session progress test accounting no. of. … · 46th session – progress test – accounting no....
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PRIME/46th PT/IPC 1
PRIME ACADEMY
46th SESSION – PROGRESS TEST – ACCOUNTING
No. of. Pages: 5 Total Marks: 75
Time allowed: 2 hrs
PART - A
1.
A. From the following information, ascertain the value of stock as on 31st March, 2012:
`
Stock as on 01 April 2011 28,500
Purchases 152,500
Manufacturing expenses 30,000
Selling expenses 12,100
Administration Expenses 6,000
Financial Expenses 4,300
Sales 249,300
At the time of valuing stock as on 31st March, 2011, a sum of INR 3,500 was written off on a
particular item, which was originally purchased for INR 10,000 and was sold during the year for
INR 9,000. Barring the transaction relating to this item, the gross profit earned during the year was
20% on sales. (4 Marks)
B. What are the differences between Hire Purchase and Installment System? (4 Marks)
C. On 1st April, 2012, X Ltd. sells a Trucks on hire purchase basis to X Transporters & Co. for a total
purchase price of INR 18,00,000 payable as to INR 4,80,000 as down payment and the balance in
three equal annual installments of INR 4,40,000 each payable on 31st March 2013, 2014 and 2015.
The hire vendor charges interest @ 10% per annum.
You are required to ascertain the cash price of the truck for X Transporters & Co. Calculations may
be made to the nearest rupee. (5 Marks)
D. Write about circumstances leading to Dissolution of Partnership (4 Marks)
E. Significance of ‘Average Clause’ in a fire insurance policy. (4 Marks)
F. A Company had issued 20,000, 13% Convertible debentures of ` 100 each on 1st April, 20X1. The
debentures are due for redemption on 1st July, 20X2. The terms of issue of debentures provided that
they were redeemable at a premium of 5% and also conferred option to the debenture holders to
convert 20% of their holding into equity shares (Nominal value ` 10) at a price of ` 15 per share.
Debenture holders holding 2,500 debentures did not exercise the option. Calculate the number of
equity shares to be allotted to the Debenture holders exercising the option to the maximum.
(4 Marks)
PRIME A
CADEMY
PRIME/46th PT/IPC 2
PART – B
1. The following is the Balance Sheet of M/s. Care Traders as on 1-4-2014:
INR
Source of Funds
Share Capital
Profit and Loss
Unsecured loan @ 10%
Trade Payable
Application of Funds
Machinery
Furniture
Inventory
Trade Receivables
Bank Balance
10,00,000
1,47,800
1,75,000
45,800
13,68,600
8,25,500
1,28,700
1,72,000
2,29,600
12,800
13,68,600
A fire broke out in the premises on 31-3-2015 and destroyed the books of account. The accountant
could however provide the following information:
(1) Sales for the year ended 31-3-2014 was INR 18, 60,000. Sales for the current year was 20%
higher than the last year
(2) 25% sales were made in cash and the balance was on credit.
(3) Gross profit on sales is 30%.
(4) Terms of Credit
Debtor: 2 months
Creditors: 1 month
All creditors are paid by cheque and all credit sales are collected in cheque.
(5) The Bank Pass Book has the following details (other than payment to creditors and collection
from debtors)
INR
Machinery purchased 1, 14,000
Rent paid 1, 32,000
Advertisement expenses 80,000
Travelling expenses 78,400
Repairs 36,500
Sales of furniture 9,500
Cash withdrawn for petty expenses 28,300
Interest paid on unsecured loan 8,750
(6) Machinery was purchased on 1-10-2014
(7) Rent was paid for 11 months only and 25% of the advertisement expenses relates to the next
year.
(8) Travelling expenses of INR 7,800 for which cheques were issued but not presented in bank.
(9) Furniture was sold on l-4-2014 at a loss of INR 2,900 on block value.
(10) Physical verification as on 31-3-2015 ascertained the stock position at INR 1,81,000 and petty
cash balance at nil.
(11) There was no change in unsecured loan during the year.
(12) Depreciation is to be provided at 10% on machinery and 20% on furniture.
PRIME A
CADEMY
PRIME/46th PT/IPC 3
Prepare Bank Account, Trading and Profit and Loss Account for the year ended 31-3-2015 in the
books of M/s. Care Traders and a Balance Sheet as on that date. Make necessary assumptions
wherever necessary. (15 Marks)
2. Daksh Associates is a reputed firm. On account of certain misunderstanding between the partners, it
was decided to dissolve the firm as on 31st December, 20X1. Their Balance Sheet as on 31st
December, 20X1 was follows:
Liabilities INR Assets INR
Capitals:
Daksh 300,000
Yash 200,000
Siddhart (Minor) 100,000
Trade Loans
Bank Overdraft
Other Loans
Creditors
Siddhart’s Loan
6,00,000
3,00,000
3,00,000
2,00,000
2,00,000
2,00,000
Land and Buildings
Other Fixed Assets
Stock in Trade
Debtors
Bills Receivable
Goodwill
Cash
7,00,000
3,00,000
2,00,000
4,00,000
1,50,000
30,000
20,000
18,00,000 18,00,000
It was decided that Mr. Daksh will be in-charge of Realisation. He will set apart ` 10,000 towards
expenses. He will be paid a remuneration of 5 percent on the amounts distributed to the partners
towards their contribution other than loans. Assets realised are as under:
Date Assets realized INR
1- 1 – 20X2 Debtors 350,000
15-1-20X2 Fixed Assets 400,000
1-2-20X2 Debtors 50,000
15-2-20X2 Bills Receivable 140,000
1-3-20X2 Fixed Assets 50,000
15-3-20X2 Land and Buildings 800,000
Prepare a statement showing how the money received on various dates will be distributed assuming:
(a) The actual expenses of realisation amounted to ` 20,005.
(b) The firm is solvent.
(c) The profit sharing ratio was as under:
Partner Profit Loss
Daksh 2 1
Yash 2 1
Siddhart 1 Nil
The final dissolution is made on 15th March, 20X2
PRIME A
CADEMY
PRIME/46th PT/IPC 4
3. J Ltd. presents you the following information for the year ended 31st March, 2015:
INR in lacs
1 Net profit tax provision 36,000
2 Dividend paid 10,202
3 Income Tax paid 5.100
4 Book value of assets sold
Loss on sale of assets
222
48
5 Depreciation debited to P&L Account 24,000
6 Capital grant received – amortized to P & L A/c. 10
7 Book value of investment sold
Profit on sale of investment
33,318
120
8 Interest income from Investment credited to P&L A/c 3,000
9 Interest expenditure debited to P&L A/c. 12,000
10 Interest actually paid (Financing Activity) 13,042
11 Increase in working capital (excluding cash and bank balance) 67,290
12 Purchase of fixed assets 22,092
13 Expenditure on construction work 41,688
14 Grant received for capital projects 18
15 Long term borrowings from banks 55,866
16 Provision for income tax debited to P&L A/c. 6,000
17 Cash and bank balance on 1.4.14 6,000
Cash and bank balance on 31.3.15 8,000
You are required to prepare a cash flow statement as per AS-3 (Revised). (7 Marks)
4. From the following particulars furnished by Elegant Ltd., prepare the Balance Sheet as on 31st March
2014 as required by Part I, revised Schedule III of the Companies Act.
Particulars ` Debit ` Credit `
Equity Share Capital (Face value of INR 100 each) 50,00,000
Call in Arrears 5,000
Land & Building 27,50,000
Plant & Machinery 26,25,000
Furniture 250,000
General Reserve 10,50,000
Loan from State Financial Corporation 750,000
Stock:
Raw Materials
Finished Goods
250,000
10,00,000
12,50,000
Provision for Taxation 640,000
Sundry Debtors 10,00,000
Advances 213,500
Profit & Loss Account 433,500
Cash in Hand 150,000
Cash at Bank 12,35,000
Unsecured Loan 605,000
Sundry Creditors (for Goods and Expenses) 10,00,000
PRIME A
CADEMY
PRIME/46th PT/IPC 5
The following additional information is also provided:
(i) 10000 Equity shares were issued for consideration other than cash.
(ii) Debtors of INR 2,60,000 are due for more than 6 months.
(iii) The cost of the Assets were: Building INR 30,00,000, Plant & Machinery INR 35,00,000 and
Furniture INR 3,12,500
(iv) The balance of INR 7,50,000 in the Loan Account with State Finance Corporation is inclusive of
INR 37,500 for Interest Accrued but not Due. The loan is secured by hypothecation of Plant &
Machinery.
(v) Balance at Bank includes INR 10,000 with Global Bank Ltd., which is not a Scheduled Bank.
(8 Marks)
5. Happy Valley Florists Ltd. acquired a delivery van on hire purchase on 01.04.2010 from Ganesh
Enterprises. The terms were as follows:
Particulars Amount in INR
Hire Purchase Price
Down Payment
1st installment payable after 1 year
2nd installment after 2 years
3rd installment after 3 years
4th installment after 4 years
1,80,000
30,000
50,000
50,000
30,000
20,000
Cash price of van INR 1,50,000 and depreciation is charged at 10% WDV.
You are required to:
(i) Calculate Total Interest and Interest included in each installment
(ii) Prepare Van A/c., Ganesh Enterprises A/c. in the books of Happy Valley Florists Ltd. up to
31.03.2014. (5 Marks)
PRIME A
CADEMY
PRIME/46th PT/IPC 1
PRIME ACADEMY
46th SESSION – IPC - PROGRESS TEST – ACCOUNTING
SUGGESTED ANSWERS
1.
A. Statement showing valuation of stock as on 31.3.2012
INR
INR Stock as on 01.04.2011 Less: Book value of abnormal stock (INR 10,000 – INR 3,500) Add: Purchases Manufacturing
Expenses
Less: Cost of Sales: Sales as per Books Less: Sales of Abnormal item
Less: Gross Profit @ 20% Value of Stock as on 31st March, 2012
28,500 6,500
2,49,000 (9,000)
2,40,000
(48,000)
22,000
1,52,500
30,000 2,04,500
(1,92,000) 12,500
B. Statement showing differences between Hire Purchase and Installment System
Basis of Distinction Hire Purchase Installment System
1.
2.
3.
Governing Act
Nature of Contract
Passing of Title (ownership)
It is governed by Hire Purchase Act, 1972.
It is an agreement of hiring.
The title to goods passes on last payment.
It is governed by the Sale of Goods Act, 1930.
It is an agreement of sale.
The title to goods passes immediately as in the case of usual sale.
PRIME A
CADEMY
PRIME/46th PT/IPC 2
4.
5.
6.
7.
8.
9.
Right to Return goods
Seller’s right to repossess
Right of Disposal
Responsibility for Risk of Loss.
Name of Parties involved
Component other than cash price.
The hirer may return goods without further payment except for accrued installments.
The seller may take possession of the goods if hirer is in default.
Hirer cannot hire out sell, pledge or assign entitling transferee to retain possession as against the hire vendor.
The hirer is not responsible for risk of loss of goods if he has taken reasonable precaution because the ownership has not yet transferred. The parties involved are called Hirer and Hire vendor.
Component other than Cash Price included in installment is called Hire charges.
Unless seller defaults, goods are not returnable.
The seller can sue for price if the buyer is in default. He cannot take possession of the goods.
The buyer may dispose off the goods and give good title to the bona fide purchaser.
The buyer is responsible for risk of loss of goods because of the ownership has transferred.
The parties involved are called buyer and seller.
Component other than Cash Price included in Installment is called Interest.
C.
There is no interest element in the down payment as it is paid on the date of the transaction. Installments paid after certain period includes interest portion also. Therefore, to ascertain cash price, interest will be calculated from last installment to first installment as follows:
PRIME A
CADEMY
PRIME/46th PT/IPC 3
Calculation of Interest and Cash Price
Total cash price = INR 10, 94,215 + 4, 80,000 (down payment) =INR 15, 74,215.
D. CIRCUMSTANCES LEADING TO DISSOLUTION OF PARTNERSHIP: partnership is dissolved or comes to an end on:
(a) the expiry of the term for which it was formed or the completion of the venture for which it was entered into;
(b) death of a partner; (c) insolvency of a partner.
However, the partners or remaining partners (in case of death or insolvency) may
continue to do the business. In such case there will be a new partnership but the firm
will continue. When the business comes to an end then only it will be said that the
firm has been dissolved.
A firm stands dissolved in the following cases:
(i) The partners agree that the firm should be dissolved; (ii) All partners except one become insolvent; (iii) The business becomes illegal; (iv) In case of partnership at will, a partner gives notice of dissolution; and
(v) The court orders dissolution. The court has the option to order dissolution of a firm in the following circumstances
(a) Where a partner has become of unsound mind; (b) Where a partner suffers from permanent incapacity; (c) Where a partner is guilty of misconduct of the business; (d) Where a partner persistently disregards the partnership agreement; (e) Where a partner transfers his interest or share to a third party; (f) Where the business cannot be carried on except at a loss; and (g) Where it appears to be just and equitable.
No. of installments Amount due at the time of installment
Interest Cumulative Cash price
[1] [2] [3] (2-3)=[4]
3rd
2nd
1st
4,40,000
8,40,000
12,03,636
1/11 of INR 4,40,000 =INR 40,000
1/11 of INR 8,40,000= INR 76,364
1/11of INR 12,03,636= INR 1,09,421
4,00,000
7,63,636
10,94,215
PRIME A
CADEMY
PRIME/46th PT/IPC 4
E. In order to discourage under-insurance, fire insurance policies often include an average clause. The effect of these clause is that if the insured value of the subject matter concerned is less than the total cost then the average clause will apply, that is, the loss will be limited to that proportion of the loss as the insured value bears to the total cost. The actual claim amount would therefore be determined by the following formula:
Claim=Insured value/Total cost x Loss suffered
For example, if stock worth INR 4 lakhs is insured for INR 3 lakhs only and the loss incurred due to fire amounts to INR 1,80,000, the claim admitted by the insurer will be INR 1,80,000 x 3,00,000/4,00,000 = INR 1,35,000
The average clause applies only when the insured value is less than the total value of the
insured subject matter.
