CA Final May 2025 Suggested Answers Paper 6 Integrated Business Solutions

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CA Final 2025
Suggested Answers ·
Paper 6 Integrated
Business Solutions
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CA Final 2025 Suggested Answers
SUBJECT DATE

Paper 6 Integrated Business Solutions May 2025

Notes · Sample Papers · Previous Year Papers · Mock Tests

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

CASE STUDY - 1
Life Education Ltd., a Mumbai based entity, is an eligible start-up incorporated in
May 2019 and has been successfully managing its online education services for
various exams all over India. Business model of the Company is such that Division
1 takes care of educational services and Division 2 is engaged in the

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manufacturing of tabs which are given to the students taking classes, whether

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offline or online. Life Education Ltd. launched a free online service to all the
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students as regards how to derive maximum benefits in usage of its products.

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Also, it provided online expert guidance service for competitive exams on payment

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basis to its students. The pricing strategy decided was that the charge to student
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will be based on level of services availed. Initially for basic services, users were
just required to provide their basic information without involvement of money
and later on depending upon the level of service, a separate upgradation fee
would be charged.
Company has presented the following summary of the financial results for the
year ended 31.03.2025:
Profit and Loss Account ` in lakhs Balance Sheet ` in lakhs
Revenue 2,500.00 Fixed assets (PPE) 2,000.00
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m Direct cost 800.00 Current assets 500.00
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c. o Admin. expenses 875.71 2,500.00
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s em EBIT 724.29 Equity 1,500.00
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Interest 100.00 Reserves 300.00

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Current liabilities & 400.00
provisions
2,500.00

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INTEGRATED BUSINESS SOLUTIONS

Note: Current liabilities include the income tax liability.
A bad debt provision of ` 50 lakhs is included in administration expenses and the
corresponding amount is reduced from current assets. The pre-tax cost of debt is
15%. The company has opted for section 115BAB of the Income-tax Act, 1961.
Effective Tax is to be calculated using Surcharge and Higher Education Cess. Cost
of equity may be taken as 9% (i.e. shareholders expected rate of return).
The company wanted to expand its expertise and had solicited the services of
Dr. Bhalla a reputed academician to be on its Board in F.Y. 2020-21 who is still
rendering his services to the company. The company issued ESOP 50,000 equity
shares of ` 10 each to Dr. Bhalla in September, 2024. The value of each equity
share was ` 50 but it was issued at face value of ` 10 to Dr. Bhalla, who exercised
the option in the first week of October, 2024. Shares were allotted to him in the
next 10 days and he is still holding the shares. The annual salary of Dr. Bhalla for
the financial year 2024-25 was ` 60 lakhs from Life Education Ltd. without
considering the ESOP given to him at a concessional price.
Life Education Ltd. has a cash generating unit "Wing W" acquired on 1st April,
2017 with a carrying amount of ` 2,000 lakhs. "Wing W" was acquired under a
business combination and goodwill of ` 400 lakhs was allocated to it, same is
depreciated on straight line basis. "Wing W" has a useful life of 20 years with no
residual value. On 31st March, 2025, "Wing W" has a recoverable amount of
` 1,100 lakhs.
During the year, company received various GST notices wherein department has
alleged that the GST paid by the company is incorrect due to wrong GST rate
selection and thereafter the scrutiny proceedings started. During scrutiny,
department ordered special audit under the CGST Act, 2017 of the books of
accounts of Life Education Ltd. The GST Commissioner nominated ABC LLP,
Chartered Accountants on 10th June, 2024 to conduct special audit for the
financial year 2021-22. The remuneration was fixed at ` 2 lakhs plus applicable
GST.
Radhika is director of Life Education Ltd. and also of PQR Ltd. based at Delhi. PQR
Ltd. did not file its financial statements for the year ended 31.03.2021, 31.03.2022
and 31.03.2023. On 25th September, 2023 Radhika was re-appointed as director
in the AGM of Life Education Ltd. The Board of Directors of Life Education Ltd.
became aware of her position as director in PQR Ltd. and its failure to file the
financial statements for the earlier 3 years only in March, 2024. Radhika tendered

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FINAL EXAMINATION: MAY 2025

her resignation from the Board of Life Education Ltd. on 10th April, 2024 and the
Board of Directors reappointed her again as a director in the AGM held on 15th
September, 2024 since PQR Ltd. had filed its financial statements up to the
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financial year ended 31st March, 2023 on 8th May, 2024.
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Life Education Limited entered into a joint venture with Online Platform Limited
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to form a company by name Online Education Ltd. (OEL) for a project to be

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completed in 2 years relating to a particular line of online education, share of Life

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Education Limited being 50%. It was decided that project would be reviewed after
a period of five years to assess the future viability. Life Education Limited
transferred equipment to OEL for ` 8 crores being its Market value while the
carrying value in its books of account is ` 9 crores.
TSP & Co. are the auditors of the company for the financial year ended 31.03.2025.
The Audit Report for that year was signed by TSP & Co. on 04.05.2025. The Annual
General Meeting was decided to be held during the month of August 2025. On
06.05.2025, the Company had received a communication from the Central
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Government that an amount of ` 58 Crores kept pending on account of incentives

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pertaining to financial year 2024-25 has been approved and the amount was

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received by the Company on 28.05.2025. To a query to Chief Financial officer of

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the Company by the Board, it was informed that this amount had not been-
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recognized in the Audited Financial Statements as same was not released before
the close of the Financial Year and due to uncertainty of receipt. Now, having
received the amount, the Board of Directors wished to include this amount in the
Financial Statements of the Company for the Financial Year ended on 31.03.2025.
On 01.06.2025, the Board amended the accounts, approved the same and
requested the Auditor to consider this event and issue a fresh audit report on the
Financial Statements for the year ended on 31.03.2025.
Multiple Choice Questions:

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of the business model was provided by Life Education Ltd. .by way of
[Please provide the correct option to the following questions]

c. o 1.1 Which s em
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online support service to its students?

las (A) Promotion
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ag (B) Premium
(C) Freemium
(D) Subscription

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INTEGRATED BUSINESS SOLUTIONS

1.2 Whether auditor could accede to the request of the Board of Directors and
whether any separate disclosure of the same is required to be given?
(A) Yes, auditor can issue new audit report subject to date of audit report
which should not be earlier than 01.06.2025 and disclosure of the same
is required to be given in other reporting responsibilities paragraph of
the audit report.
(B) No, auditor cannot issue new audit report because the audit report has
been already issued and also the amount is received only in the next
financial year. However only the amendment of original audit report is
allowed.
(C) Yes, auditor can issue new audit report subject to date of audit report
which should be on the date of original audit report and include a
statement in emphasis of matter/ other matter paragraph.
(D) Yes, auditor can issue new audit report subject to date of audit report
which should not be earlier than 01.06.2025 and include a statement in
emphasis of matter/ other matter paragraph.
1.3 Whether special audit can be carried out by GST department in the given
case and if Yes, what is the maximum time within which ABC LLP must
complete special audit under GST law?
(A) Special audit can be carried out and the Maximum time limit for
completing the special audit under GST law is 180 days from the date of
commencement of audit.
(B) Special audit can be carried out and the Maximum time limit for
completing the special audit in the given case is on or before
31st March, 2025.
(C) Special audit can be carried out and Maximum time limit is 90 days for
completing the special audit under GST law subject to a further extension
of another 90 days.
(D) Special audit cannot be carried out under the given circumstances.
1.4 Which of the following statement is most appropriate as regards deduction
of tax at source in respect of ESOP shares allotted to Dr. Bhalla by Life
Education Ltd. during A.Y. 2025-26?

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FINAL EXAMINATION: MAY 2025

(A) Tax would be deducted @30% on ` 20,00,000, being the benefit obtained
by means of ESOP shares received by Dr. Bhalla in addition to deduction
of tax at source on the salary income ` 60 lakhs at the regular rates as
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applicable u/s 192.
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(B) Tax would be deducted on ` 80,00,000 consisting of the benefit obtained
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by means of ESOP shares along with salary income of Dr. Bhalla at the

l a regular rates as applicable under section 192.
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when option is exercised and shares are allotted to Dr. Bhalla. It is to be
deducted in the required manner after the expiry of certain timelines and
happening of certain events.
(D) Life Education Ltd. is not required to withhold (TDS) any tax when option
is exercised and shares are allotted to Dr. Bhalla as the transaction is
exempted from withholding tax in respect of eligible start-ups.

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1.5 How will Life Education Ltd. account the loss incurred in its books of account
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for the transfer of equipment to its joint venture company Online Education

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(A) Recognize loss of ` 1 crore in two installments of ` 50 Lakhs each in two
financial years. a
(B) Recognize impairment loss of ` 1 crore immediately in the books of
account.
(C) Recognize loss of ` 1 crore in five installments of ` 20 Lakhs in five
financial years as project would be reviewed after a period of 5 years.
(D) There is no loss since the transfer of equipment by it is in the nature of
investment in the joint venture.
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(5 x 2 = 10 Marks)
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c. o 1.6 When is Radhika disqualified from holding the office of sdirector
Descriptive Questions:
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e in Life
em Education Ltd.? Is her appointment as director of Life a
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Education Ltd. in

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September, 2024 valid in law? Discuss applicable legal provisions with proper
conclusion. Also state whether her DIN will be deactivated or not.
(5 Marks)

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INTEGRATED BUSINESS SOLUTIONS

1.7 In shareholders meeting, question has been raised on various strategic
decisions made by the management. Representations by management
indicated the impact of decisions on the path to progress of the company. If
you are a part of the management, how will you indicate the efficiency of the
management on the basis of summary of financial statements given?
(5 Marks)
1.8 Life Education Ltd. is carrying the same asset "Wing W" at ` 1,200 Lakhs in
its books of accounts as on 31.03.2025. Do you agree with the same?
(5 Marks)

ANSWER TO CASE STUDY 1

1.1 Option (C): Freemium
1.2 Option (D): Yes, auditor can issue new audit report subject to date of audit
report which should not be earlier than 01.06.2025 and include a statement
in emphasis of matter/ other matter paragraph.
1.3 Option (D): Special audit cannot be carried out under the given
circumstances.
1.4 Option (C): Life Education Ltd. is allowed to defer withholding tax (TDS) to
a date when option is exercised and shares are allotted to Dr. Bhalla. It is
to be deducted in the required manner after the expiry of certain timelines
and happening of certain events.
1.5 Option (B): Recognize impairment loss of ` 1 crore immediately in the
books of account.
1.6. Section 164 of the Companies Act, 2013 contains disqualifications of a
director. A person shall not be eligible for appointment as a director of a
company if he suffers from any of the disqualifications as specified under
section 164.
Accordingly, Section 164(2) prescribes disqualifications which get attached
to a person if he is or has been a director of a company which has
committed default as under—
(a) his company has not filed financial statements or annual returns for
any continuous period of 3 financial years; or

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FINAL EXAMINATION: MAY 2025

(b) his company has failed to repay the deposits accepted by it or pay
interest thereon or to redeem any debentures on the due date or pay
interest due thereon or pay any dividend declared and such failure to
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pay or redeem continues for 1 year or more.
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In both the above cases of default, the director concerned shall not be
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eligible to be re-appointed as a director of such defaulting company or
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appointed in some other company for a period of 5 years from the date on
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ag As per the fact, company, PQR Ltd. failed to file its financial statements for
which the said company has committed default.

the following financial years 2020–21, 2021–22, 2022–23.
In line with the above stated legal provisions, the director will be
disqualified from 31st October, 2023 (*assuming the due date for
FY 2022–23 filing was 30th October 2023 i.e. within 30 days from the AGM),
because that is when the default for the third year occurs. The
disqualification will last for five years, i.e., till 30th October 2028.
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In the case study, on 25th September 2023, the AGM of Life Education Ltd.
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is conducted in which Radhika was re-appointed as director. Here Radhika

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will be disqualified from holding the office of director from date when the

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default for the third year occurs i.e. from 31st October, 2023 and vacate the

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office in terms of Section 167(1)(a).
Radhika’s appointment as director of Life Education Ltd. in
September, 2024 is not valid as she is not eligible for appointment for a
period of 5 years in any of the companies even though the defaulting
company has set right the default by filing the relevant documents.
No, Radhika’s DIN will not be deactivated as disqualification under section
164(2) is of temporary nature, and Rule 11 of Companies (Appointment and

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Qualifications of Directors) Rules, 2014 does not empower any authority to

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*A copy of the financial statements duly adopted at the annual general .meeting of
cancel or deactivate DIN upon disqualification under section 164(2).

