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Suggested Answer CAP II Dec 2017
Suggested Answer CAP II Dec 2017
SUGGESTED ANSWER
December 2017
Balance Sheet of Adhikary & Co. (P) Ltd. as on 1st April, 2014
2) Freehold properties have been reduced by Rs. 1, 00,000 transferred to Batilboi &
Co. & Rs. 60,000 taken over by the shareholders of Adhikari & Co. (P) Ltd.
3) Cash at Bank: Balance as given Rs.
Add: Received from Batliboi & Co. 2, 10,000
1, 90,000
4, 00,000
Less: Dividend Paid 60,000
3, 40,000
2.
a) Eddi and Freddi carrying on business in partnership sharing Profit and
Losses equally, wished to dissolve the firm and sell the business to Sreddi
Ltd. on 31.03.2074, when the firm‘s position was as follows:
Balance Sheet as at 31.03.2074
Liabilities Amount (Rs.) Assets Amount (Rs.)
Eddi‘s Capital 175,000 Land and Building 125,000
Freddi‘s Capital 130,000 Furniture 52,500
Sundry Creditors 80,000 Stock 112,500
Debtors 91,000
Cash 4,000
Total 385,000 Total 385,000
The arrangement with Sreddi Limited Company was as follows:
i) Land and Building was purchased at 20% more than the book value.
ii) Furniture and stock were purchased at book values less 15%.
iii) The goodwill of the firm was valued at Rs. 40,000.
iv) The firm‘s debtors, cash and creditors were not to be taken over, but the
company agreed to collect the book debts of the firm and discharge the
creditors of the firm as an agent, for which services, the company was
to be paid 5% on all collections from the firm‘s debtors and 3% on cash
paid to firm‘s creditors.
v) The purchase price was to be discharged by the company in fully paid
equity shares of Rs. 10 each at a premium of Rs. 2 per share.
The company collected all the amounts from debtors. The creditors were
paid off less by Rs. 1,000 allowed by them as discount. The company paid
the balance due to the vendors in cash.
Prepare the Realization Account, the Capital Accounts of the partners
and the Cash Account in the books of partnership firm. 10
b) Following information as at second quarter ending 2073 were drawn from
the records of Minamma Bank Limited as under:
Loan outstanding for Amount (Rs.)
Up to 3 months 1,673,000
More than 3 months but not more than 6 months 13,612
More than 6 months but not more than 12 months 782
More than 12 months 2,198
Total 1,689,592
The bank has not restructured or rescheduled any of its credit.
Following additional information relating to previous quarter ending were
extracted from the records of the bank:
Particulars Amount (Rs.)
Paid up equity share capital 171,010
Statutory general reserve 155,432
Retained earnings 87,886
General loan loss provision 16,983
Exchange equalization reserve 22,313
Un-audited current year cumulative profit 31,991
Deferred revenue expenses 2,884
The bank is in the process of preparing the documents for quarterly
reporting. The bank has also provided a term loan of Rs. 125,000 to a single
party during the period under review. As a reporting and compliance officer
of the bank you are required to calculate movement in loan loss provision
amount. 10
ANSWERS:
a)
Amount in NPR
Dr Realization A/c Cr
Particulars Amount Particulars Amount
To Land & Building 125,000 By Sundry Creditors 80,000
To Furniture 52,500 By Sreddi Ltd Co- 330,250
Purchase consideration (W.N-1)
To Stock 112,500 By Sreddi Ltd Co- Sundry
Debtors 91,000
To Debtors 91,000 Less- Commission 86,450
(5% on 91,000) 4,550
To Sreddi Ltd Co- 79,000
Sundry Creditors
To Sreddi Ltd Co- 2,370
Commission
(3% on 79,000)
To Profit transferred to 34,330
Eddi‘s Capital 17,165
Freddi‘s Capital 17,165
Total 496,700 Total 496,700
Amount in NPR
Dr Capital Account Cr
Particulars Eddi Freddi Particulars Eddi Freddi
To Shares in 187,023 143,227 By Balance b/d 175,000 130,000
Sreddi Ltd (W.N-
2)
To Cash –Final 5,142 3,938 By Realization A/c 17,165 17,165
Payment
Total 192,165 147,165 Total 192,165 147,165
Amount in NPR
Dr Cash Account Cr
Particulars Amount Particulars Amount
To Balance b/d 4,000 By Eddi‘s Capital – Final 5,142
payment
To Sreddi Ltd Co- 5,080 By Freddi‘s Capital – Final 3,938
(Amount realized from Debtors payment
less amount paid to creditors)
( W.N-3)
Total 9,080 Total 9,080
Working Notes
1. Computation of Purchase Consideration
Particulars Amount
Land & Building (125,000+20% of 125,000) 150,000
Furniture (52,500-15% of 52,500) 44,625
Stock (112,500-15 % of 112,500) 95,625
Goodwill ( given) 40,000
Total 330,250
2. The shares received from the company have been distributed between the two partners
Eddi & Freddi in the ratio of their final claims i.e., 192,165: 147,165
3.
a) On 19th Mansir, 2073 premises of National Trading were destroyed by fire,
but sufficient records were saved, wherefrom the following particulars were
ascertained:
Rs.
Stock at cost on 1.4.2072 36,750
Stock at cost on 31.03.2073 39,800
Purchases less returns during 2072/73 1,99,000
Sales less return during 2072/73 2,43,500
Purchases less returns during 1.4.2073 to 19.8.2073 81,000
Sales less returns during 1.4.2073 to 19.8.2073 1,15,600
National Trading closes his books every 31st Ashadh. In valuing the stock
for the balance sheet as at 31st Ashadh 2073 Rs. 1,150 had been written off
on certain stock which was a poor selling line having the cost Rs. 3,450. A
portion of these goods were sold in Ashoj, 2073 at a loss of Rs. 125 on
original cost of Rs. 1,725. The remainder of this stock was now estimated to
be worth the original cost. Subject to the above exceptions, gross profit has
remained at uniform rate throughout. The stock salvaged was Rs. 2,900.
Show the amount of the claim of stock destroyed by fire. Memorandum
Trading Account to be prepared for the period from 1-4-2073 to 19-8-2073
for normal and abnormal items. 10
b) Mahakali Bank Ltd. issues shares of Rs. 10 each at a premium of 10%
payable as follows:
On application Rs. 2
On allotment Rs. 3 (including premium)
On first call Rs. 2
On final call Rs. 4
Mahesh who was holding 50 shares did not pay his allotment and first call
and his shares were forfeited. Suresh, who was holding 30 shares, did not
pay first call and his shares also were forfeited. Journalize transaction
relating to forfeiture of shares. 5
ANSWERS:
a)
National Trading
Trading Account for the year ended on 31st Ashadh, 2073
Rs Rs Rs
To Opening Stock 36,750 By Sales A/c 2,43,500
To Purchases 1,99,000 By Closing Stock
To Gross Profit 48,700 As valued 39,800
Add: Amount written off 1,150 40,950
to restore stock to full
cost
2,84,450 2,84,450
b)
Share capital A/C –Dr 50*6 300
Securities Premium A/c –Dr (50*1) 50
To forfeited shares A/C (50*2) 100
To share allotment A/C (50*3) 150
To Share first call A/C( 50*2) 100
( Being forfeiture of Mahesh Shares)
Share Capital A/C 30*6 180
To forfeited shares A/C (30*4) 120
To share first call A/C(30*2) 60
(Being forfeiture of Suresh A/C)
Note: in case of Mahesh securities premium account has been cancelled by debiting it
because the premium has not been paid but in case of Suresh it has not been done
because the premium has been paid, premium once received cannot be cancelled.
4.
a) From the following information of Reliable Marine Insurance Ltd. for the
st
year ending 31 Ashadh, 2074 find out the 10
i) Net premiums earned
ii) Net claims incurred
Particulars Direct Business (Rs.) Re-insurance (Rs.)
Premium:
Received 88,00,000 7,52,000
Receivable– 01.04.2073 4,39,000 36,000
Receivable– 31.03.2074 3,77,000 32,000
Paid 6,09,000
Payable– 01.04.2073 27,000
Payable– 31.03.2074 18,000
Claims:
Paid 69,00,000 5,54,000
Payable– 01.04.2073 89,000 15,000
Payable– 31.03.2074 95,000 12,000
Received 2,01,000
Receivable– 01.04.2073 40,000
Receivable– 31.03.2074 38,000
b) M/s Baboon & Co. has four departments A, B, C, D. Each department was
being managed by a departmental manager whose commission was 10% of
the respective departmental profit, subject to a minimum of Rs. 6,000 in
each case. Inter departmental transfers took place at a loaded price as
follows.
From Department A to Department B: 10% above cost
From Department C to Department D: 20% above cost
From Department A to Department D: 20% above cost
From Department C to Department B: 20% above cost
For the year ended 31st Ashadh, 2074 the company had already prepared and
closed the Departmental Trading and Profit and Loss Account. Subsequently
it was discovered that the closing stock of departments had included inter
departmentally transferred good at loaded price instead of cost price.
From the following information, prepare a statement re-computing the
departmental profit or loss. 5
(Rs.)
Particulars Dept. A Dept. B Dept. C Dept. D
Final Profit/ Loss 38,000 50,400 72,000 1,08,000
(Loss) (Profit) (Profit) (Profit)
Inter departmental 70,000 4,800
transfers included at (22,000 from Dept. (3,600 from Dept.
loaded price in the A and 48,000 from C and 1,200 from
departmental stock Dept. C) Dept. A)
ANSWERS:
a)
Net Premium earned
Particulars Rs. Rs.
Premium from direct business received 88,00,000
Working Notes
Manager‘s commission is payable @10 % of departmental profit before charging such
commission (subject to a minimum of Rs.6, 000). Hence manager‘s commission already
deducted will be as follows.
Departments Profit /Loss after Manager’s Commission
charging manager’s
commission
A (38,000) 6,000
B 50,400 1/9 of Rs.50,400 or 6,000 whichever is higher
i.e. 6,000
C 72,000 1/9 of Rs.72,000=8,000
D 108,000 1/9 of Rs 1,08,000=12,000
5.
a) From the following information, find out the risk weighted exposure for
operational risk assuming 11% is the capital adequacy requirement. 5
(
Rs.)
Particulars Year I Year II Year III
Interest Income (Rs.)
1,466,454 1,626,474 1,775,583
Interest Expenses 561,964 648,842 767,411
Commission and Discount Income 132,816 165,448 193,224
Other Operating Income 137,301 198,130 151,637
Exchange Fluctuation Income 41,301 52,325 40,329
Addition in interest Suspense Account 25,693 34,376 36,711
Non-Operating and Extraordinary Income 2,795 1,887 100,257
b) Nepa Roadways has taken a transit insurance policy. Suddenly in the year
2073-2074 the percentage of accident has gone up to 12% and the company
wants to recognize insurance claim as revenue in 2073-2074 in accordance
with relevant Accounting Standard. Do you agree? 5
c) Kalika Constructions undertook the construction of a highway on
01.04.2073. The contract was to be completed in 2 years. The contract price
was estimated at Rs. 150 crores. Up to 31.03.2074 the company incurred Rs.
120 crores on the construction. The engineers involved in the project
estimated that a further Rs. 45 crores would be incurred for completing the
work.
What amount should be charged to revenue for the year 2073-2074 as per
the provision of Nepal Accounting Standard 11 ―Construction Contract"?
Show the extract of the Profit & Loss A/c in the books of Kalika
Constructions. 5
ANSWERS:
a)
Net Interest Income 904,490.00 977,632.00 1,008,172.00
b) NAS 18 on ―Revenue‖ defines revenue as ―gross inflow of economic benefits during the
period arising in the course of the ordinary activities of an entity when those inflows result in
increases in equity, other than increases relating to contributions from equity participants‖
To recognize revenue NAS 18 requires that revenue arises from ordinary activities and that it
can be measured reliably and it is probable that the economic benefits associated with the
transaction will flow to the entity. As per the Standard, where the ability to assess the
ultimate collection with reasonable certainty is lacking at the time of raising any claim,
revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may
be appropriate to recognize revenue only when it is reasonably certain that the ultimate
collection will be made.
In the given case, Nepa Roadways wants to recognize Insurance claim because it has
increased over the previous year. But, there are uncertainties involved in the settlement of
the claim. Also, the claim does not seem to be in the course of ordinary activity of the
company.
Hence, Nepa Roadways is not advised to recognize the Insurance claim as revenue.
Marking Scheme
3 marks for provision
2 marks for decision
c)
Statement showing the amount to be charge to Revenue as per NAS 11
Particulars Rs. in Crores
Cost of construction incurred up to 31.03.2074 120
Add: Estimated future Cost 45
Total estimated cost of construction 165
Degree of completion (120/165×100) 72.73%
Revenue recognized (72.73% of 150) 109 ( approx.)
Total foreseeable loss (165-150) 15
Less: Loss for the current year (120-109) 11
Loss to be provided for 4
c)
Accrual Basis
In order to make their objectives financial statements are prepared on the accrual basis of
accounting. Under this basis, the effects of transaction and other events are recognized when they
occur (and not as cash or equivalent is received or paid) and they are recorded in the accounting
records and reported in financial statements of the periods to which they relate.
Going Concern
The financial statements are normally prepared on the assumption that an entity is a going
concern and will continue in operation for foreseeable future. Hence, it is assumed that the entity
has neither the intention nor the need to liquidate or curtail materially the scale of operations; if
such intention or need exists, the financial statements may have to be prepared on a different
basis.
d) As per NAS 17 on ‗Leases‘, a sale and leaseback transaction involves the sale of an asset by the
vendor and the leasing back of same asset to the vendor. The lease payments and the sale price
are usually interdependent, as they are negotiated as a package. The accounting treatment of a
sale and lease back transaction depends upon the type of lease involved.
If a sale and leaseback transaction results in a finance lease, any excess of sale proceeds over the
carrying amount shall not be immediately recognized as income by a seller-lessee. Instead it shall
be deferred and amortized over the lease term.