F. Calculation of number of equity shares to be allotted
Number of debentures
Total number of debentures Less: Debenture holders not opted for conversion Debenture holders opted for conversion Option for conversion Number of debentures to be converted (20% of 17,500)
20,000
(2,500) 17,500
20%
3,500
Redemption value of 3,500 debentures at a premium of 5% [3,500 x (100+5)] INR 3, 67,500 Equity shares of INR 10 each issued on conversion [INR 3, 67,500/ INR 15] 24,500 shares
PART – B
1. The following is the Balance Sheet of M/s. Care Traders as on 1-4-2014:
INR
Source of Funds Share Capital Profit and Loss Unsecured loan @ 10% Trade Payable
10,00,000 1,47,800 1,75,000
45,800 13,68,600
Application of Funds Machinery Furniture Inventory Trade Receivables Bank Balance
8,25,500 1,28,700 1,72,000 2,29,600
12,800 13,68,600
PRIME A
CADEMY
PRIME/46th PT/IPC 5
A fire broke out in the premises on 31-3-2015 and destroyed the books of account. The
accountant could however provide the following information:
(1) Sales for the year ended 31-3-2014 was INR 18, 60,000. Sales for the current year was 20% higher than the last year
(2) 25% sales were made in cash and the balance was on credit. (3) Gross profit on sales is 30%. (4) Terms of Credit
Debtor: 2 months Creditors: 1 month
All creditors are paid by cheque and all credit sales are collected in cheque.
(5) The Bank Pass Book has the following details (other than payment to creditors and collection from debtors) INR
Machinery purchased 1, 14,000 Rent paid
2.
In the books of M/s. Care Traders Bank Account as on 31.3.2015
Particulars Amount Dr. (INR)
Particulars Amount Cr. (INR)
To Opening Balance To Cash sales (WN 1) To Debtors (collection made) (WN 4) To Furniture (sold)
12,800 5,58,000
16,24,600
9,500
______________ 22,04,900
By Creditors (Payment made) (WN 6) By Machinery Purchased By Advertisement expenses By Rent By Travelling expenses (78,400 + 7,800) By Repairs By Petty Cash By Interest on unsecured Loan By Balance c/d (bal. fig,)
14,86,250
1,14,000
80,000 1,32,000
86,200 36,500 28,300
8,750 2,32,900
_____________ 22,04,900
PRIME A
CADEMY
PRIME/46th PT/IPC 6
Trading and Profit and Loss Account
For the year ended 31st March, 2015
Particulars Amount (INR)
Particulars Amount (INR)
To Opening Stock
To Purchases (WN 2)
To Gross Profit b/d (WN 1) To Rent (1,32,000x12/11)
To Advertisement expenses
To Travelling expenses To
Repairs
To Petty Cash expenses
To Interest on unsecured loan
To Loss on sale of Furniture
To Depreciation Machinery(WN8) Furniture
To Net Profit
1,72,000
15,71,400
6,69,600 24,13,000
1,44,000
60,000
86,200
36,500
28,300
17,500
2,900
88,250 23,260
1,82,690 6,69,600
By Sales (WN 1) By
Closing Stock
By Gross Profit c/d
22,32,000
1,81,000
24,13,000 6,69,600
6,69,600
PRIME A
CADEMY
PRIME/46th PT/IPC 7
Balance Sheet of M/s. Care Traders as on 01.04.2015 INR
Liabilities Share Capital Profit and Loss Opening Balance Add: Profit for the year Unsecured loan @10% Interest on unsecured loan Trade Payable (WN 5) Outstanding expenses Rent
Assets Machinery
Gross block value (WN 7) Less: depreciation Furniture
Gross block value (WN 9) Less: depreciation Inventory Trade Receivables (WN 3) Prepaid expenses (Advertisement) Bank balance
1,47,800 1,82,690
9,39,500 (88,250)
1,16,300 (23,260
10,00,000
3,30,490 1,75,000
8,750
1,30,950 12,000
16,57,190
8,51,250
93,040 1,81,000 2,79,000
20,000
2,32,90
16,57,190
Working Notes:
1. Sale for the year ended 31.03.2015 INR
Last year Sales Add growth @20% Sale for 2014-15 (A)
18,60,000 3,72,000
22,32,000
Cash Sales (25% of INR 22,32,000) Credit sales (22,32,000 – 5,58,000) Gross profit 30% on sales (B)
5,58,000 16,74,000
6,69,600
2. Purchases for the year ended 31.03.2015
Cost of Sales (A-B) (22,32,000 -6,69,600) Add Closing stock
Less: Opening stock
15,62,400 1,81,000
17,43,400 (1,72,000)
Purchases during the year 15,71,400
PRIME A
CADEMY
PRIME/46th PT/IPC 8
3. Debtors as on 31.03.2015
Total credit sales Debtors 2 months credit (16,74,000 x 2/12)
16,24,000 2,79,000
4. Collections from Debtors account
Dr. Amount (INR)
Cr. Amount (INR)
To opening Balance To
Credit sales
2,29,600
16,74,000 19,03,600
By Bank (collection) Bal .fig. By Closing balance
16,24,600
2,79,000
19,03,600
5. Creditors as on 31.03.2015 INR Total Credit purchases (all creditors paid by cheque hence there are no cash purchases) Creditors 1 month credit (15,71,400 x 1/12)
15,71,400
1,30,950
6. Payment to Creditors account Dr. Amount
(INR) Cr. Amount
(INR) To Bank (Payment) Bal. fig. To Closing Balance
14,86,250
1,30,950
By Opening Balance By Credit Purchases
45,800 15,71,400
16,17,200 16,17,200
7. Machinery Account Dr. Amount
(INR) Cr. Amount
(INR)
To Opening Balance To Machinery Purchased
8,25,500
1,14,000
9,39,500
By Closing Balance (Bal. fig.)
9,39,500
9,39,500
8. Depreciation on Machinery INR
Existing Machinery for 1 Year (INR 8, 25,500 x 10%) New Machinery (Purchased on 1.10.2014) For 6 months (INR 1, 14,000 x ½ x 10%)
82,550
5,700 88,250
PRIME A
CADEMY
PRIME/46th PT/IPC 9
9. Furniture Account
Dr. Amount (INR)
Cr. Amount (INR)
To Opening Balance 1,28,700 By Bank (Sale ) By Loss on Sale By Closing balance
9,500 2,900
1,16,300
1,28,700 1,28,700
3. It is assumed that trade loans, bank overdraft, other loans and creditors have equal priority at the
time of payment. Therefore, they all have been paid in the ratio of their dues outstanding.
Particulars Trade Loans INR
Bank Overdraft INR
Other Loans INR
Creditors INR
Siddhart’s Loan INR
Daksh’s Capital INR
Yash’s Capital INR
Siddhart’s Capital INR
Amount due Cash in hand Less: Amount kept for realisation expenses Less: Distributed among outsiders (3:3:2:2) Balance Due Debtors realised on 1-1-20X2 Less: Distributed among
2,0000
(10,000) 10,000
10,000
Nil 3,50,000
3,50,000
3,00,000
(3,000) 2,97,000
(1,05,000)
3,00,000
(3,000) 2,97,000
1,05,000
2,00,000
(2,000) 1,98,000
(70,000)
2,00,000
(2,000) 1,98,000
(70,000)
2,00,000
- 2,00,000
-
3,00,000
- 3,00,000
-
2,00,000
- 2,00,000
-
1,00,000
- 1,00,000
-
PRIME A
CADEMY
PRIME/46th PT/IPC 10
outsiders (3:3:2:2)
Balance Due
Fixed Assets realised on 15-1-20X2
Less: Distributed among outsiders (3:3:2:2)
Balance Due
Debtors realised on 1-2-20X2
Less: Distributed among outsiders (3:3:2:2)
Balance Due
Bills Receivable
Nil
4,00,000
4,00,000
Nil 50,000
50,000
Nil
1,40,000
1,92,000
(1,20,000)
72,000
(15,000)
57,000
1,92,000
1,20,000)
72,000
(15,000)
57,000
1,28,000
(80,000)
48,000
(10,000)
38,000
1,28,000
(80,000)
48,000
(10,000)
38,000
2,00,000
-
2,00,000
-
2,00,000
3,00,000
-
3,00,000
-
3,00,000
2,00,000
-
2,00,000
-
2,00,000
1,00,000
-
1,00,000
-
3,00,000
PRIME A
CADEMY
PRIME/46th PT/IPC 11
realised on 15- 2-20X2
Less: Distributed among outsiders (3:3:2:2)
Balance Due
Fixed Assets realised on 1-3- 20X2
Less: Distributed among outsiders (3:3:2:2)
Balance Due
Land and Building realised on 15-3-20X2
Less: Additional payment of realisation expenses
1,40,000
Nil
50,000
50,000
Nil
8,00,000
(10,005) 7,89,995
(42,000)
15,000
(15,000)
-
(42,000)
15,000
(15,000)
-
(28,000)
10,000
(10,000)
-
(28,000)
10,000
(10,000)
-
-
2,00,000
-
2,00,000
-
2,00,000
-
3,00,000
-
3,00,000
-
3,00,000
-
2,00,000
-
2,00,000
-
2,00,000
-
1,00,000
-
1,00,000
PRIME A
CADEMY
PRIME/46th PT/IPC 12
(20,005 – 10,000) Less: Payment of Siddhart’s Loan Amount available for partners’ Capital Less: Daksh’s Commission (i.e. 5,89,995 x 5/105) Less: Siddhart’s Capital is paid first because he will not share any loss on account of being minor partner
(2,00,000)
5,89,995
(28,095) 5,61,900
(1,00,000)
4,61,900
(2,00,000)
-
-
3,00,000
3,00,000
-
2,00,000
2,00,000
-
1,00,000
(1,00,000)
-
PRIME A
CADEMY
PRIME/46th PT/IPC 13
Less: Paid to Daksh to make his capital equal to that of Yash Less: Distributed equally between Daksh and Yash
(1,00,000)
3,61,900
(3,61,900)
(1,00,000)
2,00,000
(1,80,950)
2,00,000
(1,80,950)
-
-
Balance Due 19,050 19,050 Nil*
Siddhart will get 1/5 share (i.e., share of profit) of what remains after paying INR 19,050 to each Daksh and
Yash out of the proceeds of stock-in trade. If stock does not realise any amount, then amount unpaid to
Daksh and Yash will become loss on realisation. Siddhart has been paid first because he is not to share any
loss on realization
PRIME A
CADEMY
PRIME/46th PT/IPC 14
4.
Elegant Ltd. Balance Sheet as on 31st March, 2014
Particulars Notes INR
Equity and Liabilities 1 1 Shareholders' funds 2
a Share capita b Reserves and Surplus
2 Non-current liabilities Long-term borrowings 3
3 Current liabilities a Trade Payables b Other current liabilities 4 c Short-term provisions 5
Total Assets
1 Non-current assets Fixed assets Tangible assets 6
2 Current assets
a Inventories 7 b Trade receivables 8 c Cash and cash equivalents 9 d Short-term loans and advances
Total
49,95,000 14,83,500
13,17,500
10,00,000 37,500
6,40,000 94,73,500
56,25,000
12,50,000 10,00,000 13,85,000
2,13,500 94,73,500
Notes to accounts
Particulars Notes INR
1 Share Capital Equity share capital Issued & subscribed & called up 50,000 Equity Shares of INR 100 each (of the above 10,000 shares have been issued for consideration other than cash) 50,00,000 Less: Calls in arrears (5,000)
Total
2 Reserves and Surplus General Reserve Surplus (Profit & Loss A/c) Total
3 Long-term borrowings
49,95,000 49,95,000
10,50,000 4,33,500
14,83,500
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Secured Term Loan State Financial Corporation Loan (7,50,000- 37,500) (Secured by hypothecation of Plant and Machinery) Unsecured Loan
Total 4 Other current liabilities
Interest accrued but not due on loans (SFC)
5 Short-term provisions Provision for taxation
6 Tangible assets
Land and Building 30,00,000 Less: Depreciation (2,50,000) Plant & Machinery 35,00,000 Less: Depreciation (8,75,000) Furniture & Fittings 3,12,500 Less: Depreciation (62,500)
Total
7 Inventories Raw Materials Finished goods Total
8 Trade receivables Outstanding for a period exceeding six months Other Amount
Total
9 Cash and cash equivalents Cash at bank with Scheduled Banks 12,25,000 with others (Global Bank Ltd.) 10,000 Cash in hand
Total
7,12,500 6,05,000
13,17,500
37,500
6,40,000
27,50,000
26,25,000
2,50,000
56,25,000
2,50,000 10,00,000 12,50,000
2,60,000 7,40,000
10,00,000
12,35,000 1,50,000
13,85,000
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5. Calculation of total Interest and Interest included in each installment Hire Purchase Price (HPP)
= Down Payment + installments
Total Interest = 1, 80,000 – 1, 50,000 = 30,000
Calculation of Ratio of HPP in beginning of each year
Year Outstanding HPP at beginning
Installment Paid Outstanding balance at end
1 2 3 4
1,50,000 1,00,000
50,000 20,000
50,000 50,000 30,000 20,000
1,00,000 50,000 20,000
1. Ratio of outstanding HPP at beginning for each year = 15:10:5: 2 Total
Interest is of INR 30,000
I st Year II nd year III rd year IV th year
= 30,000 x 15/32 = 14,062 = 30,000 x 10/32 = 9,375 = 30,000 x 5/32 = 4,688 = 30,000 x 2/32 = 1,875
Ledger Accounts in the books of Happy Valley Florist Ltd.