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the company, shall be filed with the Registrar within thirty days of theedate of annual
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of the Companies Act, 2013 states that AGM of any companygshall be held within a
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a period of six months, from the date of closing of the financial year. For FY 2022-
2023, AGM is to be held by 30th September 2023 and financial statements duly
adopted in the AGM to be filed with the Registrar within thirty days of the AGM i.e.
by 30th October, 2023.

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INTEGRATED BUSINESS SOLUTIONS

1.7 Analysis
The Economic Value Added (EVA) of ` 445.96 lakhs clearly indicates that
the company is generating returns in excess of its overall cost of capital,
thus creating substantial value for its shareholders. This outcome is
underpinned by strong operating performance and prudent financial
structuring.
The Net Operating Profit After Tax (NOPAT) of ` 650 lakhs has been derived
from an EBIT of `724.29 lakhs, reflecting effective cost management in core
operations, including control over raw material costs and overheads. Key
adjustments—such as adding back non-cash items like depreciation and
adjusting for provisions—ensure a true reflection of operating profitability.
The tax impact has been optimized through application of the concessional
rate under Section 115BAB (effective rate of 17.16%), enhancing post-tax
returns.
On the capital structure front, the company has a total capital employed of
` 2,100 lakhs, comprising ` 1,800 lakhs in equity and ` 300 lakhs in debt.
The cost of equity (9%) and after-tax cost of debt [15% × (1 – 0.1716)] are
appropriately weighted in the WACC calculation, resulting in a blended
capital cost of 9.49%.
The substantial spread between NOPAT (`650 lakhs) and the capital charge
(`204.04 lakhs) confirms that the company is not just accounting profitable
but also economically profitable. EVA, by capturing the true cost of both
debt and equity financing, acts as a superior metric of value creation.
Overall, the company's financial strategy reflects sound operational
efficiency, optimal capital allocation, and strong earnings quality. The
positive EVA signals that management is deploying funds wisely,
maintaining cost discipline, and delivering returns that exceed stakeholder
expectations.
Workings
Effective tax rate (15% tax rate + 10% surcharge + 4% cess) u/s 115BAB
= 17.16%

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FINAL EXAMINATION: MAY 2025

Particulars Amount
(` in lakhs)
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Net operating profit after tax (NOPAT)

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EBIT
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. Tax (15% + SC 10% + HEC 4%=17.16%)
724.29

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Less: Income 124.29
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EBT 600.00
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Net-operating Profit After Tax (NOPAT) 650.00
Finding out the Invested Capital
Total Assets 2,500.00
Less: Non-Interest Bearing Liabilities 400.00
Capital Employed 2,100.00

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Add: Non-cash Adjustment 50.00

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Adjusted Capital Employed / Invested 2,150.00
Computation of WACC
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WACC = Cost of Equity +lCost
In this case, WACC a
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= (1,800/2,100 × 9%) + {(300/2,100 × 15% (1 - 0.1716)}
Capital Charge 204.04
= Invested Capital × WACC = 2,150 × 9.49%
EVA 445.96
= Adjusted NOPAT- Capital Charge = (650-204.04)

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Alternative Presentation

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EVA = NOPAT – WACC × Capital Employed

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Capital Employed
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INTEGRATED BUSINESS SOLUTIONS

Particulars Amount
(` in lakhs)
EBIT 724.29
Less: Interest 100.00
EBT 624.29
Less: Tax 107.13
PAT 517.16
Add: Interest (net of tax) 82.84
Add: Non- cash expenses 50.00
NOPAT 650.00
Computation of Adjusted Capital Employed

Particulars Amount
(` in lakhs)
Capital Employed 2,100
Add: Non-cash adjustment 50
Adjusted Capital Employed 2,150
WACC = (1,500 + 300)/ 2,100 × 9% + 300/ 2,100 × 15% (1-0.1716)
= 9.49%
EVA = NOPAT - (WACC × Adjusted Capital Employed)
= 650 - (9.49% × 2,150)
= 650 - 204.04
= ` 445.96 Lakhs
Alternative Solution
Analysis - The Economic Value Added (EVA) of ` 425.84 lakhs clearly
indicates that the company is generating returns in excess of its overall cost
of capital, thus creating substantial value for its shareholders. This outcome
is underpinned by strong operating performance and prudent financial
structuring.
The Net Operating Profit After Tax (NOPAT) of ` 629.88 lakhs has been
derived from an EBT of `600 lakhs, reflecting effective cost management in
core operations, including control over raw material costs and overheads.
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FINAL EXAMINATION: MAY 2025

Key adjustments—such as adding back non-cash items like depreciation and
adjusting for provisions—ensure a true reflection of operating profitability.
The tax impact has been optimized through application of the concessional
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rate under Section 115BAB (effective rate of 17.16%), enhancing post-tax
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returns.
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emlakhs, comprising ` 1,800 lakhs in equity and ` 300 lakhs in debt. The gla s
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On the capital structure front, the company has a total capital employed of

g a of equity (9%) and after-tax cost of debt [15% × (1 – 0.1716)] area
lcost
` 2,100

a appropriately weighted in the WACC calculation, resulting in a blended
capital cost of 9.49%.
The substantial spread between NOPAT (`629.88 lakhs) and the capital
charge (` 204.04 lakhs) confirms that the company is not just accounting
profitable but also economically profitable. EVA, by capturing the true cost
of both debt and equity financing, acts as a superior metric of value creation.

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Overall, the company's financial strategy reflects sound operational

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efficiency, optimal capital allocation, and strong earnings quality. The

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positive EVA signals that management is deploying funds wisely, maintaining

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cost discipline, and delivering returns that exceed stakeholder expectations.
Workings
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EVA = NOPAT – WACC × Capital Employed
Capital Employed
= ` 1,500 + ` 300 + ` 300 = ` 2,100 Lakhs
NOPAT = (PBIT – Interest –Tax) + Interest (net of tax)

Particulars Amount

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(` in lakhs)

m c. 600.00
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EBT
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Less: Tax

s g la
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PAT 497.04

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Add: Interest (net of tax) 82.84
Add: Non- cash expenses 50.00
NOPAT 629.88

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INTEGRATED BUSINESS SOLUTIONS

Computation of Adjusted Capital Employed

Particulars Amount
(` in lakhs)
Capital Employed 2,100
Add: Non-cash adjustment 50
Adjusted Capital Employed 2,150

WACC = (1,500 + 300)/2,100 × 9% + 300/2,100 × 15% (1-0.1716)
= 9.49%
EVA = NOPAT – (WACC x Adjusted Capital Employed)
= 629.88 - (9.49% × 2,150)
= 629.88 – 204.04
= ` 425.84 Lakhs
1.8
Particulars Goodwill Identifiable Total
assets
(` in lakhs) (` in lakhs) (` in lakhs)
Cost at the time of acquisition 400 2,000 2,400
Less: Depreciation for 8 years
(from 2017-2018 to 2024-2025) - (800) (800)
Carrying amount 400 1,200 1,600
Less: Impairment loss (400) (100) (500)
Carrying amount after - 1,100 1,100
impairment loss

Since, the recoverable amount is ` 1,100 lakhs, there is an impairment loss
of ` 500 lakhs. The impairment loss of ` 500 lakhs should be allocated to
goodwill first, and then to the other identifiable assets, i.e., ` 400 lakhs to
goodwill and ` 100 lakhs to identifiable assets of “Wing W”.
Hence, the presentation of “Wing W” by Life Education Ltd. in its books at
` 1,200 lakhs as on 31.3.02025 is incorrect.

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FINAL EXAMINATION: MAY 2025

CASE STUDY - 2
Emm Vee Motors Limited (EVML) is one of the largest manufacturers of
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commercial vehicles in India. The company has grown over a period of time under
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the dynamic leadership of its Managing Director, Mr. Ramesh Chander. Vehicles
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manufactured by the company are appreciated for their resilience, reliability and
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exceptional value. In F.Y 2022-2023, EVML recorded a Profit after Tax (PAT) of
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` 180 crores on sales of ` 4,860 crores, as compared to previous financial year
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PAT of ` 325 crores on sales of ` 5,670 crores. With the manufacturing industry
reeling under recession, the freight generating sector saw a steep decline. EVML's
supply chain had gone haywire under the recession which eroded 14.29% of its
revenue from operations in one year, forcing the company to helplessly allow
inventories to build up.
In 2023-24, EVML decided to meet the challenge by re-gearing its systems, be it
material order, handling, procurement or inventory control. EVML conducted
brainstorming sessions inviting ideas on cost cutting. It became clear that cost-
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cutting would only be effective if the supply chain operated smoothly. It was
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decided to revamp its inbound and outbound supply chain. It identified two

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methods to reduce costs in supply chain: firstly reduce material costs and secondly

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reduce inventory carrying costs by implementing Just in Time technique. The
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Procurement and Quality Engineering team jointly formed the single window
vendor management system. Within the centrally negotiated price, unit material
functions interacted with the approved panels of vendors to "pull" materials in
line with the production plans. The single window system created ease for the
vendors for sharing drawings, negotiating prices and for any assistance on quality
related issues. EVML purchasing policy was to maximize the bought-out parts
both indigenous and imported. It believed in global sourcing. It started creating
database for the 18,000 plus parts which were matched with the supplier's part

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numbers. A classification of 1,500 odd suppliers based on business volumes

m revealed that 25 % accounted for 80% of the business while 60% handled just 5%.
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c. o EVML aimed at reducing the supplier's base from 1,500 to 800. It considered new
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suppliers for the required components based on their ability to meet quality,

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specification, price and delivery schedule. EVML cutback its panel of direct
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vendor consolidation drive. It dealt directly with the tier- I suppliers who in tum
were supported by the tier-2 and tier-3 suppliers. Lean manufacturing practices
focused on reducing waste, improving process efficiency, and increasing

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INTEGRATED BUSINESS SOLUTIONS

production flexibility. Value engineering analyzed the composition of parts to
reduce costs through substitution or elimination of materials and methods with
less expensive alternatives without sacrificing functionality. The resultant cost
benefits were shared with the suppliers.
It moved to JIT ordering system for high value/low volume items and low logistic
cost for low value/high volume items. It moved from 'Push' system to 'Pull' system,
which resulted in substantial reduction of inventory holding period of
components. Each stage produced only as much as the next stage needed. The
local suppliers were advised to have their warehouses at a distance of 35-40
minutes from the EVML's production plants. Suppliers' being partners in progress
were given necessary technical assistance to maintain quality standards and
deliver the required components on time. Main components used in production
were classified into 'ABC' category with their suppliers also being classified
accordingly. It developed different delivery norms for each category. The plant
sent JIT card through email to the suppliers who dispatched the required
components directly to the assembly line. EVML introduced RFID, GPS tracking,
EDI, bar coding system to enhance inbound logistics. JIT system reduced the
annual average inventory of materials by 75% from the current level of ` 240
crores. Annual insurance and warehousing costs for inventory reduced by 60 %
of previous year figure of ` 5 crores. Annual Payroll expenses for current inventory
management staff reduced to 60 % of the previous year figure of ` 12 crores.
Additional annual costs for JIT system implementation and management,
including personnel costs were ` 7.5 crores. EVML's required rate of return on
inventory investment is 10%. JIT system also enabled the company to reduce the
delivery time of products to end customers.
With all the above activities at shop floor, EVML did not lose sight of the customer.
Customer satisfaction was the prime objective of EVML. EVML revamped
distribution network for its finished products. EVML set different delivery
schedules for its various products. EVML launched new 3S (Sales, Services and
Spares) dealerships in various cities to enhance customer service and reach. The
24 x 7 operational service outlet incorporated advanced tools and equipment and
pneumatic systems-integrated mobile service vans to attend to breakdowns. It set
up regional distribution centres at strategic locations to ensure that products were
delivered quickly to dealers and customers. It organized dealers training program
twice a year to keep them well equipped with latest changes in automobile
industry and technology. Customer Relationship Management (CRM) was used to
monitoring trends and forecast demand on the basis of inputs received from
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customers. Company automated the post- delivery feedback report. A customer
feedback report revealed three major parameters for service level targets: order
to delivery time, reliability of deliveries and availability of order status
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information. As a result of the steps taken by the company to revamp its supply
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chain, there was a significant increase in profits during the year 2023-24
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compared to year 2022-23.
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EVML provides assurance type warranty for one year which is included in the
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selling price of vehicles. To increase customer satisfaction and trust in the
company's products, EVML offers flexibility to customers by allowing them to
purchase the extended warranty plan either at the time of the original sale or just
before the standard warranty expires. An extended warranty plan offers to repair
or replace mechanical parts. Company determined that the two years of extended
warranty represent a separate performance obligation. Standalone selling price
of extended warranty is fixed at ` 15,000. On the basis of past experience, it is
estimated that ` 7,500 will be incurred to repair defects that would arise within

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one year coverage period for the assurance type warranty. In a board meeting

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held on 01.11.2024, Board of Directors of EVML, made a resolution in the Board

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meeting that the technical errors in the vehicles will be rectified even if warranty

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expired. But this matter was neither announced to the public nor intimated to
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affected parties.
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In a Board meeting held on 01.01.2025, Board of Directors of EVML had taken
strategic decision to set up a new manufacturing plant at Hisar. The initial capital
expenditure was estimated to be around ` 120 crores, for which EVML decided to
borrow ` 90 crores from the company's bankers by following due procedure as
per the Companies Act, 2013. Loan was sanctioned on 28.02.2025 and directors
of the company provided personal guarantee to bank for sanctioning the loan.
EVML also provided corporate guarantee of ` 12 crores for four years in case of

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loan given by bank to its associate Indian company DEF Ltd. and charged a fee of

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` 10,00,000 from DEF Ltd.
.c o
c. o The Board of the Directors of EVML has appointed Mr. Nilesh,ma qualified
management professional, having 25 years of rich industrialse
em l a experience, as

l as Additional Director, on 01.10.2024 by passing a board
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resolution by circulation.

