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PRIME/41ST PT/IPC 1
PRIME ACADEMY 41st SESSION – PROGRESS TEST – ACCOUNTING
No. of Pages: 4 Total Marks: 75 Time allowed: 2 hrs
PART - A 1. Assets and Liabilities are recorded at book value when there is
a. Amalgamation in the nature of purchase b. Amalgamation in the nature of merger c. Internal reconstruction d. External reconstruction (1 Mark)
2. All of the following are examples of monitory assets except
a. Cash b. Inventory c. Receivables d. Payables (1 Mark)
3. For all amalgamation the following disclosure are required except
a. Name of amalgamating companies b. The effective date of amalgamation c. The method of depreciation charged on assets taken over d. Number of shares issued (1 Mark)
4. Hire purchase represents
a. Hire purchase price + interest b. Cost price + interest c. Cash price + interest d. Cost price + cash price (1 Mark)
5. Sacrificing ratio is calculated when
a. A partner is admitted b. A partner goes overseas c. A partner dies d. A partner retires (1 Mark)
6. A sells a tv the cash price of which is ` 3000 and decides to charge 10% nominal interest. If the
prices is to be paid in three equal installments determine the installment amount a. 3000 b. 3900 c. 1200 d. 1300 (3 Marks)
7. In the above question compute the true rate of interest
a. 12% b. 10% c. 8% d. 15% (2 Marks)
PRIME A
CADEMY
PRIME/41ST PT/IPC 2
8. From the following, calculate the cash price of the asset:
`
Hire purchase price of the asset Down payment Four annual installment at the end of each year Rate of interest
50,000 10,000 10,000 5%p.a
(3 Marks) 9. In the absence of a partnership deed, what will be your decision in disputes amongst partners
regarding the following matters a) Profit sharing ratio; b) Interest rate, at which interest is to be allowed to a partner, on loan given to the firm by a
partner. (3 Marks)
10. Shiv and Mohan are partners in a firm sharing profits and losses equally. On 31stMarch, 2011, the balances of their capital accounts were ` 3,00,000 and ` 2,00,000 respectively. The average profits of the firm are ` 1,36,000 and the rate of normal profit is 20%.On 1stApril, 2011 they agreed to admit Hari as a partner for one fourth share. Hari will bring ` 1,00,000 as capital. You are required to compute the value of the goodwill of the firm on admission of Hari, if goodwill is to be calculated on the basis of:
(1) 5 years purchase of super profit (2) Capitalization method (3) 3 years purchase of average profit (4 Marks)
11. A and B are in partnership sharing profits and losses in the ratio of 3:2. The capitals of A and B are
80,000 and 60,000 respectively. They admit C as a partner who contributes 35,000 as capital for 1/5thshare of profits to be acquired equally from both A & B. The capital accounts of old partners are to be adjusted on the basis of the proportion of C’s capital to his share in the business. Calculate the amount of actual cash to be paid off or brought in by the old partners for the purpose and pass the necessary journal entries. (5 Marks)
PART – B
1. Pathak, Quereshi and Ranjeet were partners sharing profits in the ratio of 7 : 5 : 3 respectively. On 31st March, 2013 Quereshi retired when the firm's Balance Sheet was as follows :
Liabilities ` Assets `
Capital accounts Land and building 10,00,000
Pathak 8,50,000 Plant and Machinery 4,65,000
Quereshi 6,20,000 Furnitures, Fixtures and Fittings 2,30,100
Ranjeet 3,70,000 Stock 1,82,200
General reserve 2,25,000 Trade debtors 2,00,000
Trade creditors 1,13,000 Less: Provision for bad debt 6,000 1,94,000
Cash at bank 1,06,700
Total 21,78,000 21,78,000
It was agreed that :
(i) Land& Building be appreciated by 20%.
(ii) Plant& Machinery be depreciated by 10%.
(iii) Provision for Bad Debts be made equal to 4% of Trade Debtors.
(iv) Outstanding repairs bill amounting to ` 1500 be recorded in the books of account. (v) Goodwill of the firm be valued at ` 3,00,000 and Quereshi's capital account be credited
with his share of goodwill without raising goodwill account.
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PRIME/41ST PT/IPC 3
(vi) Half of the amount due to Quereshi be immediately paid to him by means of a cheque and
the balance be treated as a loan bearing interest @ 12% per annum. After Quereshi's retirement, Pathak and Ranjeet admitted Swamy as a new partner with effect from 1st April, 2013. Pathak, Ranjeet and Swamy agreed to share profits in the ratio of 2 : 1 : 1 respectively. Swamy brought patents valued at ` 20,000 and ` 3,80,000 in cash including payment for his share of goodwill as valued by the old firm. The entire amount of ` 4,00,000 was credited to Swamy's Capital Account. Adjustments were made in the capital account for Swamy's share of goodwill.
You are required to :
(a) Pass journal entries for all the above transactions without any narration, and (b) Prepare the capital account of all the partners. (20 Marks)
2. The Balance Sheet of M/s. Ice Ltd. as on 31-03-2011 is given below:
Liabilities ` Assets `
1,00,000 equity shares of ` 10 each fully paid up 4,000, 8% preference shares of ` 100 each fully paid 6% debenture 4,00,000 (secured by free hold property) Arrear interest 24,000 Sundry creditors Directors loan
10,00,000 4,00,000 4,24,000 1,01,000 3,00,000
Free hold property plant and machinery Trade investment (at cost) Sundry debtors Stock in trade Differed advertisement expenses Profit and loss A/c
5,50,000 2,00,000 2,00,000 4,50,000 3,00,000 50,000 4,75,000
2,25,000 2,25,000
The Board of Directors of the company decided upon the following scheme of reconstruction with the consent of respective stakeholders:
(i) Preference shares are to be written down to INR 80 each and equity shares to 2 each. (ii) Preference dividend in arrear for 3 years to be waived by 2/3rdand for balance 1/3requity
shares of 2 each to be allotted. (iii) Debenture holders agreed to take one freehold property at its book value of INR 3,00,000
in part payment of their holding. Balance debentures to remain as liability of the company.
(iv) Arrear debenture interest to be paid in cash. (v) Remaining freehold property to be valued at ` 4,00,000. (vi) Investment sold out for ` 2,50,000. (vii) 75% of Director’s loan to be waived and for the balance, equity shares of 2 each to be
allotted. (viii) 40% of sundry debtors, 80% of stock and 100% of deferred advertisement expenses to be
written off. (ix) Company’s contractual commitments amounting to `6,00,000 have been settled by
paying 5% penalty of contract value. Show the Journal Entries for giving effect to the internal construction and draw the Balance Sheet of the company after effecting the scheme. (15 Marks)
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CADEMY
PRIME/41ST PT/IPC 4
3. Following information of the Final Accounts of Kumaran Ltd. are missing as shown below:
Trading and Profit & Loss A/c for the year ended 31-03-2012
In 000
To opening stock 7,000 By Sales ?
To purchases ? By closing stock ?
To manufacturing expenses 1,750
To Gross profit ?
To office and administration Expenses 7,400 By Gross profit ?
To interest on Debentures 600 By Commission received 1,000
To Provision for Taxation ?
To Net profit for the year c/d ?
Total ? Total ?
To proposed Dividends ? By Balance b/d 1,400
To transfer to General reserves ? By Net profit for the year b/d
?
To Balance Transfer to Balance Sheet ?
Total ? Total ?
Balance Sheet as on 31-3-2012
Liabilities (INR 000) Assets (INR 000)
Paid up capital 10,000 Fixed Assets
Plant and Machinery 14,000
General Reserves Other fixed assets ?
Balance at the beginning of the year ? Current Assets:
Proposed addition ? Stock in Trade ?
Profit and loss appropriation A/c ? Sundry Debtors ?
10% debentures ? Bank Balance 1,250
Current Liabilities ?
Total ? Total ?
.