Date Particulars INR Date Particulars INR
1.4.2010
1.4.2011
1.4.2012
1.4.2013
To Ganesh Enterprises
To Balance b/d
To Balance b/d
1,21,500
To Balance b/d
1,50,000
1,50,000
1,35,000
1,35,000
1,21,500
1,09,350
1,09,350
31.03.2011
31.03..2012
31.03.2013
31.03.2014
By Depreciation A/c By balance c/d
By Depreciation A/c By balance c/d
By Depreciation A/c
By balance c/d
By Depreciation A/c By Balance c/d
15,000
1,35,000
1,50,000
13,500
1,21,500
1,35,000
12,150 1,09,350
1,21,500
10,935
98,415 1,09,350
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Ganesh Enterprises Account
Date Particulars INR Date Particulars INR
1.4.2010
31.03.2011
31.03.2012
31.3.2013
31.3.2014
To Bank A/c
To Bank A/c To Balance c/d
To Bank A/c To Balance c/d
To Bank A/c To Balance c/d
To Bank A/c
30,000
50,000 84,062
1,64,062
50,000 43,437 93,437
30,000 18,125 48,125
20,000
20,000
1.4.10
31.03.11
1.4.11 31.03.12
1.4.12 31.03.13
1.4.13
31.03.14
By Van A/c
By Interest c/d
By Interest b/d By Interest A/c
By Balance b/d By Interest A/c
By Balance b/d By
Interest A/c
1,50,000
14,062
1,64,062
84,062 9,375
93,437
43,437
4,688 48,125
18,125
1,875
20,000
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PRIME ACADEMY 46th SESSION – PROGRESS TEST
BUSINESS LAWS ETHICS & COMMUNICATIONS No. of. Page: 1 Total Marks: 75 Time allowed: 2 hrs
PART - A Answer to question one is compulsory and answers of 5 out of this remaining 6.
1) write short notes on this following a) Abridged Prospectus b) Private company c) Reservation of name d) Global depository Receipt e) Dishonor of a cheque (5 x 5=25 Marks)
2) a) What is the effect of an irregular allotment? b) The memorandum of association of a public company was signed by two adult members & by a
guardian of five minors the guardian signing separately for each minor member. The registrar registered the company and issued under his hand, a certificate of incorporations, the plaintiff contended that a) conditions of registration were not duty complied with and b) that there were no seven subscribes to the memorandum. Will the court up-hold his contention?
(2 x 5=10 Marks) 3)
a) X Ltd has its registered office at Mumbai. For better administration convenience the company wants to shift it registered office from Mumbai to Pune. What are the formalities that are to be complied with by the company in this initiative under the Companies Act 2013?
b) What are the advantages of a shelf prospectus and a red herring prospectus for a company? (2 x 5=10 Marks)
4) a) Distinguish between sweat equity shares & employee stock option. b) On what grounds can a public Limited company refuse to register a transfer of shares? What a the
rights of a member thereon? (2 x 5=10 Marks) 5)
a) Explain the procedure for effecting a share capital reduction by a company and the effect of the same on the company’s balance sheet.
b) What are the conditions for a company to buy back it’s own shares? (2 x 5=10 Marks) 6)
a) Distinguish between a fixed charge and a floating charge & illustrate the situations, when a floating charges crystallizes.
b) Nomination facility has to be made mandatory –Discuss the important of this statement from an investor’s angle and from the company’s angle. (2 x 5=10 Marks)
7) NI Act What do you understand by crossing of cheques? State the implications of the following
crossing:- a) Restrictive crossing b) Non-negotiable crossing c) A finance company after having issued a cheque in favour of a depositor informs the depositor
not to present the cheque and also informs the bank to stop payment. Examine whether this is a dishonour under the NI Act ? (2 x 5=10 Marks)
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PRIME ACADEMY
46th SESSION – IPC - PROGRESS TEST – CORPORATE & OTHER LAWS
SUGGESTED ANSWERS
1. a) Abridged Prospectus
It is a prospectus which contains some minimum but mandatory information about the prospective issue and about the company. These will be the mandatory information to be given in the prospectus as per sec 26. Company is obliged to furnish a detailed prospectus on request received from the
b) Private company
A Private company means a company which by its articles, a. Restricts the right to transfer its shares b. Except OPC, limits the number of members to 200* (excluding past and present employees)
and c. Prohibits invitation to the public to subscribe for any securities of the company. Private company includes one person companies Act gives certain pervillages to private company and hence it is impact that a private company retains its characteristics
c) Reservation of name
A Person can apply to the ROC seeking reservation of a particular name for a company. Such reservation can be incorporated up to a period of 60 days. However, if the name of the company has been applied with wrong or incorrect information, a. When the company is yet to commence, the reserved name will be cancelled and a penalty
upto Rs 1 lakh may be levied. b. When the company has already commenced,
i. The company may be directed by the ROC to get the name changed within a period of 3 months or
ii. The ROC may strike off the name of the company from the Register of Companies or iii. Make a petition for the winding up of the company.
d) Global Depository Receipt
A Company may after passing a special resolution in its general meeting, issue GDRs, in any foreign country in such manner and subject to such conditions as may be prescribed. Conditions of issue The company issuing GDRs should be eligible to do so in terms of the Scheme and the relevant
provisions of Foreign Exchange Management Rules and Regulations.
The authorized capital should be sufficient to issue the new shares underlying depository receipts at the time of conversion
It should be backed by a Board Resolution apart from the approval in general meeting through special resolution.
GDRs should be issued by overseas depository bank appointed by the company but the underlying shares should be kept in the custody of a domestic custodian bank.
Compliance certificate obtained for the purpose given by a Merchant Banker/Practicing CA/CS/CWA should be placed before the Board at a meeting to be held immediately after the closure of the issue.
The holder of the GDRs world be entitled for voting rights only on conversion into shares.
The proceeds shall be brought back into India or deposited into an Indian bank operating abroad or any foreign bank of repute having operation in India and it shall undertake the responsibility for furnishing the required information.
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The offer document giving the issue of GDRs shall not be a prospectus or an offer document and the provisions applicable for a prospectus shall have no application for a GDR offer document.
Until the redemption of GDRs, the overseas depository bank shall be entered is the Register of Member of the company and until conversation, the overseas depository shall be entitled to vote in accordance with the provisions of the agreement entered into between the depository, holder of GDRs and the company in this regard.
e) Dishonour of a cheque
A Dishonor by non-acceptance of a bill of exchange may take place in any one of the following circumstance: a) When the drawee either does not accept the bill within forty-eight hours of presentment or
refuses to accept it; b) When one of several drawee, not being partners, make default in acceptance; c) When the drawee gives a qualified acceptance; d) When presentment for acceptance is excused and the bill remains unaccepted e) When the drawee is incompetent to contract; f) When the drawee is a fictitious person, or after reasonable search cannot be found. The effect of a Dishonour by non-acceptance is that it amounts to a final Dishonour of the bill. The holder can at once start an action against the drawer by giving him a notice of Dishonour. He cannot be compelled to wait for maturity of the instrument or to present it for payment at maturity. Where a “drawee in case of need” has been named in a Bill, the bill is not treated as dishonoured until it has been dishonoured by such drawee in case of need (Sec.115).
2. a) Defects Effect on Allotment
1. General contract Act Procedure not followed Voidable
2. Minimum Application money not received Money to be refunded 3. Minimum Subscription as stated in the prospectus Not received 4. Permission from the Stock Exchange not received Void 5. Application for listing within Stock Exchange not made Void and Punishable on the company and officer in default
b) The memorandum of association of a company was signed by two adult member of by a guardian
on behalf of five minor members the guardian signing separately for each minor member. The Registrar registered the company and issued under his hand a certificate of incorporation. The plaintiff contended that a) conditions of registration were not duty complied with and b) that there were no seven subscribes to the memorandum. Will the court up Hold his contention? Yes, as per the present rules this is not a valid registration. Minor cannot be subscriber and the guardian signing for them cannot make it valid. But however going by the conclusiveness of the certificate in incorporation, the company has to be would up by a court order for the name of the company struck off, as it is only a “Bubble”.
3. a) Shifting of this registered office within the same state from one ROC to another I.
1. Approval of shareholders through a special resolution
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2. Company shall publish a notice in dailies (At least in one English and in one vernacular daily) and serve individual notice to each debenture holder and creditor of the Company indicating the matter of application and stating that any person whose interest is likely to be affected by the proposed alteration may intimate his nature of interest and grounds of Opposition to the Regional Director with a copy to the company within 21 days. If no objection is received within the said period, the person concerned shall be deemed to have given his consent to the change.
3. Confirmation by Regional Director within 30days of receipt of application from the company 4. Intimation to ROC within 60days from the date of confirmation. 5. ROC to certify within 30days from the date of intimation. 6. Memorandum and Articles to be modified suitably. 7. Change to be effective from the date of certificate by ROC
II. Shifting of Registered Office from one state to another (Sec 13)
1. Special Resolution 2. Central Government is approval is necessary
Central Government shall dispose of the application within 60 days.
Consent of creditors and debenture holders would be necessary for granting the approval for the said alteration.
Other Requirements List of creditors to be kept at the Registered Office for inspection
Application to the Chief Secretary of the existing state. Copy of the NOC from RBI if the applicant happens to be an NBFC Advertise the application in at least one vernacular daily in the district where the registered
office is situated.
CG May make an order confirming the alteration on such terms and conditions, subject to which the approval is granted.
The approval from the CG should be filed with the ROC along with the required fees within 30days.
Shifting of Registered Office shall not be allowed for a company if any inquiry, inspection or investigation is initiated against the company or any prosecution is pending against the company under the Act. On completion of the enquiry, inspection or investigation and no prosecution being envisaged, shifting of Registered Office shall be allowed. b) Meaning - Shelf prospectus means a prospectus in respect of which the securities or class of
securities included thereon are issued for subscription in company or a class of companies as specified by SEBI 1. Who can file? - Any class or classes of company as the SEBI specifies, may file what is called the
shelf prospectus with the Registrar at the stage of first offer of securities. 2. Privilege - A Company filling a shelf prospectus with the ROC shall not be required to file
prospectus afresh at every stage of offer of securities by it within the period of validity. 3. Procedure - A company filing a shelf prospectus shall be required to file an information
memorandum within such time as may be prescribed by the Central Government prior of making of a second or subsequent offer of securities under the shelf prospectus on all material facts relating to the following.
a) New charges created b) Changes that have occurred in the financial position between the first offer of securities or the
previous offer of securities and the succeeding one.
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An information memorandum shall be issued to the public along with the shelf prospectus filed at the stage of the first offer of securities and it shall be valid for one year from the date of opening the first issue under the prospectus. Where an information is field, every time an securities is made such memorandum together with the Shelf Prospectus shall be deemed to be a Prospectus. Red Herring Prospectus-Sec 32 A Company proposing to make an offer of securities may issue a Red Herring prospectus prior to the issue of Prospectus. A company shall file this Red Herring Prospectus with ROC at least 3 days prior to the opening of Subscription List. It is a document similar to the prospectus upon the closing of the issue, the prospectus stating therein the total capital raised and closing price as also other details not given earlier shall be field both with the ROC and SEBI.
4. a) Sweat Equity shares and Employee stock options Sweat equity shares are shares issued for
consideration other than cash for contribution made by promoters, or other technical persons whereas Employees Stock Options are only options and they have to be paid for by the employees. The company. Company car also provide the loan towards this. The vesting date is to be chosen by the employees. Difference between the offer price and at the market price of the shares will become a taxable perquisite hand of the employees.
b) Refusal of Transfer-Sec 58 It a private company refuses to register the transfer or transmission of any shares or other securities, it shall send a notice of refusal to such transferor and transferee or to the person giving intimation of transmission. The power to refuse registration of such transfer or transmission is generally given by the Articles. But the securities of a public company are freely transferable. This rule is further governed by the following provisions. 1. Power of the Board to refuse registration of transfer: a) Grounds on which registration of transfer may be refused are as under. b) If partly paid up shares are being transferred and transferee is known to be financially
incapable of paying balance calls. c) If partly paid-up shares are being transferred to a minor (incapable of entering into a contract) d) In cases where due call money has not been paid by the transferor e) When the transferor is a debtor of a Company which has a lien on such shares f) If instrument is incomplete, irregular or defective or not properly stamped g) On other just and equitable grounds, in the general interest of the company. 2. Time for refusal Refusal must be conveyed in writing to the transferor and transferee within 30 days from the date on which instrument of transfer deed is lodged with the Company for transfer and reasons for refusal should be indicated.
3. Remedy against refusal of transfer of shares Refuse to register transfer of shares, or Fails to reply within 30 days of lodging the documents for registration; Fails to rectify the register of members for wrong inclusion or omission of name. Any aggrieved person- either the transferor or the transferee or any other person is entitled to seek remedy. Procedure: Application has to be made to the Tribunal, Time Limit, The time limit for application is i. Within a period of 60 days of receipt of notice of refusal or
ii. Where no reply has been received, within 90 days of lodging documents for registration iii. No time limit for rectification of register of members for wrong inclusion or omission of name
Proceedings
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The Tribunal may, on hearing, either- i. Dismiss the appeal; or
ii. Reject the application; or iii. Direct that the transfer be registered by the company or direct the company to pay damages, if
any sustained by any person aggrieved iv. Pass interim orders including order as to injunction or stay as it may deem fit and just, such
order as to costs as it thinks fit and incidental or consequential damages regarding payment of dividend or the allotment of bonus or rights shares during the pendency of the appeal. The company has to comply with Tribunal’s order within 10 days of receipt of such order.
4. Rectification of Register of Members – Sec 59 If the name of any person is, without sufficient cause, entered in the Register of Members (RoM) or omitted therefrom or a delay takes place in entering the name in the Register of Members, the person aggrieved or any member of the company or the company itself may prefer an appeal in the prescribed form to the Tribunal. The Tribunal may order rectification of the RoM or dismiss the appeal within 10 days after hearing the parties concerned. However voting rights available to the members shall not be affected unless specifically suspended by the Tribunal.
5. Demat Shares: The procedure and conditions are similar to Section 58 above except that complaint to Central Government may be made by the Depository, Company, Depository Participant or Investor or the Securities and Exchange Board of India.