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Mr. Nilesh is also a managing Director of PQR Limited, which is engaged in the
manufacturing of industrial spare parts. On 15.11.2024, Mr. Ramesh Chander
suffered a severe heart attack and being hospitalized, decided to retire from his
position as Managing Director. Management of the company proposed to appoint

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Mr. Nilesh as a Managing Director of the company. Notice of meeting was sent
to all the ten directors present in India. On 08.12.2024, he was appointed as
managing director by Board of Directors by passing resolution in the board
meeting with the consent of eight directors present in the meeting. Mr. Vinod, a
Director of the company, who had not attended the meeting, raised concern
regarding validity of his appointment, as he was of the view that proper procedure
as per the provisions of The Companies Act, 2013 was not followed.
EVML imported some components from a German Company in the month of
February 2025. The finance manager of company needs to borrow 5,00,000 euros
for 90 days to settle the payments. Policy of the company is not to take any
currency risk. The following rates are quoted: `/€ spot: 90/90.35 and 90 days
swap: 20/25. € Interest rates: 4.00/4.25; Banker suggests another alternative of
US dollar loan. Enquiries reveal that interest rate is 5% and $/€ rate is
1.0220/1.0240 and 90 days swap points of 15/10.
The income tax return filed by EVML on 30th October, 2023 for the Assessment
Year (A.Y.) 2023-2024 was selected under CASS (Computer Aided Scrutiny
Selection) by the Income Tax Department. During the assessment proceedings,
the assessing officer identified transactions related to foreign borrowings
amounting to US $ 45,00,000 at an interest rate of 8% from its overseas associate
company, and referred the matter to the Transfer Pricing Officer (TPO). Upon
examination, the TPO determined that the interest rate was excessive by 3%, a
finding that was subsequently accepted by EVML. As a result, the Assessing Officer
made an addition of ` 1.20 crores on account of the excessive interest rate.
Additionally, other additions amounting to ` 1.5 crores were made to EVML's
income for the A.Y. 2023-2024. The assessment order was received by EVML on
30th January, 2025.
Multiple Choice Questions:
[Please provide the correct option to the following questions]
2.1 Which of the following statement/(s) describes the explanation for the success
of EVML's supply chain transformation?
(i) The implementation of a pull system and JIT approach minimised excess
inventory costs resulted into net saving of ` 25.80 crores.

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(ii) The implementation of a pull system and JIT approach minimised excess
inventory costs and streamlined logistics and resulted into net saving of
` 18.30 crores.
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(iii) EVML shifted to a more flexible and responsive supply chain. EVML used

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tiered levels to enhance supplier relationships and improve the overall

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quality of components.

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(iv) The tier system was established to centralize all supplier functions and
eliminate local supplier networks.
Options:
(A) (i) and (iv)
(B) (i) and (iii)
(C) (ii) and (iii)
(D) (i), (iii) and (iv)
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2.2 Which of the following statements are correct with respect to the accounting

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and recognition of the warranties and provisions under relevant Ind AS?
(i) The resolution made by these
la it to recognize an additional liability for
Board on 01.11.2024 creates a constructive

g
a the standard warranty period.
obligation for EVML, requiring
warranty repairs beyond
(ii) Since the resolution made by Board on 01.11.2024 was not publicly
announced, it cannot be considered as constructive obligation, EVML
need not create any provision related to the technical repairs outside the
standard warranty period.
(iii) The contract liability of ` 15,000 is recognized as revenue over the

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extended warranty period of two years and the costs of providing

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extended warranty are recognized as incurred.
c o
. errors
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e impact the
(iv) The company should disclose the resolution regarding technical
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even though it is not publicly announced, because it could

las financial statements of future periods.
a g
ag Options:
(A) (i), (iii)
(B) (ii), (iii)

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INTEGRATED BUSINESS SOLUTIONS

(C) (i), (iii), (iv)
(D) (ii), (iii) and (iv)
2.3 Which of the following statements are incorrect as per the •relevant
provisions of the Companies Act, 2013?
(i) Mr. Nilesh can be appointed as Additional Director only by members at
the Annual General Meeting, hence his appointment as Additional
Director is not valid.
(ii) Appointment of Mr. Nilesh can be made only by passing resolution in
the Meeting of the Board and not by passing a resolution by circulation.
(iii) Appointment of Mr. Nilesh as Additional Director of EVML on 01.10.2024
by Board of Directors is valid and he can be appointed as Managing
Director of the company.
(iv) The appointment of Mr. Nilesh as Managing Director can only be made
through a unanimous resolution passed at a Board Meeting, with the
consent of all ten directors present in India and specific notice of the
Meeting and the resolution to be moved has been given to all directors.
Options:
(A) (i), (ii)
(B) (ii), (iii), (iv)
(C) (i), (ii), (iv)
(D) (i), (iii), (iv)
2.4 Which of the following statements is correct according to the relevant
provisions of the CGST Act, 2017?
(A) The value of the corporate guarantee provided by EVML in case of loan
given by bank to DEF Ltd. will be ` 10,00,000, as this is the fee explicitly
charged for the corporate guarantee service, and GST of ` 1,80,000 will
be payable. Value of the personal guarantee given by directors to bank
in case of loan given to EVML will be zero and therefore no GST will be
payable on such supply of service.
(B) The value of the corporate guarantee provided by EVML in case of loan
given by bank to DEF Ltd. will be ` 12,00,000 and GST of ` 2,16,000 will
be payable. Value of the personal guarantee given by directors to bank
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in case of loan given to EVML will be zero and therefore no GST will be
payable on such supply of service.

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(C) The value of the corporate guarantee provided by EVML in case of loan
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given by bank to DEF Ltd. will be ` 48,00,000 and GST of ` 8,64,000 will

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be payable. Value of the personal guarantee given by directors to bank

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in case of loan given to EVML will be zero and therefore no GST will be

l a payable on such supply of service.
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ag (D) The value of the corporate guarantee provided by EVML in case of loan
given by bank to DEF Ltd. will be ` 48,00,000 and GST of ` 8,64,000 will
be payable. Value of the personal guarantee given by directors to bank
in case of loan given to EVML shall be based on open market value and
GST will be payable on such supply of service.
2.5 Which of the following statements are incorrect with respect to GST liability
and the liability to reverse Input Tax Credit (ITC) for supplies related to the

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replacement of parts during the warranty period?
(i)
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An extended warranty involving goods and services, sold separately by

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the manufacturer or dealer, is treated as a mixed supply.

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(ii) Where a customer enters into an extended warranty agreement entered

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with the manufacturer at the time of purchase of vehicle, the
consideration for the warranty is included in the mixed supply value, with
the principal supply being the vehicle, and GST is paid accordingly.
(iii) GST is applicable on the value of warranties if the warranty is provided
as a separate supply from the vehicle sold and the customer is charged
separately for the warranty.
(iv) GST is not applicable on the replacement of parts by the original
manufacturer during the warranty period. However, the Input Tax Credit
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(ITC) claimed on the parts replaced free of charge must be reversed.
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c. o Options:
se
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s em (A) (i), (ii), (iii)
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(B) (i), (iii), (iv)
(C) (ii), (iii), (iv)
(D) (i), (ii), (iv) (5 x 2 = 10 Marks)

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INTEGRATED BUSINESS SOLUTIONS

Descriptive Questions:
2.6 Discuss how did EVML strategically improve its in-bound and out-bound
supply chain to reduce costs, minimize inventories and enhance customer
satisfaction. (6 Marks)
2.7 Advice which of the two currencies should be attractive for EVML to borrow.
(Assume 1 year = 360 days) (5 Marks)
2.8 Discuss in brief the repercussion of addition of ` 1.2 crores to the income of
EVML. (4 Marks)

ANSWER TO CASE STUDY 2
2.1 Option (C): (ii) and (iii)
2.2 Option (B): (ii), (iii)
2.3 Option (C): (i), (ii), (iv)
2.4 Option (A): The value of the corporate guarantee provided by EVML in
case of loan given by bank to DEF Ltd. will be ` 10,00,000, as this is the fee
explicitly charged for the corporate guarantee service, and GST of `
1,80,000 will be payable. Value of the personal guarantee given by directors
to bank in case of loan given to EVML will be zero and therefore no GST
will be payable on such supply of service.
OR
Option (C): The value of the corporate guarantee provided by EVML in case
of loan given by bank to DEF Ltd. will be ` 48,00,000 and GST of ` 8,64,000
will be payable. Value of the personal guarantee given by directors to bank
in case of loan given to EVML will be zero and therefore no GST will be
payable on such supply of service.
2.5 Option (D): (i), (ii), (iv)
2.6 A supply chain is a complete network of entities involved in serving
customers or end consumers—whether linked directly or operating
interdependently. It includes vendors who supply raw materials,
manufacturers who transform these materials into finished products,
warehouses that store the products, distribution centres that facilitate their
movement to retailers, and retailers who finally deliver the product to the

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end users. In the case of EVML, a decline in volume by 14.29% led to the
accumulation of unsold inventory, indicating inefficiencies in the supply
chain. To address this challenge, EVML decided to re-gear its systems,
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including material ordering, handling, procurement, and inventory control.
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As a strategic response, the company embarked on a comprehensive
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revamp of both its inbound and outbound supply chains, with the objective
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of enhancing operational efficiency, reducing costs, and improving
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responsiveness to market demand.
a Management of Upstream Supplier Chain (Inbound)
To strengthen its inbound supply chain and address the challenges arising
from excess inventory due to a decline in volume, EVML identified two key
strategies to reduce supply chain costs: (i) reduction in material costs, and
(ii) reduction in inventory carrying costs through the implementation of the
Just-in-Time (JIT) technique. The company adopted value engineering to
analyze the composition of parts and explore opportunities for cost
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reduction by substituting or eliminating expensive materials and

.
processes—without compromising on functionality. EVML transitioned

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from a traditional “Push” system to a “Pull” system, where production at

l a
each stage was synchronized with the actual demand of the subsequent
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stage. It implemented JIT ordering for high-value, low-volume items to
minimize capital lock-in, and optimized logistics for low-value, high-
volume items to reduce transportation costs. To support this strategic
transformation, the following actions were undertaken:
Relationship with Suppliers
EVML considered its suppliers as key partners in its growth and success,
fostering strong, collaborative relationships built on mutual benefit. To

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strengthen these partnerships, the company provided technical assistance,

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including training, sharing best practices, and supporting process

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improvements to help suppliers consistently meet quality standards and

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delivery schedules. EVML’s supplier strategy emphasized sharing the cost
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las benefits gained through value engineering and process enhancements,
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encouraging continuous innovation and collaboration. This approach

a ensured consistent quality, timely delivery, and enhanced overall supply
chain efficiency.

