.
RESL follows a policy of retaining 70% of its profit for future expansion reflecting
a strategic financial policy decision that affects performance. However, achieving
stability in dividend payment is also a desirable consideration as it can positively
impact share prices, requiring the CFO to strike a balance between retained
earnings and shareholder preference for dividends against capital gains.
In April 2025, RESL finalized a service contract (overhauling of solar panels)
with ABC Limited (a registered person under GST). The service was fully
provided on 20/07/2025. Payment for ` 10 lakhs was received in advance on
15/07/2025. The invoice was issued on 22/07/2025. The GST rate applicable to
this service changed from 12% to 18% with effect from 21/07/2025. Accounts
department raised an invoice and charged GST @ 18%. Besides this, RESL received
an order through TRICON, for supply of components to FG Industries (an
unregistered person under GST and located in Rohtak, Haryana). FG Industries
instructed RESL to deliver the components to VC Industries based, in Jalandhar,
Punjab. Accounts department while raising an invoice, considered Rohtak
(Haryana) as the place of supply for GST charge and recorded delivery address of
Jalandhar (Punjab).
In alignment with its strategy to gain a competitive advantage through
technology, RESL, plans a major acquisition: the takeover of Tech Components
Limited (TCL). This strategic move aims at backward integration by acquiring
specific raw material supplier with core technology expertise. RESL intends to use
a share-for-share exchange, but first requires a comprehensive business
valuation. The valuation team, headed by the CFO, is considering methodologies,
including the present value (PV) of future cash flows, aligning with the conceptual
framework of valuation. TCL's current book value is ` 400 per share, Return on
equity is 12% and it follows the same policy as followed by RESL for retained
earnings.
To finance the acquisition various financing options were discussed and it was
decided to issue Optionally Convertible Preference Shares (OCPS) with a face
value of ` 100, carrying a 5% non-cumulative dividend, convertible into 5 equity
shares, redeemable after 8 years. The comparable market interest rate for a similar
non-convertible instrument is 8%. After raising the funds from OCPS, balance
amount, if any, will be funded by borrowings from company's bankers.
Accordingly, bankers were requested to get the proposal sanctioned from bank's

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INTEGRATED BUSINESS SOLUTIONS

higher authorities. Bank asked for Audited Financial Statements for the Year

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ended 31.03.2025.

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M/s HK &. Associates are the Statutory Auditors of RESL for the financial year

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2024-25. As a listed entity, the audit engagement is subject to rigorous quality

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control standards (SQC 1 and SA 220). The engagement partner, CA. H, is

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responsible for overall quality procedures applicable to the audit. During the audit

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of RESL's revenue recognition policies for complex multi-year service contracts, a
contentious issue arose. CA. H decided to consult the Engagement Quality Control
Reviewer, CA. S on this matter. Also, CA. S enquired from CA. H as to whether
Internal Audit reports have been reviewed or not. CA. H informs that CA. L is the
internal auditor of the company. On perusal of internal audit reports, CA. H
observed that internal auditor has pointed out some GST issues where GST on
invoices raised to some of the related parties has not been paid as per the rates
applicable. After going through the details of GST issues, it was observed that
RESL supplied multiple goods with different rates but GST rate applicable on item

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carrying lowest rate has been applied on the entire invoice amount. With these

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deficiencies all the GST returns (GSTR 1 and GSTR 3B) for the concerned month

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have been filed. Department identified the misrepresentation of facts and proper

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officer before serving show cause notice, communicated the details of tax short

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paid (` 10.00 lakhs) along with interest and penalty to RESL. Management
however after verifying the amount, paid ` 8.00 lakhs along with interest and
penalty amounting to ` 80,000. In view of the management, department now
cannot issue SCN under GST provisions. However, to its surprise, SCN was issued
even after the payment of tax.
Multiple Choice Questions:
[Provide the correct option to the following questions]
1.1 Which of the following are not the correct compliance steps required

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(pertaining to appointment of Mr. P and Mr. Q) under the Companies Act,

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2013?

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(i) Alter the Articles of Association by passing an Ordinary Resolution.

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(ii) Alter the Articles of Association and pass a Special Resolution.

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(iii) Pass a Special Resolution.
(iv) Pass an Ordinary Resolution in the General Meeting followed by ROC
approval.

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FINAL EXAMINATION: JANUARY 2026

(A) (i), (ii) and (iii)
(B) (ii) and (iii)
(C) (i), (ii) and (iv)
(D) (i), (iii) and (iv)
1.2 Which of the following action are permitted for CA. S without compromising
to maintain his objectivity?
(i) Reviewing the audit plan and determining materiality levels.
(ii) Consulting with the engagement partner on appropriate reporting
conclusions.
(iii) Participating in the engagement and making decisions for the
engagement team.
(iv) Reviewing the nature and scope of consultations undertaken during the
audit.
(A) (i), (ii) and (iii)
(B) (ii), (iii) and (iv)
(C) (i), (ii) and (iv)
(D) (i) and (iv)
1.3 In approach suggested by RESL's management to CFO, which of the following
are not considered as the limiting factors while allocating resources?
(i) Mode of financing.
(ii) Capital availability.
(iii) Best investment and profitable opportunities.
(iv) Future earnings potential.
(A) (i), (iii) and (iv)
(B) (i), (ii) and (iii)
(C) (i) and (ii)
(D) (i) and (iv)

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INTEGRATED BUSINESS SOLUTIONS

1.4 Determine the initial fair value amount that RESL must allocate to the equity
component of the issued compound financial instrument, considering that
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co for 8%: PVIFA for 8 years = 5.7466; PV Factor for Year 8 = 0.5403)
the conversion option is currently out-of-the-money.

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(PV factors

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la(B) ` 17.24 per OCPS a
` 28.73 per OCPS

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a (C) ` 54.03 per OCPS
(D) ` 82.76 per OCPS

1.5 Determine the correctness of GST rate applied on the supplies made to
ABC Limited and place of supply for goods supplied to FG Industries.
(A) Correct GST rate: 18%. Place of Supply is Rohtak

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(B) Correct GST rate: 12%. Place of Supply is Jalandhar

(D) Correct GST rate: 18%. Place eofm
(C) Correct GST rate: 12%. Place of Supply is Rohtak

l a s Supply is Jalandhar (5 x 2 = 10 Marks)

Descriptive Questions:
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1.6 In your opinion, whether department can issue show cause notice when tax,
interest and penalty has been paid? Further, whether the company has
deposited the required penalty amount or not? (2 Marks)

What is the legal remedy available to RESL? Support your answer quoting
relevant legal provisions? (4 Marks)

1.7 If RESL's acquisition of TCL is structured as a Scheme of Arrangement

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involving the NCLT, what specific certification must be obtained by NCLT

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under the Companies Act, 2013 from the Statutory Auditor of RESL Limited?

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a and (b) Walter's
1.8 Assuming TCL's Opportunity Cost of Capital (Ke) is 15%, compute

ag of the share today using both (a) Dividend Growth Model
Model. (5 Marks)

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FINAL EXAMINATION: JANUARY 2026

ANSWER TO CASE STUDY 1

1.1 Option (C): (i), (ii) and (iv)
1.2 Option (C): (i), (ii) and (iv)
1.3 Option (A): (i), (iii) and (iv)
1.4 Option (B): ` 17.24 per OCPS
1.5 Option (B): Correct GST rate: 12%. Place of Supply is Jalandhar.
1.6 The person chargeable with tax, where any tax has not been paid or short
paid by reason of fraud, or any wilful-misstatement or suppression of facts
to evade tax, may, before service of notice, pay the amount of tax along
with interest payable under section 50 of the CGST Act, 2017 and a penalty
equivalent to 15% of such tax on the basis of his own ascertainment of such
tax or the tax as ascertained by the proper officer and inform the proper
officer in writing of such payment, and the proper officer, on receipt of such
information, shall not serve any notice, in respect of the tax so paid or any
penalty payable.
Show cause notice cannot be issued for the amount of tax paid, i.e.
` 8,00,000 and penalty already paid.
However, show cause notice can be issued for the amount of tax unpaid
` 2,00,000 plus applicable interest and penalty on the same.
In view of above provisions, penalty equivalent to 15% of the tax is payable
but only 10% of the penalty has been paid by the company. So, penalty is short
paid by ` 40,000. Thus, required amount of penalty is not paid by company.
The legal remedy available to RESL is as under:
(i) pay the said tax along with applicable interest and a penalty equivalent to
25% of such tax within 60 days of issue of the notice, and on doing so, all
proceedings in respect of the said notice shall be deemed to be concluded.
(ii) pay the tax along with applicable interest and a penalty equivalent to
50% of such tax within 60 days of communication of the order, and on
doing so, all proceedings in respect of the said notice shall be deemed
to be concluded.

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INTEGRATED BUSINESS SOLUTIONS

1.7 The proviso to section 230(7) provides that a certificate by the company's

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auditor is to be filed with the Tribunal to the effect that the accounting

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treatment, if any, proposed in the scheme of compromise or arrangement is

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in conformity with the accounting standards prescribed under section 133.
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In view of above, NCLT shall obtain the above certificate from the Statutory

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Auditors of RESL Limited.
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Payout Ratio = 1-0.70 = 0.30
EPS = Book Value × ROE = ` 400 × 12% = ` 48
Dividend per Share = 48 × 30% = ` 14.40
Growth Rate = 12% × 0.70 = 8.4%

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Price of Share as per Dividend Growth Model

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= D₁ / (Ke - g)
= 14.40 / (0.15 – 0.084)

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= 14.40/ 0.066 = ` 218.18
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Alternatively, this question can be solved by considering dividend with
Growth. Accordingly, value will be computed as follows:
= 14.40 (1.084) / (0.15 – 0.084)
= 15.61/ 0.066 = ` 236.52
Price of Share using Walter Model
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Where,

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agearns on retained
ag R = Return on internal retention i.e. the rate company
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profits.

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FINAL EXAMINATION: JANUARY 2026

Rc = Capitalisation rate i.e. the rate expected by investors by way of
return from particular category of shares.
E = Earnings per share.
D = Dividend per share.
0.12
14.40+ (48.00-14.40)
0.15 41.28
Vc = = = ` 275.20
0.15 0.15
Alternatively, this question can be solved by considering dividend with
Growth. Accordingly, value will be computed as follows:
D = 14.40 (1+0.084) = ` 15.61
E = ` 48 (1+0.084) = ` 52.03
0.12
15.61+ (52.03-15.61)
0.15 44.75
Vc = = = ` 298.33
0.15 0.15

CASE STUDY - 2

XYZ Metal Industries Limited ("XYZ") is a listed public company, incorporated in
2010, engaged in the manufacturing of stainless steel pipes and fittings. The
company operates manufacturing facilities in Gujarat and Maharashtra. In 2020,
XYZ acquired 90% equity stake in JB Steels Limited ("JBS") an unlisted company;
making it XYZ's first subsidiary. 'JBS' is engaged in the manufacturing of forged
fittings used in various piping applications across industries such as chemicals,
steel, and petrochemicals. 'JBS' got listed in February 2025.
XYZ operates in a highly competitive market, facing intense global and regional
competition from numerous players, including pressure from low-cost imports.
XYZ sells its products both domestically and internationally, with exports
accounting approximately 15% of its total turnover. It primarily sources its key
raw materials domestically, while also importing high-grade seamless pipes,
corrosion-resistant alloys, and specialized additives for advanced applications.
XYZ reported a turnover of ` 850 crores in the financial year 2023-24 and ` 800
crores in 2024-25. The profit after tax stood at ` 35 crores for 2023-24 and ` 30
crores for 2024-25. During a Board meeting held at the company's Head Office,
Directors expressed concern over the decline in turnover and profit. It was resolved

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INTEGRATED BUSINESS SOLUTIONS

to hold departmental review meetings to identify key factors contributing to this

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downward trend. In the meeting with departmental heads, Mr. Rajiv, Head of the

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Production Department, reported a significant buildup of raw material and

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component inventory. He attributed the failure to meet production targets to
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frequent machine breakdowns, employee turnover and reliance on outdated
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machinery and equipment. He also reported a significant inventory of finished

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fittings with outdated end connections, obsolete sizes, and designs based on an
older revision of industry standards. Additionally, there is a stockpile of stainless
steel items that are no longer required due to the discontinuation of a product
line. Mr. Srinivas, Head of the Marketing Department, highlighted delays in
fulfilling customer orders and noted an increase in product returns due to quality
issues. He also pointed out growing competition from new entrants offering better
quality products at lower prices. Mr. Rajiv presented the following matrix
describing the measures taken for enhancing operational efficiency.