If sale and leaseback transaction results in a operating lease, and it is clear that the transaction is
established at fair value, any profit or loss should be recognized immediately. If the sale price is
below fair value any profit or loss should be recognized immediately except that, if the loss is
compensated by future lease payments at below market price, it should be deferred and amortized
in proportion to the lease payments over the period for which the asset is expected to be used. If
the sale price is above fair value, the excess over fair value should be deferred and amortized
over the period for which the asset is expected to be used.
Poultry, livestock and other agricultural produces.
e) While preparing the farm account one should be conversant with the peculiar features of farm
accounting which are as below:
1. The business is family type and there may be single bank account both for business and
family purpose.
2. A large chunk of the farm produce is appropriated towards consumption by the family
members.
3. The family provides labor for the farm in addition to the time devoted for management.
4. There are several divisions in the farm such as crops, dairy, poultry etc.
5. The output of certain division becomes the input of other divisions.
6. Farming operations are fraught with uncertainties as to the weather, pests, market price of the
input and outputs and government policies.
7. In some cases, agriculture is a part time occupation.
8. Due to the intrinsic nature, there are difficulties in ascertaining the value of standing crops
poultry, livestock and other agricultural produces.
Audit and Assurance
Maximum Marks - 100
Answer:
a) As per provision contained in Section 119 of companies Act 2063 relating to removal of
appointed auditor, no auditor appointed pursuant to Companies Act shall be removed pending
the completion of audit of accounts of any financial year for which he/she was appointed as the
auditor.
However, if any auditor breaches the code of conduct of auditors or does any act against the
interest of the company which has appointed him as the auditor or commits any act contrary to
the prevailing law, such auditor may be removed through the same process whereby he/she was
appointed as auditor, by giving prior information to the Nepal Chartered Accountants Institute,
and with the approval of the regulatory authority, if any authorized by the prevailing law for the
regulation of business of the company concerned , and failing such authority, with the approval
of the Office of company registrar.
In case of M/s Sun Life Ltd, CEO is not the person to appoint and remove statutory auditor
and the actions taken by the CEO is null and void and additionally, an appropriate
communication to those charged with governance is required.
b) Nepal Accounting Standards (NAS) 21 states that the exchange differences on the settlement of
monetary items at a rate different from those at which they were translated on initial
recognition during the period or in previous financial statements shall be recognized in profit or
loss in the period in which they arise. Therefore, in view of the above, the M/s Raddison Hotel
should charge the additional amount of Rs.15,00,000 to profit and loss account in accordance
with the said standard and not to capitalize.
c) Section 41 of Nepal Chartered Accountants Act, 2053 has made different level of punishment
for different levels of culpability. Here in case of A Kumar, If a person, who has not obtained a
Certificate of Practice and is proved to have signed any document in capacity of the member
holding Certificate of Practice, shall be liable to punishment with a penalty up to two thousand
rupees or imprisonment for a period of up to three months or both.
In case of B Kumar, if a member, who commits any act contrary to the provisions of this Act or
Regulations framed under this Act other than the provisions of this section, shall be suspended
for a maximum period of five years and shall be liable of punishment with a maximum penalty
of two thousand rupees or imprisonment for a maximum period of three months or both.
So, A Kumar and B Kumar are to be punished accordingly.
d) According to the Provisions of NAS-24, the given transaction between P Ltd. and Q Ltd. is not
a related party transaction. According to the standard, related party relationship includes
enterprises owned by directors or major shareholders of the reporting enterprise and enterprises
that have a member of key management in common with the reporting enterprise. In the given
case, none of the enterprises is owned by Rajaram. He is only a director in both the enterprises
not a Key Management Personnel (Such as Managing Director, Whole time Director, etc).
Therefore, P Ltd should not report the transaction as related party transaction.
Answer:
a) As per the decision of the council, a FCA member holding COP shall charge the audit fee to his
clients and the fee shall not be less than Rs. 15,000. In the present case, the FCA member has
charged Rs. 12,000 to a private company is less than the minimum fee. The auditor should have
charged at least Rs. 15,000 as the audit fee. Hence the member seems to have not followed the
directives of the council and accordingly may be subject to disciplinary action.
b) As per the Section 260 of code of ethics issued by ICAN, accepting gifts or hospitality from
an audit client may create self-interest threat and familiarity threats. If a firm or member of
audit team accepts gifts or hospitality unless the value is nominal and inconsequential the threat
created would be so significant that no safeguard could reduce the threats to an acceptable low
level. Consequently a firm or member of the audit team shall not accept such gifts or
hospitality.
The given case represents a self-interest threat as the acceptance of goods and services unless
value of such goods or service offered is very insignificant .As it is unlikely that a weekend at a
luxury hotel for whole audit team has an insignificant value, then, this offer should politely be
declined.
c) NSA 505, ―External Confirmations‖, establishes standards on the auditor‘s use of external
confirmation as a means of obtaining audit evidence. It requires that the auditor should employ
external confirmation procedures in consultation with the management.
The auditor may come across certain situations in which the management may request him not
to seek external confirmation from certain parties because of some reasons, for example, due to
a dispute with the particular creditor or debtor.
If the management refuses to allow the auditor to a send a confirmation request, the auditor shall
Inquire as to Management‘s reasons for the refusal, and seek audit evidence as to their
validity and reasonableness,
Evaluate the implications of management‘s refusal on the auditor‘s assessment of the
relevant risks of material misstatement, including the risk of fraud, and on the nature,
timing and extent of other audit procedures, and
Perform alternative audit procedures designed to obtain relevant and reliable
audit evidence.
If the auditor concludes that management‘s refusal to allow the auditor to send a confirmation
request is unreasonable or the auditor is unable to obtain relevant and reliable audit evidence
from alternative audit procedures, the auditor shall communicate with Those Charged With
Governance (TCWG) and also determine its implication for the audit and his opinion.
d) NSA 210 ―Agreeing the Terms of Audit Engagement‖ deals with the auditor‘s responsibilities
in agreeing the terms of the audit engagement with management. As per NSA 210, if prior to
completing the audit engagement, the auditor is requested to change the audit engagement to an
engagement that conveys a lower level of assurance, the auditor shall determine whether there
is reasonable justification for doing so.
The auditor shall not agree to a change in the terms of the audit engagement where there is no
reasonable justification for doing so. If the terms of the audit engagement are changed, the
auditor and management shall agree on and record the new terms of the engagement in an
engagement letter or other suitable form of written agreement.
If the auditor is unable to agree to a change of the terms of the audit engagement and is not
permitted by management to continue the original audit engagement, the auditor shall:
Withdraw from the audit engagement where possible under applicable law or regulation;
and
Determine whether there is any obligation, either contractual or otherwise, to report the
circumstances to other parties, such as Those Charged With Governance (TCWG), owners
or regulators.
i. Test Checking/Sampling:- Auditor uses sampling during performance of audit. Audit based
on test nature does not detect all frauds and errors.
ii. Nature of evidence:- The evidence obtained by the auditor are persuasive rather than
conclusive. They only enable auditor to provide reasonable assurance (not absolute
conclusion).
iii. Judgement: - Auditor uses professional judgement while obtaining audit evidence and
evaluating the reasonableness of assertion and estimates made by the management. The
judgement made by the auditor may not always be correct.
iv. Inherent limitation of internal control: - Internal controls suffer from limitation such as
collusion among the employees or abuse of authority by management.
vi. Constraint of Time:- Since most of the audits are carried out only after the year end and
have similar deadlines. Provided limited time period auditor may not able to observe all the
transactions resulting possibilities of oversight.
b) As per the provision of section 7 (2) Audit Act 2048, the auditor of companies where GoN
holds majorities of share should be done in consultation with the Office of Auditor General of
Nepal. Further the practicing chartered accountant as per section 34 (13) of ICAN Act 2053
should not accept his appointment as an auditor of an organization without ascertaining that all
required procedures for appointment as the auditor under the prevailing law has been duly
fulfilled.
In the light of aforesaid provisions of Audit Act 2048, Pandit & Associates before accepting
appointment, should ensure that whether Siddhartha Ltd. has consulted with the Office of
Auditor General of Nepal for their appointment.
c) As per provision sated in NSA 505 (External Confirmations); external confirmations are
frequently used in relation to account balances and their components, but need not be restricted
to these items. Accordingly examples of situations where external confirmations may be used
by the auditor are:
The existence and significance of the threat will depend on the circumstances of the request and
all the other available facts and assumptions relevant to the expression of professional
judgment. Examples of such safeguards include seeking client permission to contact the
existing accountant, describing the limitations surrounding any opinion on communications
with the client and providing the existing accountant with a copy of the opinion. If the company
or entity seeking the opinion will not permit communication with the existing accountant, a
professional accountant in public practice shall determine whether, taking all the circumstances
into account, it is appropriate to provide the opinion sought.
b) The various kinds of threats as explained in Section 200 of ICAN code of ethics are as follows:
Self Interest Threat: The threat which occur when an auditing firm, its partner or associate
could benefit from a financial interest in an audit client Examples include direct financial
interest or materially significant indirect financial interest in a client, loan or guarantee from
concerned client, close business relationship with an audit client, potential employment with
client.
Self-Review Threat: The threat that a professional accountant will inappropriately evaluate the
result of a previous judgment made or service performed by the professional accountant or
another individual within the professional accountant‘s firm or employing organization on
which the accountant will rely when forming a judgement as part of providing a current service.
For eg: valuation service along with audit service, accounting service.
Advocacy Threat: The threat that a professional accountant will promote client‘s opinion to the
point where people may believe that objectivity is getting compromised. For eg: Auditor acting
as an advocate on behalf of audit client in litigation or dispute with the third parties.
Familiarity Threat: The threat that a profession accountant due to a long or close relationship
with a client, will be too sympathetic to their interests or too accepting of their work. For eg:
participation in client‘s affair, family and personal relationship, audit partners leaving to join
the clients etc.
Intimidation Threat: The threat that a professional accountant will be deterred from acting
objectively because of actual or perceived pressure, including attempts to exercise undue
influence over professional accountant. For eg: A firm being treated with dismissal from a
client engagement.
c) The council vide its meeting no 194 dated Falgun 4, 2071 has amended provision relating to
ceiling over the number of audit. The amended provision is as below and is effective for
appointment from Shrawan 1, 2072.
A member holding Certificate of Practice of can perform the audit of not more than 100 entities
in a financial year, out of which audit of public companies shall not exceed 10. The above limit
is applicable for each member of a partnership firm. However, audit of certain entity having
turnover of less than 20 lacs is not included while calculating the above limit.
Thus, the firm can take maximum of 200 audits (100*2), but the number of public company audit
can‘t exceed 20. As, the firm is already holding audit of 20 public limited companies Pradhan,
Ghimire & Associates can‘t take the audit of the Premier Investment Limited.
Answer:
a) An auditor should adhere to the fundamental principles mentioned in code of ethics. The
fundamental principles are integrity, objectivity, professional competence and due care,
confidentiality and professional behavior. Auditor should be honest, sincere and
straightforward while performing the professional duties. Further, the qualities that an auditor
must possessed are independence, knowledge, technical skills, tact, caution, firmness, good
temper, discretion, industry judgment, patience, clear headedness and good communication
skills. He/She must be able to analyse and interpret the problems so that the situations can be
handled accordingly.
He/she must have a thorough knowledge client‘s business and other disciplines like general
principles of law, economics, taxation, information technology, management, financial
management.
b) The auditor should seek written representation as evidence that management acknowledges its
responsibility for the fair presentation of financial statement. The auditor should obtain written
representations from management on matters material to the financial statement when other
sufficient appropriate audit evidence cannot reasonably expect to exist. Further, the possibility
of misunderstanding between the auditor and management is reduced when oral representations
are confirmed by management in writing. The written representation shall be in the form of
letter addressed to the auditor. If the auditor has concerns about the competence, integrity or
diligence of management, the auditor shall determine their effect on the reliability of written
representation.
However, although written representations are a form of audit evidence, they do have their
limitations. Although written representations provide necessary evidence, they do not provide
sufficient appropriate audit evidence on their own. Furthermore, the fact that management has
provided reliable written representation does not affect the nature or extent of other audit
evidence that the auditor obtains.
a) Audit Note-book: An audit note book is usually a bound book in which a large variety of
matters observed during the course of audit are recorded. Audit note books form part of audit
working papers and for each year a fresh audit note book is maintained. In case an auditor
classifies his working paper into permanent and current, then audit note book shall form part of
the current file. It is in any case a part of the permanent record of the auditor available for
reference later on, if required.
The audit note book also provides a valuable help to the auditor in picking up the links of work
when the concerned assistant is away or the work is stopped temporarily. It is also used for
recording the various queries raised in the course of the work and their state of disposal. In
respect of disposed queries, explanation obtained and evidence seen would be recorded in the
said book, while queries remaining un-disposed of would be noted for follow up.
b) Subsequent Events: NSA 560 on ―Subsequent Events‖, defines the term ―subsequent events‖ as
events occurring between the date of the financial statements and the date of the auditor‘s
report, and facts that become known to the auditor after the date of the auditor‘s report.,
―subsequent events‖ also refer to significant events which occurred upto the date of report of
the auditor of that component. Thus, subsequent events are those events which occur after the
date of the balance sheet till the audit report is signed by the auditor.
Obtain schedule of debit balances in trade payables‘ account and pay particular attention to
the age of the balances. Also scrutinize the bought ledger.
Enquiry should be made for long unadjusted outstanding and check as to whether any of
them would require provisioning.
Examine that the advances have not been shown as deposits in balance sheet.
Confirmation of balances should be obtained and reconciliation be done in case of any
discrepancies.