5. a) 1. Meaning: Reduction means reduction of issued, subscribed and paid-up capital of the Company. Reduction may be in any of the following manner –
i. Extinguish or reduce liability on any of its shares with respect to unpaid / uncalled share capital;
ii. Cancel any paid-up share capital, which is lost or not represented by available assets either with or without extinguishing or reducing liability on any of its shares;
iii. By paying off / returning paid-up capital which is not required by the Company either with or without extinguishing or reducing liability on any of its shares;
iv. A combination of the above. 2. By whom? a) A Company limited by shares b) A Company limited by guarantee and having a share capital. 3. Procedure 1. Special Resolution 2. Application to Court with petition to confirm reduction 3. Court shall secure the interest of creditors. This shall be done by settling a list of creditors and the court ensuring that creditors objecting to reduction have given their consent or have been discharged or have been given sufficient security. 4. Power of the court to sanction reduction of capital is discretionary. The court shall satisfy that a. the reduction will be fair and in the interest of shareholders of all the classes. b. Court may confirm the reduction of capital on such terms as may be deemed fit. c. Court may direct the Company to add the words “And Reduced” at the end of the name of the Company. 5 The order from the Court shall be published by the company in such manner as may be directed. 6. The Company shall file such order and a copy of the minutes with the ROC.
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7. ROC shall issue a certificate confirming share capital reduction to the company. This shall be conclusive evidence that all requirements of the Act with respect to share capital reduction have been complied with. 4. Reduction of Share Capital without sanction of the Tribunal a) Forfeiture of Shares b) Surrender of Shares c) Cancellation of Shares (As discussed in alteration of Share Capital) d) Purchase of shares by Company by an order from the Court e) Redemption of redeemable preference shares in accordance with the provisions of Sec.55 f) Buyback of shares – Sec.68. 5. Liability of members in respect of reduced Share Capital
On reduction of share capital, the extent of the liability of any past or present member on any call or contribution shall not exceed the difference between:
the amount paid on the share or the reduced amount, if any, which is deemed to have been paid thereon by the member; and
the amount of the share as fixed by the order of reduction. If, however, the name of any creditor entitled to object to the reduction of share capital is not
entered in the list of creditors, by reason of his ignorance of the proceedings for reduction, and after the reduction, the Company is unable to pay his debt or claim, then:
every member at the time of registration of the Courts order for reduction is liable to contribute for the payment of the debt (or claim), an amount not exceeding the amount which he would have contributed if winding up had commenced before such order and
if the Company is wound up, the Court on application by the creditor, on proof of his ignorance, may settle a list of contributories from whom the creditor would get his payment
b) 1. Buy back of securities a) Purchase of own shares or providing loans for purchase of own shares is prohibited unless the
consequent capital reduction is effected under the provisions of this Act – Sec.67 b) The following companies cannot purchase their own shares
• Company limited by shares • Company limited by Guarantee and having share capital
No public company can directly or indirectly provide any loan or guarantee or security for purchasing or subscribing its shares (or of its holding company) – Sec. 67(2). c) Exception to the rule (i) Redemption by a company of its redeemable preference shares under Section 80 of the Act. (ii) Lending of money by a banking company in the ordinary course of business. (iii) Provision of financial assistance by a company: • in accordance with a scheme, for the purchase of fully-paid up shares by trustee to be held for the benefit of employees of the company (including Directors holding salaried posts); • in the form of loan to Bonafide employees of the company, other than Directors or manager, to enable them purchase fully paid-up shares to be held by themselves by way of beneficial ownership, such loans shall not exceed in amount six month’s salary or wages of such employees. 2. Buy Back of Shares – Sec. 68 Buyback is a simple form of repayment of excess capital. a) Merits of Buy back
Increase in share holders value; Return of surplus funds with the company to the shareholders.
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b) Sources of funds for buy-back: A company may purchase its own shares or others specified securities out of :
Free Reserves, or Securities Premium account, or Proceeds of any shares or other specified securities
No buy back shall be made out of the proceeds of an earlier issue of the same kind of shares or specified securities.
c) Conditions to be satisfied: Power of company to Purchase its own shares
A company may purchase its own share or other securities out of its free reserves or out of the balance in securities premium account or out of the proceeds of a fresh issue.
The following conditions apply: 1. The buyback is authorized by the company’s articles. 2. If the buyback is for 10% or less of the paid up capital plus free reserves, Board approval alone
would be sufficient. 3. If it is more than 10%, approval of shareholders by way of a special resolution is necessary. 4. The amount used for buyback cannot exceed 25% of the paid up capital plus free reserves in
any financial year. 5. Debt equity ratio after the buyback shall not exceed 2:1. 6. All the shares or other securities selected for buy back should be fully paid up. 7. SEBI guideline are to be followed for listed companies. 8. Not more than one buy back is allowed in one financial year. 9. The explanatory statement issued at the time of giving notice for the meeting shall contain full
details about the buy back. 10. The buyback shall be completed within a period of one year from the date of the passing of
special resolution. 11. Buy back may be for buy-back of securities from the open market or from existing holders or
by purchasing securities issued to employees. 12. A declaration of solvency* signed by at least two directors one of whom shall be the MD (if
any), is to be filed with the ROC. 13. Company shall destroy such share or security certificate bought back within a period of 7 days. 14. The company shall not resort to any fresh issue (or) allotment of shares (or) other specified
securities (except bonus shares, sweat equity shares, conversion of warrants, stock option schemes, bonds, preference shares and debentures into shares) for a period of six months.
15. Register for buy-back should be maintained by the company. 16. Return to be filed with ROC (and also with SEBI for listed companies). 17. Whenever such buy back is done through its own shares or free reserves or share premium, an
equivalent amount shall be transferred to CRR – Sec. 69. 18. Prohibition of buyback in certain cases:
a. Buy back of securities through subsidiary company or through investment companies b. If default is made in repayment/payment of interest on FDs / Debentures / Term Loans /
Preference shares c. The restriction will not apply if the default is remedied and a period of 3 years has lapsed
after such remedy. 19. To enable purchase of its own shares, the company should not have committed any default
with respect to payment of dividend or filing of annual return or filing of its financial statements (As contained in Sections 123, 127, Sec 92 & Sec 129 respectively.
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6. a) A. Meaning
A charge is a registration of security given for securing loans taken or debentures issued by a company. The charge is defined as follows in the Companies Act, 2013 in Sec.2(16) – “Charge means an interest or lien created on the property or assets of a company or any of its undertakings or both as security and includes a mortgage.”
B. Types of Charge a) Fixed/Specific Charge
A fixed charge is one, which is created on some specific property of the company, i.e., assets which are ascertained and definite or are capable of being ascertained and defined at the time of creating a charge.
Eg : Charge on land and building. It precludes the company from dealing with the property without the consent of the charge holder. b) Floating Charge
A floating charge is an equitable charge, which is created on some class of property which is constantly changing.
Eg : Charge on stock in trade, trade debtors, etc. The company can deal with such property in the normal course of its business until the charge becomes fixed on the happening of the specified event.
Characteristics of a floating charge (i) It is a charge on a class of assets of the company, both present and future. (ii) That class of assets is one, which in the ordinary course of the business of the company, is
changing from time to time. (iii) In a floating charge, the company shall be free to deal with the goods on which the charge has been created.
(iv) A floating charge is free from encumbrance – Eg: A company dealing in fans has created a floating charge on its stock in trade, namely fans. The
subsequent transferee (buyer of fans) will take the goods free from the charge. It is contemplated by the charge, that until some steps are taken, the company may conduct its business in the ordinary way.
Crystallization of a floating charge A floating charge crystallizes, i.e., security becomes fixed and obtains priority over any subsequent equitable mortgage and other unsecured creditors in the following cases – a) When the company goes into liquidation; b) When the company ceases to carry on business; c) a receiver is appointed;
d) a default is made in repaying the principal and/or interest and the holder of the charge brings an action to enforce his security;
e) On the happening of an event specified in the deed. b) Nomination of Shares: Sec. 72 a) Every shareholder or a debenture holder may nominate at any time, a person to whom his shares
or debentures should devolve in the event of his death. The nomination will be in the prescribed form.
b) In case of joint holdings, the joint holders may together nominate a person to whom such share or debentures should devolve in case of death of all the joint holders.
c) Where the nominee is a minor, then the holder of shares or debentures may make the nomination to appoint a person to become entitled to shares in or debentures of, the Company, in the event of his death, during the minority.
d) Where a nomination has been made in accordance with the provisions of this section, and such nomination has not been cancelled or varied, such nominee shall automatically become entitled
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to such shares or debentures, in the event of death of the shareholder or debenture holder, and in case of joint holdings, in the event of death of all joint holders.
e) Any person appointed as a nominee, shall either – • get himself registered as a member, or • transfer such shares or debentures, as the case may be, but subject to such restrictions and
conditions of this Act, relating to transfer of shares or debentures. Such provisions shall apply to him as if the death of the member or debenture holder had not occurred.
f) Where the nominee elects to be registered as a member, then he shall send to the Company a notice in writing conveying his decision, accompanied by the death certificate of the deceased shareholder or debenture holder, as the case may be.
g) On death of the member or debenture holder, the nominee becomes entitled to same dividends and other benefits as if he were the registered member. But unless he opts to become a registered member, he shall not be eligible to exercise any right conferred by membership in relation to the meetings of the Company.
7. Crossing Cheque 1. When a cheque bears across its face two parallel transverse lines, (usually on the top left
corner of cheque) the cheque is said to be crossed. 2. Crossing affects mode of payment of cheque. Cheque is not payable to payee or holder at
Bank. Payment is to be obtained only through Bank. Crossed Cheque can be negotiated similar to an open cheque
3. The objective of crossing is to enable tracing the recipient of money, if an unauthorized person receives it.
a) Restrictive crossing is in the hands of a holder in due course.
‘Account Payee’ Crossing / Restrictive Crossing The purpose of this crossing bearing the words “A/c Payee” is to obviate the risk of a wrong person obtaining payment on a cheque. It is a direction to banker to credit the proceeds only to the account of the payee. The cheque remains legally negotiable but “A/c payee” crossing hinders the negotiability of the cheque in practice.
Who may cross: Sec. 125 A cheque may be crossed by the following parties: 1. by drawer The drawer of a cheque may cross it generally or specially 2. Crossing after issue
where a cheque is uncrossed the holder may cross it generally or specially
where a cheque is crossed generally the holder may cross it specially
where a cheque is crossed generally
or specially
the holder may add the words “not negotiable”
where a cheque is crossed specially the banker to whom it is crossed may again cross it
specially to another banker, or his agent, for
collection
Payment of Crossed Cheque - Sec. 126 to 129
1. Banker is not liable if he pays in due course1 a cheque –
crossed generally, then to any bank.; crossed specially, then to the banker to whom it is crossed or his agent for collection (also a
banker);
PRIME A
CADEMY
PRIME/46th PT/IPC 10
2. Where the banker has paid in due course the bank and drawer shall have the same right and be placed in the same position in all respects as if the amount has been paid to and recovered by the true owner.
3. If the payment has been made “out of due course”, the banks shall be liable to the true owner of the cheque for any loss the true owner may sustain.
4. Where a cheque is crossed specifically to more than one banker, except when crossed to an agent for collection, the banker on whom it is drawn shall refuse payment.
5. The banker who receives payment based on an electronic image of a truncated cheque held with him shall verify the prima facie genuineness of the cheque to be truncated. The Banker shall also verify with due diligence and ordinary care any fraud, forgery or tampering apparent on the face of the instrument.
b) Non-negotiable crossing
‘Not Negotiable’ Crossing: Sec.130 The object of “Not negotiable” crossing is to protect the rights of holder of a cheque. A person taking a cheque crossed generally or specially, bearing in either case the words ‘not negotiable’, shall not have, and shall not be capable of giving a better title to the cheque other than that which the person from whom he took it had. Ordinarily a person acquiring a cheque in good faith becomes its holder in due course just as in the case of an open document. Such a cheque can be negotiated further. However, where a cheque is crossed as ‘Not Negotiable’, either generally or specially, the Holder in due course will not get a better title than the person from whom he received. It may be noted that though it is mentioned ‘Not Negotiable’, the cheque can be transferred. The only restriction is with regard to the title passed. In other words, the principle of Nemo dat quod non habet (nobody can pass on a title better than what he himself has) will be applicable to a cheque with a ‘not negotiable’ crossing, even though the cheque is in the hands of a holder in due course.
c) Restrictive Crossing The purpose of this crossing bearing the words “A/c Payee” is to obviate the risk of a wrong person obtaining payment on a cheque. It is a direction to banker to credit the proceeds only to the account of the payee. The cheque remains legally negotiable but “A/c payee” crossing hinders the negotiability of the cheque in practice. Yes this amount to dishonour. Effect of dishonour due to non-payment will follow, as non-payment has not been excused by the depositor. Payer can be sweat as it is a punishable offence PRIM
E ACADEMY
PRIME/46th/PT/IPC 1
PRIME ACADEMY 46th SESSION – PROGRESS TEST - COST MANAGEMENT ACCOUNTING
No. of. Pages: 7 Total Marks: 75 Time allowed: 2 hrs
PART A - (25 MARKS)
1. ............................. is a location, person or item of equipment for which cost may be determined and used for the purpose of cost control. (A) Profit centre
(B) Cost centre (C) Cost unit
(D) Cost driver 2. Overtime wages arising out of abnormal conditions, eg. flood, strike etc. should not be charged to
....................... . (A) Cost of production (B) Trading Account (C) Profit & Loss Account (D) None of the above
3. When costing loss is `6,500, administrative overhead under absorbed being ` 500, the loss as per financial accounts should be (`) : (A) 7,000 (B) 6,500 (C) 6,000 (D) 8,000
4. In activity based costing, a resource consuming activity that causes overheads is (A) Cost pool (B) support activity (C) Primary activity (D) Cost driver
5. What is the treatment of unrealised profit in process costing — (A) Transferred to profit and loss account (B) Closing stock valued at transfer price (C) Eliminated by creating stock reserve (D) Treated as abnormal gain.