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Sr. Column A (Issues) Column B

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No. (Corrective

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Measure)
For uniform procedures efor
(a)

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variability, enhancing training
consistent quality and
(b) For eliminating all types of defects by producing items Just-in-Time
only as needed, thereby preventing quality problems
at the source
(c) To save search time and eliminate motion waste with Visual
a search free and count free arrangement Management
(d) To visualize every step in a process, identify Value Stream

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non-value-added activities and enhancing adaptability

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The Head of the HR Department reported decrease in employee turnover

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last year, attributing the improvement to recent policy changes and

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of ESOPs in 2024. These initiatives have positively influenced employee

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information provided by the Heads of the Production and Marketing Departments
was corroborated by the data submitted by Mr. Karan, Head of the Management

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FINAL EXAMINATION: JANUARY 2026

Accounting Department. As per his report, during the year, the company incurred
the following quality-related expenditures:
` 10 lakhs on quality training and audits
` 18 lakhs on inspection of incoming materials and equipment testing
` 20 lakhs on preventive maintenance of equipment
` 117 lakhs on rework and production downtime
` 135 lakhs on warranty claims and addressing customer complaints
Mr. Dixit, an Independent Director with an expertise in strategic cost management
techniques, recommended the adoption of lean manufacturing practices to
enhance operational efficiency. He also suggested implementing corrective
measures to address quality concerns and improve customer satisfaction.
Following detailed discussions with departmental heads, the Board of Directors
has decided to invest in imported High- end CNC machines to enhance product
quality and strengthen competitiveness in the global market. Expected cost of
these CNC machines to be imported is £ 15 lakhs. To fund the investment of £ 15
lakhs, XYZ plans to raise £ 10 lakhs through debt. XYZ can borrow at a fixed rate
of 5.5% or at a floating rate of 60 basis points above SONIA which is 5% at present
(Sterling Overnight Index Average). Management of XYZ expects that pound
interest rate will fall and is expected to have flexible mechanism build into their
interest rates. JBS also wishes to raise loan of £ 10 lakhs. JBS has been offered a
floating rate of 115 basis points above SONIA as against the fixed rate, of 6.5%
due to lower credit rating in comparison to XYZ. Management of XYZ decides to
enter into 3 months forward contract and JBS entered into currency futures as a
part of foreign exchange exposure and risk management policy. The contract of
JBS will not be subject to daily basis loss/profit due to change in price.
On 01.04.2024, XYZ granted 250 shares (option) of ` 10 each to each of its 300
employees after necessary compliances of Companies Act, 2013 and SEBI
guidelines. JBS also granted 250 shares (option) of ` 10 each on the same date to
each of its 150 employees after necessary compliances of Companies Act, 2013
and SEBI guidelines. Fair Value of each option of XYZ was ` 120 on the grant date
and that of JBS was ` 70. The share options were granted on the condition that
the employee has completed three years of continuous service. At the-grant-date,
both the companies anticipated vesting of all the options.
XYZ also holds 45% equity stake in PQR Steels Limited, a company engaged in

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INTEGRATED BUSINESS SOLUTIONS

manufacturing of carbon steel bars and stainless steel, key raw materials used by

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XYZ and its subsidiary, 'JBS'. The remaining 55% of the equity stake of

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PQR Steels Limited is owned by three independent entities A Ltd, B Ltd and C Ltd

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with A Ltd owning 19% share, B Ltd and C Ltd each owning 18% respectively.
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On 01.07.2025, XYZ entered into a forward contract with B Ltd to acquire an

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additional 12% of the equity shares of PQR Steels Limited held by B Ltd, which is
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to be paid by issue of shares of XYZ. The forward contract is set to be settled after
two years. Under the terms of the agreement, XYZ is entitled to receive any
dividends declared on the 12% shares during the intervening period. Additionally,
B Ltd. is contractually obligated to exercise its voting rights associated with the
12% shares in accordance with the instructions of XYZ.
The CFO-of XYZ compiled the interim financial information for the quarter ended
31st December 2025, in accordance with the requirements of the listing
agreement, and submitted it to the statutory auditors for their review. SS & Co.,

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Chartered Accountants, while carrying out the review, held discussions with the

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CFO and other key personnel responsible for financial and accounting matters.
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He also performed analytical procedures .and other review measures as per the

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applicable standards. As part of his review, CA. Shivansh, also evaluated the

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company's assessment and treatment of obsolete and non-moving inventory

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items. He sought assurance that the valuation of inventory adequately reflects
necessary adjustments for such items.
Mr. Suresh, who has experience of over 40 years in steel companies, has been
proposed for appointment as a Whole Time Director in XYZ. Mr. Suresh currently
holds directorships in one dormant company, eight Public Limited companies, of
which seven are listed and one is unlisted and eleven Private Limited companies
which· are not holding or subsidiary companies of a public company. Among
these private companies, one is a partly owned subsidiary of JBS. The matter

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regarding his proposed appointment was placed before the Nomination and

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Remuneration Committee (NRC) for consideration. During the meeting, Mr.

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Gautam, a member of the NRC, raised a concern about the proposed

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appointment, pointing out that Mr. Suresh already holds directorships in twenty

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companies. He requested the Company Secretary of the company to provide a

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clarification on the proposed appointment.

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FINAL EXAMINATION: JANUARY 2026

Multiple Choice Questions:
[Provide the correct option to the following questions]
2.1 Identify the correct matching from the matrix presented by Mr. Rajiv.
(A) (a), (b) and (c)
(B) (a), (c) and (d)
(C) (a) and (c)
(D) (b) and (d)
2.2 Based on the given facts and the applicable guidance under relevant Ind AS,
which of the following statements accurately reflect the position of XYZ's
holding in PQR Steels Limited after entering into the forward contract with B
Ltd. on 01.07.2025?
(i) XYZ is deemed to have control over PQR Steels Limited from 01.07.2025,
as the forward contract gives it present access to the economic benefits
and power over the relevant activities through voting rights associated
with the 12% shares.
(ii) XYZ is deemed to have control over PQR Steels Limited as of 01.07.2025
and should consolidate PQR Steels Limited in its consolidated financial
statements. The proportion of profit or loss and other comprehensive
income allocated between XYZ and Non-controlling interest (NCI) of
PQR Steels Limited are 57% and 43% respectively.
(iii) The forward contract to acquire the 12% shares meets the definition of
a derivative financial instrument under Ind AS 109 and should be
measured at fair value through profit or loss until settlement.
(iv) The forward contract shall not be subject to the requirements of Ind
AS 109.
(A) (i), (ii)
(B) (ii), (iii)
(C) (i), (ii), (iii)
(D) (i), (ii), (iv)

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2.3. Which of the following statements are correct regarding the foreign exchange
transactions and risk management measures taken by XYZ and JBS?
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(i) XYZ should borrow at fixed rate and JBS should borrow at floating rate.

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(ii) Contracts

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Cost of Contract of XYZ is based on bid-ask spread and cost of JBS a
a entail brokerage.
(iv) Both types of contracts are subject to marking to market.
(A) (i) and (ii)
(B) (i) and (iii)
(C) (i), (ii) and (iv)
(D) (i), (iii) and (iv)

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2.4 In light of the provisions of the applicable laws governing XYZ, which of the

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following statement most appropriately addresses the question of

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Mr. Suresh's eligibility for appointment as a director of XYZ?

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(A) Mr. Suresh is eligible, though the rules for calculating the maximum

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number of directorships allow the inclusion of all private subsidiaries of
public companies and the exclusion of inactive companies and with these
considerations, his countable directorships remain well within the
prescribed limit.
(B) Mr. Suresh is eligible, as his directorships in listed companies remain
within the prescribed limit and he has not exceeded the overall cap on
directorships across all private and public companies combined.

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(C) Mr. Suresh is ineligible. Although privately-held subsidiaries are included

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and inactive companies are excluded from the overall count and has not

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exceeded the overall cap on directorships across all private and public

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companies, but his total number of directorships in all publicly-held

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listed companies exceeds the limit set by SEBI.

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(D) Mr. Suresh is ineligible as he has already exceeded the maximum
permissible number of directorships in companies whose shares are
publicly traded and also exceeds the specified limit for the total number
of directorships in all listed companies.
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FINAL EXAMINATION: JANUARY 2026

2.5 Which of the following statements correctly shows the procedures audit firm
has to perform in relation to interim financial information for the Quarter
ending 31st December, 2025?
(i) Obtaining an understanding of the entity and its environment and
related internal controls.
(ii) Corroborating the information obtained concerning significant
accounting matters relating to the interim financial information.
(iii) Obtaining written representation from management regarding the
completeness of interim financial statements and evaluating the
reasonableness of estimates made by the management.
(iv) Performing an in-depth assessment of internal controls to ensure that
they are effective for the period under review.
(A) (i) and (ii)
(B) (i) and (iii)
(C) (i), (ii) and (iii)
(D) (ii), (iii) and (iv) (5 x 2 = 10 Marks)
Descriptive Questions:
2.6 You have recently joined the Management Accounting Department and have
been assigned the task of preparing a report. The objective of the report is to
analyse the quality costs incurred by the organization and to recommend
appropriate measures to reduce quality-related issues effectively. Draft a
suitable report. (6 Marks)
2.7 On April 1, 2025, JB Steels Limited granted share options to its own
employees as well as to the employees of XYZ Metal Industries Limited. The
grant was made on the condition that the employees of XYZ Metal Industries
Limited would surrender their rights under XYZ's existing Employee Stock
Option Plan (ESOP). All employees of XYZ accepted this condition. You are
required to determine the appropriate accounting treatment as per the
relevant Ind AS in the books of XYZ Metal Industries Limited on:
1. April 1, 2025 (the date of surrender of rights under XYZ's ESOP scheme), and
2. March 31, 2026 (the end of the financial year).
Pass the necessary journal entries in the books of XYZ Metal Industries
Limited for the above dates. (4 Marks)

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2.8 In the context of a limited review engagement conducted under the

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requirements of the listing agreement for the quarter ending 31st December

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2025, CA. S, noted that the XYZ Metal Industries Ltd. has identified obsolete

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and non-moving inventory items, whether he can perform additional
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procedures, if yes, what additional procedures should CA. S perform to obtain
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limited assurance regarding the appropriate valuation of inventory, and how
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should this matter be addressed in his review report, if the valuation appears
to be materially misstated or if sufficient appropriate evidence is not obtained?
(4 Marks)

ANSWER TO CASE STUDY 2

2.1 Option (B): (a), (c) and (d)
2.2 Option (D): (i), (ii), (iv)

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2.3 Option (B): (i) and (iii)

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2.4 Option (C): Mr. Suresh is ineligible. Although privately held subsidiaries are

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included and inactive companies are excluded from the overall count and

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has not exceeded the overall cap on directorships across all private and

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public companies, but his total number of directorships in all publicly- held
listed companies exceeds the limit set by SEBI.
2.5 Option (B): (i) and (iii)
2.6 A deeper analysis of the company’s quality cost structure, when viewed
alongside the operational issues highlighted by the Production, Marketing,
and HR departments, reveals that the organisation is trapped in a cycle of
reactive problem-solving rather than proactive quality management.