As the company has passed a special resolution to convert the loan borrowed by the company
from the commercial bank to equity share, resolution passed is valid as per the provision
above mentioned.
b) A company may issue preference shares as provided for in the Companies Act, 2063,
memorandum or articles of association. While issuing preference share, the issuing
company must disclose the various matters as prescribed by the Act. As per Section
65(3), the following maters shall be disclosed:
Whether preference is given to receive dividends against ordinary shares;
Percentage of dividends receivable by preference shareholders;
Whether dividends get cumulated every year (cumulative) or profits are distributed
only in a year wherein profit is made (non-cumulative);
Whether preference is given while paying amount of share in the event of liquidation
of company;
Whether voting right is attached there to; and if voting right is attached, whether such
right is available only in the case of preference share or also in other matters;
Whether voting right is available also in other matters pursuant to Clause (e), the
proportion to which such right is exercisable;
Whether preference shares can be converted into ordinary shares;
Whether the amount of preference shares can be redeemed (redeemable) or cannot be
redeemed (irredeemable) after a certain period;
Whether in redeeming preference shares, premium is payable on redemption.
b) As per Section 4(1) of Nepal Rastra Bank Act, 2058, the objectives of the Nepal Rastra
Bank shall be as follows:-
(a) To formulate necessary monetary and foreign exchange policies in order to maintain
the stability in the price and balance of payment for financial stability and sustainable
development of economy, and manage it;
(b) To promote entire banking and financial system of the Nepal and to enhance its public
credibility by maintaining stability in banking and financial sector;
(c) To develop a secure, healthy and efficient system of payment;
Also as per the section 4(2), the Bank shall, without any prejudice to the objectives
referred to in Sub-section (1), extend co-operation in the implementation of the economic
policies of Government of Nepal.
c) According to Section 24 of the BAFIA, 2073 has provided the matters to be disclosed after
assuming the office by every director. As per the section, every director shall disclose in
writing to the bank or financial institution the following matters:
1. Full name, address, academic qualification and experience of director.
2. If he or she is a director, office bearer or employee of any other institution, the
details of such post and responsibility thereof.
3. If he or she or any of his or her family members has entered into or going to enter
into any kind of contract with the concerned bank or financial institution, details
thereof.
4. If he or she has any kind of interest in the appointment of the chief executive,
managing director, secretary, auditor and general manager, details thereof.
5. Particulars of such shares or debentures in the concerned bank or financial institution
or in its holding or subsidiary company as subscribed by him or her or by his or her
family.
6. If he or she is a director of any company, details thereof.
7. If any member of his or her family is working as an officer of the bank or financial
institution, details thereof.
8. Power of Attorney given to the Rastra Bank to or caused to enquiry regarding the
director's financial and professional background or to or caused to exchange of such
notice or information.
9. Self-declaration of his eligibility to be a director as per the Act.
10. Such other details prescribed by the Rastra Bank as required to be disclosed by the
director to the Board.
Answer:
a) The Functions, Duties and Power of the Board are listed in the section 19(1) of Industrial
Enterprise Act, 2073. Major functions, duties and power of the Board are as follows:-
(a) To make policy decision regarding industrial promotion, safeguarding and promoting
of investment and industrialization.
(b) To make necessary cooperation in implementing policies, laws and regulations
pertaining to the industry.
(c) To make regular evaluation of the policy related, legal, institutional and procedural
structure for industrialization of the whole country and recommend to the
Government of Nepal for necessary amendment in those areas.
(d) To make necessary policy decision on foreign investment and technology transfer
based upon the related existing laws.
(e) To make policy decision for the prevention of the industrial pollution.
(f) To carry out evaluation and review of development of industrial sector of the country
and make recommendation to Government of Nepal to take necessary steps.
(g) To address the issues raise while providing service, facilities and concession to the
industry as per this act and other related acts.
(h) To resolve the complain made by the industrialist by giving directives to the
concerned body.
(i) To make recommendation to Government of Nepal for the change of level,
classification and nature of any industries.
(j) To recommend the Government of Nepal to carry out necessary study, research and
survey for the promotion and development Industrial and foreign investment.
(a) A period kept on reserve under any contract or under Section 11 of the Labour Act,
2048.
(b) A period under which an employee is on any leave with salary.
(c) A period of disablement caused by accident arising in course of business of the
enterprise.
5. List out the objectives of the ICAN and state the formation of council
including the election of president and vice-president pursuant to the Nepal
Chartered Accountants Act, 2053. (4+3+3=10)
Answer:
Objectives of ICAN:
ICAN has an important role to make accounting profession as reliable, authentic and standard
for its accuracy and enhance economic and social responsibility as a cause for economic
development of the nation. As per Section 5 of the NCA Act, 2053, the objectives of the
Institute shall be as follows:-
1. To play the role of a regulatory body to encourage the members to carry on accounting
profession being within the extent of the code of conduct in order to consolidate and
develop accounting profession as a cause for economic development of the nation.
2. To enhance social recognition and faith in accounting profession by raising awareness of
the general public towards the importance of accounting profession and the economic and
social responsibility of professional accountants.
3. To develop, protect and promote the accounting profession by enabling professional
accountants understand their responsibility towards the importance of accounting
profession and accountancy.
4. To develop mechanism of registration, evaluation and examination of accounting
professionals in consonance with international norms and practices so as to make the
accounting profession respectable and reliable.
Formation of the Council:
Pursuant to Section 7 (3), the Council shall consist of the following Council members:-
Ten persons elected by and amongst Chartered Accountant members -
Member
Four persons elected by and amongst Registered Auditors -
Member
Three persons nominated by Government of Nepal, upon the recommendation of the
Auditor General, from amongst the persons well experienced in the field of accounting
profession. – Member
Election of President and a Vice-President:
Sub-section (4) provides the election of the President and a Vice-President. It reads that
the Council members shall elect a President and a Vice-President from the Fellow
Chartered Accountants (FCA) Council members referred to in clause (a) of sub-
section (3). The term of office of the chairperson and the vice- chairperson shall be
one year; and upon the expiry of their term of office, they may be elected for one
more term.
Answer:
a) The essential elements of valid contract are as follows
i) Proper offer and acceptance
There must be an agreement between two parties to create a contract. The agreement
involves a valid offer by one party and valid acceptance of the offer by the other party.
ii) Legal relationship
The parties of a contract must have to intend that it creates legal relation and has legal
consequences.
iii) Free consent
Free consent of the contracting parties is a must to create a contract. Consent may not
be free if it is obtained on the ground of coercion, undue influence, fraud,
misrepresentation and mistake of law.
iv) Meeting of minds
Meeting of minds (consensus ad idem) is necessary for a valid contract. The parties are
said to be of meeting of mind when they give their consent on the subject matter of the
contract in same sense and at the same time.
v) Competent parties
The parties to the agreement must be competent to contract. If incompetent parties are
in contract, it is not valid. eg. Minor
vi) Lawful objectives
The objective of a contract must be lawful. Those objectives are not lawful if they are
illegal, immoral and opposed to public policy.
vii) Lawful consideration
The agreement is enforceable only when contracting parties are giving and getting
something in return. The consideration must be lawful, which may be in past, present
or future.
viii) Agreement not declared void
The agreement must not be expressly declared void by any existing law.
ix) Certainty of meaning
Agreement must be certain and not vague or indefinite or words of latent ambiguity.
x) Possibility of performance
The objective or terms of contract must be possible to perform. Performance is the
very nature of contract, so impossible contract are not valid.
xi) Legal formalities
A contract may be made expressly but some contracts are recognized after fulfilling
certain formalities.
b) As per Section 32 of Securities Act, 2063 every prospectus shall contain such general
matters as required to be set down in the prospectus, capital and other information of
the issuer, main functions to be done by the issuer, information pertaining to legal
action, economic condition, general administration, management of the issuer,
information relating to the expert preparing the prospectus and the economic
statements contained in the prospectus and such other matters as may be prescribed.
In case of securities issued by the Nepal Rastra Bank, securities issued against the full
guarantee of the Government of Nepal, securities proposed to be sold to up to fifty
persons at a time, securities issued to own workers or employees, and securities
permitted by the SEBON as to issue and sell without issuing a prospectus.
c) Pursuant to Section 15a of the Nepal Chartered Accountant Act 2053, Government of
Nepal shall form a Accounting Standard Board in order to govern and regulate
financial reporting and accounting profession under the chairmanship of a person
nominated by Government of Nepal from amongst the fellow chartered accountants.
The Functions, duties and powers of Accounting Standards Board to be formed
pursuant to Section 15a are given under Section 15b of the Nepal Chartered
Accountants Act, 2053 as follows:
i) To develop Accounting Standards, on the basis of relevant International
Accounting Standards, in order to govern and regulate financial reporting and
accounting profession;
ii) To evolve appropriate process of development of accounting standards and publish
materials relating to accounting standards;
iii) To redraft, improvise and revise standards;
iv) To interpret the standards;
v) To undertake other related tasks related to accounting standards.
e) Pursuant to Section 3 of the Social Welfare Act, the Government of Nepal, by means
of different activities relating to the social welfare work, to support the overall
development of the country may operate the social welfare Program through the
concerned Ministry and Social organizations and institutions.
Similarly, as per Section 4, the Government of Nepal may operate special Programs,
relating to the social welfare activity and social service, in the following matters:
(a) To serve interest and render welfare to the children, old age, helpless or disabled
people.
(b) To foster participation in development and to promote and protect the welfare,
rights and interest of the women.
(c) To rehabilitate and help to lead a life of dignity to the victims of social mischief's
and also to juvenile delinquency, drug addicts and similar people involved in other
kind of addictions.
(d) To help to lead a life with dignity to the jobless, poor and illiterate people.
(e) To manage religious places and the activities of the trust Guthi institutions.
(f) To take effective management and actions for the welfare of the backward
communities and classes.
7. Write short notes on the following: (2×5=10)
a) Doctrine of unjust enrichment
b) Formation of Insurance Board
Answer:
a) A general equitable principle that no person should be allowed to profit at another's
expense without making restitution for the reasonable value of any property, services,
or other benefits that have been unfairly received and retained.
Although the unjust enrichment doctrine is sometimes referred to as a quasi-
contractual remedy, unjust enrichment is not based on an express contract. Instead,
litigants normally resort to the remedy of unjust enrichment when they have not
written or verbal contract to support their claim for relief. In such instances litigant
ask a court to find a contractual relationship that is implied in law, a fictitious
relationship created by courts to do justice in a particular case.
Its objective is to prevent a man from retaining the money of or some benefit derived
from another, which it is against conscience that he should keep.
The doctrine is applied in the satisfaction of the following conditions:
1. The plaintiff must have provided the defendant with something of value while
expecting compensation in return
2. The defendant must have acknowledged, accepted, and benefited from whatever
the plaintiff provided.
3. The plaintiff must show that it would be inequitable or unconscionable for the
defendant to enjoy the benefit of the plaintiff's actions without paying for it.
A court will closely examine the facts of each case before awarding this remedy and
will deny claims for unjust enrichment that frustrate public policy or violate the law.
b)
Section 3 of Insurance Act, 2049 has provided the provision of formation of the
Insurance Board. It is formed to systematize, regularize, develop and regulate the
Insurance Business.
The Board pursuant to Sub-section (1) shall consists of the following Members:
(a) A person nominated or designated by the Nepal Government – Chairperson
(b) Representative, Ministry of Law, Justice and Parliamentary Affairs – Member
(c) Representative, Ministry of Finance – Member
(d) A person nominated by the Nepal Government from among the persons having
the special knowledge in the Insurance Business – Member
(e) A person nominated by the Nepal Government from among the Insured –
Member
An employee designated by the Board shall perform the duty as a Secretary of the
Board.
The Nepal Government may make alteration of the Members of the Board by
publishing a notification in the Nepal Gazette, if it deems necessary.
If it is deemed necessary, the Board may invite any national or foreign experts in the
meeting of the Board as an observer.
The tenure of the nominated Members of the Board shall be four years. They may be
re-nominated up to twice after the expiry of their tenure.
The Head office of the Board shall be located in Kathmandu.
Financial Management
Maximum Marks - 100
Total No. of Questions – 7 Total No. of Printed Pages – 14
Time Allowed – 3 Hours
Marks
Attempt all questions.
Working notes should form part of the answer. Make assumptions wherever necessary.
1.
a) Ganesh Enterprises needs someone to supply it with 150,000 cartons of
machine screws per year to support its manufacturing needs over the next five
years, and you‘ve decided to bid on the contract. It will cost you Rs. 780,000
to install the equipment necessary to start production; you‘ll depreciate this
cost straight-line to zero over the project‘s life. You estimate that in five years
this equipment can be salvaged for Rs. 50,000. Your fixed production costs
will be Rs. 240,000 per year, and your variable production costs will be Rs.
8.50 per carton. You also need an initial investment in net working capital of
Rs. 75,000. Your tax rate is 35 percent and you require a 16 percent return on
your investment.
Required: 10
Calculate unit bid price you should submit.
Since the discount rate 16% incorporates the profit target as well, the required NPV of the Project is
Zero.
Now,
319,244.00X+51181.00+178,777.00=855,000+3,224,367.00
319,244.00X= 3,849,409.00
X= 12.06
b)
Our decision will be based on the comparison of the annual cost of the replacement
machine with the annual cost of the old machine.
2.
a) X and Y are two fast growing companies in the engineering industry. They
are close competitors, and their asset composition, capital structure, and
profitability records have been very similar for several years. The primary
difference between the companies, from a financial management
prospective, is their dividend policy. Company X tries to maintain a non-
decreasing dividend per share, while company Y maintains a constant
dividend payment ratio. Their earnings per share (EPS), dividend per share
(DPS), and average share price are as follows:
Required: (5+3+2=10)
i) Determine the dividend payment ratio and price earnings ratio for both
companies for all the years.
ii) Determine the average DP ratio and PE ratio for both the companies
over the period 1 through 7 years.
iii) The management of company Y is puzzled as to why their share prices
are lower than those of company X, in spite of the fact that profitability
of company Y is slightly better (particularly of past three years). As a
financial consultant, how would you explain the situation?
b) A company has a total investment of Rs. 4,000,000 in assets and 40,000
outstanding ordinary shares of Rs. 100 per share (par value). It earns at a
rate of 15 percent on its investment, and has a consistent policy of retaining
50 percent of the earnings. The appropriate discount rate of the firm is 10
percent.
Required: (3+2=5)
i) Determine the price of its share using Gordon‘s model.
ii) What shall happen to the price of the shares if the company has a payout
of 20 percent and 60 percent respectively?
Answer:
i) Calculation of DP ratio and PE ratio of Company X
Avr.