You are required to provide the missing figures with the help of following information: (i) Currentratio 2 :1. (ii) Closing stock is 25% of sales. (iii) Proposed dividends are 40% of the paid up capital. (iv) Gross profit ratio is 60%. (v) Ratio of Current Liabilities to Debentures is 2 : 1. (vi) Transfer to General Reserves is equal to proposed dividends. (vii) Profit carried forward are 10% of the proposed dividends. (viii) Provision for taxation is 50% of profits. (ix) Balance to the credit of General Reserves at the beginning of the year is twice the amount
transferred to that account from the current profits (15 Marks)
PRIME A
CADEMY
PRIME/41st PT/IPC 1
PRIME ACADEMY IPC – 41ST SESSION- PROGRESS TEST - ACCOUNTING
SUGGESTED ANSWERS PART - A
1) b 2) b 3) c 4) b 5) a 6) b 7) b
8) Calculation of cash price of the asset:
No. of installments
Closing balance `
Amount of installment `
Total `
Interest 5/105 `
Opening balance `
4 3 2 1
0 9,524
18,594 27,232
10,000 10,000 10,000 10,000
10,000 19,524 28,594 37,232
476 930
1,362 1,773
9,524 18,594 27,232 35,459
Cash price of the asset = Down payment + ` 35,459 = `10,000 + `35,459 = `45,459
9) In the absence of a partnership deed: a) The partners will share profits/losses equally; and b) Interest @ 6% per annum is to be paid on the loan advanced to the firm by a partner
10) Valuation of goodwill:
a) 5 years purchase of super profit:
`
Average profit Less: Normal profit at 20% of (`3,00,000-`2,00,000) Super profit
1,36,000 (1,00,000)
36,000
Value of goodwill = 5 ×Super profit = 5 ×36,000 = ` 1,80,000
Value of goodwill of the firm will be `1,80,000
b) Capitalization method: Normal value of business Average profit
= ------------------------ Normal rate of profit
` 1,36,000 = -----------------
20% = ` 6,80,000
PRIME A
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PRIME/41st PT/IPC 2
` `
Normal value of business Less: Actual capital employed _shiv _Mohan Value of goodwill of the firm will be
3,00,000 2,00,000
6,80,000
(5,00,000)
1,80,000
c) 3 years purchase of average profits
Goodwill = 3 Average profit = 3 ×1,36,000 = `4,08,000
Value of goodwill of the firm will be `4,08,000 11) Share of profit taken from A and B each= 1/5 x 1/2= 1/10 each
Calculation of New Profit Sharing Ratio A B
Existing ratio 3/5 2/5 Less: Share of profit transferred to C (1/10) (1/10) New share 5/10 3/10 New profit sharing ratio of A:B:C = 5/10 : 3/10 : 2/10 Calculation of Total Capital of the Reconstituted Firm Capital brought in by C for 1/5thshare = ` 35,000 Total Capital = ` 35,000 x (5/1) = ` 1,75,000
Calculation of Actual Cash to be paid or brought in by old partners: A B C (`) (`) (`) New capital of ` 1,75,000 distributed in the ratio 5:3:2 87,50052,50035,000 Less: Adjusted old capital of A & B(80,000)(60,000) Cash brought in 7,50035,000 Cash to be paid (7,500)
Journal Entries
Particulars LF Dr. Amount `
Cr. Amount `
Cash A/c Dr. To A’s Capital A/c (Being shortage of brought in cash by A)
B’s capital A/c Dr. To cash A/c (Being excess capital with drawn by B)
7,500
7,500
7,500
7,500
Note: Entries for cash brought in and paid off only have been passed.
PRIME A
CADEMY
PRIME/41st PT/IPC 3
PART - B
1) a) Journal Entries 31stMarch, 2013
` `
1 2 3 4 5 6 7 8 9
Land and building To Revaluation A/C Revaluation A/c To Plants And Machinery Revaluation A/c To Provision for bad debts [(`2,00,000 x 4%) –`6000] To Provision for Outstanding repair bill Pathak’s Capital A/c Ranjeet’s Capital A/c To Quereshi’s Capital A/C Revaluation A/c To Pathak’s Capital A/c To Quereshi’s Capital A/c To Ranjeet’s Capital A/c General reserve A/c To Pathak’s Capital A/c To Quereshi’s Capital A/c To Ranjeet’s Capital A/c Quereshi’s Capital A/c To Bank A/c To Quereshi’s Loan A/c Patents Cash A/c To Swamy’s Capital A/c Swamy’s Capital A/c (`3,00,000/4) To Pathak’s Capital A/c To Ranjeet’s Capital A/c
Dr. Dr Dr. Dr Dr. Dr. Dr. Dr Dr. Dr.
2,00,000
46,500
3,500
70,000 30,000
1,50,000
2,25,000
8,45,000
20,000 3,80,000
75,000
2,00,000
46,500
2,000
1,500
1,00,000
70,000 50,000 30,000
1,05,000 75,000 45,000
4,22,500 4,22,500
4,00,000
60,000 15,000
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(b) Capital Accounts of partners
Amount Amount
Pathak `
Quereshi `
Ranjeet `
Swamy `
Pathak `
Quereshi `
Ranjeet `
Swamy `
31.3.13 To Quereshi By bank To loan A/c To bal c/d 1.4.13 To pathak To Ranjeet To bal c/d
70,000
9,55,000
10,25,000
10,15,000
4,22,500 4,22,500
8,45,000
30,000
4,15,000 4,45000
4,,30,000
60,000
15,000 3,25,000
31.3.13 By bal b/d By general reserve By pathak& Ranjeet By revaluation A/c 1.4.13 By bal b/d By Patents By cash By swamy
8,50,000
1,05,000
70,000
10,25,000
9,55,000
60,000
6,20,000
75,000
1,00,000
50,000
8,45,000
3,70,000
45,000
30,000
4,45,000
4,15,000
15,000
20,000 3,80,000
10,15,000 4,30,000 4,00,000 10,15,000 4,30,000 4,00,000
Working Notes:
1. Calculation of Gaining ratio after retirement of Quereshi on 31st March,2013 Pathak : Quereshi : Ranjeet: Pathak: Ranjeet
Old Ratio 7/15 : 5/15 : 3/15 New Ratio 7/10 : 3/10
Gain of Pathak New Ratio - Old Ratio
7/10 - 7 / 15 (105 – 70) / 150 35 / 150
Gain of Ranjeet 3/10 – 3/15 = (45 – 30)/150 = 15/150 Gaining Ratio = 35 : 15 = 7 : 3
2. Calculation of Sacrificing ratio of Pathak and Ranjeet at time of admission of Swamy
1stApril, 2013 7:3 (ratio between old partners)
New ratio 2:1:1 2/7-7/10 ¼-3/10 10-14/20 5-6/20 4/20 1/20
Sacrificing ratio 4 : 1
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PRIME/41st PT/IPC 5
2) In the books of Ice Ltd. Journal Entries
Particulars Debit ` Credit `
1 2 3 4 5 6 7 8 9
8%Preference share capital A/c (` 100 each) To 8% Preference share capital A/c (` 80 each) To Capital reduction A/c
(Being the preference shares of ` 100 each reduced to ` 80 each as per the approved scheme)
Equity share capital A/c (` 10 each To Equity share capital A/c (2 each) To Capital reduction A/c (Being the equity shares of 10 each reduced to 2 each) Capital reduction A/c To equity share capital A/c (` 2 each) (Being arrears of preference share dividend of one year to be satisfied by issuing of .16,000 equity shares of ` 2 each)
6% Debentures A/c To Freehold property A/C (Being claim settled in part by transfer of freehold property) Accrued debenture interest A/c To Bank A/c (Being accrued debenture interest paid) Freehold property A/c To Capital reduction A/c (Being appreciation in the value of freehold property) Bank A/c To Trade investment A/c To Capital reduction A/c (Being trade investment sold on profit) Director’s loan A/c To Equity share capital A/c (` 2 each) To Capital reduction A/c (Being director’s loan waived by 75% and balance being discharged by issue of 37,500 equity shares of ` 2 each) Capital Reduction A/c
To Profit and loss A/C To Sundry debtors A/c To Stockin-trade A/c To Deferred advertisement expenses A/c To Bank A/c
Dr Dr Dr. Dr Dr Dr .. Dr Dr. Dr.