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The extremely high share of non-conformance costs i.e., 84% of the total

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quality costs reflects inefficiencies in the production system. The buildup of
c. o
c. o outdated finished fittings, and discontinued stainless-steel components

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indicates weak design control, poor coordination between production and

las marketing, and ineffective inventory and product lifecycle management.
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Machine breakdowns and employee turnover have further aggravated the
situation, leading to frequent rework, excessive downtime, and poor
adherence to production targets. These operational weaknesses are directly

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FINAL EXAMINATION: JANUARY 2026

visible in the data, where rework and downtime alone account for 39% of
total quality costs, while warranty claims and customer-related failures
constitute another 45%. Marketing’s report of delayed deliveries, quality
complaints, and rising competition reinforces that the organisation is losing
its market position because its internal systems are not robust enough to
support consistent product quality.
The low proportion of conformance costs, only 16%, suggests that
preventive and appraisal activities are not receiving adequate attention.
Despite recent HR improvements and the introduction of ESOPs, the
underlying manufacturing systems remain outdated, with insufficient
investment in preventive maintenance, supplier quality assurance,
employee training, and design upgrades. The heavy dependence on
outdated equipment, outdated product designs, and insufficient inspection
mechanisms is creating systematic quality issues, resulting in rising returns,
dissatisfied customers, and increasing market pressure from competitors
offering superior quality at lower prices. The data strongly signals that
unless the company shifts its focus from curing defects to preventing them,
the profitability and reputation of the business will continue to deteriorate.

To resolve these deep-rooted inefficiencies, the company should prioritise
the adoption of Total Productive Maintenance (TPM) and Total Quality
Management (TQM) as strategic interventions rather than mere operational
tools. TPM will help stabilise the production environment by reducing
breakdowns, improving equipment availability, and strengthening the
reliability of manufacturing processes. By embedding autonomous
maintenance practices and structured preventive maintenance schedules, the
company can significantly reduce rework, scrap, and downtime, currently
the largest contributors to internal failure costs. In parallel, the adoption of
TQM is essential to address systemic weaknesses in design control, supplier
management, employee involvement, and customer-focused quality. TQM
will enable the organisation to establish a culture where processes are
designed to avoid defects rather than detect them, ensuring that outdated
fittings, obsolete designs, and poor-quality components do not enter the
production process in the first place.

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Together, TPM and TQM create a balanced approach that strengthens both

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process efficiency and product quality. This integrated strategy will gradually

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shift the company’s cost profile toward prevention and appraisal while

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compressing the disproportionately high failure costs. Over time, this will

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reduce customer complaints, improve delivery performance, enhance

l abrand perception, and restore competitive advantage. Ultimately, the
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company must move from a reactive posture to a proactive, system-driven
quality culture if it aims to improve operational efficiency, reduce costs, and
sustain long-term growth.
Alternative Presentation
Statement Showing “Total Quality Cost”

Particulars of Costs ` % of Total Costs
of Quality
Prevention Costs
o m 10,00,000
Quality training and audits
c
. 20,00,000 3.33%

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Preventive maintenance of equipment 6.67%
Total (A)
l a 30,00,000 10.00%
Appraisal Costs
Inspection of incomingagmaterials and 18,00,000 6.00%
equipment testing
Total (B) 18,00,000 6.00%
Cost of Conformance (A) + (B) 48,00,000 16.00%
Internal Failure Costs
Rework and production downtime 1,17,00,000 39.00%

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Total (C) 1,17,00,000 39.00%

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External Failure Costs
45.00%. co
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Warranty claims and addressing customer 1,35,00,000

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complaints
s
la45.00%
las Total (D) 1,35,00,000
ag 84.00%
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Cost of Non-Conformance (C) + (D) 2,52,00,000
Total Quality Costs (A) + (B) + (C) + (D) 3,00,00,000 100.00%

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FINAL EXAMINATION: JANUARY 2026

The reporting of quality costs highlights the cost of quality activities at XYZ.
The total quality costs statement clearly displays the relationship between
conformance costs (prevention and appraisal costs) and non-conformance
costs (internal failure and external failure costs) and the drivers of a reduction
in the overall spending on quality. Statement indicates that only 10.00% of the
total quality cost is the cost of preventing quality problems while 6.00% is the
cost of appraisal activities. Thus, prevention and appraisal costs make up only
16.00% of total quality costs. In contrast, 84.00% of quality control costs are
incurred for internal and external failure costs.
Recommendation
Following two measures can be used to reduce non- conformance cost:
Total Productive Maintenance (TPM) is a system of maintaining and
improving the integrity of production and quality system through keeping all
equipment in top working condition so as to avoid breakdowns and delays in
manufacturing processes. It involves identifying machines in every division
(including planning, manufacturing, maintenance) and then planning &
executing a maintenance programme covering their entire useful life.
In this scenario, TPM will help in reducing internal failure cost (i.e. rework and
production downtime), which constitutes 39.00% of total quality cost, by
keeping all equipment in good working conditions so that there is no
downtime or machine breakdown and ensuring that all equipment run
smoothly. If machines work properly, the chances of rework will reduce,
ultimately will also reduce chances of warranty claims and customer complaints
(comprising 45.00% of total quality cost which is the major part of total quality
cost).
Total Quality Management (TQM) aims at improving the quality of
organisational output, including goods and services, through continual
improvement of internal practices. Its objective is to eradicate waste and
increase efficiency without compromising with the quality. It requires that
company maintain this quality standards in all aspects of business by ensuring
that things are done right the first time so that defects and waste are
eliminated from operation.
It appears that XYZ is not a TQM company at present due to huge disparity
between conformance costs and non-conformance costs. In order to make XYZ
to be successful, all staff at XYZ must be engaged in the improvement process

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and share in the continuous improvement ethos. In order to establish a

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reputation as a high- quality product manufacturer XYZ must ensure staff are

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focused on quality and attitudes changed toward the importance of

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conformance activities, for instance, XYZ can conduct third party inspection of
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raw material at supplier’s workplace leading to maintenances of quality

l a s
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standards.

l thereforewhile applying above two measures, in the XYZ, consideration must a g
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a and the costs
Overall,
be given to the optimum balance between the costs of conformance
of non-conformance.
2.7 Expense recognised till surrender date i.e. 1st April 2025
Options granted on 1st April, 2024
= 250 options × 300 employees
= 75,000 options.

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Total grant date fair value

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= 75,000 × ₹ 120
= ₹ 90,00,000

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Annual employee compensation expense
= ₹ 90,00,000 ÷ 3 years
= ₹ 30,00,000 per year
For the year ended 31st March 2025, XYZ would have already recognised,
employee compensation expense of ₹ 30,00,000 by correspondingly
crediting to ESOP Outstanding.
Accounting implication of surrender of rights on 1st April 2025 by the

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employees of XYZ in the existing ESOP issued by XYZ

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On 1st April, 2025, the ESOPs issued by XYZ is neither modified nor replaced.

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It is the employees of XYZ who surrender the rights in existing ESOP issued

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by XYZ and accepted the ESOPs of JBS. Therefore, as per Ind AS 102, this

las ag
would be treated as a cancellation of the ESOP by XYZ because of no takers

ag
of the same. Hence, the balance standing in ESOP Outstanding is
transferred to Retained Earnings.

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FINAL EXAMINATION: JANUARY 2026

Journal Entry on 1st April 2025 i.e. date of cancellation
ESOP reserve A/c Dr. 30,00,000
To Retained Earnings 30,00,000
Accounting on 31st March 2026
The ESOP has already been fully cancelled and settled on 1st April 2025.
However, XYZ is receiving the services of its employees against the ESOP
received from the subsidiary JBS (subsidiary). So XYZ would be booking
expense against the employee benefit expenses. But since there is no
payment against it, it will be recognised as Retained Earning considering
the distribution from subsidiary JBS as follows:
Employee Benefit Expenses Dr. ?
To Equity/Retained Earnings / Dividend Income from Subsidiary ?

In the absence of fair value of the options granted as on 1st April,
2025, no amount has been given in the amount column.

2.8 Additional procedures are required under this SRE if the practitioner CA. S
becomes aware of a matter that causes the practitioner to believe the
financial statements may be materially misstated. The practitioner’s
response in undertaking additional procedures with respect to an item the
practitioner has cause to believe may be materially misstated in the
financial statements will vary, depending on the circumstances, and is a
matter for the practitioner’s professional judgment.
Additional procedures focus on obtaining sufficient appropriate evidence
to enable the practitioner to form a conclusion on matters that the
practitioner believes may cause the financial statements to be materially
misstated. The procedures may be:
 Additional inquiry or analytical procedures, for example, being
performed in greater detail or being focused on the affected items (i.e.
amounts or disclosures concerning the affected accounts or
transactions as reflected in the financial statements); or
 Other types of procedures, for example, substantive test of details or
external confirmations.

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In the given situation, during the course of performing analytical

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procedures for review, CA. S noted that XYZ Metal Industries Ltd. has

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identified obsolete and non-moving inventory item. This causes the

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practitioner CA. S to believe that the inventory balance in the financial
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If ethe practitioner determines that the financial statements are
statements may be materially misstated.

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a (a) A qualified conclusion, when the practitioner concludes that the effects
materially misstated, the practitioner shall express:

of the matter(s) giving rise to the modification are material, but not
pervasive to the financial statements; or
(b) An adverse conclusion, when the effects of the matter(s) giving rise to
the modification are both material and pervasive to the financial
statements.
Inability to obtain sufficient and appropriate evidence:

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If the practitioner is unable to form a conclusion on the financial statements

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due to the inability to obtain sufficient appropriate and evidence, the

s
practitioner shall:

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(a) Express a qualified conclusion if the practitioner concludes that the

a
possible effects on the financial statements of undetected
misstatements, if any, could be material but not pervasive or
(b) Disclaim a conclusion if the practitioner concludes that the possible
effects on the financial statements of undetected misstatements, if any,
could be both material and pervasive.