Year EPS(Rs.) DPS(Rs.) DP ratio Price(Rs.) PE ratio
1 9.30 2.00 21.50% 87.50 9.41
2 7.40 2.00 27% 67.50 9.12
3 10.50 2.00 19.05% 90.00 8.57
4 12.75 2.25 17.64% 110.00 8.63
5 20.00 2.50 12.50% 167.50 8.38
6 16.00 2.50 15.63% 170.00 10.63
7 19.00 2.50 13.16% 182.50 9.61
94.95 15.75 875
Ke =10%
b×r = 12%
Since br ˃ Ke as per Gordon's model price could not be computed.
3.
a) A Company is preparing a cash flow forecast for the three-month period
from January to the end of March. The following sales volumes have been
forecasted:
December January February March April
Sales (units) 1,200 1,250 1,300 1,400 1,500
Additional Information:
The selling price per unit is Rs. 800 and a selling price increase of 5%
will occur in February. Sales are all on one month‘s credit.
Production of goods for sale takes place one month before sales.
Each unit produced requires two units of raw materials, costing Rs. 200
per unit. No raw materials inventory is held. Raw material purchases are
on one months‘ credit.
Variable overheads and wages equal to Rs. 100 per unit are incurred
during production, and paid in the month of production.
The opening cash balance at 1st January is expected to be Rs. 40,000.
A long-term loan of Rs. 300,000 will be received at the beginning of
March.
A machine costing Rs. 400,000 will be purchased for cash in March.
Required: (6+2=8)
i) Calculate the cash balance at the end of each month in the three-month
period.
ii) Calculate the forecast current ratio at the end of the three-month period.
b) Future Kidd Corporation presently gives credit terms of 'net 30 days'. It has
Rs. 60 Million in credit sales and its average collection period is 45 days.
To stimulate sales, the company may give credit terms of 'net 60 days'. If it
does instigate these terms, sales are expected to be increased by 15%. After
the change, the average collection period is expected to be 75 days with no
difference in payment habits between old and new customers.
Variable cost is Re. 0.80 for every Re 1.00 of sales and the company's
before tax required rate of return on investment in receivables is 20%.
Required:
Should the company extend its credit period? (Assume a 360-days year) 7
Answer:
a) (i)
Monthly Sales
Particulars December January February March April
Purchases:
December January February March April
Particulars January (Rs. 000) February (Rs. 000) March (Rs. 000)
Cash collection from 960 1,000 1,092
Receivables
Loan 300
Total receipts 960 1,000 1,392
Payments:
Raw materials 500 520 560
Variable costs 130 140 150
Machine 400
Total Payments 630 660 1,110
Net cash flow 330 340 282
Opening balance 40 370 710
Closing balance 370 710 992
Analysis: The return on increased sales is more than the interest cost on additional
investments in debtors balances. Hence, it is recommended to extend credit period.
4.
a) X Co. has made plans for the next year. It is estimated that the company will
employ total assets of Rs. 8,00,000; 50 percent of the assets being financed
by borrowed capital at an interest cost of 8 percent per year. The direct costs
for the year are estimated at Rs. 4,80,000 and all other operating expenses
are estimated at Rs. 80,000. The goods will be sold to customer at 150
percent of the direct costs. Tax rate is 25 percent.
Required: Calculate: 8
i) net profit margin
ii) return on assets
iii) assets turnover
iv) return on owners' equity
b) Omni Corporation has target capital structure of 60% equity and 40% debt.
The schedule of financing cost for Omni is shown below:
Amount of New After tax Cost of Amount of New Cost of Equity
Debt (Rs. Million) Debt Equity (Rs. Million)
0-99 4.2 % 0-199 6.5%
100-199 4.6% 200-399 8.0%
200-299 5% 400-599 9.5%
Required: 7
Calculate the Break Point for Omni Corporation and also calculate WACC
for alternate level of financing in those break points.
Answer:
a) Calculation of Net profit
Particulars Amount ( Rs.)
Sales (150% of Rs. 4,80,000) 7,20,000
Direct Costs 4,80,000
Gross profit 2,40,000
Operating Expenses 80,000
Profit before interest and tax 1,60,000
Interest charges (8% of Rs.4,00,000) 32,000
Profit before tax 1,28,000
Taxes @ 25% 32,000
Net profit after tax 96,000
(i) Net profit Margin = Profit after tax/Sales=96,000/7,20,000= 13.33%
(ii) Return on Assets = (EBIT -Tax paid)/Assets= (1,60,000-32,000)/8,00,000=16% Or
EBIT/Total Assets = 20% Or PAT/Total Assets = 12%
(iii) Assets Turnover= Sales/Assets=7,20,000/8,00,000=0.9 times
(iv) Return on Equity=Net profit after tax/Equity=96,000/4,00,000=24%
b) Omni will have a break point each time a component cost of capital changes, for a total of
four break points;
Break Point debt>100mn = Rs. 100 million/0.4 = Rs. 250 Million
Break Point debt>200mn = Rs. 200 million/0.4 = Rs. 500 Million
Break Point equity>200mn = Rs. 200 million/0.6 = Rs. 333 Million
Break Point equity>400mn = Rs. 400 million/0.6 = Rs. 667 Million
Omni Corporation‘s WACC for the different break points.
(i) [3
WACC for Alternative level of Financing at break points
Capital (Rs. Million) Equity Cost of Debt (40%) Cost of WACC
(60%) Equity Debt
250 [ 250- 332] 150 6.5% 100 4.6% 5.74%
333 [ 333-499] 200 8.0% 133 4.6% 6.64%
500 [500-666] 300 8.0% 200 5.0% 6.80%
667 [ 667 and Above] 400 9.5% 267 5.0% 7.70%
(ii) [4
[7
5.
a) Mathura Corporation has two different bonds currently outstanding. Bond M
has a face value of Rs. 20,000 and matures in 20 years. The bond makes no
payments for the first six years, then pays Rs. 1,200 every six months over
the subsequent eight years, and finally pays Rs. 1,500 every six months over
the last six years. Bond N also has a face value of Rs. 20,000 and a maturity
of 20 years; it makes no coupon payments over the life of the bond. The
required return on both of these bonds is 10 percent compounded
semiannually.
Required: 5
What is the current price of Bond M and Bond N?
You can use the following statistical figures:
PVIFA5%, 12 Years =8.8633 PVIFA5%, 28 Years =14.8981
PVIFA5%, 40 Years =17.1591 PVIFA5%, 40th Years=0.1420
b) The net sales of A Ltd. is Rs. 30 crores. Earnings before interest and tax of
the company as a percentage of net sales are 12%. The capital employed
comprises Rs. 10 crores of Equity Shares, Rs. 2 crores of 13% Cumulative
Preference Share and 15% Debentures of Rs. 6 crores. Income tax rate is
40%.
Required: 5
Calculate the return on equity for the company and show segment
decomposition of ROE due to the presence of Preference Share Capital and
Debentures.
c) Mr. X, an investor, is seeking the price to pay for the security whose
standard deviation is 5%. The correlation coefficient for the security with
the market is 0.75 and the market standard deviation is 4%. The return from
the risk-free securities is 6% and from the market portfolio is 11%. Mr. X
knows that only by calculating the required rate of return, he can determine
the price to pay for the security.
Required: 5
What is the required rate of return on the security?
Answer:
a) Bond M is redeemable bond and the value of redeemable bond is discounted
present value of Interest and Principal amount over the life of the bond.
Therefore the value of Bond M may be calculated as below:
Value of Bond M = PV of Interest for First 6 Years + PV of Interest for next 8 Years + PV of
Interest for last 6 Years + PV of Redemption Value of Principal
= 0+ 1,200×[PVIFA 5%, 28 Years –PVIFA 5%, 12 Years] + 1,500×[PVIFA 5%, 40 Years –
PVIFA 5%, 28 Years] + 20,000×[PVIF 5%, 40th Year]
= 0 + 1,200×[14.8981-8.8633]+ 1,500×[17.1591-14.8981]+20000×0.1420
= 7,241.76 + 3,391.50 + 2,840
= Rs. 13,473.26
Bond N is Zero Coupon Bond and the value of Zero Coupon bond is discounted present value of
Principal amount redeemed over the life of the bond. Therefore the value of Bond N may be
calculated as below:
Value of Bond N = PV of Redemption Value of Principal
= 20,000 × [PVIF5%, 40Years]
= 20,000 × 0.1420
= Rs. 2,840
b)
Calculation of Return on Equity [ROE]
[Figures in Rs. Crore]
Sales 30
Earnings Before Interest and Tax [12% of Sales] 3.6
Less: Interest [15% on NRs 6 Crore] 0.9
Earning Before Tax 2.7
Less: Tax@ 40% 1.08
Earning After Tax 1.62
Less: Preference Dividend 0.26
Earning for Equity Holders 1.36
Return on Equity ( 1.36/30) 13.60%
[0.5
Capital Employed = Equity Share Capital + Preference Share Capital + Debt
= 10+2+6
= Rs.18 Crore
Post Tax Return on Investment = [EBIT×(1-Tax)/Capital Employed]
= [3.6×(1-0.4)/18]
= 12%
Segment Decomposition of ROE may be analyzed as below;
ROE = Post Tax ROI + [Post Tax ROI- Cost of Preference Share]×[Preference Share/Equity] + [Post
Tax ROI- Post Tax Cost of Debt]×[Debt/Equity]
= 12% + [12%-13%]×[2/10]+[12%-9%]×[6/10]
=12% -0.20% + 1.8%%
=13.60%
The negative 0.2% and Positive 1.8% is the segment of ROE caused by presence of Preference Share
Capital and Debenture in the Capital Structure.
[1.5
Post Tax Cost of Debt = Coupon Rate×[1-Tax Rate]
= 15%×[1-0.40]
=9%
The market sensitivity index i.e. the beta factor can be calculated as follows:
Now, the expected return on the investment can be ascertained with the help of CAPM
equation as follows:
Rs = Irf +(Rm-Irf) β
= 6 + (11-6)×0.9375
= 10.69%
b) Credit Rating
Credit rating essentially reflects the probability of timely repayment of principal and
interest by a borrower company. It indicates the risk involved in a debt instrument as well
its qualities. Higher the credit rating, greater is the probability that the borrower will make
timely payment of principal and interest and vice-versa.
It has assumed an important place in the modern and developed financial markets. It is a
boon to the companies as well as investors. It facilitates the company in raising funds in the
capital market and helps the investor to select their risk-return trade-off. By indicating
credit-worthiness of a borrower, it helps the investor in arriving at a correct and rational
decision about making investments. Credit rating system plays a vital role in investor
protection. Fair and good credit ratings motivate the public to invest their savings.
As a fee-based financial advisory service, credit rating is obviously extremely useful to the
investors, the corporate (borrowers) and banks and financial institutions. To the investors, it
is an indicator expressing the underlying credit quality of a security to be floated for in the
market. The investor is fully informed about the company as any effect of changes in
business/economic conditions on the company is evaluated and published regularly by the
rating agencies. The Corporate borrowers can raise funds at a cheaper rate with good rating.
It minimizes the role of the 'name recognition' and less known companies can also
approach the market on the basis of their rating.
c) Sensitivity Analysis
The net present value or Internal Rate of Return of a project is determined by analyzing the
after tax cash flows arrived at by combining forecasts of various variables like Sales
volume, unit selling price, unit variable cost, fixed cost etc. It is difficult to arrive at an
accurate and unbiased forecast of each variable. It can't be certain about the outcome of any
of these variables. The reliability of the NPV or IRR of the project will depend on the
reliability of the forecasts of variables underlying the estimates of net cash flows. To
determine the reliability of the project's NPV or IRR, we can work out how much
difference it makes if any of these forecasts go wrong. We can change each of the forecasts,
one at a time, to at least three values: Pessimistic, expected and optimistic. The NPV of a
project is recalculated under these different assumptions. The method of recalculating NPV
or IRR by changing each forecast is called Sensitivity Analysis.
Sensitivity Analysis is a way of analyzing change in the project's NPV or IRR for a given
change in one of the variables. It indicates how sensitive a project's NPV or IRR is to
changes in particular variables. It basically examines the sensitivity of the variables
underlying the computation of NPV or IRR rather than attempting to quantify risk. It can be
applied to any variable which is an input for the after tax cash flows. It can be conducted
with regard to volume, price, costs etc.
Clean Overdraft
Bank may entertain clean advances from those customers, which are financially, sound
and reputed for their integrity. The banks in this case rely upon the personal security of
the borrower. Banks are responsible for ensuring customer‘s credit worthiness before
providing them with clean overdraft as there is no assets securing the amount of
advance. The banks normally take guarantee from the persons whom they believe to be
credit worthy.
Answers:
a) Comparative statement of contribution per kg from further processing and net
realizable value per kg at the split-off point
Materials
A B D
(Rs.) (Rs.) C (Rs.) (Rs.)
Labour cost 3 3 15 6
Other direct cost 4 2 3 2
Marginal cost 7 5 18 8
Sale price 17 13 36 9
Contribution 10 8 18 1
Net realizable value per kg at the split-off point 8 4 10 2
Advantage (Disadvantage) of further processing 2 4 8 -1
The above statement shows that the further processing of materials A, B and C is beneficial.
Hence, they should be processed further. However, material D is giving loss as a result of further
processing. Hence, it should be sold out art spilt- off point.
b) Joint Products profitability Report
i. Statement of profitability when fixed production cost of further processing are
apportioned to product according to machine hours
Products
A B C Total
Output in kg 40,000 30,000 20,000
Rs. Rs. Rs. Rs.
Sales 6,80,000 3,90,000 7,20,000 17,90,000
Costs:
Joint costs (Working Notes 1 & 2) 2,00,000 1,20,000 1,80,000 5,00,000
Labour costs 1,20,000 90,000 3,00,000 5,10,000
Other direct costs 1,60,000 60,000 60,000 2,80,000
Fixed overheads (Working Note 3) 80,000 1,80,000 80,000 3,40,000
Total costs 5,60,000 4,50,000 6,20,000 16,30,000
Profit(loss) 1,20,000 -60,000 1,00,000 1,60,000
ii. .Statement of profitability when fixed production cost of further processing are
apportioned according to labour hours
Products
A B C Total
Rs. Rs. Rs. Rs.