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INTEGRATED BUSINESS SOLUTIONS

Number of Suppliers
As part of its supply chain restructuring, EVML began by developing a
comprehensive database for over 18,000 parts, aligning them with
corresponding supplier part numbers. Using Pareto analysis (80/20 rule) to
evaluate supplier performance, EVML identified that approximately 25% of
its 1,500 suppliers accounted for nearly 80% of its procurement value, while
60% of the suppliers contributed to only 5% of the total business volume.
This imbalance indicated significant inefficiencies and high transaction
costs in managing a fragmented supplier base. To streamline procurement
operations and improve supply chain efficiency, EVML set a strategic goal
to reduce its supplier base from 1,500 to 800. The company assessed
potential and existing suppliers based on their ability to meet quality
standards, technical specifications, pricing benchmarks, and delivery
reliability. A fundamental shift towards Tiering and system buying drove its
vendor consolidation initiative, wherein EVML engaged directly with Tier-1
suppliers supported by Tier-2 and Tier-3 vendors. This structure not only
improved coordination but also established clear responsibility chains
within the supply network. The consolidation was in alignment with lean
manufacturing principles, aiming to reduce waste, optimize resource
utilization, and enhance flexibility across production processes.
Cost, Quality, and Speed of Delivery
To optimize cost, ensure consistent quality, and enhance the speed of
delivery, EVML adopted a structured supplier engagement strategy. Local
suppliers were advised to maintain warehouses within a 35–40 minute
radius of EVML’s production plants, thereby reducing lead time and
logistics costs. The company provided necessary technical assistance to
these suppliers to uphold stringent quality standards and ensure timely
delivery of components. A comprehensive ABC classification of main
production components and their respective suppliers enabled EVML to
develop tailored delivery norms for each category, aligning supply
frequency and priority with production needs. The introduction of a JIT
system ensured that the plant sent JIT cards via email, prompting suppliers
to dispatch components directly to the assembly line precisely when
required. This minimized inventory holding and enhanced production
responsiveness. Furthermore, the Single Window Vendor Management
System facilitated seamless coordination with suppliers—streamlining the

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sharing of technical drawings, pricing negotiations, and resolution of
quality-related issues. Together, these initiatives contributed significantly
to cost efficiency, higher product quality, and faster delivery cycles within
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EVML’s inbound supply chain.
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Make or Buy and Outsourcing
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EVML’s
parts, both indigenous and imported, rather than relying g
purchasing policy emphasized maximizing the proportion of

lheavily on in-house manufacturing. This strategy enabled the company toa
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bought-out
a focus on its core competencies such as design, assembly, and quality
control, while leveraging external expertise for component manufacturing.
To ensure cost competitiveness and access to high-quality components,
EVML adopted a global sourcing approach—identifying and engaging with
suppliers across international markets who could meet its stringent quality,
cost, and delivery benchmarks.

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Use of Information Technology

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EVML strategically leveraged Information Technology to streamline its

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inbound logistics and vendor coordination. Key digital tools such as RFID,

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GPS tracking, Electronic Data Interchange (EDI), and barcoding systems

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were introduced to enhance real-time visibility, traceability, and efficiency
across the supply chain. The use of JIT cards, transmitted electronically via
email, enabled suppliers to dispatch components directly to the assembly
line in sync with actual production needs, minimizing inventory holding and
improving responsiveness.
Further integrating its procurement and quality functions, EVML
established a Single Window Vendor Management System, jointly managed
by the Procurement and Quality Engineering teams. This system served as

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a centralized platform to facilitate technical assistance, price negotiations,

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quality resolution, and approval workflows. Within the framework of
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centrally negotiated pricing agreements, unit-level material functions used

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this platform to interact with an approved panel of vendors, ensuring that

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materials were "pulled" just in time, in alignment with dynamic production

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INTEGRATED BUSINESS SOLUTIONS

Downstream Supply Chain Management (outbound)
EVML’s downstream supply chain management focused on ensuring timely
and efficient delivery of finished products to customers. The company
revamped its distribution network by establishing regional distribution
centers at strategic locations and launching 3S (Sales, Services, and Spares)
dealerships across various cities to enhance customer reach and service.
With tailored delivery schedules and advanced logistics tools like RFID and
GPS tracking, EVML improved order fulfillment speed and reliability.
Regular dealer training and a robust customer relationship management
system helped maintain high service standards, ultimately boosting
customer satisfaction and loyalty.
Relationship Marketing
EVML’s launch of new 3S (Sales, Services, and Spares) dealerships across
various cities, along with 24x7 operational service outlets and mobile
service vans, reflects a strong focus on relationship marketing as per the
Six Markets Model. By setting up regional distribution centers for faster
delivery and organizing bi-annual dealer training programs, EVML
effectively manages multiple markets—such as supplier markets, and
customer markets—ensuring high service quality and customer
satisfaction. This comprehensive approach strengthens long-term
relationships with customers, dealers, and other stakeholders, fostering
loyalty and creating a competitive advantage through enhanced service,
trust, and communication.
Customers Relationship Management
Despite focusing on improving operations at the shop floor, EVML never
lost sight of its prime objective—customer satisfaction. To support this, the
company revamped its distribution network for finished products and
established different delivery schedules tailored to various product lines.
Customer Relationship Management (CRM) systems were employed to
monitor market trends and forecast demand based on customer inputs.
Additionally, EVML automated the post-delivery feedback process, which
highlighted three key service level targets: order-to-delivery time, reliability
of deliveries, and availability of order status information. These efforts
ensured a seamless customer experience and helped EVML maintain high
service standards.

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Customer’s Selection, Acquisition, Retention, and Extension
EVML’s customer strategy seamlessly integrates selection, acquisition,
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retention, and extension to build lasting relationships. Customers initially
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select EVML vehicles with confidence due to the one-year assurance-type

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warranty included in the selling price, which guarantees product quality and

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reliability. During acquisition, EVML offers the option to purchase an

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extended warranty plan—covering repairs or replacements of mechanical

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parts—either at the time of sale or just before the standard warranty
expires, providing added flexibility and security. This extended warranty,
priced separately at ` 15,000, represents a distinct performance obligation,
reinforcing customer commitment. To ensure retention, EVML relies on its
strong post-sale support, including resolving technical errors even beyond
the warranty period, as decided by the Board on 01.11.2024, though not
publicly announced. This comprehensive approach not only enhances
customer satisfaction and trust but also encourages long-term

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engagement through extended service offerings and proactive support.

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The use of Information Technology in Downstream Supply Chain
Management
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EVML leverages advanced information technology to streamline its
a
downstream supply chain management. The company uses real-time
tracking systems, automated inventory management, and electronic data
interchange (EDI) to ensure timely and accurate delivery of finished
products to regional distribution centers and dealers. Integration of IT tools
enables efficient order processing, better demand forecasting, and
improved communication with dealers, enhancing overall customer service
and responsiveness in the sales, services, and spares (3S) network.

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Brand Strategy

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EVML’s brand strategy focuses on building a strong, reliable, and customer-
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centric image in the competitive automobile market. By consistently

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delivering quality products, offering excellent after-sales service through

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its 3S dealerships, and emphasizing innovation and sustainability, EVML
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INTEGRATED BUSINESS SOLUTIONS

Conclusion
In short, EVML’s supply chain transformation—driven by JIT
implementation, digital integration, and strong supplier and customer
relationships—led to a 75% reduction in inventory, significant cost savings
in warehousing and payroll, and faster product delivery. Despite added JIT
costs, the overall returns exceeded expectations, enhancing efficiency,
customer satisfaction, and long-term competitiveness.
2.7 Borrowing Money in €

Particulars Amount in €
Borrowing Amount 5,00,000.00
Add: Interest @ 4.25% × 90/360 × € 500,000 5,312.50
Amt. Repayable in € (A) 5,05,312.50
`/€
Spot Rate 90.35
Add: Swap Points 0.25
Applicable Rate (B) 90.60
Amount Repayable in ` (A) × (B) 4,57,81,312.50

Note: In case the amount repayable in € is rounded off then above
repayable amount in ` shall be ` 4,57,81,267 or ` 4,57,81,358.

Borrowing Money in $

Particulars Amount in $
Equivalent Amount in (` 5,00,000 × $ 1.0240) 5,12,000.00
Add: Interest @ 5% × 90/360 × $ 512,000 6,400.00
Repayable in $ (a) 5,18,400.00
$/€
Spot Rate 1.0220
Less: Swap Points 0.0015
1.0205

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Equivalent Rate of €/$ (1/1.0205) 0.9799
Equivalent Rate of `/$ (90.60 × 0.9799) or 88.78
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Equivalent amount of repayment in ` ($ 518,400 × 460,23,552

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88.78) (a) × (b)

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l a If rounded off the equivalent rate upto 3 decimal points then above ag
ag amount
Note:
shall be approx. ` 4,60,23,034 and if rounded off upto 4 decimal
points then amount shall be approx. ` 4,60,22,982.

Decision: Since the cash outflow is least in case of borrowing in Euro, the
amount should be borrowed in €.
Alternative Solution
If the company borrows in Euros, it will have to repay.

m
co
€ 5,00,000 {1 + 0.0425(90/360)} = € 5,05,312.50

.
em
The `/€ 90 day rate are 90.20/90.60. Thus, it must buy euros forward at

l a s
` 90.60. Thus, total payment will be € 5,05,312.50 × ` 90.60

g
= ` 4,57,81,312.50
a
With a dollar loan, EVML would have to borrow at the rate of € 1 = $ 1.0240.
Thus, $ 5,12,000 (5,00,000 × $ 1.0240) to acquire € 5,00,000. The repayment
would be:
$ 5,12,000 × {1+ 0.05 (90/360)} = $ 5,18,400
The $/€ 90 day outright rate is 1.0205/1.0230. Now to convert $ to rupees
we need a cross rate `/$. We have to calculate the bid rate, as we would
sell dollars to receive rupees.

o m
m
(`/$)bid = (`/€)bid × (€/$)bid
.c
c. o e m
Thus, EVML would have to pay ` ($ 5,18,400 x ` 88.78) =a`s 4,60,23,552 to
= ` 90.60 × 1/1.0205 = ` 88.7800

s em l
buy Euro forward to repay the loan. This is moregthan Euro loan by
gla a
a ` 2,42,239.50.
Therefore, finance manager of EVML should choose Euro loan and
reject bank’s suggestion.

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INTEGRATED BUSINESS SOLUTIONS

2.8 On account of the primary adjustment of ` 1.20 crores made by the
Assessing Officer in the total income of EVML for A.Y.2023-24, secondary
adjustment has to be made under section 92CE, since –
(i) The company has accepted the primary adjustment made by the
Assessing Officer;

(ii) The primary adjustment is in respect of A.Y.2023-24; and
(iii) The primary adjustment exceeds ` 100 lakhs.
Accordingly, the excess money i.e., ` 1.20 crores available with the
associated enterprise has to be repatriated to India within 90 days of the
date of the order of the Assessing Officer.
If the same is not repatriated to India within that time limit, it would be
deemed as an advance made by the EVML to its associated enterprise and
interest would be calculated on such advance at the rate of six-month
LIBOR as on 30th September, 2024 + 3%, since the international transaction
is denominated in foreign currency. Such interest computed from 30.1.2025
to 31.3.2025 would be added to its total income for A.Y.2025-26.
Alternatively, EVML can opt to pay additional income-tax @20.9664% (tax
@18% plus surcharge @12% plus cess@4%) on ` 1.20 crores, which
amounts to ` 25,15,968.

CASE STUDY - 3
ABC Electronics Limited manufactures and sells various electronic items including
ceiling fans. It manufactures and sells 15,00,000 ceiling fans annually. A ceiling
fan is composed of an electric motor, blades, metal arms, a flywheel, a rotor, and
other components. Annually it is purchasing 12,00,000 sets of blades from an
outside supplier at ` 615 per set. The production manager is of the opinion that
if all the components are produced at own plant, it is possible to maintain better
quality in the finished product. Further he proposed that in-house production of
blades with other items will provide more flexibility to increase the annual
production of fans by 1,50,000 units. He estimates the cost of manufacturing one
set of blades as under:

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FINAL EXAMINATION: MAY 2025

` per set
Direct material 380
m
m c. o
Direct labour 60

c. o
Factory overheads (65% variable) 180
s e m
e m of production manager was forwarded to marketing manager for la
s He pointed out that to market the additional units, the overall unit g
The proposal

l a
his remarks.
g a
aincrease by ` 4 per unit and additionally ` 36 lakh should be incurred for
price of ceiling fan should be reduced by 2% and variable marketing cost will

advertisement. The present average selling price and average variable cost
(including cost of blades purchased from outside supplier) per ceiling fan are
` 3,500 and ` 3,200 respectively. Mr. Kushal, Director (finance) has asked
CA Harsh, Chief Management Accountant of the company to prepare a report on
the viability of the proposal.
The demand for electronic goods has been increasing in India. Hence, the
m
co
management wants to increase the annual manufacturing capacity. Due to
.
em
increased production requirements, ABC Electronics Ltd. also bought additional

s
indigenous machinery for the production line and sold some old machinery. All

g l a
assets were purchased by account payee cheque. Below are the details of plant
and machinery.
a
S. No. Particulars `
1. Opening WDV for plant and machinery on
01.04.2024 (eligible for depreciation @15%) 12,60,00,000
2. New plant and machinery purchased on 30.07.2024
and put to use on 30.09.2024 (excluding IGST @18%) 1,50,00,000
3. New plant and machinery purchased on 15.09.2024
o m
m 4. Sale of old plant and machinery on 10.10.2024
and put to use on 05.10.2024 (excluding IGST @18%)
.c1,20,00,000

c. o se
m75,00,000

s em g l a under the
la
Company has strength of around 600 employees and is registered

g a has been
Factories Act, 1948. A provident fund trust (a private trust) created as
a per the norms of respective law. The company transfers employer and employee
contribution to the trust and it is managed by the trustees. The company is
responsible for providing principal amount along with a specified rate of return.