CASE STUDY - 3

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Non-Governmental Organisations (NGOs) are non-profit entities that function

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independently of government control, though they may receive substantial

c. o e m
government funding. They play a vital role in tackling social and environmental

em
challenges by advocating for a policy change, raising awareness, delivering

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essential services, and promoting community development. Acting as a bridge

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between the government and the public, NGOs help to identify critical issues and

a drive effective, sustainable solutions. Our country has a righ tradition of civil
society movements, with organization actively engaged in diverse areas such as
health, education, community development, environmental protection, sanitation,

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FINAL EXAMINATION: JANUARY 2026

access to clean drinking water, and poverty alleviation. The country is estimated
to have around 32 lakh NGOs, which operate in the form of trusts, societies, and
Section 8 companies. Many States and Central Government agencies have
regulatory over these non-for-profit entities. Non-Governmental Organisations
(NGOs) in India operate independently of the State and are governed by a board
of trustees who serve in a fiduciary capacity. These organizations exist to generate
benefits for society rather than for personal gain, as they are prohibited from
distributing any monetary surplus among their members.
NGOs raise funds through multiple sources, including online platforms,
fundraising events, government grants, corporate partnerships, and international
agencies. To maintain public trust and credibility, they uphold strong
accountability mechanisms such as financial transparency, periodic reporting, and
impact assessment. For legal operation and eligibility for tax exemptions, NGOs in
India must be registered under the Societies Registration Act, 1860 or Public Trust
Act as applicable at the state level and obtain registration under Section 12AB of
the Income Tax Act, 1961. Furthermore, organizations seeking to receive foreign
contributions, whether from international agencies or Non-Resident Indians, are
required to secure registration under the Foreign Contribution (Regulation)
Act, 2010.
EarthCare Health Trust (EHT) a Non-Governmental Organisation (NGO) is
committed for providing essential medical services and promoting environmental
sustainability across India. Its primary objective is to ensure that underprivileged
communities have access to basic healthcare facilities, such as free eye camps and
medical check-ups, while fostering a clean and green living environment for all.
The organisation mobilises resources primarily through local donors, state
government grants, and foreign contributions.
During the financial year 2024-25, EarthCare Health Trust spearheaded a variety
of initiatives focused on healthcare and environmental sustainability,
demonstrating its commitment to the well-being of communities and the
preservation of the environment. In the city and surrounding villages, EHT has
conducted 50 cleanliness campaigns, supported by the distribution of segregated
dustbins. A total of 2,500 coloured dustbins with twin colours of green and blue,
costing 400 (MRP: ₹ 700) each have been distributed free of cost to encourage
residents to separate domestic waste effectively. These initiatives have made waste
recycling easier while promoting active community participation in maintaining
hygiene and sanitation. Tree plantation drives were conducted in three cities with

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planting of 12,000 trees at a well-managed cost. Trust spent ` 5 lakh on the

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purchase of saplings. The Trust also conducted organized awareness drives,

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spending 3 lakh on various programs aimed at educating the local community on

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waste management techniques and promoting a green environment. During the
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year 2024-25, the Trust purchased and installed solar· panels and lighting systems
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in the hospital and other buildings at a 25% reduced installation cost. Local

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government survey at the end of the year, reported a noticeable reduction in litter
and an increase in vegetation cover in the areas where the campaigns were
implemented. Trust organized 60 free medical check-up camps and eye care
camps, facilitated by a local team of doctors who were provided honorariums for
their services. Through these initiatives, 2,560 eye surgery were successfully
conducted in the Trust-owned hospital, providing critical care to underserved
populations. The hospital is equipped with state-of-the-art machines and medical
equipment. Trust implemented a cost-effective healthcare delivery model that
helped keep medical service costs low. Additionally, it negotiated discounted rates

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with suppliers of medical equipment and materials, further reducing operating
expenses. The introduction of a digital medical records system also minimized

em
paperwork and administrative costs.
During the financial year 2024-25, s
g laspecifically for performing eye surgeries. The
it imported latest medical equipment (first of

a doctors, who consistently dedicate their time to the
its kind in India) worth ` 75 lakh
Trust provides each of the five
Trust-owned hospital and actively contribute to enhancing healthcare services,
with an annual honorarium of ` 4.50 lakh each, in addition to reimbursement for
eye surgery charges. It implements sliding-scale fees to ensure healthcare remains
accessible to patients from all economic backgrounds and conducts outreach
programs in underserved areas to extend its services to communities with limited
access to medical care. Hospital charges a nominal fee from the patients for

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services to cover basic operational costs but continue offering free care to those

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who cannot pay at all. It served more than 22,000 patients during the year. It also

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organized a range of preventive healthcare programs aimed at reducing the

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incidence of diseases. The hospital has outsourced its security and cleaning

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services to external agencies in March 2025, paying ` 7.50 lakh p.a. to ABC Security

gla
Services Pvt. Ltd. and 6 lakh p.a. to Purecare Services Co., a partnership firm

a respectively.
EarthCare Health Trust has been registered under the Income-tax Act, 1961 since
01.04.2012 and registered under section 12AB w.e.f. 1st April, 2021 and under the
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FINAL EXAMINATION: JANUARY 2026

Foreign Contribution (Regulation) Act, 2010 with effect from 1st August 2021. EHT
is not registered under CGST Act, 2017. The annual return in form FC-4, certified
by a CA. Amit, who is not a statutory Auditor, for the financial year ending 31st
March 2024 was filed on 15th January 2025. Trust owns three buildings, of which
one was constructed in December 2023, comprising two community halls having
capacity of 120 persons and three community halls, each with a capacity of 50
persons. Trust intends to use the newly constructed buildings for hosting yoga and
meditation camps, and other related activities. For this daily rent of 5,000 will be
charged. Rental income from organising Yoga and meditation camps, renting of
community halls to external parties is to be used for the main objectives of the
trust. On 30th April 2025, the office bearers of the Trust convened a meeting to
deliberate on the implications of the recent amendments to the FCRA Act and
Rules and the Income-tax Act, 1961, and to evaluate the applicability of the
provisions of CGST Act 2017 to the Trust. The meeting was attended by CA. Puneet,
who has been appointed as an auditor of the trust for the financial year 2024-25.
They sought information from CA. Puneet regarding the recent amendments to
the FCRA regulations, the Income Tax provisions related to renewal of registration,
and the changes in GST provisions applicable to trusts. He was informed of the
committee's decision to raise funds by renting out conference and community halls
and was asked whether these rental services are exempt for the trust under GST or
if GST registration is necessary. The Chairman of the trust asked CA. Puneet to
suggest a method for evaluating the effectiveness of the trust's various initiatives
undertaken during the year. CA. Puneet recommended that a Value for Money
(VFM) framework would be the most suitable approach to assess the trust's
performance. One of the office bearers, Mr. Raman enquired whether, EHT can
donate any funds to another charitable trust registered under section 12AB and
whether it will be treated as application of income of the trust. He further informed
that during the financial year 2024-25, the Trust received foreign contributions
amounting to ` 75 lakh from foreign agencies and Non-Resident Indians,
designated for various healthcare and environmental initiatives undertaken by the
Trust. The said funds were received in 'FCRA Account' maintained with authorised
branch of State Bank of India. Out of the total foreign contributions received, ` 55
lakh was utilized for healthcare and environmental initiatives undertaken during
the year and in addition, administrative expenses incurred amounted to ` 12 lakh.
Planned expenditure of ` 3 lakh on fire safety system upgrade and administrative
office maintenance could not be spent due to unavailability of vendor in

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March 2025 and will be incurred in May 2025. EHT accounts department however

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did not maintain separate records for either the receipt or the utilisation of the

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same. Trust is also maintaining two accounts with other branches of State Bank of

.c
India for the purpose of utilizing the foreign contribution which has been received
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from 'FCRA Account' mentioned above. Trust is maintaining separate bank
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l accountant of the trust has provided the following summarized financial a
accounts for receiving donations and contributions from persons in India.
g
agThe
information for the financial year 2024-25:

Income
` in lakhs
State Govt. Grant received for eye surgeries during the year 40
2024-25
Voluntary contribution received not forming part of the corpus 190
(including foreign contribution)

o m
c
Voluntary contribution received not forming part of the corpus 15

m .
(names, addresses and PAN of donors not available)

e
Corpus donations· received (names,saddresses and PAN of donors
Net income from property held under trust 8

g l a 10
are available)
a addresses and PAN of donors
Corpus donations received (names, 2
are not available)
Amount applied for the objectives of the trust 213

After calculating the surplus, trustees decided to invest 15% of the income in
bonds u/s 11(5) of the Income-tax Act, 1961. For this Bonds of three approved
financial corporations were identified and discussed. The following further

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information is available in respect of three bonds:

m
Maturity Coupon Rate Yield to Maturity
c. o
Currently

c. o m
ePremium
(Years) (%) (%) Trading at

em
Bond 1 2 8 8.25
s
la Discount
las Bond 2 5 7 7.85
ag
ag Bond 3 6 6 7.00

An income tax refund of ` 1 lakh was received on 20th April 2025 in the Trust's
Discount

non-FCRA bank account. This amount includes ` 0.20 lakh pertaining to refund

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FINAL EXAMINATION: JANUARY 2026

of tax deducted at source (TDS) on interest earned from FCRA-funded fixed
deposits. Amount applied for objectives includes amount spent on Healthcare and
Environmental Sustainability initiatives undertaken during the year and
administrative expenses. At the end of the meeting, CA. Puneet provided a
comprehensive overview of FCRA compliance obligations, highlighting the
consequences of non-compliance and brief overview of the latest amendments in
the law. He also offered detailed clarification regarding the applicability of GST
provisions to the trust and procedure relating to renewal of registration under
section 12AB of the Income Tax Act, 1961.
One of the trustees who regularly travels abroad put a proposal before Board of
trustees of EHT to make overseas direct investment in foreign entity. Board has
approached different consultants on this matter and could not get clear view on
the following:
(i) Whether EHT can make investment in a foreign entity

(ii) If yes, which will be the appropriate authority for getting the requisite
approval, if necessary?

(iii) If Trust deed does not have any clause for such investments, whether any
amendment to trust deed is required?
(iv) Whether foreign entity needs to be engaged in same sector as of EHT?
Multiple Choice Questions:
[Provide the correct option to the following questions]
3.1 Identify the Incorrect statements considering the compliance requirements
under the FCRA, 2010:
(i) The annual return for F.Y. 2023-24 has been filed before the due date.
(ii) Foreign contributions amounting to ` 75 lakh from foreign agencies and
Non-Resident Indians has been received in the permitted bank account.
(iii) Books of Accounts are properly maintained as per the provisions of
FCRA.
(iv) Annual return can be certified by CA. Amit.
Options:
(A) (i) and (iii)

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(B) (i), (ii) and (iv)

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(C) (ii), (iii) and (iv)

.c om
(D) (i), (iii) and (iv)
e m .
e m
3.2 Identify the correct statements from the following by analyzing the
l a s
a s
l (i) Bond 1 has less interest rate risk considering maturity of given three a
information in respect of bonds identified for investment u/s 11(5).
g
ag bonds
(ii) Bond 3 has lower interest rate risk considering YTM of given three bonds
(iii) Price of Bond 2 will increase over time
(iv) Price of Bond 1 will decrease over time
(A) (i), (ii) and (iv)

m
(B) (i), (iii) and (iv
(C) (ii), (iii) and (iv)
. c o
m
ethe questions of the trustees on the matter
s
(D) (iii) and (iv)

g a
l Correct statements (assuming that EHT does
3.3 One of the consultants answered

a from Ministry of Home Affairs or from relevant
of ODI as follows. Identify the
not require special license
local authority).
(i) ODI is permitted.
(ii) Permission from Central Government is required.
(iii) EHT needs to incorporate clause in the trust deed permitting the ODI.
(iv) Foreign entity need to be in charitable sector and it is not necessary to

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be in same sector.