Sales 6,80,000 3,90,000 7,20,000 17,90,000
Costs:
Joint costs (Working Notes 1 & 2) 2,00,000 1,20,000 1,80,000 5,00,000
Labour costs 1,20,000 90,000 3,00,000 5,10,000
Other direct costs 1,60,000 60,000 60,000 2,80,000
Fixed overheads (Working Note 3) 80,000 60,000 2,00,000 3,40,000
Total costs 5,60,000 3,30,000 7,40,000 16,30,000
Profit(loss) 1,20,000 60,000 -20,000 1,60,000
Working Notes:
1) Computation of Joint Costs: Rs.
Raw Material Input (1,00,000 * Rs.4) 4,00,000
Processing Costs (1,00,000 *Rs. 12/10) 1,20,000
5,20,000
Less: Net realizable value of by-product D (1/10 * 1,00,000 *Rs.2) 20,000
Joint costs 5,00,000
2) Apportionment of Joint Costs in proportion to the contribution of each product
Total Allocated Joint
Product Output Contribution per kg Total Contribution Costs
kg Rs. Rs. Rs.
A 40,000 10 4,00,000 2,00,000
B 30,000 8 2,40,000 1,20,000
C 20,000 18 3,60,000 1,80,000
10,00,000 5,00,000
3) Computation of overhead recovery rates on machine / labour hour basis
Total Output Machine Hours Labour hours
Product Per kg Total Per kg Total
A 40,000 2 80,000 1 40,000
B 30,000 6 1,80,000 1 30,000
C 20,000 4 80,000 5 1,00,000
3,40,000 1,70,000
Overhead Recovery Rates:
Per machine hour: Rs, 3,40,000/3,40,000 = Re. 1 per hour
Per labour hour: Rs. 3,40,000/1,70,000 = Rs, 2 per hour
2.
a) The Nepal Sofa Company (NS Co.) makes sofas. It has recently received a
request from a customer to provide a one-off order of sofas, in excess of
normal budgeted production. The order would need to be completed within
two weeks. The following cost estimate has already been prepared:
Additional Rs.
Information
Direct materials: (Notes)
Fabric 200 m² at Rs. 17 per m² 1 3,400
Wood 50 m2 at Rs. 8.20 per m² 2 410
Direct labour:
Skilled 200 hours at Rs. 16 per hour 3 3,200
Semi-skilled 300 hours at Rs. 12 per hour 4 3,600
Factory overheads 500 hours at Rs. 3 per hour 5 1,500
–––––
Total production cost 12,110
Administration overheads at 10% of total production cost 6 1,211
–––––
Total cost 13,321
–––––
Additional Information (Notes):
a. The fabric is regularly used by NS Co. There are currently 300 m² in
inventory, which cost Rs. 17 per m². The current purchase price of the
fabric is Rs. 17·50 per m².
b. This type of wood is regularly used by NS Co. and usually costs Rs. 8·20
per m². However, the company‘s current supplier‘s earliest delivery time
for the wood is in three weeks‘ time. An alternative supplier could deliver
immediately but they would charge Rs. 8·50 per m². NS Co. already has
500 m² in inventory but 480 m² of this is needed to complete other existing
orders in the next two weeks. The remaining 20 m² is not going to be
needed until four weeks‘ time.
c. The skilled labour force is employed under permanent contracts of
employment under which they must be paid for 40 hours‘ per week‘s
labour, even if their time is idle due to absence of orders. Their rate of pay
is Rs. 16 per hour, although any overtime is paid at time and a half. In the
next two weeks, there is spare capacity of 150 labour hours.
d. There is no spare capacity for semi-skilled workers. They are currently
paid Rs. 12 per hour or time and a half for overtime. However, a local
agency can provide additional semi-skilled workers for Rs. 14 per hour.
e. The Rs. 3 absorption rate is NS Co.‘s standard factory overhead absorption
rate; Rs. 1·50 per hour reflects the cost of the factory supervisor‘s salary
and the other Rs. 1·50 per hour reflects general factory costs. The
supervisor is paid an annual salary and is also paid Rs. 15 per hour for any
overtime he works. He will need to work 20 hours‘ overtime if this order is
accepted.
f. This is an apportionment of the general administration overheads incurred
by NS Co.
Required: (4+6=10)
i) Prepare, on a relevant cost basis, the lowest cost estimate which could be
used as the basis for the quotation.
ii) Explain briefly your reasons for including or excluding each of the costs in
your estimate.
b) The standard material cost for a mix of one tonne of final product is based on
the following:
Material Usage (kg.) Price per kg. (Rs.)
A 250 12
B 450 15
C 600 20
During the month of July, 2017, 12 tonnes of final product were produced
from the following:
Material Usage (tonnes) Cost (Rs.)
A 3.50 45,500
B 6.10 85,400
C 6.50 1,43,000
You are required to calculate the material variances and verify them. 10
Answers:
a)
Nepal Sofa Company
Cost Estimate for the quotation
Direct materials: Note Rs.
Fabric 200 m² at Rs. 17·50 per m² 1 3,500
Wood 20 m2 at Rs. 8·20 per m2 2 164
30 m2 at Rs. 8·50 per m2 2 255
Direct labour:
Skilled 50 hours at Rs. 24 per hour 3 1,200
Semi-skilled 300 hours at Rs. 14 per hour 4 4,200
Factory overheads 20 hours at Rs. 15 per hour 5 300
Administration overheads 6 –
––––––
Total cost 9,619
––––––
b)
Working Notes
1. Total standard cost (TSC)= (SQ x SP)
Rs.
Material A: 250 x12 = 3000
Material B: 450 x 15 = 6750
Material C: 600 x 20 = 12000
TSC for one tonne of final output 21750
TSC for actual output of 12 tonnes = 21750 x 12= Rs.261000
2. Total Actual Cost (TAC) and Actual Price (AP):
A 3500 45500 13
B 6100 85400 14
C 6500 143000 22
Rs.
3. AQ x SP : Material A: 3500 x 12 = 42000
Material B: 6100 x 15 = 91500
Material C: 6500 x 20 = 130000
= 263500
4. Revised Standard Quantity (RSQ) = Total Actual Quantity divide into standard mix ratio.
RSQ : for A= 16100 kg x 250/1300 = 3096 kg.
: for B= 16100 kg x 450/ 1300= 5573 kg.
: for C= 16100 kg x 600/ 1300= 7431 kg.
Verification:
(i) MCV = MPV + MUV
Rs.12900 (A) = Rs.10400 (A) + Rs.2500 (A)
OR
Rs.12900 (A) = Rs.12900 (A)
(ii) MUV = MMV + MSUV
Rs.2500 (A) = Rs.5867 (F) + Rs.8367 (A)
OR
Rs.2500 (A) = Rs.2500 (A)
3.
a) Following information have been extracted from the cost records of XYZ Pvt.
Ltd:
Rs.
Stores:
Opening balance 54,000
Purchases 2,88,000
Transfer from WIP 1,44,000
Issue to WIP 2,88,000
Issue for repairs 36,000
Deficiency found in stock 10,800
Work-in-progress:
Opening balance 1,08,000
Direct wages applied 1,08,000
Overheads charged 4,32,000
Closing balance 72,000
Finished Production:
Entire production is sold at a profit of 15% on cost at WIP
WIP
Wages paid 1,26,000
Overheads incurred 4,50,000
Draw the Stores Ledger Control Account, Work-in-Progress Control Account,
Overheads Control Account and Costing Profit and Loss Account. 8
b) Compute the machine hour rate from the following data: 8
(Rs.)
Cost of machine 1,00,000
Installation Charge 10,000
Estimated scrap value after the expiry of its life (15 yrs.) 5,000
Rent and rates for the shop per month 200
General lighting for the shop per month 300
Insurance premium for the machine per annum 960
Repair and maintenance expenses per annum 1,000
Power consumption - 10 units per hour
Rates of power per 100 units 20
Estimated working hours per annum - 2,200. This includes setting-up
time of 200 hours
Shop supervisor's salary per month 600
The machine occupies ¼ of the total area of the shop. The supervisor is
expected to devote 1/5 of his time for supervising the machine.
c) What is the limitation of Break-even chart? 4
Answers:
a)
Stores Ledger Control A/c
4,86,000 4,86,000
*Deficiency assumed as normal (alternatively can be treated as abnormal loss)
Work in Progress Control A/c
Particulars Rs. Particulars Rs.
To Balance b/d 1,08,000 By Stores Ledger Control 1,44,000
To Stores Ledger Control A/c 2,88,000 a/c Costing P/L A/c
By 7,20,000
To Wages Control A/c 1,08,000 (Balancing figures being
To Overheads Control a/c 4,32,000 of finished goods)
Cost
By Balance c/d 72,000
9,36,000 9,36,000
Overheads Control A/c
Particulars Rs. Particulars Rs.
To Stores Ledger Control A/c 36,000B By
ByBy
Work in Process A/C 4,32,000
To Stores Ledger Control A/c 10,800 By Balance c/d 82,800
To Wages Control A/c 18,000 (Under absorption)
(Rs.1,26,000- Rs.1,08,000)
To Gen. Ledger Adjust. A/c 4,50,000
5,14,800 5,14,800
Costing Profit & Loss A/c
Particulars Rs. Particulars Rs.
To Work in progress 7,20,000 By Gen. Ledger Adjust. A/c 8,28,000
To Gen. Ledger Adjust. 1,08,000 (Sales) (Rs. 7,20,000 × 115%)
(Profit)
A/c
8,28,000 8,28,000
Note: Overhead control A/C under absorption can be transferred to costing PL A/C.
b)
Computation of Machine Hour Rate
Particulars: Rs. Rs.
Standing charges:
Rent and rates (200 *12) * ¼ 600
General lighting (300*12)*1/4 900
Insurance Premium 960
Shop supervisor's salary (600*12) *1/5 1440
Depn (1,10,000 - 5,000)/15 7000
10,900
Hourly rate for standing charges ( Rs.10900/ 2,000hrs) 5.45
Machine Expenses:
Repairs and Maintenance (1,000/2,000) 0.50
Power -10 units per hour @ Rs.0.20 per unit 2.00
Machine - hour rate 7.95
Note: Setting- up time has been presumed as non- productive time and hence
productive time is only 2,000 Hours.
c)
Break even analysis is fundamentally a static analysis as it assumes almost everything
constant (e.g., constant total fixed costs, variable cost per unit, selling price,
productivity, sales mix in case of multi products etc.) The limitations which make the
assumptions to be unrealistic are given below:
1. All costs cannot be separated into fixed and variable components with
accuracy.
2. Fixed costs may change because of change in management policy or after
a range of activity.
3. Variable cost per unit may change because of operation of law of
increasing returns or decreasing returns.
4. Selling price may change because of increase or decrease in output, market
demand & supply, competition etc.
5. In case of multiple products, the sales mix need not necessarily be
constant.
6. In case of multiple products, separate break even points are to be
calculated. This poses a problem of apportionment of fixed costs to each
product.
7. Entire production need not necessarily be sold in practice.
8. When a number of products are produced separate break-even chart will
have to be calculated. This poses a problem of apportionment of fixed
expenses to each product.
9. Break-even charts ignore the capital employed in business which is one of
the important guiding factors in the determination of profitability.
4.
a) XYZ Company produces three products A, B and C. Selling price of product
A Rs. 100, Product B Rs. 80 and Product C Rs. 50.Variable cost per unit of A,
B and C product are Rs. 50, Rs. 40 and Rs. 20 respectively. The product and
sale mixed of A, B and C product are 20%, 30% and 50% respectively. The
total fixed costs are Rs. 14,80,000.
Considering the above information, you are required to find out overall break-
even quantity and product wise break-up of such quantity. 5
b) Juntara Construction Ltd. undertook a contract for Rs. 5,00,000 on 1st July,
2015. On 30th June 2016 when the accounts were closed, the following details
about the contract were gathered:
Particulars Rs.
Materials purchased 1,00,000
Wages paid 45,000
General expenses 10,000
Plant Purchased 50,000
Materials on hand 30-6-2016 25,000
Wages accrued 30-6-2016 5,000
Work certified 2,00,000
Cash received 1,50,000
Depreciation of plant 5,000
Work uncertified 15,000
The above contract contained escalation clauses which read as follows:
―In the event of prices of materials and rates of wages increase by more than
5% the contract price would be increased accordingly by 25% of the rise in the
cost of materials and wages beyond 5% in each case‖.
It was found that since the date of signing the agreement the prices of
materials and wage rates increased by 25%. The value of the work certified
does not take into account the effect of the above clause.
Prepare the contract account. 7
c) Explain the methods of valuation of work-in-process. 3
Answers:
a)
Product A B C
Selling price per Unit 100 80 50
Variable cost per Unit 50 40 20
Contribution per Unit 50 40 30
Manufacture and sold unit in % 20 30 50
Composite contribution
= (50×0.20+40×0.30+30×0.5)
=10+12+15
= Rs 37 per unit
Overall Break even quantity= Fixed cost
Contribution
=14,80,000
37
= 40,000 Units
The product wise break-up of this quantity is as follows:
A 40,000 20% 8,000 Units
B 40,000 30% 12,000 Units
C 40,000 50% 20,000 Units
2,45,000 2,45,000
To, P & L A/c 20,000 By, Notional Profit b/d 80,000
To, Reserve c/d 60,000
80,000 80,000
Working Notes:
1. Contract Escalation
Cost of material & wages incurred = Rs. (1,00,000 + 45,000 + 5,000 – 25,000 )
= Rs.1,25,000
Cost of material & wages before increase in prices = Rs. (1,25,000 x 100/125 )
= Rs.1,00,000
Increase in contract price = 25/100 [Rs.1,25,000 – (Rs.1,00,000 x 105/100)]
= Rs.5,000
2. Percentage of completion of Contract
Work Certified = 2,00,000 = 40%
× 100
Contract Price 5,00,000
b) The Institute of Cost and Management Accountants (CIMA) defined budget as 'A
quantitative expression of a plan for a defined period of time. It may include planned
sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities
and cash flows.' The types of budget commonly used are:
Master Budget
A master budget is an aggregate of a company's individual budgets designed to
present a complete picture of its financial activity and health. The master budget
combines factors like sales, operating expenses, assets, and income streams to allow
companies to establish goals and evaluate their overall performance, as well as that of
individual cost centers within the organization
Operating Budget
An operating budget is a forecast and analysis of projected income and expenses over
the course of a specified time period. To create an accurate picture, operating budgets
must account for factors such as sales, production, labor costs, materials costs,
overhead, manufacturing costs, and administrative expenses. Operating budgets are
generally created on a weekly, monthly, or yearly basis.