6. A contract which was completed 57.14% contains a profit of ` 16,620 which was transferred to general profit & Loss account. work certified was ` 2,00,000 and work uncertified was ` 1,490. Cash received was 75% of the work certified. Notionol profit =? (A) ` 33,240 (B) ` 66,480 (C) ` 18,697.5 (D) ` 35,640
7. In case of the non-integrated system, no personal or real accounts are prepared and all entries are passed through ....................... (A) Stores ledger control A/c (B) General ledger Adjustment A/c (C) Costing P& L A/c (D) None of the above
PRIME A
CADEMY
PRIME/46th/PT/IPC 2
8. A company uses an overhead absorption rate of `3·50 per machine hour, based on 32,000
budgeted machine hours for the period. During the same period the actual total overhead expenditure amounted to `108,875 and 30,000 machine hours were recorded on actual production. By how much was the total overhead under or over absorbed for the period? (A) Under absorbed by ` 3,875 (B) Under absorbed by `7,000 (C) Over absorbed by `3,875 (D) Over absorbed by `7,000
9. Direct labour cost will include — (A) All labour cost attributable to a production department (B) Labour cost of production and production support services (C) Cost of direct labour engaged in converting raw materials into manufactured articles (D) Cost of labour recruited directly by the management and through contractors.
10. Re-order quantity : 300 Kgs. Minimum usage : 20 Kgs. per day Minimum lead time : 5 days Maximum stock level : 400 Kgs. Re-order level will be — (A) 350 Kgs (B) 200 Kgs (C) 375 Kgs (D) 250 Kgs
11. Acute Ltd. is committed to supply 24,000 bearings per annum to Mighty Ltd. on a steady basis. It is estimated that it costs 10 paise as inventory holding cost per bearing per month and that the set-up cost per run of bearing manufacture is 324. The optimum run size for bearing manufacture would be — (A) 3,800 Units (B) 4,000 Units (C) 3,600 Units (D) 3,400 Units.
12. 4,000 Kgs. of material is purchased @ 2 per Kg. Normal wastage is estimated at the rate of 10%. The wastage has recovery value of 1.10 per Kg. Calculate cost of material of work order of 600 units, if each unit requires 1.5 Kg. of material — (A) 1,260 (B) 1,800 (C) 1,620 (D) 1,890
13. At the end of a period, in an integrated cost and financial accounting system, the accounting entries for overhead over–absorbed would be (A) DR Profit and loss account
CR Work–in–progress control account (B) DR Profit and loss account
CR Overhead control account (C) DR Work–in–progress control account
CR Overhead control account (D) DR Overhead control account
CR Profit and loss account 14. A Ltd operates a continuous process producing three products and one by–product. Output from
the process for a month was as follows:
Product Selling price Units of output
per unit from process
1 2 3 4 (by–product)
`18 `25 `20 `2
10,000 20,000 20,000 3,500
PRIME A
CADEMY
PRIME/46th/PT/IPC 3
Total output costs were `2,77,000.What was the unit valuation for product 3 using the sales revenue basis for allocating joint cost?
(A) `4.70, (B) `4.80, (C) `5.00, (D) `5.10
15. Following information is supplied regarding a contract in progress :
Details Amount (`) Stage of completion (%) Erection cost to date 7,500 25 Fabrication cost to date :
Materials 60,000 60 Wages and expenses 47,500 50
If the Contract value is `2,00,000 , the estimated profit or loss at the completion of the contract will be —
(A) 25,000 (Profit) (B) 25,000 (Loss) (C) 26,000 (Profit) (D) 26,000 (Loss). 16. Following information is given for an order : Materials (direct) : 25,000 Wages (direct) : 20,000
Factory overheads : 75% of wages (direct) Sales : 85,800 Profit : 10% on cost of production. Office overheads are charged as a percentage of factory cost. The amount of office overheads and its percentage to factory cost will be — (A) 78,000 and 30% (B) 18,000 and 30% (C)25,800 and 43% (D)33,000 and 55%
17. A hotel has 200 rooms accommodation. The normal occupancy in summer is 90% and winter 40%. The period of summer and winter is taken 8 months and 4 months respectively. Assume 30 days in each month. The total rooms occupancy in a year will be — (A) 1,760 (B) 52,800 (C) 7,800 (D)72,000
18. A common absorption rate used throughout a factory for all jobs and units of output irrespective of the department in which they were produced is called — (A) Machine hour rate (B) Department absorption rate (C) Overall absorption rate
(D) Blanket absorption rate. 19. A transport company is running 4 buses between two cities, which are 60 Kms. apart. Seating
capacity of each bus is 45 passengers. Actual passengers carried by each bus are 80% of seating capacity. All buses run on all days of the month. Each bus makes one round trip per day. Assuming 30 days in a month, the passenger Kms. are — (A) 5,62,500 (B) 5,18,400 (C) 6,40,000 (D) 2,59,200
20. Which of the following account will be debited under the integrated accounting system when materials are purchased on credit — (A) Purchases account (B) Stores control account (C) Cost ledger control account (D) None of the above.
21. A worker is allowed 2 hours to produce 5 units of a product. Wages are paid to the worker @ 20 per hour. In a 48 hours week, the worker produced 150 units. The earnings of the worker as per Rowan plan will be — (A) 1,940 (B) 1,450 (C) 1,553 (D) 1,152
PRIME A
CADEMY
PRIME/46th/PT/IPC 4
22. Under activity based costing, 'material ordering' is considered as — (A) Unit level activity (B) Batch level activity (C) Product level activity (D) Facility level activity.
23. Total number of workers : 100 Idle time : 5% Working days per year : 300 Factory overheads : 11,400 No. of hours worked per day : 8 Direct labour hour rate will be — (A) 6 paise per hour (B) 4 paise per hour (C) 8 paise per hour (D) 5 paise per hour.
24. Which of the following items are purely financial incomes — (A) Discount on issue of shares (B) Interest on bank loan (C) Transfer fees received (D) All of the above
25. Which element of total cost is common in prime cost and conversion cost — (A) Variable overheads (B) Fixed overheads (C) Direct materials (D) Direct labour.
PART B (50 Marks)
Answer any FOUR questions. All questions carry 12.5 marks each.
1. A Ltd. produces a product ‘Exe’ using a raw material Dee. To produce one unit of Exe, 2 kg of Dee is required. As per the sales forecast conducted by the company, it will able to sale 20,000 units of Exe in the coming year. The following is the information regarding the raw material Dee:
The Re-order quantity is 200 kg less than the Economic Order Quantity (EOQ).
Maximum consumption per day is 20 kg more than the average consumption per day. There is an opening stock of 2,000 kg. Time required to get the raw materials from the suppliers is 4 to 8 days.
The purchase price is ` 125 per kg. There is an opening stock of 1,800 units of the finished product Exe. The rate of interest charged by bank on Cash Credit facility is 13.76%. To place an order company has to incur ` 720 on paper and documentation work.
From the above information find out the following in relation to raw material Dee: (i) Re-order Quantity (ii) Maximum Stock level (iii) Minimum Stock level (iv) Calculate the impact on t]he profitability of the company by not ordering the EOQ. [Take 364
days for a year] Labour
2. (a) J Ltd. wants to ascertain the profit lost during the year 2016-17 due to increased labour
turnover. For this purpose, they have given you the following information: (i) Training period of the new recruits is 50,000 hours During this period their productivity
is 60% of the experienced workers Time required by an experienced worker is 10 hours per unit.
(ii) 20% of the output during training period was defective. Cost of rectification of a defective unit was `25.
PRIME A
CADEMY
PRIME/46th/PT/IPC 5
(iii) Potential productive hours lost due to delay in recruitment were 1,00,000 hours (iv) Selling price per unit is `360 and P/V ratio is 20%. (v) Settlement cost of the workers leaving the organization was `3,66,960. (vi) Recruitment cost was `3,12,680 (vii) Training cost was `2,26,360 You are required to calculate the profit lost by the company due to increased labour turnover during the year 2016-17.
(b) Human Resources Department of A Ltd. computed labour turnover by replacement method at 3% for the quarter ended June 2015. During the quarter, fresh recruitment of 40 workers was made. The number of workers at the beginning and end of the quarter was 990 and 1010 respectively. You are required to calculate the labour turnover rate by Separation Method and Flux Method.
3. Gopal Milk Co-Operative Society (GMCS) collects raw milk from the farmers of Ramgarh,
Pratapgarh and Devgarh panchayats and processes these milk to make various dairy products. GMCS has its own vehicles (tankers) to collect and bring the milk to the processing plant. Vehicles are parked in the GMCS’s garage situated within the plant compound. Following are the some information related with the vehicles:
Ramgarh Pratapgarh Devgarh No. of vehicles assigned 4 3 5 No. of trips a day 3 2 2 One way distance from the plant 24 k.m. 34 k.m. 16 k.m. Toll tax paid p.m. (`) 2,850 3,020 ---
All the 5 vehicles assigned to Devgarh panchayat, were purchased five years back at a cost of `9,25,000 each. The 4 vehicles assigned to Ramgarh panchayat, were purchased two years back at a cost of ` 11,02,000 each and the remaining vehicles assigned to Pratapgarh were purchased last year at a cost of `13,12,000 each. With the purchase of each vehicle a two years free servicing warranty is provided. A vehicle gives 10 kmpl mileage in the first two year of purchase, 8 kmpl in next two years and 6 kmpl afterwards. The vehicles are subject to depreciation of 10% p.a. on straight line basis irrespective of usage. A vehicle has the capacity to carry 25,000 litres of milk but on an average only 70% of the total capacity is utilized. The following expenditure is related with the vehicles:
Salary to a Driver (a driver for each vehicle)
` 18,000 p.m.
Salary to a Cleaner (a cleaner for each ` 11,000 p.m.
vehicle)
Allocated garage parking fee ` 1,350 per vehicle per month
Servicing cost ` 3,000 for every complete 5,000 k.m run
Price of diesel per litre ` 58.00
From the above information you are required to calculate (i) Total operating cost per month for each vehicle. (Take 30 days for the month) (ii) Vehicle operating cost per litre of milk.
PRIME A
CADEMY
PRIME/46th/PT/IPC 6
4. From the following Information for the month ending October, 2017, prepare Process Cost accounts for Process III. Use First–in–first–out (FIFO) method to value equivalent production.
Direct materials added in process III (Opening WIP) 2,000 units at ` 25,750
Transfer from Process II 53,000 units at ` 4,11,500
Transferred to Process IV 48,000 units
Closing stock of Process III 5,000 units
Units scrapped 2,000 units
Direct material added in Process III ` 1,97,600
Direct wages ` 97,600
Production Overheads ` 48,800
Materials Labour Overheads Opening Stock 80% 60% 60% Closing Stock 70% 50% 50%
Scrap 100% 70% 70% The normal loss in the process was 5% of production and scrap was sold at ` 3 per unit.
5. Giant Construction Ltd. has been constructing a flyover for 15 months and is under progress. The following information relating to the work on the contract has been prepared for the
period ended 31st March, 2017.
Amount (`)
Contract price 65,00,000
Value of work certified at the end of the year 57,20,000
Cost of work not yet certified at the end of the year 1,20,000
Opening balances:
Cost of work completed 8,00,000
Materials on site 80,000
Costs incurred during the year:
Material delivered to site 15,90,000
Wages 14,95,000
Hire of plant 2,86,000
Other expenses 2,30,000
Closing balance: Material on site 40,000
As soon as materials are delivered to the site, they are charged to the contract account. A record is kept on actual use basis, periodically a stock verification is made and any discrepancy between book stock and physical stock is transferred to a general contract material discrepancy account. The stock verification at the year end revealed a stock shortage of ` 15,000. In addition to the direct charges listed above, general overheads are charged to contracts at 5% of the value of work certified. General overheads of ̀35,000 had been absorbed into the cost of work completed at the beginning of the year. It has been estimated that further costs to complete the contract will be ` 5,72,000. This estimate includes the cost of materials on site at the end of the year (31.3.2017) and also a provision for rectification.
PRIME A
CADEMY
PRIME/46th/PT/IPC 7
Required: (i) Determine profitability of the above contract and recommend how much profit should be
taken for the year just ended. (Provide a detailed schedule of costs). (ii) State how your recommendation in (i) would be affected if the contract price was ̀
80,00,000 (rather than ` 65,00,000) and if no estimate has been made of costs to completion.
6. The financial books of a company reveal the following data for the year ended 31st
March, 2017:
(`)
Opening Stock: Finished goods 875 units
76,525
Work-in-process 33,000
01.04.2016 to 31.3.2017
Raw materials consumed 7,84,000
Direct Labour 4,65,000
Factory overheads 2,65,000
Goodwill written off 95,000
Administration overheads 3,15,000
Interest paid 72,000
Bad Debts 21,000
Selling and Distribution Overheads 65,000
Interest received 18,500
Rent received 72,000
Sales 14,500 units 20,80,000
Closing Stock: Finished goods 375 units 43,250
Work-in-process 48,200
The cost records provide as under: Factory overheads are absorbed at 60% of direct wages. Administration overheads are recovered at 20% of factory cost. Selling and distribution overheads are charged at ` 5 per unit sold. Required:
Prepare Raw material control a/c, wages control a/c, factory overheads control a/c, , WIP control a/c, Finished goods control a/c, Costing P&L a/c and Financial P & L a/c for the year
ended 31st March, 2017 under integral system.