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c. o m
(A) (i) and (ii)

s e
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(B) (i) and (iii)

las (C) (i), (ii) and (iii)
ag
ag (D) (i), (iii) and (iv)

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FINAL EXAMINATION: JANUARY 2026

3.4 Which of the following statements are incorrect under the provisions of CGST
Act, 2017 with respect to EarthCare Health Trust?
(i) A composite participation fee charged by the trust for residential yoga or
meditation camp, focusing on the promotion of wellness and spirituality
and including boarding and lodging, is exempt from GST.
(ii) Rental income from community halls will not attract any GST.
(iii) EHT is required to register under GST and pay GST @ 18% under RCM
on account of payment made for services provided by ABC Security
Services P. Ltd.
(iv) EHT is required to register under GST and pay GST @ 18% under RCM on
account of payment made for services provided by Purecare Services Co.
Options:
(A) (i), (ii) and (iii)
(B) (i), (ii) and (iv)
(C) (iii) and (iv)
(D) (ii), (iii) and (iv)
3.5 In your opinion, which of the following statements are correct as per the
provisions of Income-tax Act, 1961?
(i) Application for renewal of registration must be filed by EarthCare
Health Trust before 01.10.2025
(ii) Application must be filed electronically in form 10AB along with the self-
certified copies of required documents and form should be duly certified
by the Chartered Accountant.
(iii) As grant received from State Government for eye surgeries was in respect
of specific purpose, it will form part of corpus and will not be included in
the total income.
(A) Only (i)
(B) (i) and (ii)
(C) (i) and (iii)
(D) Only (ii) (5 x 2 = 10 Marks)

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Descriptive Questions:

m
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3.6 Critically evaluate how the EHT's management could measure the

c om m .
performance of its healthcare and environmental initiatives over the year

.
using the four pillars of the Value for Money framework.

m
(5 Marks)
s e
s e 2025-26?
3.7 Compute total taxable income and tax liability of EHT for the assessment
g l a
g l ayear (6 Marks)
a
a first of its kind medical equipment for carrying out eye surgeries. (4 Marks)
3.8 Identify and explain any three risks to which EHT gets exposed by importing

ANSWER TO CASE STUDY 3

3.1 Option (A): (i) and (iii)
3.2 Option (B): (i), (iii) and (iv)

m
3.3 Option (B): (i) and (iii)
3.4 Option (C): (iii) and (iv)
. co
3.5 Option (A): Only (i)
s em
g l a
3.6 EarthCare Health Trust’s (EHT) performance during the financial year 2024–

a
25 can be critically assessed using the five pillars of the Value for Money
framework: Economy, Efficiency, Effectiveness, Equity and Ethics. Together,
these dimensions help determine whether the Trust has utilised its
resources prudently, translated them into meaningful outputs, achieved its
intended outcomes, delivered services fairly, and upheld the highest
standards of ethical conduct.
From the perspective of economy, EHT demonstrates strong evidence of
cost-conscious resource utilisation across both its healthcare and

m
c. o
environmental activities. The procurement of 2,500 coloured dustbins at

m
c. o m
₹400 per unit against an MRP of ₹700 signifies clear cost savings achieved
through negotiation. The plantation of 12,000 saplings for ₹5 lakh points
s e
s em la
to efficient sourcing at a low per-unit cost. The Trust also installed solar

la ag
panels and lighting systems at a 25% reduced installation cost, reflecting

ag sound financial prudence. Cost management is further visible in the
honorariums paid to doctors, which are modest relative to specialist
medical services, and in the discounted rates negotiated for medical

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FINAL EXAMINATION: JANUARY 2026

equipment and surgical materials. However, the import of the specialised
medical equipment worth ₹75 lakh warrants closer scrutiny, as the absence
of information on tendering, vendor comparison, or life-cycle cost analysis
leaves questions about the completeness of the procurement evaluation.
Similarly, EHT does not appear to benchmark procurement costs against
comparable NGOs or public institutions, which could further validate the
strength of its economic choices.
In examining efficiency, the Trust appears to translate its inputs into a
high volume of outputs. The completion of 2,560 eye surgeries, serving
more than 22,000 patients, and conducting 60 medical camps reflect strong
operational throughput. The introduction of digital medical records has
reduced administrative work and enabled faster processing of patients.
Outsourcing cleaning and security services has likely freed internal staff for
core healthcare functions, improving operational focus. Environmental
initiatives show similar productivity, with 50 cleanliness campaigns and a
large-scale distribution of dustbins. Yet, certain gaps remain. The Trust
does not provide data on average patient turnaround time, machine/
equipment utilisation rates, equipment downtime, or the survival rate of
planted trees; all of which are critical for evaluating true operational
efficiency.
Regarding effectiveness, the Trust appears to have achieved significant
outcomes in both healthcare and environmental domains. The 2,560
successful eye surgeries directly contribute to restoring vision among
underserved populations and improving quality of life. The reported
reduction in litter and increase in vegetation cover, as confirmed by a
government survey, represent tangible environmental improvements. The
distribution of dustbins and cleanliness drives has strengthened community
participation in waste management, while preventive healthcare initiatives
have likely contributed to reduced disease incidence. However,
effectiveness cannot be fully established without more data. The Trust does
not share post-surgery follow-up results, complication rates, changes in
disease burden, or evidence of sustained behavioural change from
awareness programmes. Similarly, the long-term effectiveness of tree
plantation efforts cannot be gauged without monitoring survival and
growth over time.

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In terms of equity, EHT’s model is inherently inclusive, given its sliding-

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scale fees and commitment to providing free healthcare to patients who

om .
cannot afford to pay. The Trust’s medical camps and environmental

.c
initiatives were carried out, ensuring that disadvantaged communities
e m
e m
benefit directly from its services. Free distribution of dustbins further
l a s
l a s
supports equitable access to sanitation infrastructure. Nonetheless, the
ag
ag
absence of demographic data on beneficiaries such as gender, age, income
level, disability status, or geographic segmentation; prevents a complete
assessment of whether services were truly equitable across all vulnerable
groups. Without structured beneficiary profiling, it is difficult to
determine the extent to which the poorest households, the elderly, persons
with disabilities, or remote communities were covered.
The ethical dimension forms a crucial fifth pillar, especially given that
EHT operates with donor funds, foreign contributions and government

m
grants. Several initiatives reflect an ethical foundation, including the

co
provision of free or subsidised services, environmentally responsible
.
em
programmes, and efforts to enhance healthcare affordability. However,

s
there are areas where ethical safeguards need strengthening. The absence

g l a
of a documented procurement policy, particularly in relation to the high-

a
value imported equipment, raises concerns over transparency and potential
conflict of interest risks. There is no information on data privacy protocols
for the newly introduced digital medical records, leaving patient
confidentiality exposed. Furthermore, the Trust does not mention, an
internal code of ethics, or community grievance channels; key elements for
ensuring accountability and fairness. Ethical reporting to donors, including
utilisation certificates or impact disclosures, is also not described, creating
potential gaps in stakeholder assurance.

m
c. o
Overall, EarthCare Health Trust appears to perform strongly on Economy,

m
c. o
demonstrates commendable Efficiency and generates meaningful
outcomes reflecting Effectiveness. However, its Equity and Ethics
e m
em
dimensions require more formal systems, structured metrics and
la s
las transparent reporting to fully meet the expectations of a modern,
ag
g
accountable NGO. By institutionalising clear procurement rules, ethical
a guidelines, beneficiary profiling, outcome measurement and data privacy
safeguards, the Trust can further enhance its Value for Money profile and

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FINAL EXAMINATION: JANUARY 2026

strengthen stakeholder confidence in both its healthcare and
environmental missions.
Note: Any Four Points are sufficient.
3.7 Computation of total taxable income and tax liability of EHT for the
A.Y. 2025-26
Amount
(in lakhs)
State Government Grant received for eye surgeries [See Note 3 40
below]
Voluntary contribution received 190
Net income from property held under trust 8
Corpus donations received where details are maintained -
[Assuming invested in the modes specified u/s 11(5)]
Note – If it is assumed that corpus donation is not invested in the
mode specified u/s 11(5), then the same would not be exempted.
238
Add: Anonymous donation [` 15 lakhs + ` 2 lakhs] [to the extent 10.85
not chargeable to tax@30% under section 115BBC(1)(i)] [Refer
Notes 1 & 2 below]
248.85
Less: 15% of income eligible for being set apart without any 37.3275
condition [Refer Note 2 below]
211.5225
Less: Amounts applied for the objective of the trust 213
Total Income of the trust (before including anonymous donation) -
Add: Anonymous donation taxable @30% under section 6.15
115BBC(1)(i) [See Note 2 below]
Total income of the trust (including anonymous donation 6.15
taxable@30%)

Tax on anonymous donation @30% 1.845
Tax on balance income at slab rate -
1.845
Add: HEC @4% 0.0738
Tax liability 1.9188

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Notes:

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(1) As per section 115BBC(1)(i), the anonymous donations in excess of

m .
c. o ` 10.85 lakh, being 5% of the total donations received i.e., 5% m
the higher of the following would be subject to tax@30%;

m of ` 217 lakhs [Voluntary contributions of ` 190 lakhs (+) se
a
-

se g l
l a a
ag
anonymous contributions of ` 17 lakhs (+) Corpus donation of
` 10 lakhs]; or
- ` 1 lakh
Therefore, anonymous donations of ` 6.15 lakhs (` 17 lakhs – ` 10.85
lakhs) would be subject to tax@30% under section 115BBC(1)(i).
Such anonymous donations which are subject to tax@30 % are not
eligible for the benefit of exclusion from total income under sections
11 and 12.

m
co
(2) As per the plain reading of section 13(7), it appears that the entire

.
anonymous donations may not be eligible for benefit of exclusion

em
from total income under sections 11 and 12. If this view is taken,

l a s
then ` 10.85 lakhs should not be added to ` 238 lakhs for 15%

a g
unconditional exemption. Accordingly, ` 35.7 lakhs, being 15% of
` 238 lakhs would be the income eligible for accumulation without
any condition. Computation of total income and tax liability would,
accordingly, change.
(3) Grants of ` 40 lakhs received from State Govt. are not included in
the total donations, in the above solution, while computing the limit
of 5% of total donations u/s 115BBC(1). This view is taken since Govt.
grants are generally given subject to stipulated conditions. However,

m
in Income-tax Form ITR-7, Government grants are included in the

c. o
total donations for the purpose of computing limit of 5% of total

m
c. o m
donations u/s 115BBC(1). Hence, the solution can also be worked
out by including government grants in total donations for
s e
s em la
computing the limit of 5% of total donations.

la a g
g
3.8 Following risks can be considered:

a (i) Operational Risk – As equipment is first of its kind, training issues, non-
availability of personnel to handle the equipment.

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FINAL EXAMINATION: JANUARY 2026

(ii) Currency Risk – Equipment is imported, so currency risk exists.
(iii) Compliance Risk – Compliance with Forex guidelines.
Alternative
Importing a first-of-its-kind medical equipment exposes EarthCare Health
Trust (EHT) to several technological, operational, regulatory and capability-
related risks that may affect its healthcare delivery model and overall Value
for Money (VFM) performance. Since this is the first such machine in India,
the decision cannot be based solely on cost or efficiency; it must also
incorporate non-financial considerations such as equipment reliability,
service quality, patient safety, ethical responsibilities, organisational
capacity, regulatory compliance, and long-term sustainability. These factors
are critical because any shortcomings in technical support, staff readiness
or regulatory approvals can directly disrupt eye-care services and diminish
the expected benefits of the imported technology.
The first major risk relates to technological uncertainty and dependence
on specialised support. Since the equipment is new to India and
potentially unfamiliar to local technicians, EHT may face challenges in
obtaining timely maintenance, calibration and technical troubleshooting.
Any delay in repair or lack of local service capability can result in prolonged
equipment downtime. This directly affects the continuity of eye surgeries,
reduces patient throughput and undermines the Trust’s operational
efficiency. Moreover, the absence of comparable domestic expertise may
force EHT to rely on costly overseas support, increasing operating costs and
creating long-term financial commitments beyond the initial purchase
price. This weakens Economy due to higher maintenance expenditure,
decreases Efficiency because downtime limits equipment utilisation, and
reduces Effectiveness as fewer surgeries get completed and patients
experience delays in receiving care.
A second significant risk arises from skill and capability gaps within the
organisation. Doctors, nurses and technicians at EHT may not have prior
experience handling such advanced equipment, increasing the likelihood of
improper use, performance errors or even safety incidents. Without
structured training, certification and supervised usage protocols, the
equipment may not be utilised to its full capacity, resulting in under-
performance or suboptimal surgical outcomes. This not only affects the

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INTEGRATED BUSINESS SOLUTIONS

effectiveness of eye-care services but also exposes the Trust to reputational

m
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risk if patient outcomes deteriorate. The absence of readily available training

om .
partners in India further delays capability building, which may reduce the

.c
Return on Investment from the equipment during the initial years.
e m
e m l a s
s
A third important risk relates to regulatory, compliance and supply

l a
chain constraints that arise when importing highly specialised medical
ag
ag
technology. Being the first of its kind in the country, the equipment may
require additional approvals, import clearances, adherence to medical
device rules, and periodic compliance filings. Any deviation or delay in
obtaining these approvals can expose EHT to legal consequences, penalties
or operational restrictions. Furthermore, importing such equipment
creates long-term dependence on foreign suppliers for consumables, spare
parts and software updates. Any disruption in global supply chains due to
geopolitical tensions, currency fluctuations or import policy changes, can
interrupt access to critical components, affecting the availability and

m
co
reliability of surgical services. These supply-related uncertainties increase