4,00,000
10,00,000
32,000
3,00,000
24,000
1,50,000
2,50,000
3,00,000
12,73,000
3,20,000
80,000
2,00,000 8,00,000
32,000
3,00,000
24,000
1,50,000
2,00,000 50,000
75,000 2,25,000
4,75,000 1,80,0000
2,40,000 50,000 30,000
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To Capital reserve A/C (Being various assets penalty on cancellation of contract profit and loss account debit balance written off and balance transferred to capital reserve accounts per the scheme)
2,98,000
Balance Sheet of Ice Ltd. (As reduced)
Liabilities Amount ` Asset Amount `
Share capital 1,53,500 Equity shares of 2 each (out of which 53,500 shares have been issued for consideration other than cash) 4,000, 8% Preference shares of `80 each fully paid up Capital reserve 6% Debentures Sundry creditors
3,07,000
3,20,000 2,98,000 1,00,000 1,01,000
11,26,000
Free hold property Plant and machinery Sundry debtors Stock in trade Cash at bank (2,50,000-24,000-30,000)
4,00,000 2,00,000
2,70,000
60,000 1,96,000
11,26,000
3) Amount of debentures: = Interest on debentures/ Rate of interest*100) = (600/10*100) = `6,000
1) Amount of proposed dividend = Paid up share capital x 40%= 10,000 x 40% = ` 4,000
2) Transfer to general reserves
= Amount of proposed dividend i.e. 4,000
3) Profit carried forward = 10% of proposed dividend = 10% of 4,000 = ` 400
4) Net profit for the year
= Proposed dividend + Transfer to general reserve + Profit carried forward– Net profit carried forward
= (4,000 + 4,000 + 400) – 1,400 = ` 7,000
5) Provision for taxation Provision for taxation= 50% of profit (i.e. before net profit) It means that net profit is 50%and provision for tax is 50%. Therefore, if net profit is 7,000 then, Provision for taxation is also 7,000
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PRIME/41st PT/IPC 7
6) Gross profit = Net profit + All expenses – Commission received = (7,000 + 7,000 + 600 + 7,400) – 1,000 = ` 21,000
7) Sales
=(Gross profit/Rate of profit *100) =(21,000/60*100) = ` 35000
8) Closing stock
= 25% of sales = 25% x 35,000 = ` 8,750
9) Purchases
= (Sales + Closing stock) – (Opening stock + Manufacturing expenses + Gross profit) = (35,000 + 8,750) – (7,000 + 1,750 + 21,000) = 43,750 - 29,750 = ` 14,000
10) Balance of General Reserve as on 1.4.2011
=Twice The amount transferred to general reserve during the year = 2 x4,000 = ` 8,000
11) Current Liabilities
= Current liabilities is twice of amount of debentures = 2 x 6,000 = ` 12,000
12) Current Assets
Current Assets = Current ratio x Current liabilities = 2 x 12,000 = ` 24,000
13) Sundry Debtors Sundry Debtors
= Current assets – Stock in trade – Bank balance = 24,000 – 8,750 – 1,250 = ` 14,000
14) Total of Liabilities part of the balance sheet
= Shareholders capital + Non-current liabilities + Current liabilities = (10,000 + 12,000 + 400) + 6,000+ 12,000 = `40,400
15) Other Fixed Assets
= Total of Liabilities part of the balance sheet – (Current assets + Plant and Machinery) = 40,400 – (24,000 + 14,000) = `2,400
PRIME A
CADEMY
PRIME/41ST PT/IPC 1
PRIME ACADEMY IPC - 41stSESSION - PROGRESS TEST
BUSINESS LAW ETHICS AND COMMUNICATION No of pages: 3 Total 75 Marks Time Allowed: 2 Hrs
PART- A (25 Marks)
I. State whether the following statements are correct or incorrect along with reasons 1. After incorporation, the company in the eyes of law becomes a different person from the
shareholders who have formed the company. 2. The liability of the members of a guarantee company is limited to the value of shares purchased
by them. 3. The public company can be converted into a private company with the approval of central
government. 4. The consideration payable to the underwriters for underwriting the issue of shares must be
approved by the articles. 5. A minor can become a member of a company under the Companies Act, 2013.
(5 x 3 = 15 Marks)
II. Choose the correct answer from the options given below: 1. According to Section 2 (85) of companies act, 2013 the paid-up share capital of which does not
exceed ` 50 lakh rupees or such higher amount as may be prescribed is _________
a. OPC
b. Private company
c. Small company
d. Public company.
2. Every alteration of the articles and a copy of order of the Tribunal approving alteration shall be
filed with the ROC within ________
a. 10 days
b. 15 days
c. 30 days
d. 45 days
3. _________ is in agreement with Socrates in holding the view that the practice of virtue should
be preceded by a rational understanding of implications and the nature of virtue. a. Vedanta b. Vairagya c. Viveka d. Shatsampat
4. __________is a concept that organizations have an obligation to consider the interests of
customers, employees, shareholders, communities and ecological considerations in all aspects of their operations.
a. Corporate Governance b. Corporate Social Responsibility c. Green house d. None of the above
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PRIME/41ST PT/IPC 2
5. ________is tormenting by subjecting to constant interference or intimidation.
a. Harassment b. Dismissal c. Discrimination d. Conflict
6. A person who is acting merely a professional can be a promoter
a. True b. False
7. A private company may issue securities
a. Through prospectus b. Through SEBI c. Through public offer d. Rights issue or bonus issue
8. A prospectus in respect of which the securities or class of securities are issued for subscription
in one or more issues over a certain period without issue of further prospectus a. Shelf prospectus b. Red herring prospectus c. General prospectus d. None of the above
9. Where the dividend in respect of a class of preference shares has not been paid for a period of
_________or more, then such class of preference shareholders have right to vote on all resolutions placed before the company
a. One year b. Two years c. Three years d. Five years
10. A company may issue sweat equity shares if,
a. Issue is authorized by ordinary resolution b. Not less than one year have elapsed since date of on which company commenced
business c. Approval of central government d. Acceptance by majority shareholders (10 x 1 = 10 Marks)
PART - B Answer any five out of the following. (50 Marks)
1.
a) Explain the pragmatic reasons for maintaining ethical behavior in marketing through
marketing executives.
b) There is no economic growth without ecological costs. Comment. (10 Marks)
2.
a) Explain the steps involved for effecting and registering a request for transfer of shares by a
public limited company as also the remedies available for a shareholder when his request
for a share transfer is refused by a public company, under the Companies Act 2013
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(7 Marks)
b) What are the charges requiring registration under the Companies Act 2013 and the relevant
rules there under? (3 Marks)
3. Write short notes on any 2 of the following:
a) Subsidiary company and Holding company.
b) Buy back of securies
c) Variation of shareholders’ rights. (10 Marks)
4. a) Fairness and honesty are at the heart of business ethics and relate to the general values of
decision makers. Discuss. b) “CSR can mean different things to different people”, explain. (10 Marks)
5.
a) Unique Builders Limited decides to pay 2.5 percent of the value of debentures as underwriting commission to the underwriters but the Articles of the company authorize only 2.0 percent underwriting commission on debentures. The company further decides to pay the underwriting commission in the form of flats. Examine the validity of the above arrangements under the provisions of the Companies Act, 2013.
b) J held 100 partly paid up shares of LKM Limited. The company asked him to pay the final call money on the shares. Due to some unavoidable circumstances he was unable to pay the amount of call money to the company. At a general meeting of the shareholders, the chairman disallowed him to cast his vote on the ground that the articles do not permit a shareholder to vote if he has not paid the calls on the shares held by him. J contested the decision of the Chairman. Referring to the provisions of the Companies Act, 2013 decide whether the contention of J is valid. (10 Marks)
6. a) The Directors of a company registered and incorporated in the name “Mars Textile India
Ltd.” desire to change the name of the company entitled “National Textiles and Industries Ltd.” Advise as to what procedure is required to be followed under the Companies Act, 2013?
b) The Board of Directors of XYZ Private Limited, a subsidiary of SRN Limited, decides to grant aloan of ` 2.00 lac to P, the Finance Manager of the company getting salary of ` 30,000 per month, to buy 400 partly paid-up equity share of ` 1,000 each of XYZ Limited. Examine the validity of Board's decision with reference to the provisions of the Companies Act, 2013.
(10 Marks)
PRIME A
CADEMY
PRIME/41st/IPC 1
PRIME ACADEMY 41st SESSION PROGRESS TEST - BUSINESS LAW ETHICS AND COMMUNICATION
SUGGESTED ANSWERS PART - A
I.
1. Correct. After incorporation, the company in the eyes of law becomes a different person from the
shareholders who have formed the company. The company has its own existence and as a result the
shareholders cannot be held liable for the acts of the company even though they hold the entire
share capital of the company. This recognition of the company as a separate legal entity and being
liable for its own acts and liabilities, is known as the “Corporate Veil”.
2. Incorrect. Company having the liability of its members limited by the memorandum to such amount
as the members may respectively undertake to contribute to the assets of the company in the event
of its being wound up. Thus, the liability of the members of a guarantee company is limited to a
stipulated amount in terms of individual guarantees given by members and mentioned in the
memorandum.
3. Incorrect. Section 14 (1) states that subject to the provisions of the Companies Act 2013 and the
conditions contained in the Memorandum, a company may, by special resolution, alter its Articles
including alterations which may have the effect of converting a public company into a private
company (or vice versa).The effect of converting a public company into a private company will not
have any effect except with the approval of the Tribunal which may pass such order as it deems fit.
4. Correct. Under Section 40 (6) of the Companies Act 2013, provides that a company may pay
commission to any person in connection with the subscription or procurement of subscription to its
securities, subject to the following conditions which are prescribed under the Companies (Prospectus
and Allotment of Securities) Rules, 2014:(a) the payment of such commission shall be authorized in
the company’s articles of association;(b) the commission may be paid out of proceeds of the issue or
the profit of the company or both;
5. Incorrect. A company is not allowed to register a minor as a member except under guardianship of a
person competent to enter into a contract.
II. Choose the correct answer from the options given:
1. Small company
2. 15 days
3. Vedanta
4. Corporate social responsibility
5. Harassment
6. False
7. Rights issue or bonus issue
8. Shelf prospectus
9. Two years
10. Not less than one year have elapsed since date of on which company commenced business
PRIME A
CADEMY
PRIME/41st/IPC 2
PART - B
1.
a) Pragmatic reasons for maintaining ethical behavior : Marketing executives should practice ethical
bahaviour because it is morally correct. To maintain ethical behavior in marketing, the following
positive reasons may be useful to the marketing executives:
1. To reverse declining public confidence in marketing: Sometime misleadingpackage labels,
false claim in advertisement, phony list prices, infringement oftrademarks pervert the
market trends and such behavior damages the marketers’ reputation. To reverse this
situation, business leaders must demonstrate convincinglythat they are aware of their
ethical responsibility and will fulfill it. Companies must sethigh ethical standards and enforce
them. Moreover, it is in management’s interest to be concerned with the well being of
consumers, since they are the lifeblood of a business.