Cash Flow Budget
A cash flow budget is a means of projecting how and when cash comes in and flows
out of a business within a specified time period. It can be useful in helping a company
determine whether it's managing its cash wisely. Cash flow budgets consider factors
such as accounts payable and accounts receivable to assess whether a company has
ample cash on hand to continue operating, the extent to which it is using its cash
productively, and its likelihood of generating cash in the near future
Financial Budget
A financial budget presents a company's strategy for managing its assets, cash flow,
income, and expenses. A financial budget is used to establish a picture of a company's
financial health and present a comprehensive overview of its spending relative to
revenues from core operations.
c) Differential costing is a technique where mainly differential costs are considered
relevant. Differential cost is the difference in total costs between two acceptable
alternative courses of action. Differential cost analysis is usually made to facilitate
managerial decisions of following kind:
(a) Determination of the most profitable levels of production and price
(b) Acceptance of special orders – offer at a lower price or offering a quotation at
lower selling price in order to increase the capacity.
(c) Sell a product as it is or after further processing
(d) Determination of right price at which materials may be purchased
(e) Decisions regarding alternative capital investment and plant replacement
(f) Decisions such as changing the product mix, method of production, make or buy,
adding new product, etc.
6. Write short notes: (4×2.5=10)
a) Continuous costing
b) Valuation of material receipt
c) Classification of overhead by nature
d) Stock control account
Answers:
a) A category of costing methods applicable to the repetitive production processes with
continuous operations in which the products and services are identical and cannot be
segregated. It enables the management to know what it is costing to do the jobs in
hand and helps it to take corrective action in time to check wastages and
losses. Continuous costing involves very often the use of estimates of expenditure
instead of actual.
As will be seen later, actual expenditure on a job regarding materials and labour can
always be known easily but actual information about other expenses may not be
available for some-time. Hence an estimate of such expenses is necessary.
b) The invoice of material purchased from the market some time contain such items such
as trade discount, quantity discount, freight, duty, insurance, cost of packing, sale tax,
excise duty, cash discount etc. Under such a situation the general principal is that all
the cost incurred up to the point of procuring and storing materials should constitute
the cost of material purchase .The amount of trade discount. The amount of trade
discounts, quantity discounts and VAT are deducted from the invoice of materials
purchased. The transport charges, sale tax, insurance, cost of packing, customs and
excise duty should be included in the invoice cost of materials. The cash discount is
considered as financial gain, so it is kept outside the domain of material cost. In case
the containers are returnable, their resale value should also be taken in the invoice
price of material to correctly ascertain the cost of material purchased. The cost of
material purchased so determined may be used for the entry of material in the Store
Ledger.
c)
i) Fixed or constant: These are expenses that are not affected by any variation in the
volume of activity, e.g., managerial remuneration, rent, that part of depreciation
which is dependent purely on efflux of time, etc. Fixed or constant expenses
remain the same from from one period to another except when they are
deliberately changed, e.g., on increments being granted to staff or additional staff
being engaged.
ii) Variable: Expensed that change in proportion to the change in the volume of
activity; when output goes up by 10% the variable expenses also go up by 10%.
Correspondingly, on a decline of the output, these expenses also decline
proportionately e.g., power consumed; consumable stores; repairs and
maintenance and depreciation (on account of wear and tear) are dependent on the
use of assets.
Variable expenses are generally constant per unit of output or activity. Suppose
variable expenses amount to Rs. 10,000 for a production of 2,000 units i.e; Rs. 5
per unit. When output goes up to 2,200 units, with an increase of 10%, the
variable expenses amount to Rs. 11,000 i.e., 10,000 plus 10%, however, the cost
per unit will be the same as before.
iii) Semi variable: The expenses that either (a) do not change when there is a small
change in the level of activity but change whenever there is a slightly big change
and the change are in small steps; or (b) change in the same direction as change in
the level of activity but not in the same proportion. An expenses for example, may
not change if output goes up or come down by 5 % but may change by 3% when
there is an increase in production between 5% and 10%. Similarly, another item of
expenses may change by 1% for every 2% change in activity. Examples of such
expenses are: delivery van expenses, telephone charges, depreciation as a whole.
d) The account is prepared for each of the following cost items.
I. Raw Material: This account has opening stock and purchases on debit side and
material issues on credit side.
II.WIP: This account is debited with opening stock and factory overhead and credited
with cost of goods finished .The closing stock, if any, will be carried forward to the
next year.
III. Finished stock: This account is known as the finished goods account also. It is
debited with goods finished and credited with the cost of sales.
The above stock accounts are usually used in place of the stock and purchase account
which is maintained in the financial book.
Business Communication
Maximum Marks – 100
Total No. of Questions - 8 Total No. of Printed Pages -7
Time Allowed – 3 Hours
Marks
All questions are compulsory.
Section -'A'
1. Read the following case carefully and answer the questions given below: (4×5=20)
Effective Communication as a Motivator
One common complaint employees voice about supervisors is inconsistent
messages – meaning one supervisor tells them one thing and another tells them
something different. Imagine you are the supervisor/manager for each of the
employees described below. As you read their case, give consideration to how you
might help communicate with the employee to remedy the conflict.
Hari tries his best to keep up with food safety issues in the kitchen but he admits
it‘s not easy. Employees receive ―on the job training‖ about food safety basics.
But with high turnover of employees, training is often rushed and some new
employees are put right into the job without training if it is a busy day. Eventually,
most employees get some kind of food safety training. The owners of the
restaurant are supportive of Hari in his food safety efforts because they know if a
food safety outbreak were ever linked to their restaurant; it would likely put them
out of business. Still, the owners note there are additional costs for training and
making sure food is handled safely.
One day Hari comes to work and is rather upset even before he steps into the
restaurant. Things haven‘t been going well at home and he was lucky to rummage
through some of the dirty laundry and find a relatively clean outfit to wear for
work. He admits he needs a haircut and a good hand scrubbing, especially after
working on his car last evening. When he walks into the kitchen he notices several
trays of uncooked meat sitting out in the kitchen area. It appears these have been
sitting at room temperature for quite some time. Hari is frustrated and doesn‘t
know what to do. He feels like he is beating his head against a brick wall when it
comes to getting employees to practice food safety.
Hari has taken many efforts to get employees to be safe in how they handle food.
He has huge signs posted all over the kitchen with these words: KEEP HOT
FOOD HOT AND COLD FOOD COLD and WASH YOUR HANDS ALWAYS
AND OFTEN. All employees are given a thermometer when they start so that
they can temp food. Hand sinks, soap, and paper towels are available for
employees so that they are encouraged to wash their hands frequently.
Questions:
a) What are the communication challenges and barriers Hari faces?
b) What solutions might Hari consider in addressing each of these challenges and
barriers?
c) What Standard Operating Procedures (SOPs) would be helpful for Hari to
implement and enforce?
d) What are some ways Hari might use effective communication as a motivator
for employees to follow safe food handling practices?
Answer:
a) Communication challenges abound at any workplace. Hari has some common
challenges in his operation.
Language barriers: not all employees speak English as their first language making
verbal communication a challenge at times.
Generational (age) barriers: having employees in various age categories can pose a
unique set of challenges. While the younger generation is used to texting and using
shortened messaging, their vocabulary may not be consistent with that of older
employees. Work values and attitudes may also affect communication between
younger and older employees.
Cultural and ethnic barriers: Cultural differences in food safety practices may be a
challenge for Hari to overcome.
Non verbal challenges: Hari‘s body language (appearance) is telling others he does
not care about personal appearance and cleanliness.
Emotional barriers: Emotional barriers can interfere with effective communication.
Hari comes into work after a rough start at home. These negative emotions are
affecting how he communicates with the employees.
b) Hari might consider the following solutions to the identified challenges and barriers:
Language barriers: Several potential solutions might be addressed here including
posting signs in employees‘ primary language. Putting signage with visuals, not just
words. Hari might learn some simple words in the employees‘ primary language to
help show interest in the employees.
Generational (age) barriers: Currently there are 4 generations in the workforce and
each potentially has a different preferred method of communication. While the
younger generation might prefer to receive text messages as their preferred way of
communication, older employees may not find this method of communication
acceptable. Consider your employee‘s preferences and be willing to communicate a
message in a few different ways.
Cultural and ethnic barriers: Hari may need to identify cultural beliefs and work to
understand the ethnic barriers related to food safety. For instance, two employees
come from the same country and they have made comments that controlling
temperature in their country is not a priority; food can be at room temperature for long
periods of time and nothing ever happened.
Non verbal challenges: Hari‘s appearance is a nonverbal cue to employees. His
appearance is important as he is a role-model to the employees. His actions and
behaviors should be consistent with what he is expecting of them. For example,
because he is expecting the employees to follow proper handwashing procedure, he
should also use proper handwashing procedures.
Emotional barriers: Emotional barriers can interfere with effective communication. It
will be important for Hari to get his emotions ―in check‖ prior to starting work.
Having self-awareness and potentially seeking outside assistance may be possible
solutions here.
d) All supervisors, including Hari, have many ways to use effective communication in
motivating employees. A few suggestions are listed below:
Provide sincere and encouraging words when employees follow safe food handling
behaviors. Use a communication method appropriate for an employee, so supervisor
must know a bit about the employee. For a high schooler, maybe it‘s a quick ―thank
you‖ text message or an older employee it might be a hand written thank you note.
Serve as a role model through verbal and non verbal communication. It‘s said that
―actions‖ speak louder than words, so Hari can, through his actions, convey a
message to employees. For example: wear a clean uniform.
Nonverbal (non-word) communication is the transmission of information in addition
to words in a communication to an audience or receiver of the communication content.
2. What are the advantages and disadvantages of working in teams, describe the
characteristics of effective teams. (6+4=10)
Answer:
A team is a unit of two or more people who share a mission and the responsibility for
working to achieve a common goal. Problem-solving teams and task forces assemble to
resolve specific issues and then disband when their goals have been accomplished. Such
teams are often cross-functional, pulling together people from a variety of departments
who have different areas of expertise and responsibility. The diversity of opinions and
experiences can lead to better decisions, but competing interests can lead to tensions that
highlight the need for effective communication. Committees are formal teams that usually
have a long-life span and can become a permanent part of the organizational structure.
Committees typically deal with regularly recurring tasks, such as an executive committee
that meets monthly to plan strategies and review results.
The teamwork interactions among the employees represent one of the most essential
elements of interpersonal communication. Collaboration —working together to meet
complex challenges—has become a core job responsibility of the professionals. It‘s a
virtual guarantee that everyone will be expected to collaborate in at least some of his/her
work activities. Communication skills will pay off handsomely in these interactions,
because the productivity and quality of collaborative efforts depend heavily on the
communication skills of the professionals involved.
Advantages of teams
When teams are successful, they can improve productivity, creativity, employee
involvement, and even job security. Teams are often at the core of participative
management, the effort to involve employees in the company‘s decision making. A
successful team can provide a number of advantages such as:
Increased diversity of views: Team members can bring a variety of perspectives to the
decision-making process—as long as these diverse viewpoints are guided by a shared
goal.
Higher performance levels: Working in teams can unleash new levels of creativity and
energy in workers who share a sense of purpose and mutual accountability. Effective
teams can be better than top-performing individuals at solving complex problems.
Disadvantages of teams
Although teamwork has many advantages, it also has a number of potential
disadvantages. At the worst, working in teams can be a frustrating waste of time. Teams
need to be aware of and work to counter the following potential disadvantages:
Groupthink: Like other social structures, business teams can generate tremendous
pressures to conform with accepted norms of behaviour. Groupthink occurs when peer
pressures cause individual team members to withhold contrary or unpopular opinions.
The result can be decisions that are worse than the choices the team members might have
made individually.
Hidden agendas: Some team members may have a hidden agenda —private,
counterproductive motives, such as a desire to take control of the group, to undermine
someone else on the team, or to pursue a business goal that runs counter to the team‘s
mission.
Cost: Aligning schedules, arranging meetings, and coordinating individual parts of a
project can eat up a lot of time and money.
3.
a) Write an e-mail responding to an announcement for a vacancy. 5
b) What are the supplementary parts of a report? Enumerate chronologically and
explain each of them in brief. 5
Answer:
a)
To:
Sir,
I saw your online announcement for the post of IT officer, and I would like to apply for
the same. I have gone through your job descriptions, requirements and conditions. I have
come to realize that my academic profile and professional experiences will most
essentially match with your job requirements.
I have attached my CV along with this application. I am looking forward to your quick
response.
Regards
…………….
b) Supplementary parts follow the text of the report and provide information for readers
who seek more detailed discussion. Supplements are more common in long reports than
in short ones, and they typically include appendixes, a bibliography, and an index.
Appendixes: An appendix contains materials related to the report but not included in the
text because they are too long or perhaps not relevant to everyone in the audience. The
content of report appendixes varies widely, including any sample questionnaires and
cover letters, sample forms, computer printouts, statistical formulas, financial statements
and spreadsheets, copies of important documents, and multipage illustrations that would
break up the flow of text. An appendix is usually identified with a letter and a short,
descriptive title. All appendixes should be mentioned at appropriate places in the text
and listed in the table of contents.
Bibliography: To fulfil your ethical and legal obligation to credit other people for their
work and to assist readers who want to research your topic further, include a
bibliography, a list of the secondary sources you consulted when preparing your report.