.
both financial risk and service disruption risk. This adversely affects

em
Economy because imported consumables and compliance costs are higher,

l a s
weakens Efficiency as delays lead to idle equipment capacity and

a g
postponed surgeries, and compromises Effectiveness since service
disruptions reduce the number of successful procedures and overall
healthcare outcomes.
Overall, while the import of the new equipment enhances the Trust’s
capability to conduct advanced eye surgeries, it simultaneously exposes
EHT to technological, operational and regulatory risks that require
proactive mitigation. Establishing service contracts with the supplier,
investing in comprehensive staff training, and securing compliance
clearances and backup supply arrangements are essential steps to ensure
m
c. o
that the equipment adds sustainable value to EHT’s healthcare mission.

m
c. o CASE STUDY - 4
s em
s em glathe inCompanies
la Act, 2013, has its Registered Office in Mumbai, India. a
Quick Bites Limited (QBL), public company incorporated under

g
Founded 2014 by
a Ms. Raspreet Kaur and Mrs. Rubeena Rani, the company operates a rapidly
expanding international Quick Service Restaurant (QSR) and casual dining chain
under the renowned brand name NIWALA. QBL is currently opting for 5% scheme

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FINAL EXAMINATION: JANUARY 2026

for restaurant services under GST provisions.
QBL has adopted a strategy centered on product differentiation and cost
leadership, aiming to deliver authentic Indian cuisine tailored to global
stanadards while maintaining superior efficiency. This dual approach is essential
for gaining a competitive advantage in the highly saturated global food and
hospitality industry.
As of 31st March 2025, QBL is a significant player in the Indian market, though
its shares are currently unlisted.
Extract of Audited Financial Information (as on 31.03.2025 - FY 2024-25):

Particulars (` in Lakhs)
Paid-up Equity Share Capital 12,000
Non-Current Borrowings (Term Loan - Balance) 12,500
Total Turnover (FY 2024-25) 48,000
Average Turnover (Immediate 3 preceding FYs) 35,000
Net Profits (before Managerial Remuneration and Tax) 3,800

The Board of Directors comprises seven members: Ms. Raspreet Kaur (Managing
Director - MD), Mrs. Rubeena Rani (Whole-Time Director - WTD), Mr. Jaspal Julka
(WTD), Mrs. Susheela Dhakrey (Woman Director), and three Independent
Directors (Mr. Asa Ram, Mr. Hem Shankar, and Mr. Radhey Shyam).
For the Year ended 31.03.2025, remuneration paid to Ms. Raspreet Kaur,
Mrs. Rubeena Rani and Mr. Jaspal Julka is ` 418 lakhs and remuneration to Mr.
Asa Ram, Mr. Hem Shankar, and Mr. Radhey Shyam in the form of Stock Options
totaling to ` 36.50 lakhs. Besides this, Mr. Asa Ram, Mr. Hem Shankar, and
Mr. Radhey Shyam also received remuneration off 5.00 lakhs each in their
respective bank accounts in the form of fee.
The Board has maintained a robust internal audit function outsourced to
M/s XYZ Professionals, ensuring that internal control system compliance aligns
with statutory requirements. Given the current scale and financial figures, QBL is
required to appoint an internal auditor.
In line with its strategic objective to establish a worldwide food chain, QBL decided
in April 2024 to establish a fully owned subsidiary in Germany, NIWALA GMBH.
This subsidiary is crucial for penetrating the European market. The initial project

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cost for NIWALA GMBH is estimated at USD 15 million (Current exchange rate:
` 88/USD). QBL Limited plans to infuse this capital through Foreign Direct
o m
m . c
co Components for NIWALA GMBH (F.Y. 2024-25):
Investment (FDI).

. e m
em Kitchen Equipment (Imported from UK): USD 5 million. s
Key Expenditure

s g l a
2.laLand Acquisition (Leased/Capitalized in Germany): USD 4 million.
1. Specialized

g a
a 3. Marketing and Brand Promotion (Global Ad Campaign): USD 1.5 million. This
includes payment to "Global Reach Inc.," a US-based entity, for online
advertising services provided globally.
4. Operational Working Capital and Contingency: USD 4.5 million.
Simultaneously, QBL decided to expand its Agra central preparation facility to
support growing domestic demand and cater to the supply needs of NIWALA
GMBH (specialized spice blends, prefabricated frozen items). For this Capital

m
c. o
Expenditure (CapEx) project, QBL incurred the following costs during F.Y.
2024-25, with assets being put to use on 15.03.2025:
Acquisition of new industrialm building/structure for the facility
•
e
(Ready-to-use factory) costing `s10.50 Crores.
Purchase and installation g
l a
•
a of new specialized machinery (M 1) as per details:
List Price: ` 6.50 Crores, five year maintenance contract 10.00 lakhs,
Operating losses before commercial production: ` 15.00 lakhs and Architect
Fee for site preparation ` 5.00 lakhs and machine servicing equipment (MSE)
` 25.00 lakhs (it is not probable that future benefits of this will flow to the
entity). {Fair value of M 1 is ` 7.05 Crores}
• Acquisition of industrial land adjacent to the facility costing ` 4.00 Crores.

m
QBL funded this CapEx by securing a fresh, term loan of ` 15 Crores from a

m c. o
Nationalized Bank on 1st October 2024. The interest rate is 10.5% p.a.

c. o m
Disbursement occurred on 15 th October 2024. The project construction/

s e
em
installation commenced on 1st November 2024, and the asset was ready for

s la
ag
intended use on 15th March 2025.

gla QBL established a detailed Strategic Cost & Performance Management (SCPM)

a system for its central Agra kitchen (Division-A) supplying specialized raw
materials and ingredients to its domestic (Division-D) and international (NIWALA
GMBH - Division-G) outlets.

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FINAL EXAMINATION: JANUARY 2026

Division-A (Agra) Data (Projected for F.Y. 2024-25):
• Capacity: 5,00,000 units (spice blends/pre-mixes).
• Variable Cost of Production per unit: ` 450.
• Expected Demand from Division-D (Domestic): 3,00,000 units.
• Expected Demand from Division-G (Germany): 1,00,000 units.
The total expected demand is 4,00,000 units, which is within current capacity.
The MD, Ms. Raspreet Kaur, suggested setting the internal transfer price (TP) at
Full Cost (" 650) for efficiency reporting, arguing that this policy maximizes
overall company profit after considering international taxation differences.
QBL is assessing whether it qualifies for the special investment-linked deduction
under Section 35AD for its Agra expansion project as the company is not opting
for concessional tax regime under Section 115 BAA. The relevant assets were put
to use on 15.03.2025.
QSL's management is making sincere efforts to ensure adherence to ethical
labour practices among its food ingredient vendors and reduce energy
consumption. Keeping this energy consumption in mind, QBL procured
specialized food processing machinery from TechFab Limited (a registered
supplier in UP). The machine costing ` 8,85,000 (inclusive of 18% GST), which
also happens to be the open market value, is purchased. As part of the
negotiation, QBL also provided 100 kilograms of specialized, high-grade spices
(manufactured internally, valued at ` 40,000, exclusive of GST) as consideration
to TechFab. Mr. Vivek, the accountant, is unsure how to determine the correct
transaction value for GST purposes.
Further, QBL regularly uses road transport (Goods Transport Agency - GTA) for
moving inventory between its Agra central kitchen and various outlets. The
freight charged by the GTA (FPL Logistics, registered under GST) for F.Y. 2024-25
totalled ` 10 lakhs (exclusive of GST). FPL Logistics has opted to pay GST at 12%
on forward charge, allowing QBL to potentially claim ITC. QBL while depositing
GST dues for the concerned month sent the challan to the bank and the bank
while transferring the GST to department deducted the transfer charges and
remitted the net amount only. QBL thinks that bank correctly transferred the GST
amount after deducting the transfer charges.
M/s RSA & Co., Chartered Accountants, is the statutory auditor of QBL, CA. Lalit
Bansal is the Engagement Partner.
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In December 2024, seeking enhanced credibility for the large nationalized Bank term

m
co
loan of ` 15 Crores, QBL's CFO requested CA. Lalit to issue a compilation report on

om .
the prospective financial information (PFI) related to the projected returns from the

.c
new Agra facility. CA. Lalit is aware that prospective financial information is
e m
e m
inherently based on management's assumptions and future contingencies.
l a s
l a s
Post-sanction of the Nationalized Bank loan, a consortium of other banks
ag
ag
expressed interest in funding QBL's future working capital requirements. During
their due diligence process in February 2025, they formally requested CA. Lalit to
provide detailed extracts from his audit working papers relating to the valuation
of the fixed assets of QBL, specifically the breakup of the cost of the new
specialized kitchen equipment and its expected useful life (USD 5 million import
for NIWALA GMBH).
Multiple Choice Questions:
[Provide the correct option to the following questions]

m
c. o
4.1 Identify the correct statement in relation to the remuneration paid to the

m
Directors.
(A) Remuneration paid to Ms. eRaspreet Kaur, Mrs. Rubeena Rani and
l a sthe permissible limits whereas Mr. Asa Ram,
Mr. Hem Shankar,aand g Mr. Radhey Shyam are not entitled to the
Mr. Jaspal Julka is within

remuneration of ` 36.50 lakhs.
(B) Remuneration paid to Ms. Raspreet Kaur, Mrs. Rubeena Rani and
Mr. Jaspal Julka is not within in the permissible limits whereas Mr. Asa
Ram, Mr. Hem Shankar, and Mr. Radhey Shyam are entitled to the given
remuneration of ` 36.50 lakhs.
(C) Remuneration paid to Ms. Raspreet Kaur, Mrs. Rubeena Rani and

m
c. o
Mr. Jaspal Julka is not within the permissible limits and also

m
c. o
Mr. Asa Ram, Mr. Hem Shankar, and Mr. Radhey Shyam are not entitled
to the given remuneration of ` 36.50 lakhs.
e m
em la s
s
(D) Remuneration paid to Ms. Raspreet Kaur, Mrs. Rubeena Rani and

la ag
Mr. Jaspal Julka is within the permissible limits and also Mr. Asa Ram,

ag Mr. Hem Shankar, and Mr. Radhey Shyam are entitled to the given
remuneration of ` 36.50 lakhs.