104

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INTEGRATED BUSINESS SOLUTIONS

Accountant of the Company has considered it as defined contribution plan and
accordingly accounted for in the books of accounts.
ABC Electronics Limited imported automatic machine from USA for upgrading its
production facilities. The events relating to its entry into India and the discharge
and onward movement are as follows:

Date Event Exchange Rate in `
(notified by CBIC)
20th January, 2025 Vessel enters the Indian ` 80
territorial waters
22nd January, 2025 Bill of entry filed for ` 82
warehousing of goods
23rd January, 2025 Entry inward granted to the ` 84
vessel
30th March, 2025 Bill of entry presented for home ` 85
consumption

The rate of custom duty was 25% as on the date of presentation of bill of entry
for warehousing of goods and it was reduced to 15% w.e.f. 2nd February, 2025.
The details of such import transactions are as follows:

S. Particulars Amount
No.
1. Cost of machine US$ 40,000
2. Transportation charges from the factory of exporter US$ 1,000
to the port for shipment & handling charges for
loading of machine in the ship
3. Commission paid (not the buying commission) to the ` 1,50,000
local agent of exporter
4. License fee relating to imported goods payable by 10% of the price
buyer as a condition of sale of machine
5. Actual insurance ascertainable charges paid are not -
ascertainable
6. Freight charges from USA to India US$ 4,000

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7. Lighterage charges paid by company at Indian Port ` 28,800
8. Unloading and handling charges paid at the Indian ` 10,000
m
c. o
Port

o m m
.c
9. Warehouse charges paid in India ` 60,000

s e
emand GST Compensation Cess is NIL l a
10. Integrated Tax is 18% and Social Welfare Cess is
s
la the year, in a board meeting, proposal was raised to implement a newa
10%
g
g
adigital system to streamline both accounting and production processes, aiming to
During

enhance overall efficiency. To lead this initiative, Mr. Amit, an experienced IT
professional, had been appointed as the IT Manager. While he acknowledged the
significant benefits that new technologies can bring, he was also aware of the
potential risks they may pose. After carefully assessing the technological risks
associated with the implementation of the new system, Mr. Amit ensured that the

m
necessary controls are put in place to mitigate these risks. As a result, the digital
system was successfully implemented.
c. o
e mthe statutory auditor' of the company.
s
NGH & Co., Chartered Accountants, is

g l a holds meetings with Mr. Kushal and other
CA. N, Partner at NGH & Co., regularly
a
members of the Accounts Department. In a meeting held at the company’s office
regarding audit planning, Mr. Kushal informed CA. N about the full digitization
of both the Accounting and Production processes.
Once the formal audit discussions concluded, Mr. Kushal and CA. N engaged in a
general conversation. During this discussion, Mr. Kushal informed that on
31st December, 2024, he had received an i-Phone worth `1,20,000 as a gift from
his brother Suresh, who is a British national. Additionally, Mr. Kushal mentioned
m
co
that on 31st January, 2025, he also received a foreign remittance of ` 9,00,000 as
m .
c. o m
a gift from Suresh for the purpose of purchasing property in his name. Suresh had

em
gone out of India in the year 2005 and is permanently settled in UK. Kushal raised

la se
las g
another query from CA. N that Suresh holds agricultural land inherited from his
a
g
parents and is considering selling it. He wants to repatriate the entire proceeds
a out of India. Kushal informed that he has advised Suresh to use the proceeds
either to purchase another piece of agricultural land or buy a residential flat in
Jaipur.

106

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Multiple Choice Questions:
[Please provide the correct option to the following questions]
3.1 Given the information about ABC Electronics Ltd.'s plant and machinery,
what is the amount of depreciation (including additional depreciation) that
can be claimed as per the Income-tax Act, 1961 for the A.Y. 2025-26? The
company has opted for section 115BAA/115BAB.
(A) ` 2,09,25,000
(B) ` 2,44,95,000
(C) ` 2,42,25,000
(D) ` 2,51,25,000
3.2 Which of the following statement is accurate with respect to the classification
and accounting treatment of the provident fund plan under relevant Ind AS?
(A) The provident fund scheme is correctly classified as a Defined
Contribution Plan and the company is required to recognize only the
contribution made during the period as an expense in the statement of
profit and loss.
(B) The provident fund scheme should have been classified as a Defined
Benefit Plan and the company will account for the guaranteed return as
part of the periodic service cost, instead of recognizing it as a component
of the defined benefit obligation.
(C) The provident fund scheme should have been classified as a Defined
Benefit Plan and the company will need to calculate its net defined
benefit liability or asset by considering not just the guaranteed return
but also the investment return, which may vary over time.
(D) The provident fund scheme is classified as a Defined Contribution Plan,
but the company should account for it as a Defined Benefit Plan. The
company is required to recognize a net liability, which is the future value
of the obligation minus the fair value of the plan assets held by the trust.
3.3 As an auditor evaluating the risks associated with a newly implemented
digital system in a company's accounting and production processes, which of
the following controls should most likely be tested to assess the potential
technology risks before relying on the system?

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FINAL EXAMINATION: MAY 2025

(i) Testing the robustness of the system's encryption protocols to ensure
data confidentiality and integrity during transmission.

m
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(ii) Testing physical access to the server or production hardware to ensure
m
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overall IT security but not specifically linked to system operation.

. em
m
(iii) Reviewing the company's employee training programs to assess if users
e l a s
l a s a g
are properly educated on how to interact with the system and avoid

ag (iv) Verifying that the digital system has adequate backup and recovery
common errors.

procedures to ensure data is not lost in case of system failure.
Options
(A) (i), (ii)
(B) (i), (iii)
(C) (i), (iv)

o m
c
3.4 Which of the following statements is. correct regarding the gift received by
(D) (i), (iii), (iv)

m provisions of FCRA, 2010?
ethe
la s
Mr. Kushal during the year as per
(A) Intimation to CentralgGovernment
a is not required because i-Phone is
considered a personal gift from a relative and foreign contribution
received in cash does not exceed the threshold limit specified under
FCRA.
(B) Intimation to Central Government in form FC-1 electronically is required
to be submitted within three months from 31st December, 2024
regarding i-phone because market value exceed the threshold limit

m
specified under FCRA.

m (C) Intimation to Central Government in form FC-1 electronically is required
.co
c. o to be submitted within three months from 31st January, 2025 for total
se
m
em la
foreign contributions received from brother as it exceeds the threshold

las limit specified under FCRA.
a g
ag (D) Intimation to Central Government in form FC-1 electronically is required
to be submitted within three months from 31st January, 2025 for foreign
contribution received in cash only, not for the i-phone.

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INTEGRATED BUSINESS SOLUTIONS

3.5 As per FEMA guidelines, which of the following statements are correct
regarding Kushal' s brother intentions?

(i) He can transfer the inherited agricultural land to a person resident in
India by way of sale and invest the proceeds in purchasing another
agricultural land in India from a person resident in India.

(ii) He can transfer the inherited agricultural land to person resident in India
and invest the proceeds in purchasing a residential flat in Jaipur.
(iii) He can transfer the inherited agricultural land to a person resident in
India by way of sale and remit the proceeds outside India subject to
permissible limit.
(iv) He can transfer the inherited agricultural land to a person resident in
India by way of sale but he cannot remit the proceeds outside India.
Options
(A) (i), (iii)
(B) (ii), (iii)
(C) (i), (iv)
(D) (ii), (iv) (5 x 2 = 10 Marks)
Descriptive Questions:
3.6 Analyze the make or buy decision and recommend the most profitable
alternative. Assess the sensitivity of such decision to the external purchase
price. (5 Marks)
3.7 Determine the assessable value of the machinery imported and compute the
amount of total custom duty and integrated tax payable by ABC Electronics
Ltd. (7 Marks)
3.8 What technological risks did Mr. Amit consider while implementing the
digitisation of accounting processes? (3 Marks)

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ANSWER TO CASE STUDY 3
3.1 Option (A): ` 2,09,25,000
m
m
3.2 Option (C): The provident fund scheme should have been classified as a
c. o
.co
Defined Benefit Plan and the company will need to calculate its net defined

s em
m
benefit liability or asset by considering not just the guaranteed return but
e l a
a s
also the investment return, which may vary over time.
3.3 lOption (C): (i), (iv) a g
a3.4g Option (B): Intimation to Central Government in form FC-1 electronically
is required to be submitted within three months from 31st December, 2024
regarding i-phone because market value exceed the threshold limit
specified under FCRA. OR
Option (C): Intimation to Central Government in form FC-1 electronically
is required to be submitted within three months from 31st January, 2025 for

m
total foreign contributions received from brother as it exceeds the

co
threshold limit specified under FCRA.
.
em
3.5 Option (B): (ii), (iii)

l a s
3.6 To analyse the make or buy decision and determine the most profitable

a g
option for ABC Electronics Ltd., we will compare the net benefit under the
both options and conduct a sensitivity assessment regarding the external
purchase price.
Benefit Under Current Scenario, when blades are Purchased
Particulars No. Of Per Fan Amount Per fan
Fans (`) (`) Contribution
(`)

m
c. o 300
Sales 15,00,000 3,500 5,25,00,00,000

m
c. o
Purchase cost 12,00,000 615 (Note 1) (73,80,00,000)
of Blade sets
(4,06,20,00,000) s
em
s em Other VC 15,00,000 2,708 (Note 2)
g la
gla Contribution (A)
a
45,00,00,000

a Benefit Under Proposed Scenario, when blades will be in-house
manufactured

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INTEGRATED BUSINESS SOLUTIONS

Particulars No. Of Fans Per Fan Amount Per fan
Benefit
(`) (`) (`)
Sales 16,50,000 3,430 5,65,95,00,000
Cost of Manufacture
Blade sets (Based on
proportionate sets
requires for 16,50,000
fans) 13,20,000 557 (Note 1) (73,52,40,000)
270.2182
Other VC 16,50,000 2708 (4,46,82,00,000)
Marketing 16,50,000 4 (66,00,000)
Contribution 44,94,60,000
Advertisement (36,00,000)
Net Benefit (B) 44,58,60,000

Loss due to shift from buying to in-house making of blades

Net Loss (A – B) ` 45,00,00,000 – ` 44,58,60,000 ` 41,40,000

Note 1: Outside market price and manufacturing cost of blade sets.
Outside market price of per set of blades = ` 615
Manufacturing cost per set of blades (DM + DL + Factory O/Hs Variable)
= ` 380 + 60 + 117 = ` 557
Note 2: Analysis of Current Variable Cost

Particulars Cost per fan
(`)
Average VC 3,200
Purchase cost of blade per fan* (492)
Other VC 2,708

* 615 × 0.8 = 492 (As 15,00,000 fan requires 12,00,000 sets of blades. It
means 1 fan require 12L/15L = 0.8 blade set)
Sensitivity Analysis
Let’s determine at what purchase price where “make” and “buy” options are
equally beneficial. To determine the break-even external purchase price at

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FINAL EXAMINATION: MAY 2025

which benefit of in-house blade production becomes equal to benefit
under purchase option, we let X represent the supplier's price per set.

m
c. o
Particulars No. Of Fans Per Fan Amount

m
co m
(`) (`)
Sales
m . 15,00,000 3,500 5,25,00,00,000
s e
s e l a
a ag
Purchase price of Blades 12,00,000 X (12,00,000X)

l VC
ag Contribution
Other 15,00,000 2,708 (4,06,20,00,000)
1,18,80,00,000 -12,00,000 X

Current Situation Equated with Proposed Situation
1,18,80,00,000 - 12,00,000X = 44,58,60,000
74,21,40,000 = 12,00,000X
So, X = 74,21,40,000 / 12,00,000