PRIME A
CADEMY
PRIME/46th PT/IPC 1
PRIME ACADEMY 46th SESSION – IPC - PROGRESS TEST – COST MANAGEMENT ACCOUNTING
SUGGESTED ANSWERS PART A
Q 1 2 3 4 5 6 7 8 9 10 11 12
A B C A D C B B A C B C D
13 14 15 16 17 18 19 20 21 22 23 24 25
B C B B B D B B D B D C D
PART B
1. Production of Exe = Sales – opening stock = 10,000-900= 9,100 units Consumption of Dee = 9,100 units x 2kg = 18,200 kg Purchase (annual requirement) = consumption – opening stock = 17,200 kg
EOQ =√(2𝐴𝑂
𝐶)
2 = √(
2𝑥17,200𝑥720
125𝑥13.76%)
2 =1,200kg
ROQ = EOQ – 200 = 1000kg Average consumption per day = Annual consumption/364 =18,200/364 =50kg Maximum consumption = Av. Consumption + 20 = 70kg Minimum consumption =(50x2)-70 =30kg Computation of Stock Levels Re–Order Level (ROL) = (Max Usage/day × Max Lead Time) = 70 Kg× 8 days= 560 Kg. Max Stock level = ROL + ROQ – (Min. Usage × Min. Lead Time) = 560 kg + 1,000 kg – (30 kg × 4 days) = 1,440 kg. Minimum Stock Level = ROL – (Average Usage × Average Lead Time) = 560 kg – (50 kg × 6 days) = 260 kg. Qty No: of orders Ordering cost Carrying cost Total cost
1000 17.2 12384 8,600 20,984
1200 14.33 10,320 10,320 20,640
Extra Cost incurred due to not ordering EOQ = `20,984 – `20,640 = `344
2. Output by experienced workers in 50,000 hours = 50,000 /10 = 5,000 units Output by new recruits = 60% of 5,000 = 3,000 units Loss of output = 5,000 – 3,000 = 2,000 units
Total loss of output = Due to delay recruitment + Due to inexperience = 10,000 + 2,000 = 12,000 units Contribution per unit = 20% of `360 = ` 72 Total contribution lost = `72 × 12,000 units = ` 8,64,000 Cost of repairing defective units = 3,000 units × 0.2 × `25 = `15,000
Profit forgone due to labour turnover
(`)
Loss of Contribution 8,64,000
Cost of repairing defective units 15,000
Recruitment cost 3,12,680
Training cost 2,26,360
Settlement cost of workers leaving 3,66,960
Profit forgone in 2016-17 17,85,000
PRIME A
CADEMY
PRIME/46th PT/IPC 2
3.
(i) Calculation of Operating Cost per month for each vehicle Ramgarh ` Pratapgarh ` Devgarh ` Total `
A. Running Costs: Cost of diesel (WN- 2)
1,25,280
70,992
92,800
2,89,072
Servicing cost (WN- 3) Fixed Costs: Salary to drivers Salary to cleaners Allocated garage parking fee Depreciation(WN4) Toll tax passes Total [A + B] Operating Cost per vehicle
9,000 --- 3,000 12,000
1,34,280 70,992 95,800 3,01,072
72,000
54,000
90,000
2,16,000
(4 drivers × ` 18,000)
(3 drivers × ` 18,000)
(5 drivers × ` 18,000)
44,000 33,000 55,000 1,32,000 (4 cleaners ×
` 11,000) (3 cleaners ×
` 11,000) (5 cleaners ×
` 11,000)
5,400 4,050 6,750 16,200 (4 vehicles ×
` 1,350) (3 vehicles ×
` 1,350) (5 vehicles ×
` 1,350)
36,733 32,800 38,542 1,08,075
2,850 3,020 --- 5,870
1,60,983 1,26,870 1,90,292 4,78,145
2,95,263 1,97,862 2,86,092 7,79,217 73,815.75 65,954 57,218.40 64,934.75
(2,95,263 ÷ 4 vehicles)
( 1,97,862 ÷ 3 (` 2,86,092 ÷ 5 (7,79,217 ÷12 vehicles) vehicles) vehicles)
(ii) Vehicle operating cost per litre of milk: Total operating cost p.m / Total milk carried p.m = ` 7,79,217/1,47,00,000Litres = 0.053 Working notes:
1. Distance covered by the vehicles in a month Route Total Distance (in
K.M.)
Ramgarh (4 vehicles × 3 trips × 2 × 24 km. × 30 days) 17,280
Pratapgarh (3 vehicles × 2 trips × 2 × 34 km. × 30 days) 12,240
Devgarh (5 vehicles × 2 trips × 2 × 16 km. × 30 days) 9,600
2. Cost of diesel consumption
Ramgarh Pratapgarh Devgarh Total distance travelled (K.M.) 17,280 12,240 9,600
Mileage per litre of diesel 8 kmpl 10 kmpl 6 kmpl
Diesel consumption (Litre) 2,160 1,224 1,600
(17,280 ÷ 8) (12,240 ÷ 10) (9,600 ÷ 6) Cost of diesel consumption @ ` 58 per litre (`)
1,25,280 70,992 92,800
PRIME A
CADEMY
PRIME/46th PT/IPC 3
3. Servicing Cost Ramgarh Pratapgarh Devgarh
Total distance travelled (K.M.) 17,280 12,240 9,600
Covered under free service warranty
No Yes No
No. of services required 3 2 1 (17,280 k.m.
÷ 5,000 k.m.) (12,240 k.m. ÷
5,000 k.m.) (9,600 k.m.
÷ 5,000 k.m.)
Total Service Cost (`) 9,000 --- 3,000 (` 3,000 × 3) (` 3,000 × 1)
4. Calculation of Depreciation
Ramgarh Pratapgarh Devgarh
No. of vehicles Cost of a vehicle Total Cost of vehicles Depreciation per month
4 11,02,000 44,08,000
36,733 (44,08,000x1
%)/ 12
3 13,12,000 39,36,000
32,800 (39,36,000x10
%)/ 12
5 9,25,000
46,25,000 38,542
(46,25,000x10 %)/ 12
5. Total volume of Milk Carried Route Milk Qty. (Litre)
Ramgarh ( 25,000 ltr. × 0.7 × 4 vehicles × 3 trips × 30 days) 63,00,000
Pratapgarh (25,000 ltr. × 0.7 × 3 vehicles × 2 trips × 30 days) 31,50,000
Devgarh (25,000 ltr. × 0.7 × 5 vehicles × 2 trips × 30 days) 52,50,000
1,47,00,000
4.
Step-1 STATEMENT OF PRODUCTION
Particulars Units
Opening stock 2000 Add : Transfer from Previous Process 53,000 Total Input 55,000 Less : Closing stock (5,000) Process Production 50,000 Less : Normal Loss ( 5% ) (2,500) Expected Output 47,500
Actual Output 48,000 Abnormal Gain 500
TOTAL SCRAP = NORMAL LOSS – ABNORMAL GAIN = 2500 - 500 = 2000 units
PRIME A
CADEMY
PRIME/46th PT/IPC 4
Step -2 UNITS TRANSFERRED & COMPLETED
Particulars Units Actual Units transferred 48,000
Less : Opening stock (2,000) Units completed this month 46,000
Step -3 STATEMENT OF EQUIVALENT PRODUCTION
Details Units Material I Material II Labour Overheads % Units % Units % Units % Units Opening stock 2,000 - - 20 400 40 800 40 800 Units produced This month
46,000 100 46,000 100 46,000 100 46,000 100 46,000
Normal Loss 2,500 - - - - - - - - Closing WIP 5,000 100 5,000 70 3,500 50 2,500 50 2,500 Abnormal Gain (500) 100 (500) 100 (500) 100 (500) 100 (500) EQUIVALENT UNITS
55,000 50,500 49,400 48,800 48,800
Step – 4 STATEMENT OF COST
Particulars Materials I Material II Labour Overheads
Input 4,11,500 1,97,600 97,600 48,800 Less : Normal Loss ( 2,500 * 3)
7,500 - - -
4,04,000 1,97,600 97,600 48,800 Equivalent Units 50,500 49,400 48,800 48,800 Cost / Units 8 4 2 1 Step – 5 STATEMENT OF EVALUATION Details Computation Results Opening stock 180028004400 4000
Units started and completed 46,000 units 1248 6,90,000
Abnormal Gain 500 units 1248 7,500
Closing stock
1500,22500,24500,38000,5
61,500
Transfer To Warehouse = 7,19,750 (Opening stock : 25,750 + work done this month 4,000 + units introduced completed and transferred: 6,90,000)
Step – 6 PROCESS A/C
Particulars Units ` Particulars Units `
To Opening Stock 2,000 25,750 By Normal Loss 2,500 7,500 To transfer from Previous Process
53,000 4,11,500
By Closing Stock 5,000 61,500
To Material 1,97,600 By transfer to Warehouse ( B /f)
48,000 7,19,750
To Labour 97,600
To Overheads 48,800 To Abnormal Gain 500 7,500 7,88,750 7,88,750
PRIME A
CADEMY
PRIME/46th PT/IPC 5
5. Schedule of costs Amount (`) Amount (`)
Cost incurred: Opening balance 8,00,000
During the year Material consumed:
Opening Stock 80,000
Add: Material delivered during the year 15,90,000
16,70,000
Less: Closing stock 40,000 16,30,000
Wages 14,95,000
Hire of plant 2,86,000
Other expenses 2,30,000
Material discrepancy (Actual) 15,000
General overheads 5% of ` 57,20,000 2,86,000
Less: Absorbed at the beginning of the year 35,000 2,51,000
47,07,000
Estimated further cost to complete 5,72,000
Estimated Total Cost 52,79,000
Contract Price 65,00,000
Estimated Total Profit 12,21,000
(i) Profit to be transferred to Profit and loss account:
Estimated Profit x Value of work certified
x 12 months
Contract price 15 months
= ` 12.21L x 57.20𝐿
65𝐿 x
12
15 = ` 8,59,584
(ii) If contract price was ` 80 lakhs and if no estimate has been made of costs to completion Value of work certified at the end of year = ` 57,20,000 i.e. 71.5% of work has been completed. In such case notional profit has to be calculated instead of estimated profit. Value of work certified ` 57,20,000 Add: Cost of work not certified ` 1,20,000 58,40,000 Less: Cost of work upto the end of year 47,07,000 Notional Profit 11,33,000
Recommendation in (i) above would be affected as follows: Assumption: Cash received is assumed as 90% of value of work certified. Then, the following formula is to applied for the profit to be credited to Profit and loss A/c. for the year just ended.
2
3∗ 𝑁𝑜𝑡𝑖𝑜𝑛𝑎𝑙 𝑝𝑟𝑜𝑓𝑖𝑡𝑠 ∗ (
12 𝑚𝑜𝑛𝑡ℎ𝑠
15 𝑚𝑜𝑛𝑡ℎ𝑠) ∗ (
𝑐𝑎𝑠ℎ 𝑟𝑒𝑐𝑒𝑖𝑣𝑒𝑑
𝑤𝑜𝑟𝑘 𝑐𝑒𝑟𝑡𝑖𝑓𝑖𝑒𝑑)
= ` 5,43,840
6. Raw Material control account To Creditors 7,84,000 By WIP 7,84,000
Wages control account
To Bank 4,65,000 By WIP 4,65,000
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Factory overheads control account To Bank 2,65,000 By WIP 2,79,000 “ Costing P & L a/c 14,000
2,79,000
2,79,000
WIP control account
To Bal b/d 33,000 By Finished goods 15,12,800 “ Raw materials 7,84,000
Bal c/d 48,200
“ wages control 4,65,000 “ Factory overheads 2,79,000
15,61,000
15,61,000
Finished goods control account To Bal b/d 76,525 By Cost of sales 15,46,075
WIP 15,12,800
Bal c/d 43,250
15,89,325
15,89,325
Cost of Sales account To Finished goods 15,46,075 By Costing P & L a/c 19,21,135 “ Adm Oveheads 3,02,560
“ Selling Oveheads 72,500
19,21,135
19,21,135
Costing P & L account
To Cost of sales 19,21,135 By Sales 20,80,000 “ Adm oh (under) 12,440 “ Factory Oh (over abs) 14,000 “ Profit c/f 1,67,925 “ Selling OH (over) 7,500
21,01,500
21,01,500
Financial P & L account To interest paid 72,000 By Profit b/f 1,67,925 “ goodwill w/off 95,000 “ rent received 72,000 “ bad debts 21,000 “ Interest received 18,500 “ Profit c/f 70,425
2,58,425
2,58,425
Workings: Computation of under/Over absorption: Administration: Incurred 3,15,000 Absorbed 3,02,560 (15,21,800 x 20%)
Under absorption 12,440
Selling Incurred 65,000 Absorbed 72,500
over absorption 7,500
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1 PRIME/46th/IPC
Prime Academy - 46th Session
Progress Test – IPC
TAXATION
No. of Pages : 7 Total Marks : 75
Time Allowed: 2 hrs
Answer all Questions
Working notes should form part of the answers
PART – A
1)
A. List down the detailed steps/procedure for computation of total income for levying
income tax. (Only heading of steps is required. It has to be in proper order) (4 Marks)
B. Compute the tax liability for the assessment year 2018-19 for the following assesses:
1. Mr. Raja aged 82 income earning of INR 13,75,398 2. Mrs. Aishwarya aged 25 income earning of INR 103,55,198
3. Y Ltd. Taxable income is 3,89,28,178. Turnover is 4,95,00,000 4. Mr. Vijay aged 38 having income of 11,23,900 (income from lottery)
(7 Marks)
C. Profit on sale of shares of an Indian company received in Australia is taxable in case of –
(a) resident and ordinarily resident only (b) resident but not ordinarily resident
(c) non-resident (d) All the above
(1 Mark)
D. A company, other than an Indian company, would be a resident in India for the P.Y. 2017-18 if, during that year,
(a) its Place of Effective Management is in India. (b) its control and management is wholly in India.
(c) it control and management is partly in India. (d) majority of its directors are resident in India
(1 Mark)
E. The surcharge applicable to a domestic company for A.Y. 2018-19 is - (a) 5%, if total income exceeds INR 1 crore.
(b) 10%, if the total income exceeds INR 1 crore (c) 7%, if the total income exceeds INR 1 crore but does not exceed INR 10 crore, and
15%, if the total income exceeds INR 10 crore.
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(d) 7%, if the total income exceeds INR 1 crore but does not exceed INR 10 crore, and 12%, if the total income exceeds INR 10 crore.