2. To avoid increase in government regulation: Business apathy, resistance, or token responses
to unethical behavior increase the probability of more governmentalregulation. The
governmental limitations may also result from management’s failure tolive up to its ethical
responsibilities. Moreover, once the government control isintroduced, it is rarely removed.
3. To retain power granted by society: Marketing executives wield a great deal of socialpower
as they influence markets and speak out on economic issues. However, there isa
responsibility tied to that power. If marketers do not use their power in a sociallyacceptable
manner, that power will be lost in the long run.
4. To protect the image of the organisation: Buyers often form an impression of anentire
organisation based on their contact with one person. That person represents themarketing
function. Sometimes a single sales clerk may pervert the market opinion inrelation to that
company which he represents.
Therefore, the ethical behavior in marketing may be strengthened only through the behavior of
the marketing executives.
b) Correct. Economic growth has to be environmentally sustainable. There is no economicgrowth
without ecological costs. Industrialization and rapid development have affected theenvironment.
Everybody should realize that such development is related to environmental damage and resource
depletion.
Therefore, an element of resource regeneration and positive approach to environment has to be
incorporated in development programs. Sustainable development refers to
maintainingdevelopment over time. Sustainable development is development that meets the
needs of thepresent without comprising the ability of future generations to meet their own needs.
A nation or society should satisfy its social, economic and other requirement without jeopardizing
theinterest of future generations.
High economic growth means high rate of extraction, transformation and utilization of
nonrenewableresources. Therefore it is suggested that economic growth has to
beenvironmentally sustainable because it is sure that there is no economic growth
withoutecological cost.
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2.
(a) Section 56 of the Companies Act, 2013 deals with the transfer and transmission of securities or
interest of a member in the company.
Requirement for registering the transfer of securities: According to the law, a company shall
not register a transfer of securities of the company, or the interest of a member in the company
in the case of a company having no share capital, unless a proper instrument of transfer, in such
form as may be prescribed, duly stamped, dated and executed by or on behalf of the transferor
and the transferee (except where the transfer is between persons both of whose names are
entered as holders of beneficial interest in the records of a depository), specifying the name,
address and occupation, if any, of the transferee, has been delivered to the company by the
transferor or the transferee within a period of 60 days from the date of execution, along with
the certificate relating to the securities, or if no such certificate is in existence, along with the
letter of allotment of securities.
Instrument of transfer lost/ not delivered: Where the instrument of transfer has been lost or
the instrument of transfer has not been delivered within the prescribed period, the company
may register the transfer on such terms as to indemnity as the Board may think fit.
Power of company to register : Power of company to register shall not be effected by above
provision (given under sub- section 1) on receipt of an intimation of transmission of any right to
securities by operation of law from any person to whom such right has been transmitted.
Transmission of securities on an application of transferor alone: Where an application is made
by the transferor alone and relates to partly paid shares, the transfer shall not be registered,
unless the company gives the notice of the application, in such manner as may be prescribed, to
the transferee and the transferee gives no objection to the transfer within two weeks from the
receipt of notice.
Refusal to register: Under section 58 (4) if a public company without sufficient cause refuses to
register the transfer of securities within a period of thirty days from the date on which the
instrument of transfer is delivered to the company, the transferee may, within a period of sixty
days of such refusal or where no intimation has been received from the company, within ninety
days of the delivery of the instrument of transfer, appeal to the Tribunal.
Section 58 (5) further provides that the Tribunal, while dealing with an appeal made under sub-
section (4), may, after hearing the parties, either dismiss the appeal, or by order—
a) direct that the transfer or transmission shall be registered by the company and the
company shall comply with such order within a period of ten days of the receipt of the
order; or
b) direct rectification of the register and also direct the company to pay damages, if any,
sustained by any party aggrieved;.
(b) According to section 2(16) of the Companies Act, 2013 “charge” has been defined as 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. The law with respect to the registration of charges are dealt in
sections 77 to 87 of the Companies Act, 2013. The sections provides the law with respect to the
registering of the charges.
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Duty of the company to register charges: According to section 77 of the Companies Act, 2013, it
shall be duty of the company creating a charge within or outside India, on its property or assets
or any of its undertakings, whether tangible or otherwise and situated in or outside India, to
register the particulars of the charge signed by the company and the charge holder together
with the instruments, if any, creating such charge in such form, on payment of such fees and in
such manner as may be prescribed, with the registrar within 30 days of creation.
Registration by the registrar: The Registrar may, on an application by the company, allow such
registration to be made within a period of three hundred days of such creation on payment of
such additional fees as may be prescribed. Provided further that if registration is not made
within a period of three hundred days of such creation, the company shall seek extension of
time in accordance with section 87. Provided also that any subsequent registration of a charge
shall not prejudice any right acquired in respect of any property before the charge is actually
registered.
3.
(a) A company is a holding company of another only if the other is its subsidiary. Section 2 (87) of
the Companies Act 2013 lays down the circumstances under which a company becomes a
subsidiary company of another company which becomes its holding company. These
circumstances are as under:
a) When the holding company controls the composition of Board of Directors of the
subsidiary company or companies, or
b) When the holding company exercises or controls more than one half of the total share
capital either on its own or together with one or more of its subsidiary companies, or
c) Where a company is the holding company of the company which fulfils any of the above
conditions, e.g., if A Ltd is the holding company of B Ltd, but C Ltd is the holding company
of A Ltd, then B Ltd will automatically become a subsidiary of C Ltd.
(b) Buy back of securities
In accordance with section 68 of the Companies Act, 2013, a company may buy back of its own
shares or other specified securities, out of the following sources:
1. Company's free reserves; or
2. Company's securities premium account; or
3. Out of the proceeds of any shared or other specified securities.
However, no buy-back of any kind of shares or other specified securities shall be made out of
the proceeds of an earlier issue of the same kind of shares or same kind of other specified
securities. Conditions that must be complied with are as laid down in section 68 (2):
1) Buy-back is authorized by the Company’s Articles.
2) A special resolution has been passed in general meeting of the company authorizing buy-
back.
3) The buy-back is less than 25% of the aggregate of the total paid-up capital and free
reserves of the company. Moreover, the buy-back of equity shares, cannot exceed 25% of
company’s paid up equity share capital in a financial year. However, section 68 (2) has
authorized the Board of Directors through a Board Resolution, provided the buy back does
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not exceed 10% of the total paid up equity share capital and free reserves. However, there
cannot be more than one such buy-back in any period of 365 days.
4) The ratio of the aggregate of secured and unsecured debt owed by the company is not
more than twice the equity capital and free reserve after such buy back. However, the
Central Government may prescribe a higher ratio of the debt for a class or classes of
companies.
5) All shares or other specified securities are fully-paid-up,
6) The buy back with respect to listed securities is in accordance with the regulations made
by the SEBI in this behalf.
Time limit for completion of buy–back: Under section 68 (4), every buy–back shall be completed
within 12 months from the date of passing the special resolution or a resolution passed by the
Board where the buy back is up to 10% of the aggregate of paid up capital and free reserves.
(c) Variation of shareholders rights
Section 48 of the Companies Act, 2013 provides the laws with respect to the variation of rights
attached to the shares. The provision states that “Where a share capital of the company is
divided into different classes of shares, the rights attached to the shares of any class may be
varied with the consent in writing of the holders of not less than three-fourths of the issued
shares of that class or by means of a special resolution passed at a separate meeting of the
holders of the issued shares of that class”,—
a) if provision with respect to such variation is contained in the memorandum or articles of
the company; or
b) in the absence of any such provision in the memorandum or articles, if such variation is
not prohibited by the terms of issue of the shares of that class:
Provided that if variation by one class of shareholders affects the rights of any other class of
shareholders, the consent of three-fourths of such other class of shareholders shall also be
obtained and the provisions of this section shall apply to such variation.
4.
(a) Mainly ethical issues can be categorized in the framework of their relation with business
associates, conflicts of interest, fairness and honesty, and communications. Fairness and
honesty are at the heart of business ethics and relate to the general values of decision makers.
At a minimum, businesspersons are expected to follow all applicable laws and regulations. But
beyond obeying the law, they are expected not to harm customers, employees, clients, or
competitors knowingly through deception, misrepresentation, coercion, or discrimination.
One aspect of fairness and honesty is related to disclosure of potential harm caused by
product use. For example, Mitsubishi Motors, a Japanese automaker, faced criminal charges and
negative publicity after executives admitted that the company had systematically covered up
customer complaints about tens of thousands of defective automobiles over a 20-year period in
order to avoid expensive and embarrassing product recalls.
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Another aspect of fairness relates to competition. Although numerous laws have been
passed to foster competition and make monopolistic practices illegal, companies sometimes
gain control over markets by using questionable practices that harm competition. Rivals of
Microsoft, for example, accused the software giant of using unfair and monopolistic practices to
maintain market dominance with its Internet Explorer browser.
(b) Corporate Social Responsibilities (CSR) is an integrated combination of policies, programs,
education, and practices which extend throughout a corporation’s operations and into the
communities in which they operate, about how companies voluntarily manage the business
processes to produce an overall positive impact on society. CSR can mean different things to
different people:
• for an employee it can mean fair wages, no discrimination, acceptable working conditions
etc.