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X = 618.45

.
em
It means, if the external purchase price of blade sets rises above `618.45

s
then in-house production becomes more profitable option. Conversely, if

g l a
the supplier continues to offer blade sets below `618.45 then it is more

a
economical for ABC Electronics to continue purchasing them externally.
Alternative Solution
To analyse the make or buy decision and determine the most profitable
option for ABC Electronics Ltd., we will compare the net benefit under the
both options and conduct a sensitivity assessment regarding the external
purchase price.

m
Benefit Under Current Scenario, when 12,00,000 blades (set) are

m
Purchased and balance 3,00,000 blades (set) manufactured in-house
c o
. Per fan
c. o Particulars No. Of Per Fan Amount (`)
s
m
eContribution
em la
Fans (`)

las a g (`)

ag Sales
Purchase cost of
15,00,000
12,00,000
3,500
615 (Note 1)
5,25,00,00,000
(73,80,00,000)
Blade sets

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Manufacturing 3,00,000 557 (16,71,00,000) 300
cost of Blade sets
Other VC 15,00,000 2,596.60 (3,89,49,00,000)
(Note 2)
Contribution (A) 45,00,00,000

Benefit Under Proposed Scenario, when all blades (set) will be in-house
manufactured

Particulars No. Of Per Fan Amount Per fan
Fans Benefit
(`) (`) (`)
Sales 16,50,000 3,430 5,65,95,00,000
Cost of Manufacture 16,50,000 557 (91,90,50,000)
Blade sets (Note 1)
Other VC 16,50,000 2,596.60 (4,28,43,90,000) 270.2182
Marketing 16,50,000 4 (66,00,000)
Contribution 44,94,60,000
Advertisement (36,00,000)
Net Benefit (B) 44,58,60,000

Loss due to shift from buying to in-house making of blades:
Net Loss (A – B) ` 45,00,00,000 – ` 44,58,60,000 ` 41,40,000

Note 1: Outside market price and manufacturing cost of blade sets.
Outside market price of per set of blades = ` 615
Manufacturing cost per set of blades (DM + DL + Factory O/Hs variable)
= ` 380 + 60 + 117 = ` 557
Note 2: Analysis of Current Variable Cost

Particulars Total Cost Per Fan
(`) (`)
Total VC 4,80,00,00,000
Purchase cost of Blade sets 73,80,00,000
(12,00,000 @ 615/-)

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FINAL EXAMINATION: MAY 2025

Manufacturing cost of Blade sets 16,71,00,000 2,596.60
(3,00,000 @557/-)

m
c. o
Other VC (balance) 3,89,49,00,000

o m m
c
Therefore, Other Variable Cost per FAN will be ` 2,596.60.

m . s e
edetermine
Sensitivity
s at what purchase price where “make” and “buy” options are gl
Analysis
a
g a beneficial. To determine the break-even external purchase price ata
lequally
Let’s

a which benefit of in-house blade production (full) becomes equal to benefit
under purchase (partial) option, we let X represent the supplier's price per
set.
Particulars No. Of Per Fan Amount
Fans (`) (`)
Sales 15,00,000 3,500 5,25,00,00,000

m
Purchase price of Blades 12,00,000 X (12,00,000X)

c. o 557
Manufacturing cost of

em 2,596.60
Blade sets 3,00,000 (16,71,00,000)

s
gla
Other VC 15,00,000 (3,89,49,00,000)
Contribution 1,18,80,00,000 - 12,00,000X
a
Current Situation Equated with Proposed Situation:
1,18,80,00,000 - 12,00,000X = 44,58,60,000
74,21,40,000 = 12,00,000X
So, X = 74,21,40,000 / 12,00,000
X = 618.45
It means, if the external purchase price of blade sets rises above ` 618.45
m
m then in-house production becomes more profitable option. Conversely, if
.co
c. o the supplier continues to offer blade sets below ` 618.45 then it is more
se
m
em aElectronics Ltd.
economical for ABC Electronics to continue purchasing them externally.
s g l
la a
3.7 Assessable Value of the machinery imported by ABC

ag and total customs duty payable by it

Particulars Amount ($)
Cost of the machine 40,000

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INTEGRATED BUSINESS SOLUTIONS

Add: Transportation charges from the factory of 1,000
exporter to the port for shipment & handling charges
for loading the machine is the ship [Includible in the
assessable value].
Add: Licence fee relating to imported goods payable by 4,000
the buyer as a condition of sale
[10% of ` 40,000 (Price of machine)]
[Includible in the assessable value]
Total 45,000
Amount (`)
Value in Indian currency [$ 45,000 x ` 82] 36,90,000
[The relevant date for rate of exchange is the date on
which the bill of entry is presented for warehousing.]
Commission paid to local agent of exporter 1,50,000
[Includible in the assessable value since it is not
buying commission}
Customs FOB Value 38,40,000
Insurance [1.125% of FOB Value] 43,200
[If insurance cost is not ascertainable, the same shall be
added @ 1.125% of FOB value of the goods]
Freight Charges [$ 4,000 X ` 82] 3,28,000
[Includible in the assessable value]
Lighterage Charges 28,800
[Includible in the assessable value]
Unloading and handling charges paid at the Indian Nil
Port
[Only charges incurred for delivery of goods “to” the
place of importation are includible in the assessable
value]
Warehouse Charges. Nil
[Not includible, since only charges incurred for delivery
of goods “to” the place of importation are includible in
the assessable value]
Assessable value (AV) 42,40,000

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FINAL EXAMINATION: MAY 2025

Basic Custom Duty (BCD) [15% of AV] [a] 6,36,000
[Rate of duty is the rate prevalent on the date of

m
c. o
presentation of bill of entry or the rate prevalent on the

o m
date of entry inwards, whichever is later]
m
.c
Social Welfare surcharge @ 10% of BCD
Totalm
[b] 63,600
s e
s e [(a) +(b)] 6,99,600
gl a
l a a
ag Total custom duty and integrated tax [(a)
Integrated tax @ 18% of ` 49,39,600 [c] 8,89,128
payable 15,88,728
+(b) + (c)]

3.8 Emerging technologies can bring great benefits, but they also come with a
varied set of substantial risks. Mr. Amit should consider the following
technological risks while implementing the digitalization of accounting
processes:
• Reliance on systems or programs that are inaccurately processing data,

o m
processing inaccurate data, or both
c
• Unauthorized access to data that. might result in destruction of data or
e m the recording of unauthorized or
non-existent transactionsa s
improper changes to data, including
l
g
or inaccurate recording of transactions (specific
a
risks might arise when multiple users access a common database)
• The possibility of information technology personnel gaining access
privileges beyond those necessary to perform their assigned duties,
thereby leading to insufficient segregation of duties
• Unauthorized or erroneous changes to data in master files
• Unauthorized changes to systems or programs
Failure to make necessary or appropriate changes to systems or
m
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•

m .
programs

c. o Inappropriate manual intervention
se
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•

s g la
Potential loss of data or inability to access data as required
la • Risks introduced when using third-party service a
•

ag providers
• Cybersecurity risks

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CASE STUDY - 4
Latest Fashions Limited, Chennai is a listed company which is engaged in
manufacturing of yarn, knitted cloth, male garments, female garments and
customer specific products. The consolidated financial statements prepared
consisted of financial statements of the company and financial information of 6
subsidiaries audited by other auditors. 2 out of 6 subsidiaries are located outside
India whose financial statements have been prepared in accordance with
accounting principles generally accepted in their respective countries and have
been audited by other auditors under generally accepted auditing standards
applicable in their respective countries. These financial statements, financial
information and auditors reports of subsidiaries were furnished by management
of Latest Fashions Limited. As on 31st March, 2025 in respect of 6 subsidiaries the
total assets were ` 2,500 crores; total revenue for the financial year 2024-25 was
` 1,500 crores and net cash outflows were ` 15 crores.
It mobilized funds by issue of shares in the financial year 2022-23. As on
31st March, 2025 its book value was ` 150 for each equity share of the face value
of ` 10 each. Its return on equity is 15% and it retained 60% of its earnings. Its
opportunity cost of capital is 18%. Company has manufacturing facilities at
various locations in India such as Delhi, Agra, Kota, Cochin and Raipur.
The following are the details of segments of products reported by Latest Fashions
Limited in different geographical locations:

Segment External Revenue Profit Assets
` in crores
Yam Reported as Segment 2,500 900 800
Knitted Cloth Reported as Segment 2,300 150 600
Male Garments Reported as Segment 900 (100) 200
Others 2,300 50 100
8,000 1,000 1,700

Besides this, no other information related to customers has been reported in the
financial statements.
The knitted cloth segment has been operating for 12 years and has consistently
produced profits whereas the male garments segment which was commenced in
April, 2018 has been consistently incurring losses but has a proportionate share
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of goodwill of ` 5 Crores out of the total goodwill of ` 20 Crores appearing in the
financial statements of the company. It was decided by the Board of Directors of
Latest Fashions Limited that by way of demerger, the male garments segment
m
m
would be demerged with Men's Fashion Ltd., a new company. Necessary legal
c. o
.co
formalities were carried out in this regard both under the Companies Act, 2013
s em
em
and under the Income-tax Act, 1961. The demerger was made in April 2025. The
l a
a s
male garments segment along with its movable assets and liabilities (with net
l ag
ag
book value of ` 20 Crores) were demerged for a consideration of ` 50 crores to
Men's Fashion Ltd., a new company, who allotted 25 lakh equity shares of ` 100
each at a premium of ` 100 per share to the shareholders of Latest Fashions
Limited in full settlement of the consideration, in proportion to their
shareholdings.
For the month of January, 2025 Latest Fashions Limited gives the following
information of GST paid on purchases made / input services availed by it

S. Particulars GST paid

o m
c
No.

m. was ` 10,000)
`
(i) Capital goods (out of 6 items, invoice for 1 item was 90,000
missing and GST paid on thateitem
l a s lots, of which 3 lots were
ag
(ii) Inputs consisting of 5 equal 75,000
received during the month.
(iii) Travel benefits extended to employees on vacation under 1,10,000
statutory obligation as employer.
(iv) Purchased machinery for manufacturing process worth 1,80,000
` 10 lakhs and claimed depreciation under the Income-tax
Act, 1961 on ` 11,80,000 (including GST).

m
(v) Repair services for factory buildings debited to profit and 70,000

m
loss account.
c o
. of the
c. o One m
e premium to
of the Directors, Mr. Rohit, has approached the legal department
s
em l a a non- resident
Company to seek its opinion on the issue of payment of insurance

las g
a Company. Due
the insurance company. He explains that his elder brother Mohit,

ag Indian, has an Insurance Plan with a prominent Indian Insurance
to some impending financial difficulties, Mohit requested his brother Rohit, a
resident Indian, to make payment of few subsequent installments of Insurance
premium on his behalf. Though, Rohit said yes but being a director of a company

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INTEGRATED BUSINESS SOLUTIONS

and having some awareness about laws, he was not sure whether the payment is
permitted or not. In his view, there is no restriction under any law for transactions
with relatives and also no need to take any approval from any authority and also
the premium amount per year is less than ` 10.00 Lakh.
Rohit also sought guidance about the taxability of some transactions done in his
personal capacity. He sold 3 acres of agriculture land within the city limits of
Chandigarh which he had purchased on 1st December, 2003 for ` 36,60,000. Title of
the agriculture land was transferred on 20th August, 2024 for ` 1,90,00,000. On
31st August, 2024, he purchased another agriculture land situated in a remote village
having population of 9,000 people for ` 80,00,000. The nearest town was
30 kilometers from the agriculture land. On 28th February, 2025, he sold the
agriculture land purchased on 31st August, 2024 for ` 90,00,000. He has received
` 9,00,000 on 1st December, 2024 on account of buyback of 6,000 shares held by him
of X Ltd. These shares were purchased by him on 1st June, 2014 at ` 25 per share.
During the course of audit of Latest Fashions Limited, it was noticed that a
cyber-attack took place on the data in which files were encrypted through
malicious links delivered via email and computers got locked. The hacker then
demanded booty for decryption of files which was to be paid in bitcoins. Auditor
immediately started looking into cyber security risks of the company. He is
making inquiries regarding processes and controls relating to privileged account
access, patch management program, vendor risk management program. He has
also performed external network penetration testing.
Multiple Choice Questions:
[Please provide the correct option to the following questions]
4.1 Whether the segment reporting has been correctly done by Latest Fashions
Limited as per relevant IND-AS?
(A) Yes, however disclosure of revenues from transactions with a single
customer amounting to ` 1,200 Crores or more has not been made.
(B) Yes, however disclosure of revenues from transactions with a single
customer amounting to ` 800 Crores or more has not been made.
(C) Revenue of ` 6,400 Crores or more have not been reported separately,
so disclosure is not as per requirement of IND-AS. Also, disclosure of
revenues from transactions with a single customer amounting to ` 800
Crores or more has not been made.