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FINAL EXAMINATION: JANUARY 2026

4.2 What is the maximum allowable amount of Investment Linked Deduction
under Income Tax Act, 1961 for A.Y. 2025-26?
(A) ` 21.05 Crores
(B) ` 17.00 Crores
(C) ` 17.05 Crores
(D) Nil
4.3 Identify the bottom lines discussed in case study, which can be considered
under initiatives towards sustainability?
(i) Economic
(ii) Environmental
(iii) Social Equity
(iv) Equitable
Options:
(A) (i), (ii) and (iii)
(B) (ii) and (iii)
(C) (iii) Only
(D) (iv) Only
4.4 Which of the following statements are correct in relation to recognition of
M 1?
(i) M 1 will be recognized in the books of accounts at ` 6.55 Crores.
(ii) MSE will be classified as Inventory.
(iii) Disclosure regarding fair value of ` 7.05 Crores must be made in
financial statements.
(iv) Disclosure regarding measurement bases is recommendatory as per
concerned Ind AS
(A) (i) and (ii)
(B) (ii) and (iii)
(C) (i), (iii) and (iv)
(D) (i) and (iii)

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4.5 Identify the Incorrect statements from the following considering provisions

m
co
of GST Law.

c om m .
(i) ITC is available on invoices raised by FPL Logistics.

m . se
e a
(ii) QBL is required to deposit GST under RCM on fee of ` 15.00 lakhs paid

a s to Mr. Asa Ram, Mr. Hem Shankar and Mr. Radhey Shyam.
g l
g l QBL's view on bank remittance of output GST is correct. a
a (iv) ITC is available on machinery purchased from TechFab Limited.
(iii)

(A) (i), (ii) and (iv)
(B) (i) and (iv)
(C) (i), (iii) and (iv)
(D) (ii), (iii) and (iv) (5 x 2 = 10 Marks)

m
Descriptive Questions:

. co
4.6 QBL Limited adheres to Total Quality Management (TQM) philosophy,

em
emphasizing quality at every stage of its food preparation and service.

l a s
Analyze how the primary activities of QBL's Value Chain are impacted by the

a g
decision to source high-grade spice blends internally (Division-A) rather than
procuring from external third-party vendors. (6 Marks)
4.7 Determine the correct transaction value for the supply of food processing
machinery by TechFab Limited to QBL under the GST provisions.
(i) Calculate the total GST payable on this transaction, and
(ii) Advise the accountant, Mr. Vivek, on the correct approach to
valuation, assuming the standard GST rate is 18%. (5 + 1 = 6 Marks)

m
c. o
4.8 CA. Lalit, the engagement partner for QBL, receives a formal request from

m
Nationalized Bank and a consortium of other banks during their due

c. o e m
diligence to obtain detailed extracts from his audit working papers relating

em la s
to fixed asset valuation and projected useful life. Discuss the professional and

las ag
ethical duties of CA. Lalit Bansal regarding client confidentiality and his

g
obligation to disclose information to third-party lenders. (3 Marks)

a
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ANSWER TO CASE STUDY 4

4.1 Option (C): Remuneration paid to Ms. Raspreet Kaur, Mrs. Rubeena Rani
and Mr. Jaspal Julka is not within the permissible limits whereas also Mr.
Asa Ram, Mr. Hem Shankar and Mr. Radhey Shyam are not entitled to the
given remuneration of ` 36.50 lakhs.
4.2 Option (D): Nil
4.3 Option (A): (i), (ii) and (iii)
4.4 Option (A): (i) and (ii)
4.5 Option (C): (i), (iii) and (iv)1
4.6 QBL’s adoption of Total Quality Management (TQM) places strong
emphasis on quality, consistency, and operational efficiency across all
functions. In this context, the decision to produce high-grade spice blends
internally has a significant impact on each primary activity of Porter’s Value
Chain.

1
It has been presumed that amount received is sitting fee in lieu of directorship services
provided by Independent Directors.

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In inbound logistics, the impact is generally positive. By reducing

m
co
dependence on external vendors, QBL minimizes the risks associated with

om .
inconsistent quality or delayed supply of raw materials. Internal production

.c
provides better control over inventory planning, since the timing, batch
e m
e m
size, and quality specifications of spice blends can be managed internally.

l a s
l a s
This also ensures full alignment with TQM standards regarding purity,

ag
ag
hygiene, and traceability. However, higher storage and handling
requirements for raw spices and the need for closer coordination between
procurement and internal processing may create some operational
challenges.
In operations, particularly at Agra Division-A and across restaurant outlets,
the impact is strongly positive. Internal production ensures uniformity of
taste across all locations, which is critical for a QSR brand. Standardized
processing under QBL’s control strengthens quality assurance and
eliminates the variability that often arises from third-party vendor

m
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processes, thereby improving process stability. It also enables QBL to

.
implement continuous process improvements more rapidly, fully aligned

em
with TQM principles. Further operational benefits include better alignment

l a s
between production capacity and demand from Division-D (domestic) and

a g
Division-G (Germany), along with reduced risk of rejections.
For outbound logistics, the impact is mixed but manageable. Internal
sourcing now requires QBL to transport its spice blends from the Agra
facility to domestic and international outlets, which calls for more
structured logistics planning, including packaging, scheduling, and, where
necessary, temperature control. However, centralizing production also
enables the company to consolidate shipments and achieve economies of
scale. On balance, although logistical responsibilities increase, the level of
control over product movement and consistency improves.
m
m c. o
Marketing and sales benefit positively from this strategic decision. The

c. o e m
use of in-house, authentic spice blends becomes a compelling unique

em la s
selling proposition, strengthening NIWALA’s brand positioning as a

s ag
provider of genuine, quality-controlled Indian flavors worldwide. This

gla
supports product differentiation and allows marketing communication to

a
emphasize quality assurance, ethical sourcing, freshness, traceability, and
consistency of taste across global outlets. Such messaging is particularly

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FINAL EXAMINATION: JANUARY 2026

valuable in international markets like Europe, where food safety and
traceability standards are stringent.
Customer service also experiences a strong positive impact. With improved
consistency of taste and higher product quality, customer satisfaction
increases, leading to more repeat visits. Internal sourcing supports TQM by
reducing complaints related to inconsistent flavors or quality fluctuations.
This strengthens customer trust and the overall credibility of the NIWALA
brand. Over time, the resulting improvements in customer experience
translate into stronger loyalty and a more sustainable competitive
advantage within an intensely competitive QSR industry.
Overall, sourcing high-grade spice blends internally enhances QBL’s
operational control, product quality, and brand consistency, key pillars of
its TQM philosophy. While the company assumes greater logistical
responsibility, the strategic benefits across the value chain, particularly in
operations, marketing, and customer service, far outweigh the additional
costs. Consequently, this decision significantly strengthens QBL’s
competitive positioning in both domestic and international markets.
4.7 The value of a supply of goods is the transaction value where the supplier
and the recipient of the supply are not related and the price is the sole
consideration for the supply in terms of section 15 of the CGST Act, 2017.
In the current case, price is not the sole consideration for the supply. Apart
from monetary consideration, QBL has given TechFab Limited 100
kilograms of specialized, high-grade spices as consideration for such
supply. Hence, the value of the supply cannot be determined on the basis
of the transaction value in terms of section 15 of the CGST Act, 2017.
Here, the value will be determined with the help of rule 27 which specifies
that where the consideration for a supply is not wholly in money, the value
will be the open market value.
Open market value of a supply means the full value of money, excluding
the applicable GST, where the supplier and the recipient of the supply are
not related and the price is the sole consideration, to obtain such supply at
the same time when the supply being valued is made.
Thus, in view of above provisions, the correct transaction value for supply
of Food Processing Machinery is-

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Open market value of machine (excluding GST)

m
co
= ` 8,85,000 × 100 / 118

.c om
= ` 7,50,000
e m .
e
(i)
m
The total GST payable on this transaction = ` 7,50,000 × 18%
l a s
a s
l (ii) Mr. Vivek, the accountant should value the supply of food processing a
= ` 1,35,000
g
ag machinery at the open market value only as per section 15 of the CGST
Act 2017 read with rule 27 of the CGST Rules, 2017 as price is not the
sole consideration for the supply.
Rule 27 of the CGST Rules, 2017 further provides that if the open market
value of the supply is not known, the value of the supply will be the
consideration in money plus the money equivalent to the non-monetary
consideration, if such an amount is known at the time of supply.

o m
In the given case, open market value is given, so the money equivalent to

. c
the non-monetary consideration shall not be added.
4.8 Clause (1) of Part I of the Secondm
s e misconduct relating to the disclosure
Schedule to the Chartered Accountants

a
l accountant in practice relating to the
Act, 1949 deals with the professional
g
business of his clientsato any person other than his client without the
of information by a chartered

consent of his client or otherwise than as required by any law for the time
being in force would amount to breach of conduct. The Code of Ethics
further clarifies that such a duty continues even after completion of the
assignment. The Chartered Accountant may, however, disclose the
information in case it is required as a part of performance of his
professional duties.

m
The only circumstance in which this duty of confidence may give rise to a

m c. o
difficulty is where the accountant has reason to believe that the client has

c. o em
been guilty of some unlawful act or default. This matter is of special

em s
laAuditor
significance in the case where the client is guilty of tax evasion.

las a g
Further, SA 200 on "Overall Objectives of the Independent and the

ag
Conduct of an Audit in Accordance with Standards on Auditing" also
reiterates that, "the auditor should respect the confidentiality of
information acquired in the course of his work and should not disclose any

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FINAL EXAMINATION: JANUARY 2026

such information to a third party without specific authority or unless there
is a legal or professional duty to disclose".
Accordingly, an auditor is not required to provide the client or other
auditors of the same enterprise or its related enterprise such as a parent or
a subsidiary, access to his audit working papers. However, the auditor may,
at his discretion, in cases considered appropriate by him, make portions of
or extracts from his working papers available to the client.
In the instant case, the nationalized bank and consortium of other banks
has requested the auditor for detailed extracts from his audit working
papers relating to fixed asset valuation and projected useful life. Working
papers are the property of the auditor. The auditor may at his discretion,
make portions of or extracts from his working papers available to his client.
If disclosure is required in other cases, it would be necessary to ensure that
the consent of the client is obtained by a person who is competent to
accord such consent. In the absence of above, the auditor CA. Lalit will be
held guilty of professional misconduct.

CASE STUDY - 5

Oceanic Textiles Ltd. (OTL) is a 100% Export Oriented Unit located in Mumbai,
India and listed on National Stock Exchange. Established in 2012, the company
specializes in the manufacture and export of organic cotton garments to markets
in Europe and North America and net foreign exchange earner. Profitability is
highly exposed to foreign exchange (FX) risk. In 2024, Company reported strong
sales growth in the U.S., and European countries. However, despite rising sales
volumes, the company faced a profitability squeeze. One of the major
contributing factors was currency volatility, particularly the depreciation of key
currencies against the INR. This resulted in lower reported revenue and profit
margins from those markets despite constant or increasing unit sales.
It follows a B2B model for bulk export order and is gradually exploring D2C
e-commerce channels globally. It is known for managing and distributing both
homegrown and international brands. OTL has established R&D facilities in India
to develop new designs and manufacturing processes. Company has five
subsidiaries (all unlisted) dealing in yarn and cotton ginning. None of the
independent director of OTL are on the board of any of the subsidiary. Accounts
of all five subsidiaries are consolidated with OTL and placed before shareholders
at the general meeting.

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For the F.Y ended 31.03.2025, the Company has made the following information
available in respect of some of its purchase and sale transactions:
o m
m . c
co an order from B Ltd. (holder of advanced authorization) to m
(i) Goods Purchased from A Ltd.: ` 10 Crores (GST Rate applicable is 12%)

. s e
em goods a
(ii) OTL received

s
supply to be used as inputs by B Ltd. The supply will be made against
g l
g la advance release order.
a
a However no bank guarantee has been furnished for the same.
(iii) OTL has sent goods worth ` 5 Crores for some jobwork process to C Ltd.