• for a shareholder it can mean making responsible and transparent decisions regarding the
use of capital.
• for suppliers it can mean receiving payment on time.
• for customers it can mean delivery on time, etc.
• for local communities and authorities it can mean taking measures to protect the
environment from pollution.
• for non-governmental organizations and pressure groups it can mean disclosing business
practices and performance on issues ranging from energy conservation and global
warming to human rights and animal rights, from protection of the rainforests and
endangered species to child and forced labour, etc.
5.
a) Section 40 (6) of the Companies Act 2013, provides that a company may pay commission to any
person in connection with the subscription or procurement of subscription to its securities,
whether absolute or conditional, subject to the a number of conditions which are prescribed
under Companies (Prospectus and Allotment of Securities) Rules, 2014. In relation to the case
given, the conditions applicable under the above Rules are as under:
(i) The payment of such commission shall be authorized in the company’s articles of
association;
(ii) The commission may be paid out of proceeds of the issue or the profit of the company
orboth;
(iii) The rate of commission paid or agreed to be paid shall not exceed, in case of shares, five
percent (5%) of the price at which the shares are issued or a rate authorized by the
articles, whichever is less, and in case of debentures, shall not exceed two and a half per
cent (2.5 %) of the price at which the debentures are issued, or as specified in the
company’s articles, whichever is less;
Thus, the Underwriting commission is limited to 5% of issue price in case of shares and 2.5% in
case of debentures. The rates of commission given above are maximum rates. In view of the
above the decision of Unique Builders Ltd to pay underwriting commission exceeding 2% as
prescribed in the Articles is invalid.
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The company may pay the underwriting commission in the form of flats as both the Companies
Act and the Rules do not impose any restriction on the mode of payment though the source has
been restricted to either the proceeds of the issue or profits of the company.
b) Section 106 (1) of the Companies Act, 2013 states that the articles of a company may provide
that no member shall exercise any voting right in respect of any shares registered in his nameon
which any calls or other sums presently payable by him have not been paid, or in regard towhich
the company has exercised any right of lien.In the present case the articles of the company do
not permit a shareholder to vote if he hasnot paid the calls on the shares held by him.
Therefore, the chairman at the meeting is wellwithin its right to refuse him the right to vote at
the meeting and J’s contention is not valid.
6.
a) Change in the name of company: In the first instance, Mars Textile India Ltd., shouldascertain
from the Registrar of Companies whether the proposed name viz. National Textilesand
Industries Ltd. is available or not. For this purpose, the company should file theprescribed Form
No.1A with the Registrar along with the necessary fees. The Registrar afterexamination will
inform whether the new name is available or not for registration.
In case the name is available, the company has to pass a special resolution approving thechange
of name to National Textiles and Industries Ltd.Thereafter the approval of the Central
Government should be obtained as provided in Section13(2)of the Companies Act, 2013. The
power of Central Government in this regard has beendelegated to the Registrar of Companies.
Thus, the company has to file an application alongwith the prescribed filing fee for change of
name. The change of name shall be complete andeffective only on the issue of a fresh certificate
of incorporation by the Registrar. The Registrarshall enter the new name in the Register in place
of the former name13 (3). The change ofname shall not affect any rights or obligations of the
company and it shall not render defectiveany legal proceedings by or against it.
b) Under section 67 (3) of the Companies Act, 2013 a company is allowed to give a loan to
itsemployees subject to the following limitations:
(i) The employee must not be a key managerial personnel;
(ii) The amount of such loan shall not exceed an amount equal to six months’ salary of the
employee.
(iii) The shares to be subscribed must be fully paid shares
Section 2 (51) defines the “Key Managerial Personnel” (KMP) whereby a KMP includes the
chief executive, company secretary, whole time director, Chief Financial Officer or any other
officer who may be prescribed.
We can assume the Mr P being a fiancé manager is not a KMP of the company.
Keeping the above provisions of law in mind, the Board’s decision is invalid due to two reasons:
i. The amount being more than 6 months’ salary of Mr P, which should have restricted the
loan to ` 1.8 Lakhs.
ii. The shares subscribed are partly paid shares where as the benefit is available only for
subscribing in fully paid shares.
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PRIME ACADEMY IPC – 41st SESSION PROGRESS TEST
COST ACCOUNTING AND FINANCIAL MANAGEMENT No. of. Pages : 6 Total Marks: 75
Time allowed : 2 Hrs PART - A
(All questions carry 1 Marks each) 1. Operating costing is used in which of the following —
(A) Ship building (B) Textile industry (C) Paper manufacturing (D) Nursing homes
2. When the sales increase from ` 45,000 to ` 60,000, the profit increases by 5,000. P/V Ratio
would be — (A) 20% (B) 30% (C) 33.33% (D) 66.67%.
3. In contract costing, if the amount of work certified is 1/2 or more but not near to
completion, profit to be transferred to the statement of profit and loss can be calculated using the formula —
(A) (1/2) × notional profit × (cash received / work certified) (B) (1/3)× notional profit × (cash received / work certified ) (C) (2/3) × notional profit × (cash received / work certified) (D) Estimated profit × (cash received / work certified)
4. Which of the following is not an objective of time-booking —
(A) Apportionment of overheads against jobs (B) Preparation of payrolls (C) Ascertaining idle time for the purpose of control (D) Calculation of labor cost
5. Sunk costs are —
(A) Opportunity costs (B) Costs to be incurred in future (C) cost already incurred (D) Controllable costs
6. For a product-X, following information is available : Maximum consumption per week : 300
units Normal consumption per week : 200 units Re-order period : 2 to 4 weeks The re-order level will be —
(A) 400 units (B) 1,200 units (C) 600 units (D) 800 units
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7. A company manufactures several components in batches. The following data relates to one component : Annual demand : 32,000 units Set-up cost per batch : 120 Annual rate of interest : 12% Cost of production per unit : 16 The economic batch quantity is —
(A) 4,000 units (B) 3,000 units (C) 2,000 units (D) 2,500 units.
8. An input of 6,000 Kgs. of material is introduced into the process and the expected loss is 5%.
If the actual output from the process is 4,500 Kgs., the abnormal loss is :
(A) 2,100 Kgs. (B) 1,500 Kgs. (C) 1,200 Kgs. (D) 225 Kgs.
9. Which of the following methods is used to account for the under-absorption and over
absorption of overheads — (A) Use of supplementary rates (B) Carrying forward of overheads (C) Writing-off to costing profit and loss account (D) All of the above.
10. Which type of material is classified as 'A' type in ABC analysis —
(A) High price, more quantity (B) High price, less quantity (C) Low price, more quantity (D) Low price, less quantity
11. In a factory where piece work system is followed with guaranteed minimum wages of 120
for eight hours, incentive payments are made according to Rowan bonus scheme. The standard time per unit is 10 minutes. If in a five day week of 40 working hours the actual production is 300 units, what will be the total earnings of the worker —
(A) 640 (B) 720 (C) 750 (D) 800
12. If the actual expenses fall short of the amount absorbed, it is known as —
(A) Under absorption (B) Over absorption (C) Allocation (D) Apportionment
13. Which of the following formula cannot be used to calculate re-order level —
(A) Minimum level + consumption during lead time (B) Maximum consumption × maximum re-order period (C) (Maximum consumption × lead time )+ safety stock (D) Minimum consumption × minimum re-order period
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14. Rent, rates and insurance of factory and office are examples of — (A) Direct expenses (B) Indirect expenses (C) Notional expenses (D) Miscellaneous expenses
15. 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.
16. Which of the following formula cannot be used for calculating P/V ratio —
(A) (Sales value minus variable cost) / Sales value (B) (Fixed cost plus profit) / Sales value (C) Change in profits / Change in sales (D) Profit / Sales value
17. Which of the following items is to be included both in cost accounts and financial accounts
(A) Salary of the proprietor (B) Rent on owned premises (C) Notional interest on capital employed (D) Salary to staff.
18. The cost accountant of Akash Ltd. has computed labour turnover rates for the quarter ended
31st March, 2014 as 20%, 10% and 6% respectively under 'flux method', 'replacement method' and 'separation method'. If the number of workers replaced during that quarter is 80, find the number of workers who left and discharged
(A) 48 (B) 112 (C) 80 (D) 800
19. When is the following entry passed in non-integrated system
Store ledger A/c…..Dr. To General ledger adjustment A/c
(A) Material issued to production (B) Materials purchased (C) Materials returned from production department (D) Job completed.
20. For a manufacturing company, which of the following is an example of period cost rather
than a product cost — (A) Depreciation on factory equipment (B) packing material (C) Wages of machine operator (D) Insurance on factory equipment.
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21. The terms of contract provide that whole of the amount shown by the architect's certificate shall not be paid immediately but a percentage thereof shall be paid. The amount not paid is termed as —
(A) Lost money (B) Retention money (C) Advance money (D) Contract amount
22. There are 100 rooms in a hotel of which 80% are normally occupied in summer and 30% in
winter. Assume that period of summer and winter is six months each and normal days in a month are 30. What is number of room - days occupied in a year —
(A) ` 19,800 (B) ` 1,650 (C) ` 36,000 (D) ` 17,600
23. Two or more products emerged from a common process, each having a sufficiently high
saleable value, are known as — (A) Joint products (B) By-products (C) Additional products (D) Scrap.