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(D) Revenue of ` 6,000 Crores or more have not been reported separately,
so disclosure is not as per requirement of IND-AS. Also, disclosure of
revenues from transactions with a single customer amounting to ` 800
m
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Crores or more has not been made.
c. o
.co
4.2 What would be the price of each equity share of Latest Fashions Limited
s em
em l a
s
computed using dividend constant growth model?

g l a
(A) ` 60
ag
a (B) ` 120
(C) ` 100
(D) ` 154.50
4.3 How much would be the taxable amount of capital gain in the hands of Latest
Fashions Limited on demerger of male garments segment to Men's Fashion
Ltd.? Cost inflation index F.Y.2018-19 = 280; F.Y.2024-25 = 363. Figures to
be rounded off.
m
c. o
(A) Short Term Capital Gains ` 25 Crores

s emCrores
la` 24 Crores
(B) Long Term Capital Gains ` 19

a g
(C) Long Term Capital Gains
(D) NIL
4.4 If you are a part of legal team of company, what would be your response to
the query of director Rohit?
(A) Rohit is not permitted to make premium payment on behalf of his
brother.
(B) Rohit is permitted to make premium payment on behalf of his brother

o m
c
since Mohit is his real brother.
m (C) Rohit is permitted to make premium payment on behalf of his .brother as
c. o it is within the permissible limit of USD 250,000·per year. em
s
s em (D) Rohit is not permitted to make premium paymentlaon behalf of his

gla agGovernment of India.
a
brother unless he obtains permission from Central

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4.5 Which type of cyber-attack has happened and which control procedure
should be implemented to identify such risks?
(A) Trojan and formal training to make the teams aware of cybersecurity
risks.
(B) Ransomware and monitoring of firewall logs.
(C) Ransomware and prioritize protection of information assets based on
sensitivity and business value and periodically review the systems
connected to the network in which digital assets reside.
(D) Ransomware and aligning cybersecurity and IT transformation with
strategic objectives. (5 x 2 = 10 Marks)
Descriptive Questions:
4.6 Determine the amount of input tax credit available under GST law for Latest
Fashions Limited for the month of January, 2025 by giving reasons for
treatment of each item. (5 Marks)
4.7 Where and how much of information would be included in independent
auditor's report on consolidated financial statement of Latest Fashions
Limited by Statutory Auditors? (5 Marks)
4.8. Calculate the capital gain on sale of agriculture lands by Mr. Rohit during
the year. What are the tax implications of the amount received by him from
the buyback of shares and capital gain thereon?
(Cost inflation index for 2003-04 = 109, 2014-15 = 240, 2024-25 = 363)
(5 Marks)

ANSWER TO CASE STUDY 4
4.1 No Correct Option
4.2 Option (C): `100
4.3 Option (D): NIL
4.4 Option (A): Rohit is not permitted to make premium payment on behalf of
his brother.
4.5 Option (B): Ransomware and monitoring of firewall logs.

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FINAL EXAMINATION: MAY 2025

4.6 Computation of input tax credit available for Latest Fashions Limited
for the month of January, 2025

m
c. o
Particulars Amount of
m
co m
ITC Available

m . (`)
s e
s e l a
a ag
Capital Goods 80,000
l
ag
[ITC is available, only if registered person is in
possession of a tax invoice or debit note issued by a
supplier.]
Inputs consisting of 5 equal lots NIL
[No ITC is available, because where the goods against
an invoice are received in lots or instalments, the
registered person shall be entitled to take credit upon
receipt of the last lot.]

om
Travel benefits extended to Employees 1,10,000

. c
[ ITC is available in this case, where it is obligatory for

s em
an employer to provide the same to its employees

l a
under any law for the time being in force.]
Purchased Machinery forgManufacturing Process
a
[If depreciation on the tax component of the cost of
NIL

capital goods is claimed under the Income-tax Act
1961, the ITC on the said tax component shall not be
allowed]
Repair services for factory buildings debited to P&L 70,000
Account.

m
[ITC is available, since amount of repairs is not

m
capitalized in the cost of the factory and hence not
c. o
c. o blocked.]
m
se 2,60,000
em Total ITC
l a
l as a g
ag
4.7 In a case where the parent‘s auditor is not the auditor of all the components
included in the consolidated financial statements, then as prescribed in SA
706, if the auditor considers it necessary to make reference to the audit of
the other auditors, the auditor’s report on the consolidated financial
statements should disclose clearly the magnitude of the portion of the

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INTEGRATED BUSINESS SOLUTIONS

financial statements audited by the other auditors. This may be done by
stating aggregate rupee amounts or percentages of total assets, revenues
and cash flows of components included in the consolidated financial
statements not audited by the parent‘s auditor.
It should be included in Other Matter paragraph of independent auditor’s
report. The draft “Other Matter Paragraph” is as under: -
Other Matter Paragraph:
We did not audit the financial statements and other financial information,
in respect of six (6) subsidiaries, whose financial statements include total
assets of ` 2500 crores as at March 31, 2025, and total revenues of ` 1,500
crores and net cash outflow of ` 15 crores for the year ended on that date.
These financial statements and other financial information have been
audited by other auditors and such financial statements, other financial
information and auditor’s reports have been furnished to us by the
management of the Holding Company.
Our opinion on the consolidated financial statements, in so far as it relates
to the amounts and disclosures included in respect of these subsidiaries
and joint ventures, and our report in terms of sub-sections (3) of Section
143 of the Act, in so far as it relates to the aforesaid subsidiaries is based
solely on the reports of such other auditors.
Two of these subsidiaries are located outside India whose financial
statements and other financial information have been prepared in
accordance with accounting principles generally accepted in their
respective countries and which have been audited by other auditors under
generally accepted auditing standards applicable in their respective
countries. The Holding Company’s management has converted the financial
statements of such subsidiaries from accounting principles generally
accepted in their respective countries to accounting principles generally
accepted in India.
We have audited these conversion adjustments made by the Holding
Company’s management. Our opinion in so far as it relates to the balances
and affairs of such subsidiaries is based on the report of other auditors and
the conversion adjustments prepared by the management of the Holding
Company and audited by us. Our opinion on the consolidated financial
statements, and our report on Other Legal and Regulatory Requirements is

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FINAL EXAMINATION: MAY 2025

not modified in respect of the above matters with respect to our reliance
on the work done and the reports of the other auditors and the financial
statements and other financial information certified by the Management.
m
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4.8 Computation of Capital Gains on sale of urban agricultural land by

. em
s
Rohit for A.Y.2025-26

em l a
a s
Particulars
l Actual sale consideration
`
ag
ag Less: Cost of acquisition [No indexation benefit since it is
1,90,00,000
36,60,000
transferred on or after 23.7.2024]
1,53,40,000
Less: Exemption u/s 54B – In respect of agricultural land
1
80,00,000
purchased on 31.8.2024 which is a rural agricultural land,
Mr. Rohit is eligible to claim exemption u/s 54B. [See Note
for alternative answer]
m
Long term capital gain
c. o 73,40,000

s emRohit transferred urban agricultural land
larural agricultural land on 31.8.2024 which is
Note [Alternative answer] – Mr.

g
on 20.08.2024 and purchased
sold on 28.2.2025. Sinceathe rural agricultural land is sold within the same
previous year in which original asset was transferred i.e., P.Y. 2024-25, a view
can be taken that the exemption under section 54B would not be available
as at the time of filing return of income such acquired land does not exist. In
such case, long term capital gain would be ` 1,53,40,000.

Capital gain on sale of rural agricultural land

m
As per section 54B, if the new agricultural land is transferred within 3

m .co
years from the date of its purchase, while computing the capital gains

c. o m
on transfer of such new agricultural land, the cost of acquisition of such

em
land would be reduced by the amount of capital gain claimed as
la se
las exempted. However, since rural agricultural is not a capital asset, no
a g
g
capital gain would arise on sale of such land even though it is

a transferred within 3 years from the date of its purchase.

1
Assuming such agricultural land is used for agricultural purposes by the assessee or his
parents in the 2 years immediately preceding the date of transfer.

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Tax implications on buy-back of shares
The sum paid by X Ltd., a domestic company for purchase of its own
shares would be treated as dividend and taxable under the head
“Income from Other Sources” in the hands of Mr. Rohit. No deduction
for expenses would be available against such dividend income.
As per section 46A, value of consideration received by Mr. Rohit on buy
back of shares by X Ltd. would be Nil and the difference between the
cost of acquisition and the value of consideration received by Mr. Rohit
will be capital loss.
Accordingly, ` 10 lakhs [` 9 lakh/(100-10)%] would be taxable as
dividend income and there will be long term capital loss of ` 1,50,000
(6,000 shares x ` 25), being the cost of acquisition of shares, in the hands
of Mr. Rohit.
Hence, income from other sources would be ` 10 lakhs and long-term
capital loss would be ` 1,50,000 from buy back of shares. Such long-
term capital loss of ` 1,50,000 can be set off against long term capital
gain on sale of agricultural land.

CASE STUDY - 5
Surgical Equipments Limited based in Delhi is engaged in manufacturing of
medical surgical instruments. Products of the company are for use by particular
segment of the society who requires a product with good features and at
competitive prices. Company has been in the line of business for more than a
decade and has paid-up capital of ` 40 crores and turnover exceeding ` 400
crores. Company has presented complete set of financial results for 2 financial
years (31.03.2025, 31.03.2024) along with a statement of profit or loss for the
financial year ended on 31.03.2023.
During the year Surgical Equipments Limited acquired Medicines Limited. The
scheme of merger / acquisition is that the shares will be issued on one-to-one
basis to the shareholders of Medicines Limited. The exchange ratio is based on
the market prices of the shares of two companies. The following financial data is
provided to you:

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Particulars Surgical Medicines
Equipments Limited Limited

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c. o
Earnings before taxes (`) 25,00,000 18,50,000

o m m
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No. of equity shares (paid up) 8,00,000 4,00,000

m . s e
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PE ratio 14 times 10 times

a s g l
g l
Effective Tax rate applicable is 25%.
a
athe form of Term Loan which was to be paid in 36 monthly installments starting
For paying purchase consideration, borrowing from existing bankers was made in

after the period of twelve months. One of the conditions of the borrowing was to
get the Insurance Cover for full amount of assets which was not fulfilled by the
Company as on the date of Balance Sheet. Till the approval of financial
statements, no waiver has been given by the banker. The same loan has been
classified as Non-Current in the financial statements.

m
Surgical Equipments Limited is engaged in manufacture of 3 products viz. X, Y

. co
and Z. All the products have the same market demand. However, the key factor

em
is the availability of machines for manufacturing the product since the same set

a s
of machines are used for manufacturing them. The management of Surgical
l
a g
Equipments Limited wants to rank the products based on the rate at which
company is making money. This will be used to plan the production schedule for
the months taking note of the bottleneck constraint.
The following details are furnished regarding the products:

Particulars Product X Product Y Product Z
Selling price - per unit (`) 50 60 80
Material and other variable cost - per 30 40 50

m
c. o 8
unit (`)

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c. o Time required for manufacture - per 30 em
Fixed Cost per unit (`) 6 7

em
20
s
la minutes
40

las unit minutes
g
minutes
a
ag The factory cost is ` 0.50 per minute.
One of the Machine named as 'Treble' has been sold during the year as no future
economic benefits from its use were expected. Gain arising on disposal has been
included m Other Comprehensive Income appearing in the financial statements.
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Surgical Equipments Limited has supplied products to various customers both directly
and through dealers. It permitted the customers the benefit of warranty claims if
supported by adequate records like bills, delivery challans, remittance details etc.,
and replaced defective parts by supplying to them directly. In the month of
January, 2025, it supplied some parts valuing ` 3,00,000 to its corporate customer in
Mumbai. There would be no revenue accrual to Surgical Equipments Limited for the
supply made. The management is of the view that since the movement of goods is
caused due to reasons other than supply, e-way bill is not mandatorily required to
be generated in this case. Also, the accounts of Surgical Equipments Limited were
checked by GST Department officials for the financial year 2018-19 and the appeal
preferred by it, is pending before the GST appellate authority.
Surgical Equipments Limited wants to make Overseas Direct Investment (ODI) in
financial services activity in UK. It wants to know the way by which it can
subscribe to share capital and the limits on investment vis a vis its profits. It also
wants to implement a business model as suggested by Christensen & Kaggerman
for the financial services activity proposed by way of ODI in UK.
Secretarial department of Surgical Equipments Limited while submitting
shareholders data to regulatory authorities observed that a particular name HVB
is appearing in the name of many non-individual shareholders. In the meantime,
HVB group made an offer of acquisition to the Board of Directors of Surgical
Equipments Limited which was rejected by it. HVB did not stop there and
approached the shareholders of Surgical Equipments Limited through a public
announcement. Immediately a meeting was called and the matter discussed.
Management decided to appoint a consultant who could advise the company
about various tactics to defend itself.
Vikas Sharma is managing director of Surgical Equipments Limited. His wife
Kavita is engaged in purchase and sale of shares through a depository and has
been admitting the income under the head "Profits and gains of business or
profession". During the financial year her total purchase of shares was ` 8.80
crores and total sales was ` 8.90 crores with opening stock of ` 20 lakhs and
closing stock of ` 10 lakhs. Payments/receipts with depository were through
online banking only. Kavita employed 3 persons to manage her share trading
activity for whom she paid salary and bonus of ` 4,50,000 (in aggregate) and paid
` 20,000 each to 4 different consultants for guidance in purchase and sale of
shares. Payments to staff and consultants were made by cash without violating
section 40A(3) of the Income-tax Act, 1961. Assume Kavita does not have any
other business or source of income for the financial year 2024-25.
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FINAL EXAMINATION: MAY 2025