This can also be called ―References‖ if it includes works consulted but not mentioned in
the report. In addition to providing a bibliography, some authors prefer to cite references
in the report text. Acknowledging your sources in the body of your report demonstrates
that you have thoroughly researched your topic. Furthermore, mentioning the names of
well-known or important authorities on the subject helps build credibility for your
message. Such source references should be handled as smoothly as possible.
Index:
An index is an alphabetical list of names and subjects mentioned in a report, along with
the pages on which they occur. If the readers need to access specific points of
information in a lengthy report, consider including an index that lists all key topics,
product names, markets, or important persons— whatever is relevant to the subject
matter. As with the table of contents, accuracy in an index is critical.
Answer:
a) Ethical communication
Ethics are the accepted principles of conduct that govern behavior within a society.
Ethical behaviour is a companywide concern, but because communication efforts are
the public face of a company, they are subjected to particularly rigorous scrutiny from
regulators, legislators, investors, consumer groups, environmental groups, labor
organizations, and anyone else affected by business activities. Ethical communication
includes all relevant information, is true in every sense, and is not deceptive in any
way. In contrast, unethical communication can distort the truth or manipulate
audiences in a variety of ways.
d) Web Conferencing
Participants can take part in ―real life‖ meetings from the comfort of their offices.
Web conferencing is similar to videoconferencing but usually without the
transmission of pictures of the participants. They use their computers to access an
online virtual meeting room where they can present PowerPoint slides or share
spreadsheets or Word documents, just as they might do in a face-to-face meeting.
They can even demonstrate products and make changes in real time during a
meeting. Software such as WebEx and Microsoft Live Meeting makes Web
conferencing easy and effective.
e) A follow-up letter
In several situations, the follow-up letter is considered to be an important mode of
communication. It can be written after a business meeting, job interview, business
contract etc. In order to continue communicating with the recipient, you need to
write this type of a letter.
Second is, it can allow you to reconnect to the person with whom you are not in
touch for a while for the job search.
The follow-up letters are different from the thank you letters. The main purpose of
the letter is to show your thankfulness to someone for meeting you, approving
your project etc. It gives you the chance to re-introduce yourself.
Marketing
Maximum Marks –100
Total No. of Questions - 8 Total No. of Printed Pages -2
Time Allowed –3Hours
Marks
All questions are compulsory.
Section -'B'
5. Read the following case carefully and answer the questions given below: (45=20)
Shrestha tailoring center is a reputed brand in Kathmandu Valley for shirting
suiting and accessories. Thirty-two years ago, Shrestha tailoring center was
established by Babu Kaji Shrestha in Bagbazar. It is mainly famous for suits,
available both in readymade and through custom tailoring. It also offers casuals
and other wears for ladies and kids. ―We cater to the clothing of newborns to old
ones,‖ claims Shrestha. Apart from its main showroom in Bagbazar, it has
branches in several urban locations of Kathmandu such as Chabahil, and
Tripureshor.
The company‘s clients are mainly middle-class people. Though they have many
old clients, they also have increasing new customers. Apart from word of mouth,
it is also using advertisements from electronic media. Frequently, it offers free tie
for those who orders suit to attract customers. ―Last year, we offered free
Bangkok air tickets to lucky customers. We also give discount to customers
buying through debit and credit cards,‖ Shrestha said. It has also sponsored
several fashion shows, beauty pageants and programs in FM stations.
Price charged by the Shrestha tailoring center is slightly higher than other
competitors because of its location, quality clothing and brand image. To meet the
competition, they had offered suit at Rs. 4999 as a Dashain offer to attract price
sensitive customer. But this scheme did not work well. It became unsuccessful to
persuade economy minded customers. From the lesson learnt form the
unsuccessful Dashain scheme they are planning to modify the existing promotion
strategy. They are also planning to go beyond the Kathmandu Valley through
franchise and online business.
a) What is the main issue of the case?
b) Analyze the product strategy of Shrestha tailoring center.
c) Based on above case, identify the marketing concept implemented by Shrestha
tailoring center.
d) Are four P‘s sufficient for Shrestha tailoring center? Give your opinion.
Answer:
a) As per the above case, the main issue is implementation of inappropriate psychological
pricing as a promotional scheme. In the above case, reputed Shrestha tailoring center has
offered odd price i.e. Rs. 4999 to attract economy minded customers. Odd pricing targeted to
price sensitive customer is not matched with the brand personality of the tailoring center.
Thus, it failed to attract economy minded customers. It seems that tailoring center became
unsuccessful to attract new customer and to retain old customer because of inappropriate
pricing which is not in line with company image. Similarly, quality trap may be the reason as
customers perceive high price high quality and low price low quality. This type of appeal also
creates confusion among the quality conscious existing customer.
b) Shrestha tailoring center offers suits and accessories. It offers readymade suits and custom-
made suits. It also offers causals and other wears for ladies and kids. All products offered by
Shrestha tailoring center are closely related. They are closely related in terms of ultimate
consumption, in terms of distribution, in terms of promotion, in terms of target market. If any
company offers more than one product items which are closely related, that is popularly
known as product line strategy. Thus, based on product variety of company, we can say that it
is product line strategy.
c) In the given case, the company has used advertisement through electronic media. It has also
offered free goods i.e. tie for purchasing suits. It seems clear that they have also used sales
promotion tools like lucky draw i.e. free Bangkok air tickets. Several fashion shows, beauty
pageants and programs in FM stations have also been sponsored by Shrestha tailoring center.
It means they are using aggressive selling techniques to increase sales. The case is silent
about low price and easy availability or product quality. Similarly, the case is silent about
customer satisfaction and social responsibility.
Thus, we can conclude that based on given case, they are implementing selling concept of
marketing. As selling concept of marketing holds that customers will not buy their product
unless and until they are well informed. And aggressing selling techniques should be used to
increase sales and earn profit. It ignores customer satisfaction and social responsibility.
d) Marketing mix is popularly known as four P‘s which includes product, place, price and
promotion. Four P‘s are sufficient for physical goods but not sufficient for service products.
In today‘s context, it is very difficult to get pure physical goods or pure services. Features of
service are intangible, inseparable, perishable, indivisible and variable. Tailoring is a service
business. It offers hybrid product which includes both physical goods as well as service.
Thus, for customer satisfaction and organization goal achievement, Shrestha tailoring center
must not rely on four P‘s. They must address additional three P‘s i.e. people, process and
physical evidence while designing and implementing their marketing mix.
Objectives of Promotion
The major objectives of promotion are informing, persuading, reminding and reinforcing or
reassuring the customer about the product.
1) Informing:
The main objective of promotion is to inform the market about product, price, availability,
utilities and benefits. It helps to develop awareness about the product It also provides
alternatives to the customers for purchase decision.
2) Persuading:
Promotion persuades customers to make the purchase decision in favor of the promoted
brand. Promotion is persuasive communication. It stimulates product demand through
appealing ads, incentives and benefits. Promotion influence buyer behavior. Promotion also
persuades middlemen to carry such product.
3) Reminding:
Customer normally has very short-lived memory. It is impossible to customers to remember
all advertised brand. So, marketer reminds customers about the product by using various
promotional tools. The marketer assumes that customer may forget unless they are constantly
reminded.
4) Reinforcing:
Promotion is equally important in post purchase stage of the buying process. Consumer may
feel anxiety after their purchase decision. Marketer often provides reinforcing message to
increase customer‘s satisfaction level. Repeated reinforcement also leads to brand loyalty. By
the reassurance to customer, marketer tries to reduce cognitive dissonance and build brand
and corporate image.
7.
a) What is distribution? Also point out the components of physical distribution. (3+2=5)
b) What is a package and packaging? Explain briefly the essentials of a good
package. (2+3=5)
Answer:
a) Distribution includes all the various activities the company undertakes to make the product
accessible and available to target customers. Distribution or Place is one of the important
elements of marketing mix. It includes the marketing channel and physical distribution.
Marketing channel makes the product available to the customers. Physical distribution makes
the product accessible to the channel members and customers. Distribution is also called the
―the other half of marketing.‖ It fulfills the gap between the producer and consumer.
Distribution channel is a set of interdependent organizations involved in the process of making
a product or service available for use or consumption by the consumer or business user.
Distribution channel may be direct channel, indirect channel or mixed channel. Physical
distribution is related with physical movements of goods from point of production to point of
consumption. It is also called market logistics.
Components of physical distribution are mentioned as follows:
i. Transportation
ii. Warehousing
iii. Inventory management
iv. Order processing
v. Material handling
b) Generally, packaging is an act of designing or producing the package for a product. In other
words, packaging can be defined as the process of designing the container for a product.
Packaging includes all activities required for designing and producing the container or
wrapper for a product.
While, a package means wrapper or cover or container in which a product is enclosed. We
see that some products are enclosed in a paper box some are enclosed in a tube, some are
enclosed into the canes, some are enclosed into a plastic bag, some are enclosed into a wood
box, and some are enclosed into a metal container, and so forth. All these are the types of
package. Use of a particular package largely depends upon the nature of product, demand of
the buyer and the particular country's legal requirements.
Answer:
a) Market Segmentation
The process of defining and subdividing a large homogenous market into clearly
identifiable segments having similar needs, wants, or demand characteristics. Its objective
is to design a marketing mix that precisely matches the expectations of customers in the
targeted segment.
b) Pricing
Pricing refers to an act of determining the exchange value between what buyers get
and what the sellers receives. It is a process of setting prices for various products and
services. In short, pricing is the act of determining exchange value of a product or
service.
c) Marketing Environment
Marketing environment comprises all the actors and forces outside marketing that affect
marketing management‘s ability to develop and maintain successful transactions with its
target customers. Marketing is environment specific and change in marketing
environment creates opportunities and challenges in marketing. E.g. economic
environment, social environment, technological environment etc.
d) Shopping Product
Shopping products are less frequently purchased consumer products and services that
customers compare carefully on suitability, quality, price, and style. When buying
shopping products and services, consumers spend much time and effort in gathering
information and making comparisons. Shopping products marketers usually distribute
their products through fewer outlets but provide deeper sales support to help customers in
their comparison efforts. Clothing, furniture, motorbike are the examples of shopping
product.
e) Meaning of E-marketing
E-marketing or electronic marketing refers to the application of marketing principles and
the techniques through electronic media or internet. It is the process of marketing a brand
using the electronic devices that can be used to connect marketers and their customers via
the worldwide wave with the aim of attracting new customers retaining current business
and developing its brand identity. It is useful to exploring domestic as well as
international market through internet.
Income tax & Vat
Maximum Marks - 100
Total No. of Questions - 8 Total No. of Printed Pages -6
Time Allowed - 3 Hours
Marks
Attempt all questions. Working note should form part of the answer.
1. I & M Pvt. Ltd. Kathmandu, a manufacturing company, deals in production and sales of
garments. Based upon the following information, you are requested to ascertain taxable
income and tax liability for Income Year 2073/74. 20
Additional information:
a) Sales include VAT refund of Rs. 10,00,000 paid at custom point for import of raw
material. Miscellaneous income Rs. 20,00,000 is the incentive given by the Nepal
government for export of previous year and is received during this year through Nepal
Rastra Bank. Remaining Miscellaneous income Rs. 5,00,000 has been generated from
the bank deposit.
c) The opening stock and closing stock has been recorded 1,000 pieces and 1,200 pieces
respectively. The opening stock includes factory fixed overhead Rs. 10 per piece and
repair and maintenance Rs. 15 per piece. During the year, the company produced
2,000 pieces of garments and the overhead cost includes equal rate of previous years
fixed overhead and repair and maintenance cost.
e) The company has the policy for employee bonus; annually it makes 10 % provision
from the profit as per the Bonus Act. During this year, it has paid Rs. 2,00,000 and
booked under the administrative expenses.
f) Selling and distribution expenses were paid to the cargo agent for export, invoices
amounting Rs. 2,00,000 from the cargo agent were received, and the remaining
amount pertaining to the transportation of the goods from the factory to the depot
point as per details given by the agent.
g) Interest expense has been charged against the loan taken to purchase the factory
machinery costing Rs. 20,00,000. The machinery was purchased on 1st Ashadh, 2074
and has been used from 29th Shrawan, 2074.
h) The donation includes Rs. 1,00,000 directly paid to the flood victims; the remaining
amount was deposited into Reconstruction Fund established by Nepal government for
earthquake victims.
Answers:
Particulars Sec. Note Amount
Inclusions:
Sales 7 (2) 1 29,000,000
Miscellaneous Income 7 (2)
Export Incentive 2.1 -
Interest income directly related to 2.2 500,000
business
Dividend Income 7 (3) & 92 3 -
Total Inclusions (A) 29,500,000
Deductions
Interest Expense 14 4 -
Cost of Trading Stock 15 5 13,293,000
Depreciation 19 6 2,413,560
Repair & Improvement Cost 16 7 30,000
General Deductions
Administrative expenses 13 8 1,250,000
Selling & Distribution Expense 13 9 200,000
Provision for Employee Bonus 13 10 531,818
Penalties paid to Metropolitan Office 21 11 -
Total Deductions (B) 17,718,378
Assessable Income from Business 11,781,622
(A-B)
1.1. VAT is refundable duty and does not form part of either cost of sales when paid or
income when refunded.
2. Miscellaneous Income
2.1. Export Incentive:
As per Sec. 22 of Income Tax Act, 2058; company must follow accrual basis of accounting. As such, the
export incentive in relation to accrual of previous income year is part of income of previous income year
and not of this Income Year. Thus, the amount does not form part of business income of IY 2073/74 as
per Sec. 22.
(Alternatively, if students assume that the right to receive the export incentive was established during
current Income Year and hence, treated as accrued during the Income Year, the amount may be included
in current year's income with appropriate note regarding the same)
2.2. Interest income, though return of investment in nature, but is related to business objective of the company
and hence included in income as per Sec. 7 (2) (g) of the Income Tax Act.
3. The joint venture distributing dividend is assumed to be resident. As such, dividend income received from
resident joint company (Joint venture is a company as per definition) is a final withholding payment as
per Sec. 92 of the Act. Though it is investment income directly related to business activity of the person
and seems to be included u/s 7 (2) (g) but since it is final withholding, it must not be included in income
as per Sec. 7 (3) of the Act.