24. In which bonus plan, the percentage of bonus to the wages earned is that, which the time
saved bears to the standard time — (A) Halsey (B) Rowan (C) Hayne (D) Barth
25. Cost of production plus opening stock of finished goods minus closing stock of finished
goods is equal to — (A) Cost of production of goods sold (B) Cost of sales (C) Sales (D) Prime cost. (25 x 1 = 25 Marks)
PART - B (50 Marks)
Answer any five questions 1. Zed Limited sells its product at ` 30 per unit. During the quarter ending on 31st March, it produced
and sold 16,000 units and suffered a loss of ` 10 per unit. If the volume of sales is raised to 40,000 units, it can earn a profit of ` 8 per unit. You are required to calculate:
a) Break Even Point in Rupees. b) Profit if the sale volume is 50,000 units. c) Minimum Level of Production where the Company need not to close the production if
unavoidable Fixed Cost is ` 1,50,000.
2. A Mini–Bus, having a capacity of 32 Passengers, operates between two places – ‘A’ and ‘B’. The distance between the Place ‘A’ and Place ‘B’ is 30 km. The Bus makes 10 round trips in a day for 25 days in a month. On an average, the Occupancy Ratio is 70% and is expected throughout the year. The details of other expenses are as under:
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Amount in `
Insurance 15,600 per annum
Garage Rent 2,400 per quarter
Road tax 5,000 per annum
Repairs 4,800 per quarter
Salary of operating staff 7,200 per month
Tyres and tubes 3,600 per quarter
Diesel: (one Litre is consumed for every 5 km) 13 per litre
Oil and sundries 22 per 100 km run
Depreciation 68,000 per annum
Passenger Tax @ 22% on Total Taking is to be levied and Bus Operator requires a Profit of 25% on Total Taking. Prepare Operating Cost Statement on annual basis and find out the Cost per Passenger Kilometer and One–Way Fare per Passenger.
3. Z Limited obtained a contract No. 999 for ` 50 Lakhs. The following details are available in respect of
this contract for the year ended 31st March 2014: `
Materials Purchased 1,60,000
Materials issued from Stores 5,00,000
Wages and Salaries Paid 7,00,000
Drawing and Maps 60,000
Sundry Expenses 15,000
Electricity Charges 25,000
Plant Hire Expenses 60,000
Sub–Contract Cost 20,000
Materials returned to Stores 30,000
Materials returned to Suppliers 20,000 The following balances relating to the Contract No.999 for the year ended on 31st March 2013 and 31st March 2014 are available:
As on 31st March 2013 (`) As on 31st March 2014 (`)
Work Certified 12,00,000 35,00,000
Work Uncertified 20,000 40,000
Materials at Site 15,000 30,000
Wages Outstanding 10,000 20,000
The Contractor receives 75% of Work Certified in cash. Prepare Contract Account an contractee’s Account.
4. The following information has been extracted from the cost records of a manufacturing company:
Stores (`)
Opening Balance 54,000 Purchases 2,88,000
Transfer from work in progress 1,44,000 Issue to work in progress 2,88,000 Issue to repair 36,000 Deficiency found in stock 10,800
Work in progress `
Opening Balance 1,08,000 Direct wages applied 1,08,000 Overhead Charges 4,32,000 Closing Balance 72,000
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Finished Production:
Entire production is sold at a profit of 15% on cost from work in progress.
Wages paid ` 1,26,000
Overheads incurred ` 4,50,000 Draw the stores Ledger Control A/c, work in progress Control A/c, Overheads Control A/c and Costing Profit and Loss A/c.
5. A company manufactures one main product (M1) and two by products B1 and B2. For the month of January, following details are available: Total cost upto separation point `1,36,000
M1 ` B1 ` B2 `
Sales 3,28,000 32,000 48,000
Costs after separation 9,600 14,400
Estimated profit% to Sale value 20% 30%
Estimated selling expenses as percentage to sales value
20% 20% 20%
There are no beginnings or closing inventories. Prepare statement showing: a. Allocation of joint cost b. Product-wise and overall profitability of the company for January
6. The following information relate to Process A:
i. Opening wor in progress 8000 units at ` 75,000
Degree of completion: Material 100% Labour & overheads 60%
ii. Input 1,82,000 units at ` 7,37,500
iii. Wages ` 3,38,800
iv. Overheads ` 1,69,400
v. Units scrapped 14,000 units
Degree of completion: Material 100% Labour & overheads 80%
vi. Closing work in progress 18,000 units
Degree of completion: Material 100% Labour & overheads 70%
vii. Units completed and transferred 1,58,000 to next process
viii. Normal loss 5% of total input including opening WIP
ix. Scrap value ` 5 per unit
Prepare process accounts as per FIFO. (5 x 10 = 50 Marks)
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PRIME ACADEMY IPC - 41st SESSION PROGRESS TEST
COST ACCOUNTING AND FINANCIAL MANAGEMENT SUGGESTED ANSWERS
PART A
1 2 3 4 5 6 7 8 9 10 11 12 13
D C C B C B C C D B B B C
14 15 16 17 18 19 20 21 22 23 24 25 B D D D A B D B A A B A
PART B 1.
Particulars 16,000 units 40,000 units
Sales @ Rs.30 p.u. 480,000 1,200,000
Less: profit loss @ 10 per unit (160,000)
320,000
Total costs 640,000 880,000
16000 units = 640,000
40,000 units = 880,000
Variable cost p.u, = 8.80L-6.40L
40K - 16K
= Rs.10
Fixed cost = 6,40,000 - 10(16,000)
` 480,000
Sales ` 30 Variable costs 10 Contribution 20 PVR = 66.67%
(i) Break even (`) = Fixed Costs / PVR = 4.80Lakhs/.6667 = ` 7,20,000
(ii) Profit at sales of 50,000 units = 50,000 x 20 (-) 4,80,000 = ` 5,20,000
(iii) Minimum production = Avoidable fixed costs / contribution p.u = (4.80L – 1.50L )/20 = 16,500 units
2. Step 1: calculation of passenger kilometers Kilometers = 30 km x 2 way x 10 trips x 25 days x 12 months = 1,80,000 kms Passenger kms = 1.80L x 32 x 70% = ` 40,32,000 passenger kms Step 2: computation of annual costs `
Insurance 15,600
Garage Rent 9,600
Road tax 5,000
Repairs 19,200
Salary of operating staff 86,400
Tyres and tubes 14,400
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Diesel 468,000
Oil and sundries 39,600
Depreciation 68,000
Total costs 725,800
Total cost + passenger tax + profit = takings Total cost + 22% of takings + 25% takings = takings Total cost = 53% takings , Takings = 7,25,800/53% = 13,69,434 approx Cost per passenger km = 7,25,800/40,32,000 = 0.18 Fare per passenger km = 13,69,434/40,32,000 =0.34 Fare per one way trip = 0.34 x 30 = ` 10.19
3.
Contract No.999 Account for the year ended 31st March 2014
Particulars ` Particulars `
To balance b/d – Work Certified
1,200,000.00 By Work in Progress – Work Certified 3,500,000.00
– Work Uncertified 20,000.00 – Work Uncertified 40,000.00
To Material at Site b/d 15,000.00 By Materials Returns – Stores 30,000.00
To Material issued 500,000.00 – Supplier 20,000.00
To Materials directly purchased 160,000.00 By Balance c/d - Material at site 30,000.00
To Wages (7,00,000 + 20,000 – 10,000)
710,000.00
To Drawings and Maps 60,000.00 To Sundry Expenses 15,000.00 To Electricity Charges 25,000.00 To Plant Hire Charges 60,000.00 To Sub–Contract Cost 20,000.00 To Notional Profit – balancing
figure
835,000.00
Total
3,620,000.00 Total 3,620,000.00
Particulars ` Particulars ` To Profit & Loss A/c – transfer (Note b)
417,500.00 By Notional Profit b/d 835,000.00
To Reserve Profit c/d – balancing figure
417,500.00
Total 835,000.00 Total 835,000.00
To WIP b/d
3,540,000.00 By Reserve Profit b/d 417,500.00
To Material at Site b/d
30,000.00
Note:
(a) Percentage of Completion = Work
Certified
3,500,000.00 = 70%
PRIME A
CADEMY
PRIME/41st /IPC 3
Contract Price
= 5,000,000.00
(b) So, Profit transferred to P&L A/c =
2 /3 x Notional Profit x Cash Received / Work Certified =
2 /3 x 835000 * 75% = 417,500.00
Contractee's A/c
Particulars ` Particulars `
To balance c/d (bal. figure)
2,625,000.00 By balance b/d (80% of Work Certified on Opening Date)
900,000.00
By Bank [75% of ( 35,00,000 – 12,00,000)]
1,725,000.00
Total
2,625,000.00 Total
2,625,000.00
4.