Multiple Choice Questions:
[Provide the correct option to the following questions]
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5.1 Which of the following statement is true as regards ranking of the products

o m m
c
manufactured by Surgical Equipments Limited based?

m . 1 - Product Y, Rank 2 - Product Zand Rank 3 - Product X s e
(B)seRank 1 - Product Z, Rank 2 - Product X and Rank 3 - Product Y
a
(A) Rank
l
g a Rank 1 - Product X, Rank 2 - Product Y and Rank 3 - Product Z
l(C) ag
a (D) Rank 1 - Product X, Rank 2 - Product Z and Rank 3 - Product Y
5.2 What would be the total market capitalization of the shares of Surgical
Equipments Limited post-merger with Medicines Limited? Assume its PE ratio
would be the same after merger also.
(A) ` 601.44 lakhs
(B) ` 316.96 lakhs
m
(C) ` 420.54 lakhs
. co
(D) ` 456.96 lakhs
s em
g l a
5.3 Decide which of the following statement is correct and applicable for Kavita

a
for the assessment year 2025-26?
(A) Admit income at 8% under section 44AD.
(B) Admit loss as per books of account and no audit under section 44AB is
required.
(C) Admit income as per books of account and audit under section 44AB is
mandatory.
(D) Admit income at 6% under section 44AD.

o m
m
5.4 Which of the following statements is fully correct?
.c
c. o (A) Surgical Equipments Limited cannot present information for
s e m F.Y. ended

s em la for F.Y. ended
31.03.2023. Classification of Term Loan should be current.
g
gla a
(B) Surgical Equipments Limited can present information

a 31.03.2023 but only in notes to accounts. Classification of Term Loan is
correct.
(C) Surgical Equipments Limited can present information for F.Y. ended
31.03.2023, as long as that information is prepared in accordance with·
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IND-AS without presenting related note information for those additional
statements. Classification of Term Loan should be current.
(D) Surgical Equipments Limited can present information for F.Y. ended
31.03.2023, as long as the information is prepared in accordance with
IND-AS along with related note information for those additional
statements. Classification of Term Loan should be current.
5.5 Which of the following statements is/are true in relation to 'Treble'
considering the requirements of IND AS 16 and IFCoFR?
(i) Gain has been correctly recorded in books of accounts.
(ii) Apply cost model or revaluation model for calculating gain.
(iii) Gain should have been recorded in profit and loss account.
(iv) No requirement to establish IFCoFR is there for assets under disposal.
Options
(A) (i), (ii) and (iv)
(B) (i) and (iv)
(C) Only (iii)
(D) (ii), (iii) and (iv) (5 x 2 = 10 Marks)
Descriptive Questions:
5.6 You are the management and investment consultant to Surgical Equipments
Limited.
(i) Briefly explain FEMA regulations for ODI proposed in financial services
activity in UK.
(ii) What is meant by business model and state the components of the
business model opted by Surgical Equipments Limited. (3 + 2 = 5 Marks)
5.7 State whether generation of e-way bill is required or not in respect of
warranty supplies made by Surgical Equipments Limited. Also, the period up
to which the books of account or other records of the financial year 2018-19
is to be maintained by Surgical Equipments Limited. (5 Marks)
5.8 If you have been appointed as strategic consultant, what measures will you
suggest to the management to defend itself against hostile takeover?
(5 Marks)

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FINAL EXAMINATION: MAY 2025

ANSWER TO CASE STUDY 5

5.1 Option (D): Rank 1 - Product X, Rank 2 - Product Z and Rank 3 - Product Y
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5.2 Option (D): `456.96 lakhs
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5.3 Option (B): Admit loss as per books of account and no audit under section
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44AB is required.

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5.4 Option (D): Surgical Equipments Limited can present information for F.Y.
ended 31.03.2023, as long as the information is prepared in accordance
with IND-AS along with related note information for those additional
statements. Classification of Term Loan should be current.
5.5 Option (C): Only (iii)
5.6 (i) As per the Overseas Investment Rules, 2022 read with the Schedule I
which outlines the manner of making Overseas Direct Investment by
Indian entity. An Indian entity may make ODI by way of investment in

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equity capital for the purpose of undertaking bonafide business activity

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in the manner and subject to the limits and conditions provided in this

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Schedule.

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gas part of memorandum of association or
1. The ODI may be made or held by way of–

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(i) subscription
purchase of equity capital, listed or unlisted;
(ii) acquisition through bidding or tender procedure;
(iii) acquisition of equity capital by way of rights issue or allotment
of bonus shares;
2. An Indian entity not engaged in financial services activity in India

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may make ODI in a foreign entity, which is directly or indirectly

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engaged in financial services activity [except banking or insurance]
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subject to the condition that such Indian entity has posted net

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profits during the preceding three financial years:
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Provided that an Indian entity not engaged in the insurance sector

ag may make ODI in general and health insurance where such
insurance business is supporting the core activity undertaken
overseas by such an Indian entity.

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INTEGRATED BUSINESS SOLUTIONS

3. Limit for financial commitment – (1) The total financial
commitment made by an Indian entity in all the foreign entities
taken together at the time of undertaking such commitment shall
not exceed 400 percent of its net worth as on the date of the last
audited balance sheet or as directed by the Reserve Bank, in
consultation with Central Government from time to time.
Surgical Equipments Limited (an Indian entity) may engage in
financial services activities in the UK, subject to compliance with
the above-stated ODI regulations under FEMA.
(ii) A business model explains how a business works and the economic
logic behind it. It is a way of representing and communicating how an
organisation creates values for itself while delivering products or
services to customers.
Margretta proposed that a business model should include all the
activities associated with two key components –
a. Producing or making something.
b. Selling something.
But in 2008, Johnson along with Christensen & Kaggerman extended
the scope and proposed that a business model also needs a value
proposition; a business model should contain three components –
a. Customer value processes proposition.
b. Profit formula.
c. Key resources and processes.
Surgical Equipments Limited plans to establish a financial services
venture in the UK through Overseas Direct Investment, adopting the
Christensen & Kaggerman business model. The proposed model
focuses on delivering a strong Customer Value Proposition by offering
affordable financing to healthcare SMEs/ firms. Its Profit Formula relies
on interest income and service fees with a lean cost structure. Key
Resources may include digital platforms, capital, and skilled personnel,
while Key Processes involve, credit risk profiling, and regulatory
compliance—ensuring a scalable, tech-enabled, and customer-centric
approach.

131

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FINAL EXAMINATION: MAY 2025

5.7 The goods to be moved to another State for replacement under warranty
is not a 'supply'. However, as per rule 138(1) of the CGST Rules, 2017,
E-way Bill is required to be generated, whenever there is a movement of
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goods of consignment value exceeding ` 50,000, in relation to a supply, or
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for reasons other than supply, or due to inward supply from an unregistered
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person.
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Thus, in the given case, since the consignment value of warranty supplies
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made by Surgical Equipments Limited exceeds ` 50,000, e-way bill is
required to be mandatorily generated.
Every registered person required to keep and maintain books of account or
other records shall retain them until the expiry of 72 months from the due
date of furnishing of annual return for the year pertaining to such accounts
and records.
However, a registered person, who is a party to an appeal shall retain the

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books of account and other records pertaining to the subject matter of such

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appeal for a period of one year after final disposal of such appeal, or for

emReturn of FY 2018-19 is 31 December
the period specified above, whichever is later.

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2019 / 31 December 2020 l(extended
In this case, the due date of Annual st

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a of account or other records are required to be
date).
st

So, period upto which books
maintained by Surgical Equipments Limited is 31st December, 2025/
31st December 2026 (extended date) or 1 year after final disposal of appeal
(as the appeal is pending with the Appellate Authority), whichever is later.
5.8 Following are some measures that management can adopt to defend
itself from hostile takeover.
Divestiture - In a divestiture the target company divests or spins off
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some of its businesses in the form of an independent, subsidiary

c. o company. Thus, reducing the attractiveness of the existing business to
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the acquirer.

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Crown jewels - When a target company uses the tactic of divestitureg
ag it is said to sell the crown jewels. In some countries such as the UK,
such tactic is not allowed once the deal becomes known and is
unavoidable.

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INTEGRATED BUSINESS SOLUTIONS

• Poison pill - The tactics used by the acquiring company to make itself
unattractive to a potential bidder is called poison pills. For instance,
the acquiring company may issue substantial amount of convertible
debentures to its existing shareholders to be converted at a future date
when it faces a takeover threat. The task of the bidder would become
difficult since the number of shares having voting control of the
company increases substantially.
• Poison Put - In this case the target company issues bonds that
encourage the holder to cash in at higher prices. The resultant cash
drainage would make the target unattractive.
• Greenmail - Greenmail refers to an incentive offered by management
of the target company to the potential bidder for not pursuing the
takeover. The management of the target company may offer the
acquirer a higher price for its shares than the market price.
• White knight - In this a target company offers to be acquired by a
friendly company to escape from a hostile takeover. The possible
motive for the management of the target company to do so is not to
lose the management of the company as the hostile acquirer may
change the management.
• White squire - This strategy is essentially the same as white knight and
involves sell out of shares to a company that is not interested in the
takeover. Consequently, the management of the target company
retains its control over the company.
• Golden parachutes - When a company offers hefty compensations to
its managers if they get ousted due to takeover, the company is said
to offer golden parachutes. This reduces acquirer’s interest for
takeover.
• Pac-man defence - This strategy aims at the target company making
a counter bid for the acquirer company. This would force the acquirer
to defend itself and consequently may call off its proposal for takeover.

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EXAMINERS’ COMMENTS ON THE PERFORMANCE OF EXAMINEES

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PAPER – 4 : DIRECT TAX LAWS & INTERNATIONAL TAXATION
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Specific Comments
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madeasto a transporter exceeding ` 35,000, which is not allowable as aag
Question 1. Some of the examinees have incorrectly allowed cash payment

g l under section 40A(3). Additionally, the examinees were not aware
aof the implications of section 47A, which mandates the withdrawal of the
deduction

capital gains exemption granted under section 47(xiii) if certain conditions are
violated. In the present case, the partners of firm failed to hold 50% of the
voting power of the company for a period of 5 years, which leads to taxability
of capital gains which were exempt earlier. Furthermore, the examinees did
not conclude their answers by evaluating whether the concessional tax regime
u/s 115BAA is beneficial for the company or the normal provisions of the Act.
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Question 2.(a) The condition of filing return of income on or before the due

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date is applicable for claiming deduction under section 10AA, but it is not

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applicable for claiming deduction under section 35AD. However, many
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examinees incorrectly concluded that the deduction under section 35AD
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would not be available since the return was filed after the due date. Deduction
under section 10AA is to be allowed from the gross total income, however,
examinees wrongly allowed it under the head "Profits and gains from business
or profession." Additionally, while computing book profits under section 40(b),
the deduction allowable under section 35AD was not considered, resulting in
an incorrect computation of book profits.
(b) Examinees lacks clarity of special provisions contained under Chapter

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XII-A applicable to non-residents. Further, they could not correctly gross up

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the amount of interest on government securities given net of TDS.

c. o Question m
e of claiming
3.(a)(ii) Investing in shares of a public limited company
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a for exemption for
exemption in respect of corpus funds received by a trust.

ag examinees were aware that a trust continue to be eligible
three years from the date of cessation (31.03.2025) when a public sector
company ceases to be public sector company due to disinvestment.

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