(1 Mark)
F. The maximum ceiling limit for exemption under section 10(10C) with respect to compensation received on voluntary retirement is -
(a) INR 2,50,000 (b) INR 3,00,000
(c) INR 3,50,000 (d) INR 5,00,000
(1 Mark)
G. For the purpose of determining the perquisite value of loan at concessional rate given to the employee, the lending rate of State Bank of India as on __________ is required;
(a) 1st day of the relevant previous year (b) Last day of the relevant previous year
(c) the day the loan is given (d) 1st day of the relevant assessment year
(1 Mark)
H. Vidya received INR 90,000 in May, 2017 towards recovery of unrealised rent, which was deducted from actual rent during the P.Y. 2015-16 for determining annual value. Legal
expense incurred in relation to unrealized rent is INR 20,000. The amount taxable under section 25A for A.Y.2018-19 would be -
(a) INR 90,000 (b) INR 63,000
(c) INR 60,000 (d) INR 49,000
(2 Marks)
I. Leena received INR 30,000 as arrears of rent during the P.Y. 2017-18. The amount taxable under section 25A would be -
(a) INR 30,000 (b) INR 21,000
(c) INR 20,000 (d) INR 15,000
(2 Marks)
J. The rates of income tax are mentioned in - (a) The Income-tax Act, 1961 only
(b) The Annual Finance Act (c) Both in the Income-tax Act, 1961 and the Annual Finance Act
(d) Income-tax Rules, 1962. (1 Mark)
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K. From the following particulars of income furnished by Mr. Anirudh pertaining to the year
ended 31.3.2018, compute the total income for the assessment year 2018-19, if he is:
(i) Resident and ordinary resident;
(ii) Resident but not ordinarily resident;
(iii) Non-resident
Sl.
No.
Particulars Amount
1 Short term capital gain on sale of shares in Indian Company received in
Germany
15,000
2 Dividend from a Japanese Company received in Japan 10,000
3 Rent from property in London deposited in a bank in London, later on
remitted to India through approved banking channels
75,000
Dividend from RP Ltd., an Indian Company 6,000
Agricultural income from lands in Gujarat 25,000
(4 Marks)
PART – B
1
A. Ms. Shikha is a co-owner of a house property along with her brother holding equal share in the property.
Particulars INR
Fair Rent 155,000
Rent received 16,000 P M
Standard rent under the Rent Control Act 170,000
Municipal value of the property 160,000
The loan for the construction of this property is jointly taken and the interest charged by the bank is Rs. 25,000, out of which Rs. 21,000 has been paid. Interest on the unpaid interest is Rs. 700.
To repay this loan, Shikha and her brother have taken a fresh loan and interest charged on this loan is Rs. 5,000. The municipal taxes of Rs. 6,500 have been paid by the tenant.
Compute the income from this property chargeable in the hands of Ms. Shikha for the A.Y.
2018-19. (6 Marks)
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B. During the last four years preceding the financial year 2017-18, Mr. Damodhar, a citizen
of India, was present in India for 430 days. During the last seven previous years preceding the previous year 2017-18, he was present in India for 830 days.
Mr. Damodhar is a member of crew of a Dubai bound Indian ship, carrying passengers in
the international waters, which left Kochi port in Kerala, on 12th August, 2017.
Following details are made available to you for the previous year 2017-18:
Date entered into the Continuous Discharge Certificate in respect of joining the ship by
Mr. Damodhar
12th August 2017
Date entered into the Continuous Discharge Certificate in respect of signing the ship by
Mr. Damodhar
21st January 2018
In May, 2017, he had gone out of India to Singapore and Malaysia on a private tour for a continuous period of 29 days.
You are required to determine the residential status of Mr. Damodhar for the
previous year 2017-18. (5 Marks)
2)
Shri Bala employed in ABC Co. Ltd. as Finance Manager gives you the list of perquisites provided by the company to him for the entire financial year 2017-18:
(i) Medical facility given to his family in a hospital maintained by the company. The estimated value of benefit because of such facility is INR 40,000.
(ii) Domestic servant was provided at the residence of Bala. Salary of domestic servant is INR 1,500 per month. The servant was engaged by him and the salary is reimbursed by the company
(employer).
In case the company has employed the domestic servant, what is the value of perquisite?
(iii) Free education was provided to his two children Arthy and Ashok in a school maintained and owned by the company. The cost of such education for Arthy is computed at INR 900 per
month and for Ashok at INR 1,200 per month. No amount was recovered by the company for such education facility from Bala.
(iv) The employer has provided movable assets such as television, refrigerator and air- conditioner at the residence of Bala. The actual cost of such assets provided to the employee is
INR 1,10,000.
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(v) A gift voucher worth INR 10,000 was given on the occasion of his marriage anniversary. It is given by the company to all employees above certain grade.
(vi) Telephone provided at the residence of Shri Bala and the bill aggregating to INR 25,000 paid by the employer.
State the taxability or otherwise of the above said perquisites and compute the total value of taxable perquisites. (8 Marks)
3)
Mrs. Rohini Ravi, a citizen of the U.S.A., is a resident and ordinarily resident in India during the
financial year 2017-18. She owns a house property at Los Angeles, U.S.A., which is used as her residence. The annual value of the house is $20,000. The value of one USD ($) may be taken as
INR 60.
She took ownership and possession of a flat in Chennai on 1.7.2017, which is used for self-occupation, while she is in India. The flat was used by her for 7 months only during the year
ended 31.3.2018. The municipal valuation is INR 32,000 p.m. and the fair rent is INR 4,20,000 p.a. She paid the following to Corporation of Chennai:
Property Tax INR 16,200
Sewerage Tax INR 1,800
She had taken a loan from Standard Chartered Bank for purchasing this flat. Interest on loan was as under:
Period Amount Rs.
Period prior to 1.4.17 49,200
1.4.17 to 30.6.17 50,800
1.7.17 to 31.3.18 131,300
She had a house property in Bangalore, which was sold in March, 2014. In respect of this house,
she received arrears of rent of INR 60,000 in March, 2018. This amount has not been charged to tax earlier.
Compute the income chargeable from house property of Mrs. Rohini Ravi for the assessment year 2018-19, exercising the most beneficial option available.
(8 Marks)
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4)
Mr. Balaji, employed as Production Manager in Beta Ltd., furnishes you the following information for the year ended 31.03.2018:
(i) Basic salary upto 31.10.2017 INR 50,000 p.m. Basic salary from 01.11.2017 INR 60,000 p.m.
Note: Salary is due and paid on the last day of every month.
(ii) Dearness allowance @ 40% of basic salary. (iii) Bonus equal to one month salary. Paid in October 2017 on basic salary plus dearness
allowance applicable for that month.
(iv) Contribution of employer to recognized provident fund account of the employee@16% of basic salary.
(v) Profession tax paid INR 3,000 of which INR 2,000 was paid by the employer.
(vi) Facility of laptop and computer was provided to Balaji for both official and personal use.
Cost of laptop INR 45,000 and computer INR 35,000 were acquired by the company on 01.12.2017.
(vii) Motor car owned by the employer (cubic capacity of engine exceeds 1.60 litres) provided to
the employee from 01.11.2017 meant for both official and personal use. Repair and running expenses of INR 45,000 from 01.11.2017 to 31.03.2018, were fully met by the employer. The
motor car was self-driven by the employee.
(viii) Leave travel concession given to employee, his wife and three children (one daughter aged 7 and twin sons aged 3). Cost of air tickets (economy class) reimbursed by the employer INR
30,000 for adults and INR 45,000 for three children. Balaji is eligible for availing exemption this year to the extent it is permissible in law.
Compute the salary income chargeable to tax in the hands of Mr. Balaji for the assessment year
2018-19. (8 Marks)
5)
A. List down 8 items of income as per definition of income provided in Sec 2(24) of Income tax Act. (You will be required to write as per the definition).
(6 Marks)
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B. Mr. Soham, an Indian Citizen, left India on 20-04-2015 for the first time to setup a
software firm in Singapore. On 10-04-2017, he entered into an agreement with LK Limited, an Indian Company, for the transfer of technical documents and designs to setup
an automobile factory in Faridabad. He reached India along with his team to render the requisite services on 15-05-2017 and was able to complete his assignment on 20-08-
2017. He left for Singapore on 21-08-2017. He charged INR 50 lakhs for his services from LK Limited.
Determine the residential status of Mr. Soham for the Assessment Year 2018-19 and examine whether the fees charged from LK Limited would be chargeable to tax as per the
Income-tax Act, 1961. (5 Marks)
C. Write about deductions allowable under the head “Salary”
(4 Marks)
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PRIME ACADEMY 46th SESSION – IPC - PROGRESS TEST – TAXATION
SUGGESTED ANSWERS PART - A
1.
A. Step by step to understand the procedure of computation of total income for the purpose of levy of income-tax:
Step 1 – Determination of residential status Step 2 – Classification of income under different heads
Step 3 – Exclusion of income not chargeable to tax Step 4 – Computation of income under each head Step 5 – Clubbing of income of spouse, minor child etc Step 6 – Set-off or carry forward and set-off of losses Step 7 – Computation of Gross Total Income Step 8 – Deductions from Gross Total Income Step 9 – Total income Step 10 – Application of the rates of tax on the total income Step 11 - Surcharge / Rebate under section 87A Step 12 – Education cess and secondary and higher education cess on income-tax Step 13 – Advance tax and tax deducted at source
B. Compute the tax liability for the assessment year 2018-19 for the following assesses:
1. Mr. Raja aged 82 income earning of INR 13,75,398 Tax amount: INR 212,619 Education Cess @ 2% INR 4,252 S H Education Cess @ 1% INR 2,126 Total Liability INR 218,997
2. Mrs. Aishwarya aged 25 income earning of INR 103,55,198
Tax amount: INR 29,31,559 Surcharge: INR 248,639 Education Cess @ 2% INR 63,604
S H Education Cess @ 1% INR 31,802 Total Liability INR 32,75,604
3. Y Ltd. Taxable income is 3,89,28,178. Turnover is 4,95,00,000
Tax amount @ 29%: INR 112,89,172 Surcharge: INR 790, 242 Education Cess @ 2% INR 241,588 S H Education Cess @ 1% INR 120,794 Total Liability INR 120,79,414
4. Mr. Vijay aged 38 having income of 11,23,900 (income from lottery)
Tax amount: INR 3,37,170 Education Cess @ 2% INR 6,743 S H Education Cess @ 1% INR 3,372 Total Liability INR 3,47,285
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C. (d) All the above D. (a) its Place of Effective Management is in India. E. (d) 7%, if the total income exceeds ` 1 crore but does not exceed ̀10 crore, and 12%, if the total
income exceeds ` 10 crore. F. (d) ` 5,00,000 G. (a) 1st day of the relevant previous year H. (b) 63,000 I. (b) ` 21,000 J. (c) Both in the Income-tax Act, 1961 and the Annual Finance Act
PART – B 1. A. Computation of income from house property of Ms. Shkha for A.Y. 2018-19
Particulars ` ̀Gross Annual Value (See Note 1 below) Less: Municipal taxes – paid by the tenant, hence not Deductible Net annual Value (NAV) Less: Deduction under section 24 30% of NAV 57,600 Interest on housing loan (See Note 2 below) -Interest on loan taken from bank 25,000 -Interest on fresh loan to repay old loan for this 5,000 property Income from house property 50% share taxable in the hands of Ms. Shikha (See Note 3 below)
1,92,000 Nil
1,92,000
87,600
1,044,00 52,200
Notes:
1. Complication of Gross Annual Value (GAV): GAV is the higher of Expected rent and actual rent received. Expected rent is the higher of municipal value and fair rent, but restricted to standard rent.
Particulars ` ` ` `
(a) Municipal value of 1,60,000 Property
(b) Fair rent 1,55,000 (c) Higher of (a) and (b) (d) Standard rent (e) Expected rent [lower of (c) and (d) (f) Actual rent [16,000 × 12] (g) Gross Annual Value [higher of (e) and (f)]
1,60,000 1,70,000
1,60,000 1,92,000
1,92,000
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2. Interest on housing loan is allowable as a deduction under section 24 on accrual basis. Further, interest on fresh loan taken to repay old loan is also allowable as deduction. However, interest on unpaid interest is not allowable as deduction under section 24.
3. Section 26 provides that where a house property is owned by two or more persons whose shares are definite and ascertainable, the share of each such person in the income of house property, as computed in accordance with section 22 to 25, shall be included in his respective total income. Therefore, 50% of the total income from the house property is taxable in the hands of Ms. Shikha since she is an equal owner of the property.
B. (i) Determination of residential status of Mr. Damodhar for the P.Y.2017-18
As per Explanation 1 to section 6(1), where an Indian citizen leaves India as a member of crew of an Indian ship, he will be resident in India only if he stayed in India for 182 days during the relevant previous year. As per Explanation 2 to section 6(1)7, in case of an individual, being a citizen of India and a member of the crew of a foreign bound ship leaving India, the period or periods of stay in India shall, in respect of an eligible voyage, not include the period commencing from the date entered into the Continuous Discharge Certificate in respect of joining of ship by the said individual for the eligible voyage and ending on the date entered into the Continuous Discharge Certificate in respect of signing off by that individual from the ship in respect of such voyage. Eligible voyage includes a voyage undertaken by an Indian ship engaged in the carriage of passengers in international traffic, originating from any port in India and having its destination at a port outside India. (a) In this case, voyage is undertaken by a foreign bound Indian ship engaged in the carriage of
passengers in international traffic, originating from a port in India (i.e., the Kochi port) and having its destination at a port outside India (i.e., the Dubai port). Hence, the voyage is an eligible voyage.
(b) Therefore, the period from 12th August, 2017 and ending on 21st January, 2018 has to be excluded for computing the period of stay of Mr. Damodhar in India. Accordingly, the period of 163 days [20+30+31+30+31+21] has to be excluded for computing the period of his stay in India during the P.Y.2017-18.
Further, since Mr. Damodhar had also gone out of India to Singapore and Malaysia on a private tour for a continuous period of 29 days in May, 2017, such period has also to be excluded for computing his period of stay in India during the P.Y.2017-18. Consequently, Mr. Damodhar’s period of stay in India during the P.Y. 2017-18 would be 173 days [i.e., 365 days – 163 days – 29 days], which is less than 182 days. Thus, Mr. Damodhar would be a non-resident for A.Y. 2018-19. Since the residential status of Mr. Damodhar is “non-resident” for A.Y. 2018-19 consequent to his number of days of stay in India in P.Y. 2017-18, being less than 182 days, his period of stay in India in the earlier previous years become irrelevant.
2.
(a) Taxability of perquisites provided by ABC Co. Ltd. to Shri Bala (b) Medical facility to employees’ family in a hospital maintained by the employer is not a taxable
perquisite. Regardless of the estimated value of benefit arising from such facility to the
employee, it is exempt from tax. Therefore, the value of perquisite is Nil.