Stores control a/c
Particulars Amount(`) Particulars Amount(`)
To Balance b/d 54,000 By WIP control a/c 288,000
GLA a/c 288,000
Factory OH controla/c 36,000
WIP control a/c 144,000
Costing P & L a/c 10,800
bal c/d 151,200
486,000
486,000
Work in progress a/c
Particulars Amount(`) Particulars Amount(`)
To Balance b/d 108,000 By Stores control a/c 144,000
Stores control a/c 288,000
Cost of sales(b.f) 720,000
wages control a/c 108,000
bal c/d 72,000
overheads control 432000
936,000
936,000
overheads control a/c
Particulars Amount(`) Particulars Amount(`)
To Stores control a/c 36,000 By WIP control a/c 432,000
wages control a/c 18,000
Costing P & L a/c
GLA a/c 450,000
(b.f) 72,000
504,000
504,000
PRIME A
CADEMY
PRIME/41st /IPC 4
costing P & L a/c
Particulars Amount(`) Particulars Amount(`)
To Cost of sales 720,000 By Sales 828,000
Stores control a/c 10,800
overheads control 72,000
GLA a/c(profit) 25,200
828,000
828,000
5. Step 1: Estimated joint cost = ` 1,36,000 Step 2: Method of apportionment: Reverse cost method Step 3: Statement computing Estimated Joint costs
Joint cost share of Main product = Joint costs – Share of M1 & M2 = 1,36,000-9,600-9,600 = ` 1,16,800
Process a/c
Particulars units Amount
` Particulars units Amount `
To opening stock
8,000 75000 By Normal loss
9,500 47,500
To materials 182,000 737,500 By abnormal loss
4,500 28,800
To labour
338800 By closing stock 18,000 109,800
To overheads
169,400 By transfer 158,000 1,134,600
182,000 1,320,700
190000 1,320,700
By–Product
M1 M2
Sales 32,000 48,000
Less: profit 6400(20%) 14,400(30%)
Cost of sales 25,600 33,600
Less: Selling expenses (20%) 6,400 9,600
Less: Cost incurred after separation 9,600 14,400
Estimated joint costs 9,600 9,600
Main product By–Product Total
A ` M1 ` M2 ` `
Sales 3,28,000 32,000 48,000 4,08,000
Less: Cost upto separation 1,16,800 9,600 9,600 1,36,000
Less: Cost incurred after separation
- 9,600 14,400 24,000
Less: Selling expenses (20%) 65,600 6,400 9,600 81,600
Profit 1,45,600 6,400 6,400 1,66400
PRIME A
CADEMY
PRIME/41st /IPC 5
6. Step 1: Input output statement ` Opening stock 8,000 Add: Input 182,000
Total input 190,000 Less: Closing stock 18,000
Processed production 172,000 less: Normal loss 9,500
Expected output 162,500 Actual output 158,000
Abnormal loss 4,500
Step 2:Units introduced, completed and transferred =transfer (-) opening stock = ` 1,58,000-8000 =1,50,000 Step 3: Statement of Equivalent units
Item units
Materials `
Labour & Overheads `
Opening stock 8,000 0% - 40% 3,200 Units introduced, completed & transferred 150,000 100% 150,000 100% 150,000 Closing stock 18,000 100% 18,000 70% 12,600 Normal loss 9,500 0% - 0% - Abnormal loss 4,500 100% 4,500 80% 3,600
172,500
169,400
Step 4: Cost per equivalent units
Materials `
Labour & Overheads `
Cost 737,500 508,200 Additional materials
Less: Normal Loss realizable price (47,500) Net cost 690,000 508,200
Equivalent units 172,500 169,400 Cost per equivalent units 4.00 3.00
Step 5: Statement of valuation Units transferred
`
Opening stock 75000 + (3200x3) 84,600 Units introduced, completed & transferred 1,50,000x(4+3) 1,050,000
1,134,600
Closing stock = ` (18,000x4) + (12,600 x3) 109,800 Normal loss at realizable value 47,500 Abnormal loss = ` (4,500x4) + (3,600 x3) 28,800
PRIME A
CADEMY
PRIME/41ST PT/IPC 1
PRIME ACADEMY IPC - 41stSESSION PROGRESS TEST - TAXATION
No. of Pages: 3 Total Marks: 75 Time Allowed: 2 Hrs PART - A
1. Dividend from foreign company received in Canada INR 8,000 by a person who is resident but not
ordinary resident in India. Whether it is taxable in India or not? a) Taxable b) Not taxable
2. Mr. Anbu is a non-resident has income from property situated in India during AY 2014-15. He has not come to India any time during last 10 years and received the property as gift from his parents. Income from property received by Mr. Anbu is
a) Taxable b) Not taxable
3. Sale of agricultural land. Whether taxable under capital gain or not? a) Taxable b) Not taxable
4. When the excise duty is payable a) At the time of production b) At the time of selling the goods c) At the time of removal from factory
5. Excise return has to be filed on a) Monthly b) Quarterly in Form no.ER 4 c) Halfly in form ER 2 d) Annually (5 x 2 = 10 Marks)
PART – B (65 Marks)
1. Who is an assessee? Explain the scope of income as per section 5. (8 Marks) 2. Mr. Sarvesh owns a residential property in Mumbai whose municipal valuation is `2,40,000 per
annum, Fair rent is `3,00,00 per annum and Standard rent is `3,30,000. During the previous year 2014-15 2/3rd of the portion was self occupied and 1/3rd portion was let out for residential purpose for `10,000 per month. The municipal tax paid for the said property is 60,000 during the year. He paid interest of `1,80,000 on housing loan which was borrowed for the purchase of the house during 1997. Compute the income from house property for Mr.Sarvesh for the AY 2014-15.
(10 Marks) 3. What is Customs duty? Explain the excise duty? (6 Marks) 4. Ms. Sudha, an Indian Citizen, is a government employee of State Government. She left India for
the first time on 22.02.14 due to his transfer to Indian Embassy in USA. She did not visit India any time during the previous year 2014-15. She has received the following income during the Financial Year 2014-15.
Salary for the year – ` 5,50,000 Travelling allowance – ` 60,000 Foreign allowance – ` 1,50,000 Interest on FD with State Bank of India – `60,000 Compute her taxable salary income for AY 2015-16 (6Marks)
PRIME A
CADEMY
PRIME/41ST PT/IPC 2
5. Mr.Rajan, working as Senior Manager in XYZ Ltd. The following amounts were received from the employer for financial year 2014-15:
Basic Salary `3,60,000. Dearness Allowance `1,20,000 (40% towards superannuation benefits) Transport Allowance `24,000
In addition to the above – (i) The company had taken on lease a residential house at Bangalore, paying a lease rent of
`9,000 p.m. Mr.Rajan, who was paying to the company `6,000 p.m. towards aforesaid rent. (ii) Mr.Rajan has two sons. His second son was studying in a school run by the employer-
company throughout the financial year 2014-15. The cost of such education in a similar school is `4,000 p.m.
(iii) The employer-company was contributing `2,000 p.m. to Central Government Pension Scheme.
(iv) Professional tax paid by the employer `3,000. You are required to compute the taxable salary of Mr.Rajan for the assessment year 2015-16
(10Marks)
6. Determine the taxability for the A.Y. 2015-16 of the following incomes in the hands of an individual whose residential status is -
i. Resident and ordinarily resident; ii. Resident but not ordinarily resident;
iii. Non-resident. Income details are as follows: 1) Salary received in Canada for rendering service in Bangalore – INR 50,000 2) Capital gain on sale of a house situated in Surat – INR 2,00,000 (sale consideration is received
in Canada) 3) Profits from a business in Indore but managed entirely from Canada – INR 1,25,000 4) Interest – INR 35,000 received in London from the Government of India for project situated in
London. 5) Interest on savings bank deposit in Bank of India, Bhopal – INR 10,000 6) Share of income received in India from a partnership firm situated in Dubai –INR 80,000
(6 Marks)
7. Calculate the excise duty payable for Mr. A from the following details? `
Total invoice price (exclusive of taxes) 40,000 VAT paid by Mr. A 5,000 Insurance charges 500 Packing charges 1,000 Outward freight beyond the place of removal 6,200(6 Marks)
PRIME A
CADEMY
PRIME/41ST PT/IPC 3
8. A manufacturer cleared some goods by charging excise duty. The invoice provided the following details:
Particulars `
Price Excise duty @ 10.30% Total
20,000 2,060 22,060
However, he came to know later that actual rate of excise duty is 12.36%. How much differential duty is payable by him, if he is not able to recover any extra amount from the customer? (3 Marks)
9. Prathap sold his house for a consideration of ` 200 lakhs on 1st January, 2015. However stamp
valuation authorities registered it at `220 lakhs, being the sub registrar approved value. He paid 5% of sale value as commission. The house was purchased by Prathap on 1.4.1980 for `10 lakhs. He made some improvements by way of additional construction to the house, incurring expenditure of ` 2 lakhs in January 2005. The market value of the house on 1.4.1981 was `12 lakhs. He invested ` 30 lakhs in eligible bonds issued by Rural Electrification Corporation Ltd. (RECL) on 13.03.2015 and `20 lakhs in eligible bonds issued by National Highways Authority of India (NHAI) on 15.07.2015 (Assume that the NHAI Capital Gains bonds issue were open for subscription during the period from 2.4.2015 to 31.3.2016). Besides, he purchased a small dwelling house on 01.04.2015 for ` 20 lakhs. Compute the capital gain chargeable to tax in the hands of Prathap for the assessment year 2015-16. Cost Inflation Index: F.Y. 1981 – 1982 – 100 , F.Y. 2004 – 2005 – 480, F.Y. 2014 – 2015 - 1024
(10 Marks)
PRIME A
CADEMY
PRIME/41ST PT/IPC 1
PRIME ACADEMY IPC - 41st SESSION -- PROGRESS TEST - TAXATION
SUGGESTED ANSWERS PART - A
1. b 2. b 3. b 4. c 5. a
PART – B 1. The term “Assessee” under Section 2(7) of the Income means a person by whom any tax or any
other sum of money is payable under the Income Tax Act, and includes – a. Every person in respect of whom any proceeding under this Act has been taken for the
assessment of his income [or assessment of fringe benefits] or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person;
b. Every person who is deemed to be an assessee under any provision of this Act; c. Every person who is deemed to be an assessee in default under any provision of this Act.