(iv) OTL has imported one new machine during the year. Machinery will be used
in manufacturing of goods to be exported only and also there is no specific
notification making countervailing duty applicable. Legal department is of
the view that machinery import is exempt from Basic Customs duty and IGST
but not from countervailing duty.

m
One of the subsidiaries Pluto Private Limited which contributes over 25% of the

. co
consolidated revenue and net worth of the Group entered into a related party

em
transaction with a group company, ABC Services Ltd., for subcontracting yam

a s
dyeing work worth ` 25 Crores (19.5% of total expenses of previous accounting

g l
year). However the said transaction has been put up but not approved by the

a
board of OTL. Besides Pluto Private Limited, two other subsidiaries constitute 25%
of the consolidated revenue and net worth of the Group.
OTL is preparing its financial forecasts for the next fiscal year. As part of its strategic
planning, the CFO must forecast the INR/USD exchange rate to manage foreign
exchange exposure for a $10 million payment due in 6 months. CFO wants to use
such technique which uses time series models. One of his team members is of the
view that the method suggested by CFO suffers from one limitation i.e. changes in
the sensitivity of currency movements to each factor over time. Also the method

m
c. o
proposed by CFO takes into consideration the current spot/forward rates.

m
c. o m
OTL owns machine that was acquired on 1st April 2016 for ` 50 lakhs. The useful
life of the machine is 20 years and is depreciated on SLM basis. The company uses
s e
s em la
the revaluation model for subsequent measurement as per Ind AS 16. On 1st April

la ag
2020, the fair value of the machinery is determined to be ` 65 lakhs. There is no

ag change in useful life. OTL has been charging depreciation on a straight-line basis
and had charged depreciation up to 31 st March 2020. On 31st March 2024, the
machinery is sold for ` 18 lakhs in order to upgrade technology. OTL imported

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FINAL EXAMINATION: JANUARY 2026

high-precision equipment (TECH M) from Germany for its manufacturing facility.
The following facts are available:
The equipment was purchased on 1st September 2024 at a price of EUR 5,00,000
on deferred credit (payment to be made in September 2026).
The exchange rate on the date of purchase was ` 88/EUR.
TECH M was capitalized on the same date and put to use on 15th October 2024.
As on 31st March 2025, the exchange rate was ` 92/EUR.
The company prepares books on mercantile basis and follows ICDS for income
computation. OTL claims depreciation@l5% under the Income-tax Act, 1961.
The company prepares full financial statements annually, which are audited. While
preparing financial statements, company has not disclosed capitalization policy for
repair or upgrades as in the opinion of the management, the same is immaterial.
In addition, for public dissemination through brochures and press releases, it
prepares summary financial statements. The Board of OTL engages C S & Co., a
Chartered Accountancy firm, to audit the summary financial statements for
FY 2024-25 citing the increasing importance of transparency and alignment with
international best practices. These summary financial statements are to be
included in the company's annual brochure and shared with investor during
earnings calls. The summary financial statements were derived from the audited
full financial statements and include:
• Summarized Statement of Profit and Loss
• Summarized Statement of Financial Position
• Summarized Notes on material accounting policies and key disclosures
Auditor firm has already issued an unmodified audit opinion on the company's
full financial statements prepared in accordance with Ind AS. While drafting the
audit report on the summary financial statements, the following opinion
paragraph is proposed:
"In our opinion, the summary financial statements are presented fairly, in all
material respects, in accordance with the applicable financial reporting
framework. "
Management is thinking of hiring you as a consultant to provide some inputs on
various parameters to identify the currency risk which is squeezing the
profitability of the company.

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Multiple Choice Questions:

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[Provide the correct option to the following questions]

.c om
5.1 Which of the following statements are true in relation to sales and purchase
e m .
m
transactions informed by the company?

e l a s
l a s
(i) Goods supplied by A Ltd. to OTL will be considered as Zero Rated
ag
g
a (ii) OTL can supply goods to B Ltd.
Supply.

(iii) Bank Guarantee is not required for sending the goods to C Ltd.
(iv) Opinion of Legal department is correct.
(A) Statement (i), (iii) and (iv)
(B) Statement (ii), (iii) and (iv)

m
(C) Statement (ii) and (iii)

c o
5.2 Identify the incorrect statements (as. per corporate governance guidelines
(D) Statement (i) and (iv)

e m between Pluto Private Limited and
l a s
requirements) in relation to transaction

(i) Both Pluto Pvt. Ltd. a
ABC Services Ltd.
g
and ABC Services Ltd. should inform the BoD of OTL
of the transaction.
(ii) As the transaction amount is· less than 20% of total expenses of previous
accounting year, so no requirement even of putting up the transaction
to the notice of the board of OTL.
(iii) At least one independent director on the board of OTL should also be on
the board of all unlisted subsidiaries.

m
m c. o
(iv) Transaction approval from Audit Committee of OTL was required.

c. o (A) Statement (i) and (iv)

s e m
s em (B) Statement (i), (iii) and (iv)
la
gla (C) Statement (ii), (iii) and (iv)
ag
a (D) Statement (i), (ii) and (iv)

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FINAL EXAMINATION: JANUARY 2026

5.3 Identify the incorrect statements from the discussion between CFO and his
team member.
(i) The method suggested by CFO is technical forecasting.
(ii) Team member has correctly identified the limitation.
(iii) Team member has correctly identified exchange rates being used in
proposed method.
(iv) CFO's method doesn't generally provide range estimates and generally
not used by MNCs
(A) Statement (i) and (iv)
(B) Statement (ii) and (iii)
(C) Statement (ii), (iii) and (iv)
(D) Statement (i), (ii) and (iv)
5.4 Why the opinion paragraph on summary financial statements is not
appropriate?
(A) Because it does not mention the responsibilities of management and the
auditor.
(B) Because it incorrectly provides an opinion on the fair presentation of
summary financial statements instead of their consistency with the
audited full financial statements.
(C) Because it omits reference to the date of the auditor's report on the full
financial statements.
(D) Because opinion cannot be expressed on engagement to report on
summary financial statements.
5.5 What is the correct accounting treatment of the revaluation gain on 1st April
2020 in the books of OTL? Also, what is the correct accounting treatment for
the Revaluation Surplus at the time of disposal of the machinery?
(A) The revaluation gain of ` 25 lakhs should be credited entirely to the Profit
and Loss account. Revaluation Surplus must be transferred to Profit and
Loss account on disposal.
(B) The revaluation gam of ` 25 lakhs should be credited to Other
Comprehensive Income and accumulated in equity under the heading

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"Revaluation Surplus". Revaluation Surplus must be transferred directly

m
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to Retained Earnings on disposal.

c om m .
(C) Only the gain equivalent to the difference between fair value and cost

.
(` 15 lakhs) should be credited to Revaluation Surplus and the balance

m se
s e
to P&L. Revaluation Surplus must be transferred directly to Retained

g l a
a
l (D) The revaluation gain of ` 25 lakhs should be credited to Other a
Earnings on disposal.

ag Comprehensive Income and accumulated in equity under the heading
"Revaluation Surplus". Revaluation Surplus of ` 10 lakhs should continue
to remain in equity under Revaluation Surplus even after disposal.
(5 x 2 = 10 Marks)
5.6 Do you agree with the management's opm1on on non-disclosure of
Capitalization policy for repair or upgrades? Support your conclusion?

m
(1 Mark)

c. o
Under What Circumstances accounting policy information is said to be

e mrequirement of the management.
material to the financial statements of an entity? (4 Marks)

l a s
5.7 Suggest some parameters as per the

a g (5 Mark)
st
5.8 (i) How should the exchange difference as on 31 March 2025 be treated
under ICDS VI and Section 43A of the Income-tax Act, 1961 for TECH M?
(ii) What will be the actual cost of TECH M as per the Income-tax Act, 1961
on 31st March 2025?
(iii) Calculate the depreciation allowable for F.Y. 2024-25 based on the
above treatment. (3 + 1+ 1 = 5 Mark)

m
m c. o
c. o e m
ANSWER TO CASE STUDY 5

em la s
s
5.1 Option: (C) Statement (ii) and (iii)

gla 5.2 Option: None of the options is correct
ag
a 5.3 Option (B): Statement (ii) and (iii)

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FINAL EXAMINATION: JANUARY 2026

5.4 Option (B): Because it incorrectly provides an opinion on the fair
presentation of summary financial statements instead of their consistency
with the audited full financial statements.
5.5 Option (B): The revaluation gain of ₹ 25 lakhs should be credited to Other
Comprehensive Income and accumulated in equity under the heading
‘Revaluation Surplus’. Revaluation Surplus must be transferred directly to
Retained Earnings on disposal.
5.6 Under Ind AS 1 ‘Presentation of Financial Statements’, accounting policies
are required to be disclosed if they are material and materiality is assessed
not only by quantitative thresholds but also by qualitative considerations.
As per the standard, accounting policy information that relates to
immaterial transactions, other events or conditions is immaterial and need
not be disclosed.
In case management feel that capitalisation of repairs and upgrades are
immaterial, their disclosure is not mandatory and would not be considered
as non-compliance or misleading the stakeholders.
Circumstances in which accounting policy information is said to be
material to the financial statements of an entity
Accounting policy information is material if, when considered together with
other information included in an entity’s financial statements, it can
reasonably be expected to influence decisions that the primary users of
general purpose financial statements make on the basis of those financial
statements.
Accounting policy information is expected to be material if users of an
entity’s financial statements would need it to understand other material
information in the financial statements. For example, an entity is likely to
consider accounting policy information material to its financial statements
if that information relates to material transactions, other events or
conditions and:
(a) the entity changed its accounting policy during the reporting period
and this change resulted in a material change to the information in the
financial statements;
(b) the entity chose the accounting policy from one or more options
permitted by Ind AS;

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(c) the accounting policy was developed in accordance with Ind AS 8 in

m
co
the absence of an Ind AS that specifically applies;

c om m .
(d) the accounting policy relates to an area for which an entity is required

m .
to make significant judgements or assumptions in applying an
se
s e
accounting policy, and the entity discloses those judgements or

g l a
a
l (e) the accounting required for them is complex and users of the entity's a
assumptions in accordance with paragraphs 122 and 125; or

ag financial statements would otherwise not understand those material
transactions, other events or conditions-such a situation could arise if
an entity applies more than one Ind AS to a class of material
transactions.
5.7 The currency risk is dependent on the Government action and economic
development. Some of the parameters to identity the currency risk are as
follows:

m
co
(1) Government Action: The Government action of any country has visual

.
em
impact in its currency. For example, the UK Govt. decision to divorce

s
from European Union i.e. Brexit brought the pound to its lowest since
1980’s.

g l a
a
(2) Nominal Interest Rate: As per interest rate parity (IRP) the currency
exchange rate depends on the nominal interest of that country.
(3) Inflation Rate: Purchasing power parity theory impact the value of
currency.
(4) Natural Calamities: Any natural calamity can have negative impact.
(5) War, Coup, Rebellion etc.: All these actions can have far reaching impact
on currency’s exchange rates.

m
c. o
(6) Change of Government: The change of government and its attitude

m
c. o
towards foreign investment also helps to identify the currency risk.

e m
em s
5.8 (i) As per ICDS VI, Fixed assets are non-monetary items. A foreign

s la
ag
currency transaction shall be recorded, on initial recognition in the

la
reporting currency, by applying to the foreign currency amount the

ag exchange rate between the reporting currency and the foreign
currency at the date of the transaction. At last day of each previous
year, non-monetary items in a foreign currency shall be converted into

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FINAL EXAMINATION: JANUARY 2026

reporting currency by using the exchange rate at the date of the
transaction. In respect of non-monetary items, exchange differences
arising on conversion thereof at the last day of the previous year shall
not be recognised as income or as expense in that previous year.
As per section 43A, increase or decrease in the liability (expressed in
Indian rupees) of the assessee at the time of making the payment
would be adjusted in the actual cost.
TECH M was purchased on 1.9.2024 and the payment is to be made in
September 2026.
Accordingly, there would be no treatment of the exchange difference
as on 31.3.2025 either under ICDS VI or section 43A for TECH M.
(ii) The actual cost of TECH M on 31.3.2025 would be EUR 5,00,000 × 88
= ` 4,40,00,000
(iii) Depreciation for F.Y. 2024-25
Normal depreciation = ` 4.40 crore × 15% × 50% since the equipment
was put to use for less than 180 days = ` 33,00,000
Additional depreciation = ` 4.40 crore × 20% × 50% since the
equipment was put to use for less than 180 days = ` 44,00,000

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