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(c) Domestic servant was employed by the employee and the salary of such domestic servant was paid/reimbursed by the employer. It is taxable as perquisite for all categories of employees. Taxable perquisite value = INR 1,500 × 12 = INR 18,000. If the company had employed the domestic servant and the facility of such servant is given to the employee, then the perquisite is taxable only in the case of specified employees. The value of the taxable perquisite in such a
case also would be INR 18,000. (d) Where the educational institution is owned by the employer, the value of perquisite in respect
of free education facility shall be determined with reference to the reasonable cost of such education in a similar institution in or near the locality. However, there would be no perquisite if the cost of such education per child does not exceed INR 1,000 per month. Therefore, there would be no perquisite in respect of cost of free education provided to his child Arthy, since the
cost does not exceed INR 1,000 per month. However, the cost of free education provided to his child Ashok would be taxable, since the cost exceeds INR 1,000 per month. The taxable
perquisite value would be INR 14,400 (INR 1,200 × 12). Note – An alternate view possible is that only the sum in excess of INR 1,000 per month is taxable. In such a case, the value of perquisite
would be INR 2,400. (e) Where the employer has provided movable assets to the employee or any member of his
household, 10% per annum of the actual cost of such asset owned or the amount of hire charges incurred by the employer shall be the value of perquisite. However, this will not apply to laptops and computers. In this case, the movable assets are television, refrigerator and air conditioner
and actual cost of such assets is INR 1,10,000. The perquisite value would be 10% of the actual
cost i.e., INR 11,000, being 10% of INR 1,10,000. (f) The value of any gift or voucher or token in lieu of gift received by the employee or by member
of his household not exceeding INR 5,000 in aggregate during the previous year is exempt. In this case, the amount was received on the occasion of marriage anniversary and the sum
exceeds the limit of INR 5,000. Therefore, the entire amount of INR 10,000 is liable to tax as
perquisite. Note - An alternate view possible is that only the sum in excess of INR 5,000 is taxable in view of the language of Circular No.15/2001 dated 12.12.2001 that such gifts upto INR 5,000 in the aggregate per annum would be exempt, beyond which it would be taxed as a perquisite. As per this view, the value of perquisite would be INR 5,000. Total value of taxable
perquisite = INR 53,400 [i.e. INR 18,000 + 14,400 + 11,000 + 10,000]. (g) Telephone provided at the residence of the employee and payment of bill by the employer is a
tax free perquisite. (h) Note - In case the alternate views are taken for items (iii) & (v), the total value of taxable
perquisite would be INR 36,400 [i.e., INR 18,000 + 2,400 + 11,000 + 5,000].
3. Since the assesse is resident and ordinary resident in India, her global income would form part of her total income i.e., income earned in India as well as outside India will form part of her total income. She possesses self-occupied house at Los Angeles as well as at Chennai. At her option, one house shall be treated as self-occupied, whose annual value will be nil. The other self-occupied house property will be treated as “deemed let out property”. The annual value of the Los Angeles house is INR 12, 00,000 and the Chennai flat is INR 3, 15,000. Since the annual value of Los Angeles house is obviously more, it will be beneficial for her to opt for choosing the same as self-occupied. The Chennai house will, therefore, be treated as “deemed let out property”.
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As regards the Bangalore house, arrears of rent will be chargeable to tax as income from house property in the year of receipt under section 25A. It is not essential that the assesse should continue to be the owner. Accordingly, the income from house property of Mrs. Rohini Ravi will be calculated as under:
Note : Interest on borrowed capital INR
Interest for the current year (INR 50,800 + INR 1,31,300) Add: 1/5th of pre-construction interest (INR 49,200 × 1/5) Interest deduction allowable under section 24
1,82,100 9,840
1,91,940 4.
Computation of Taxable Salary of Mr. Balaji for A.Y.2018-19 Particulars INR
Basis salary [(INR 50,000 × 7) + (INR 60,000 × 5)] Dearness Allowed(40% of basis salary) Bonus (INR 50,000 + 40% of INR 50,000) (See Note 1) Employers contribution to recognized provident fund in excess of 12% of salary= 4% INR 6,50,000 (See Note 4) Professional tax paid by employer Perquisite of Motor Car (INR 2,400 for 5 months) (See Note 5) Gross Salary Less: Deduction under section 16 Professional tax (See Note 6) Taxable Salary
6,50,000 2,60,000
70,000 26,000
2,000
12,000 10,20,000
3,000
10,17,000
Particulars INR INR 1. 2. 3.
Self-occupied house at Los Angeles Annual value Less: Deduction under section 24 Chargeable income from this house property Deemed let out house property at Chennai Annual value (Higher of municipal value and fair rent) [INR 4,20,000 × 9/12] Less: Municipal Taxes (Property tax + Sewerage tax) Net Annual Value (NAV) Less: Deductions under section 24 30% of NAV Interest on borrowed capital (See Note below) Arrears in respect of Bangalore property (section 25A) Arrears of rent received Less: Deduction @ 30% u/s 25A(2)
Nil Nil
89,100 1,91,940
60,000 18,000
Nil
3,15,000 18,000
2,97,000
2,81,040
15,960
42,000
Income chargeable under the head “Income from house property”
57,960
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Notes: 1. Since bonus was paid in the month of October, the basis salary of INR 50,000 for the month of
October is considered for its calculation. 2. As per Rule 3(7)(vii), facility of use of laptop and computer is an exempt perquisite, whether
used for official or personal purpose or both. 3. Mr. Balaji can avail exemption under section 10(5) on the entire amount of INR 75,000
reimbursed by the employer towards Leave Travel Concession since the same was availed for himself, his wife and three children and the journey was undertaken by economy class airfare. The restriction imposed for two children is not applicable in case of multiple births which take place after the first child. It is assumed that the Leave Travel Concession was availed for journey wiyhin India.
4. It is assumed that dearness allowance does not form part of salary for computing retirement benefits.
5. As per the provision of Rule 3(2), in case a motor car (engine cubic capacity exceeding 1.60 liters) owned by the employer is provided to the employee without chauffeur for personal as well as office use, the value of perquisite shall be INR 2,400 per month. The car was provided to the employee from 01.11.2017, therefore the perquisite value has been calculated for 5 months.
6. As per section 17(2) (iv), a “perquisite” includes any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assesse. Therefore, professional tax of INR 2,000 paid by the employer is taxable as a perquisite in the hands of Mr. Balaji. As per section 16(iii), a deduction from the salary is provided on account tax on employment i.e. professional tax paid during the year. Therefore, in the present case, the professional tax paid by the employer on behalf of the employee INR 2,000 is first included in the salary and deduction of the entire professional tax of INR 3,000 is provided from salary.
5. A. Write only any eight items
The definition of income as per the Income-tax Act, 1961 begins with the words “Income includes”. Therefore, it is an inclusive definition and not an exhaustive one. Such a definition does not confine the scope of income but leaves room for more inclusions within the ambit of the term. Section 2(24) of the Act gives a statutory definition of income. At present, the following items of receipts are specifically included in income:—
(1) Profits and gains.
(2) Dividends. (3) Voluntary contributions received by a trust/institution created wholly or partly for charitable or
religious purposes or by certain research association or universities and other educational institutions or hospitals and other medical institutions or an electoral trust.
(4) The value of any perquisite or profit in lieu of salary taxable under section 17. (5) Any special allowance or benefit other than the perquisite included above, specifically granted
to the assesse to meet expenses wholly, necessarily and exclusively for the performance of the
duties of an office or employment of profit. (6) Any allowance granted to the assesse to meet his personal expenses at the place where the
duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living.
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(7) The value of any benefit or perquisite whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company or by a relative of the director or such person and any sum paid by any such company in respect of any obligation which, but for such payment would have been payable by the director or other
person aforesaid.
(8) The value of any benefit or perquisite, whether convertible into money or not, which is obtained by any representative assesse or by any beneficiary or any amount paid by the representative assesse for the benefit of the beneficiary which the beneficiary would have ordinarily been required to pay.
(9) Deemed profits chargeable to tax under section 41 or section 59.
(10) Profitsandgainsofbusinessorprofessionchargeabletotaxundersection28.
(11) Any capital gains chargeable under section 45. (12) The profits and gains of any insurance business carried on by Mutual Insurance Company or by a
cooperative society, computed in accordance with Section 44 or any surplus taken to be such profits and gains by virtue of the provisions contained in the first Schedule to the Act.
(13) The profits and gains of any business of banking (including providing credit facilities) carried on
by a co-operative society with its members. (14) Any winnings from lotteries, cross-word puzzles, races including horse races, card games and
other games of any sort or from gambling, or betting of any form or nature whatsoever. For this purpose, a) “Lottery” includes winnings, from prizes awarded to any person by draw of lots or by
chance or in any other manner whatsoever, under any scheme or arrangement by whatever
name called; b) “Card game and other game of any sort” includes any game show, an entertainment
programme on television or electronic mode, in which people compete to win prizes or any
other similar game. (15) Any sum received by the assesse from his employees as contributions to any provident fund (PF)
or superannuation fund or Employees State Insurance Fund (ESI) or any other fund for the
welfare of such employees. (16) Any sum received under a Keyman insurance policy including the sum allocated by way of bonus
on such policy will constitute income. “Keyman insurance policy” means a life insurance policy taken by a person on the life of another person where the latter is or was an employee or is or was connected in any manner whatsoever with the former’s business.
(17) Anysumreferredtoclause(va)ofsection28.Thus,anysum,whetherreceivedor receivable in cash or kind, under an agreement for not carrying out any activity in relation to any business or profession; or not sharing any know-how, patent, copy right, trade-mark, license, franchise, or any other business or commercial right of a similar nature, or information or technique likely to assist in the manufacture or processing of goods or provision of services, shall be chargeable to
income tax under the head “profits and gains of business or profession”. (18) Any consideration received for issue of shares as exceeds the fair market value of the shares
[Section 56(2)(viib)]. (19) Any sum of money received as advance, if such sum is forfeited consequent to failure of
negotiation for transfer of a capital asset [Section 56(2)(ix)]. (20) Any sum of money or value of property received without consideration or for inadequate
consideration by any person [Section 56(2)(x)]. [For details, refer to Unit 5 of Chapter 4 “Income from Other Sources”]
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(21) Assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement, by whatever name called, by the Central Government or a State Government or any authority or body or agency in cash or kind to the assesse is included in the definition of income. However, subsidy or grant or reimbursement which has been taken into account for determination of the actual cost of the depreciable asset in accordance with Explanation 10 to section 43(1) shall not be included in the definition of income.
B. Determination of residential status of Mr. Soham
As per section 6(1), an individual is said to be resident in India in any previous year if he satisfies the conditions:- (i) He has been in India during the previous year for a total period of 182 days or more, or (ii) He has been in India during the 4 years immediately proceeding the previous year for a total
period of 365 days or more and has been in India for at least 60 days in the previous year. In the case of an Indian citizen leaving India for the purposes of employment outside India during the previous year or an Indian citizen, who being outside India, comes on a visit to India in any previous year, the period of stay during the previous year in condition (ii) above, to qualify as a resident, would be 182 days instead of 60 days. In this case, Mr. Soham is an Indian citizen who left India to set up a software firm in Singapore on 20.04.2015. Therefore, he is an Indian citizen living in Singapore, who comes on a visit to India during the P.Y. 2017-18. His stay in India during the period of his visit is only 99 days (i.e., 17+30+31+21 days). Since his stay in India during the previous year 2017-18 is only 99 days, he does not satisfy the minimum criterion of 182 days stay in India for being a resident. Hence, his residential status for A.Y. 2018-19 is Non-Resident. Taxability of income As per section 5(2), in case of a non-resident, only income which accrues or arises or which is deemed to accrue or arise to him in India or which is received or deemed to be received in India in the relevant previous year is taxable in India. In this case, Mr. Soham, a non-resident, charges fees from LK Ltd., an Indian company, for transfer of technical documents and designs to set up an automobile factory in Faridabad. He renders the requisite services in India for which he stays in India for 99 days during the P.Y. 2017-18. Section 9(1)(vi) defines “royalty” to mean consideration for transfer of all or any rights in respect of, inter alia, a design and also for the rendering of services in connection with such activity. Transfer of rights in the above definition includes transfer of right for use or right to use a computer software also. Therefore, the fees received by Mr. Soham for transfer of technical documents and designs and rendering of requisite services in relation thereto would fall within the meaning of “royalty”. As per section 9(1)(vi), income by way of royalty payable by a person who is a resident (in this case, LK Limited, an Indian company) would be deemed to accrue or arise in India in the hands of the non-resident (Mr. Soham, in this case), except where such royalty is payable in respect of any right or property or information used or for services utilized for the purpose of a business carried on by such person outside India or for the purposes of making or earning income from any source outside India. In this case, since the royalty is payable by an Indian company to Mr. Soham, a non- resident, in respect of services utilized for a business in India (namely, for setting up an automobile factory in Faridabad), the same is deemed to accrue or arise in India and is hence, taxable in India in the hands of Mr. Soham, a non-resident for the A.Y. 2018-19.
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C. The income chargeable under the head ‘Salaries’ is computed after making the following deductions:
(1) Entertainment allowance [Section 16(ii)] (2) Professional tax [Section 16(iii)]
(i) Entertainment allowance Entertainment allowance received is fully taxable and is first to be included in the salary and thereafter the following deduction is to be made: However, deduction in respect of entertainment allowance is available in case of Government employees. The amount of deduction will be lower of:
(a) One-fifth of his basic salary or
(b) ` 5,000 or (c) Entertainment allowance received
Amount actually spent by the employee towards entertainment out of the entertainment allowance received by him is not a relevant consideration at all.
(ii) Professional tax on employment Professional tax or taxes on employment levied by a State under Article 276 of the Constitution is allowed as deduction only when it is actually paid by the employee during the previous year. If professional tax is reimbursed or directly paid by the employer on behalf of the employee, the amount so paid is first included as salary income and then allowed as a deduction u/s 16.
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