Scope of Total Income [Sec 5): Scope of total income is according to residential status of
assessee. i. Resident in India/ ordinarily resident in India: A person is assessable to tax in respect of
income which i. Is received or deemed to be received in India by him or on his behalf ii. Accrues or arises or deemed to accrue or arise to him in India iii. Accrues or arises to him outside India
ii. Resident but not ordinarily resident in India: A person is assessable to tax in respect of income which i. Is received or deemed to be received in India by him or on his behalf ii. Accrues or arises or deemed to accrue or arise to him in India iii. Accrues or arises to him outside India from a business controlled in or profession set up in India.
iii. Non-resident in India: A person is assessable to tax in respect of income which i. Is received or deemed to be received in India by him or on his behalf ii. Accrues or arises or deemed to accrue or arise to him in India
2.
Particulars `
Income from self-occupied portion (2/3rd ) Net annual Value Nil
Less: Deduction u/s 24 (interest paid 2/3rd or 30,000 ) (30,000)
Loss from self-occupied portion (30,000)
Income from Let out portion (1/3rd ) Step 1 MV or FR whichever is higher but subject to maximum of SR - ` 1,10,000 Step 2 Actual rent received `1,20,000 Gross Annual value ( step 1 or step 2 whichever is higher)
1,20,000 Less: Municipal tax paid (1/3rd ) 20,000
Net annual value 1,00,000 Less: Deduction u/s 24 – 30% of net annual value interest paid 1/3rd
30,000 60,000
Income from let out portion 10,000
Total Income from House Property (20,000)
PRIME A
CADEMY
PRIME/41ST PT/IPC 2
3. A tax levied on imports (and, sometimes, on exports) by the customs authorities of a country to raise state revenue, and/or to protect domestic industries from more efficient or predatory competitors from abroad. Customs duty is based generally on the value of goods or upon the weight, dimensions, or some other criteria of the item (such as the size of the engine, in case of automobiles). A percentage levied on manufacture, sale, or use of locally produced goods (such as alcoholic drinks or tobacco products). A percentage tax levied on company's revenue, instead of (like income tax) on the company's income. A fixed tax levied on an activity or occupation, such as the license fee charged from attorneys, doctors, and other professionals.
4. Computation of gross total income Ms. Sudha for AY 2015-16
Particulars `
Salaries (note 1) 5,50,000 Foreign Allowance (note 2) Nil
Travelling allowance(60000-9600) 50,400
Taxable salary Income 6,00,400
i. Ms. Sudha is non-resident for FY 2013-14, income deemed to accrue or arise in India is taxable.
Salary paid by Indian government is deemed to accrue or arise in India, hence it is taxable in his hand.
ii. As per section 10(7) allowance paid by Indian government for rendering services outside India are exempted.
5. Computation of taxable salary of Mr. Rajan for A.Y. 2015-16
Particulars `
Basic salary
3,60,000
Dearness Allowance 1,20,000 Employers’ contribution to Central Government Pension Scheme (3,000 x 12) 36,000 Professional tax paid by employer 3,000
Concessional accommodation (See Notes 1 & 2) Nil Value of concessional educational facility (4,000 x 12) (See Note 3) 48,000 Transport allowance (24000 – 9600) 14,400
------------------ Gross Salary 5,81,400
Less : Deduction under section 16(iii) Professional tax3,0001 -------------------
Income from Salary 5,78,400 -------------------
PRIME A
CADEMY
PRIME/41ST PT/IPC 3
Notes: (1) For computation of perquisite value of concessional accommodation, 40% of dearness
allowance (i.e. ` 48,000) should be taken into consideration as forming part of salary, since the question clearly mentions that only 40% is to be reckoned for superannuation benefits. Therefore, salary for the purpose of perquisite valuation would be `4,08,000 [i.e., (`3,60,000 + 48,000].
(2) In a case where the accommodation is taken on lease or rent by the employer and provided to the employee, the value of perquisite would be lower of the actual amount of lease rental paid or payable by the employer [i.e. `1,08,000, being 9,000 x 12) and 15% of salary [ i.e., `61,200, being 15% of `2,88,000]. This value (i.e. `61,800) would be reduced by the rent paid by the employee (i.e., `72,000, being 6,000 x 12). The value of concessional accommodation is Nil [i.e. `61,800 – `72,00].
(3) In determining the value of perquisite resulting from the provision of free or concessional educational facilities, from a plain reading of the proviso to Rule 3(5), it is possible to take a view that if the cost of education per child exceeds `1,000 per month, the entire cost will be taken as the value of the perquisite. Accordingly, the full amount of `4,000 per month is taxable as perquisite. It has been assumed that the education is provided free-of-cost to Mr.Rajan’s son since the question is silent regarding the same. In such a case, the value of the perquisite would be `48,000 (i.e. `2,000 × 12).
(4) The entire employer’s contribution to Central Government Pension scheme should be included in salary and deduction under section 80CCD should be restricted to 10% of salary.
(5) Employee’s contribution to Central Government Pension Scheme is not given in the question. However, since the employer is contributing `3,000 per month to the pension account and generally, the employer makes a matching contribution, therefore, the problem has been solved assuming that the employee has made a contribution of `3,000 per month. Even if it is assumed that the employee has contributed only 10% of salary, the same would not affect the answer, since deduction under section 80CCD is to be restricted to 10% of salary.
6. All the incomes are taxable under all the three status.
7.
Particulars `
Invoice price exclusive of taxes 40,000 Less: Insurance charges 500
Outward freight 6,200
Assessable value 33,300
Computation of Excise duty: 33,300 x 12.36% 4,116
Note: Packing charges are includible in assessable value, deduction for the same has not been provided.
8. Since the manufacturer charged only ` 22,060 and he is not able to recover any extra amount from customer, this amount is required to be treated as price–cum– duty. Hence, differential duty payable by him will be computed as under:
Particulars `
Price-cum-duty Excise duty @ 12.36% [` 22,060 x 12.36/112.36) Excise duty (rounded off) Differential excise duty to be paid [` 2,427 – ` 2,060 (duty already paid)]
22,060 2,426.68
2,427 367
PRIME A
CADEMY
PRIME/41ST PT/IPC 4
9. Computation of Capital Gains Chargeable to tax for A.Y. 2015-16
Particulars ` ` Sale consideration (i.e. Stamp Duty Value) (Note-1) 220,00,000
Less: Commission @ 5% of ` 200 lakhs 10,00,000 ---------------- 210,00,000 Less: Indexed Cost of Acquisition
(`12,00,000 × 1024/100) 122,88,000 Indexed Cost of Improvement (`2,00,000 × 1024/480) 4,26,667 127,14,667 82,85,333 Less: Exemption under section 54 (Note-2) 20,00,000 Exemption under section 54EC (Note -3) 30,00,000 50,00,000 Taxable Capital Gains 32,85,333 Notes
a. As per the provisions of section 50C, in case the stamp duty value adopted by the stamp valuation authority is higher than the actual sale consideration, the stamp duty value shall be deemed as the full value of consideration.
b. Exemption under section 54 is available if a new residential house is purchased within one year before or two years after the date of transfer. Since the cost of new residential house is less than the capital gain, capital gain to the extent of cost of new house is exempt under section 54.
c. Exemption under section 54EC is available in respect of investment in specified bonds of RECL or NHAI if the investment is made within a period of six months after the date of such transfer. Further, investments made in such bonds by an assessee during any financial year cannot exceed ` 50 lakhs. In this case, although Prathap’s investments do not exceed the prescribed limit, he is not eligible to claim deduction under section 54EC in respect of investment of `20 lakhs made in NHAI bonds, since it was made after six months from the date of transfer. Therefore, he is eligible to claim exemption of ` 30 lakhs under section 54EC out of total investment of ` 50 lakhs.
PRIME A
CADEMY