(Alternatively if student assume that the Joint venture is a nonresident joint venture, the amount may be
included in income)
4. As per Sec. 14 (1), if interest is accrued on loan borrowed for the purchase/creation of asset during the
income year, such interest expense shall be claimed only when the related asset is used during the income
year. Since, the asset is not used during the year; the interest expense is not deductible.
5. Calculation of Cost of Trading Stock
Particulars Amount
Opening Stock 7,500,000
Less: Adjustment for Repair & Maintenance Expense (15,000)
(15*1000)
Add: Cost of Production
Import of Raw Material 7,000,000
Freight for Raw Material 900,000
Custom duty paid for raw material 1,500,000
Custom agent fee 150,000
Wages 3,000,000
Overhead Expense (assumed to be production overhead) 2,000,000
Less: Adjustment for Repair & Maintenance Expense in cost of
(30,000)
production
(2000*15)
Less: Value of Closing Stock (8,712,000)
(Assumed FIFO)
(Cost of Production divide by 2000 multiplied by 1200)
Cost of Trading Stock 13,293,000
5.1. Refundable duties do not form part of cost of inventories. As such, VAT paid on import is not part of cost
of trading stock, and hence, not included.
8.1. Since the amount is paid to custom employee and custom agent without proper receipt of service and
proper justification for such payment, the amount is a cost not for business purpose, thus, is not a
deductible expense u/s 13 (c) and Sec. 21 (1) (f).
8.2. Company must follow accrual basis of accounting, as such, the bonus expense accrued for last year and
paid during the year included as part of administrative expense is not deductible expense u/s 13. (It is an
accounting error and must be rectified, which decrease administrative expense for accounting purpose as
well)
9.1. The expense without supporting is ineligible as the purpose of expense cannot be justified due to lack of
evidence justifying the purpose.
11. Penalty is not a deductible expense as it is paid as a result of infringement of law u/s 21 (1) (b).
12. Since direct payment to flood victim is not a payment of donation to exempt organization, thus the
amount is not deductible. The contribution to National Reconstruction Fund of GON is eligible for
deduction u/s 12B.
2. Mr. Tukaram Bidari joined Star General Stores, a trading firm on 1st Shrawan 2070. The
following information is received in relation to his employment income for the Income
Year 2073-74:
a) Pay scale Rs. 22,000 - 1,500 - 40,000.
b) He was paid with festival allowances equal to one months‘ salary. Apart from the
allowance, the firm provided 1 set TV as a gift to the best performing staff. The
market value of the TV is Rs. 55,000.
c) The firm pays Mr. Bidari Rs. 15,000 p.m. as house rent allowance. Out of the
allowance, he pays only Rs. 12,000 p.m. as house rent and saves Rs. 3,000 p.m.
e) The firm paid salary of Rs. 6,000 to the cook of Mr. Bidari in his residence. He
compensated Rs. 2,000 to the firm on this account.
f) Appointed in a senior post, he attended 12 meetings and was paid Rs. 2,000 per
meeting as meeting allowance. He also received allowance Rs. 2,000 p.m. for writing
minutes of Human Resource Committee of the firm.
g) He was provided meal in the office in an equal term to all employees of the firm. The
expenses borne by the firm for this facility was Rs. 36,000 for entire year i.e. 3,000
p.m.
h) He spent Rs. 20,000 for promotion of firm by hosting dinner to customers. Cost on
this account was reimbursed by the firm to Mr. Bidari.
i) The firm paid Rs. 1,000 p.m. as tuition fees for each of two children of Mr. Bidari.
This payment was made directly to school rather than to Mr. Bidari.
j) During the year, he was paid Rs. 10,000 on account of leave encashment. Further, at
the end of the year, his accumulated leave pay was valued at Rs. 50,000 which was
payable on retirement from the firm.
k) Mr. Bidari received a sum of Rs. 30,000 from his previous employer. The payment
was made on account of target commission on sales achieved by him when he was in
employment with previous employee.
m) Mr. Bidari met an accident during the financial year and received Rs. 5,00,000 as
compensation from insurance company, out of which he incurred Rs. 1,00,000 for
medical treatment. Mr. Bidari had contributed only Rs. 1,50,000 as insurance
premium to insurance company so far.
You are required to calculate income from employment and net tax liability of Mr. Bidari
for income earned during FY 2073/74. 10
Answers:
Particulars Note Amount (Rs.)
Basic Salary
318,000
(22,000 + 1500 ×3 ) × 12
Festival Allowance 26,500
Gift 55,000
House Rent Allowance 180,000
Entertainment Allowance 6,000
Medical Allowance (2% of Salary) 6,360
Cook Facility 4000
Meeting Allowance 1 -
Allowance for minutes 24,000
Notes:
Meal Facility 2 - 1. M
Reimbursement of Business Promotion Exp 3 - eeting
Tuition Fees Paid 24,000 allowa
Provident Fund Contribution by employer nce is
Leave Encashment 4 10,000 final
Accrued Leave Provision 5 withho
Commission from previous employer 6 30,000 lding.
Compensation against Accident 7 0 2. A
Assessable Income from Employment 6,83,860 s per
Sec. 8
(3),
Assessable Income
Meals
Less:
or
a. Contribuion to approved retirement fund least of i, ii and
lunche
iii below:
s
i) Actual contribution (Rs. 63,600)
provid
ii) Rs. 300,000
ed to
iii) 1/3 of Assessable income (1/3 for Rs. 7,59,660)
all
Taxable Income 6,83,860
employ
Allowable Deduction under Schedule 1:
8 15,000 ees
Life Insurance Premium Lower of i & ii
under
i) Rs. 20,000
equal
ii) Actual Premium (Rs. 15,000)
terms
Balance Taxable Income 6,68,860
at
First ( 1 % Social Security tax up to first Rs. 3,50,000) 3,500 workpl
Next (15 % up to next Rs. 100,000) 15,000 ace are
Remaining Rs. 2,18,860 @ 25% for (up to next Rs. not
54,715
2,000,000)
include
35% above Rs. 2,500,000 -
d.
Total Tax Liability 73,125 3. R
eimbursement of expenses serving proper business purpose of employer does not form part of
employment income (as per Sec. 8 (3)).
4. Leave encashment paid during the tenure of employment forms part of employment income as it is
not a retirement payment.
5. Natural person must follow cash basis of accounting when calculating his/her income from
employment (as per Sec. 22), as such, accrued leave provision is not included in income.
6. Employment includes past, present and prospective employment, and computation of employment
income must be done under cash basis of accounting. As such, commission received in cash during
the year from past employer is included as part of employment income.
7. As per proviso clause (a) of Sec. 31, Compensation received against physical injury of a natural
person shall not be included in income.
Medical tax credit is not allowed on medical expenditure incurred for treatment of physical injury
using compensation received as per Sec. 31.
8. Payment of investment insurance premium for the insurance of his son is not deductible under Sec. 1
of Schedule 1.
3.
a) Oriental Pvt. Ltd is dealing with buying, constructing and selling of land and building.
It has the following transactions for one of the projects during the year 2073/74.
ii) Whether the company should pay capital gain tax or not?
iii) If the company should pay capital gain tax, how much and where to pay?
iv) If the company does not require to pay the capital gain tax, then what and where
to pay tax on the gain of this transaction?
b) Mr. Ram has been holding shares of various listed companies of Nepal from primary
& secondary markets. Total cost of the shares is Rs. 2 million. He left for USA for a
year on Aswin 30, 2070 but he returned back on Kartik 15, 2072. The market value of
the shares was Rs. 3.5 million at the time he became non-resident.
He sold all the shares for Rs. 3.6 million on Kartik end, 2073. He has received his
payment from share broker after deducting broker commission Rs. 20,000. Advance
tax is deducted by NEPSE as per Section 95Ka (2). Compute gain and loss under
Section 40 (3), gain and loss calculation on Kartik end 2073 by NEPSE and tax
withholding amount in these situations. 5
Answers:
a)
a. Calculation of Gain and loss
The purchase of land and building for official purpose is not considered for calculation of gain
and loss, because land is business assets and building is depreciable asset. Trading stock is taken
into account to calculate the gain and loss:
Incomings:
Sales of housing (8) Rs. 300 Million
Less: Outgoings:
Cost of sales of housing Rs. 90 Million (Rs. 150 M-Rs.60 M closing stock)
Cost of land Rs. 30 Million (Rs. 50 M- Rs.20 M closing stock)
Gain Rs. 180 Million
b. As per section 95ka (6), capital gain tax @ 10 % on capital gain shall be applicable on the
disposal of land and building of any person other than natural person. So, the company should pay
the capital gain tax.
Alternatively, if the student may refer to IRD Circular (without referring it) and conclude that
since it is a trading stock, such advance tax collection is not required.
c. The company should pay the capital gain tax amounting of Rs. 18 Million (10 % of Rs. 180
Million) at the time of registration to the Land Revenue Office.
Alternatively, if student refer to the non applicability of advance tax collection on trading stock
(land and building of real estate company, the amount of capital gain is Zero.
d. Company is not relieved from taxation on its business income (i.e. income from real estate
dealing) even when the company is not required to pay advance tax at the time of registration of
land and building at Land Revenue Office. As such, the company is required to make calculation
of tax liability for the Income Year under Self Assessment System and pay such self assessed tax
along with submission of income return. The payment shall be made in installments and any
residual unpaid balance of tax liability not covered by installment tax shall be paid as and when
the return is filed.
b)
As per Section 40(3) of Income Tax Act, assets and liabilities shall be considered to have disposed
immediately before that person becomes a non-resident person, except for the land or building
situated in Nepal. As per the provision, gain and loss on the shares shall be calculated as follows:
Incomings
Market Value at the time of becoming nonresident (Sec. 41 (1) (a) Rs. 3.5 million
Incomings Rs. 3.5 million
As the Nepalese Tax system follows Self Assessment process, a natural person becoming nonresident
shall file jeopardy self assessment income return as per Sec. 100 (1) at the time of becoming
nonresident and clear all applicable taxes until such period.
When he sold all the shares, the person shall disclose his Outgoings for the shares as Rs. 3.5 Million
to NEPSE and require NEPSE to collect advance tax as follows as per Sec. 95A:
As a tax consultant, the management wants to know any tax implication to the
company by adding the aircraft. 5
b) Mention whether the return filing is required or not on the following circumstances: 5
ii) Mr. X with Mrs. X, a resident natural person having employment income of Rs.
2.1 million (Rs.1 million of Mr. X and Rs. 1.1 million of Mrs. X) in the year
2073/74. Assume no deduction of retirement fund, insurance, remote area
allowances etc.
v) Mrs. Chaulagai, a single natural person has income from various sources like
dividend income Rs. 2,00,000, interest income Rs. 3,00,000 from bank, meeting
allowances Rs. 20,000 and capital gain from sale of shares Rs. 3,00,000.
c) Quantify the value of perquisite as per the provision of Income Tax Act, 2058
provided by PQR Ltd. to the employee and others as under: 5
ii) The company pays Rs. 15,000/month for a flat provided to Program Officer, Mr.
Tamang. Mr. Tamang‘s basic salary and grade was Rs. 50,000 per month during
the financial year 2073/74.
iii) The company pays Rs. 1,00,000/month for a flat provided to Mr. Thapa, a board
director. The value of the furniture and equipment provided by the company in the
rented flat was Rs. 5,00,000.
iv) Free four wheeler facility is provided to the Executive Officer (Mr. Lama). The
company meets the cost of fuel and maintenance charge of the vehicle provided to
Mr. Lama. The cost of fuel and maintenance charges paid by the company was
Rs. 2,50,000 and the value of four wheeler was Rs. 75,00,000. Mr. Lama‘s basic
salary and grade was Rs. 100,000 per month during the financial year 2073/74.
v) The company meets the cost of fuel and maintenance charge of vehicle provided
to Mr. Thapa, the board director. The cost of fuel and maintenance charges paid
by the company was Rs. 3,00,000 and the value of four wheeler was Rs.
1,00,00,000.
d) Oppo International Pvt. Ltd., Kathmandu is a dealer of Oppo Electronics. The Oppo
Electronics are manufactured in China by Oppo International. The company imported
the electronics goods worth of US $ 50,000 on 23 Baishakh, 2074, the payment was
done on 23 Shrawan, 2074. The exchange rate of the transaction was as follows:
You are required to compute the amount for inclusions or deductions for the tax
assessment of this transaction mentioning the relevant provisions of Income Tax Act,
2058. 5
Answers:
a)
As per the provisions of Section 11 (3 ta), the Airline company operating international flights with an
investment more than Rs. 2 billion are inter alia privileged with 100% tax holiday for the period of 5
years from the date of operation, and thereafter privileged with 50% rebate on tax for the period of 3
years.
However, the privileges as aforesaid are also available to the existing Airline Operators provided they
enhance their existing installed capacity by at least by 25%, and increase their investment to at
least Rs. 2 billion. Such privileges commences immediately on the fulfillment of the two conditions
as aforesaid. In such case, the tax holiday and rebate shall be provided to such income that is
generated from enhanced capacity.
In the case of our problem, Comfort Airways Pvt. Ltd. with the increased installed capacity of
operations by two more international sectors, and total investment of Rs 1.5075 billion will not have
privilege to enjoy tax holidays as well as tax rebate as aforesaid.
b)
i) A person is not required to file return in any of the following conditions unless required by IRD in
writing or through public circular or the total income (including taxable or not except interest of
final withholding in nature and meeting allowance) exceeds 40 Lakhs:
Under Section 97 along with Section 4(3), resident natural person having salary income from
resident employer with no claim of donation, more than medical tax credit and retirement
contribution, need not to file income tax return, or
a person having no income tax liability, or
a natural person having taxable income from operation of vehicle as specified in Sec. 1 (13) of
Schedule 1, or
person deriving exclusive income from final withholding payment
In this case, since any of the above condition is not satisfied, Mr. X has to file income tax return of
his salary income for the income year.
ii) A person is not required to file income return as explained in answer (i).
Since both the spouses meet the conditions as prescribed by Sec. 4 (3) of the Income Tax Act,
2058 and individual income does not exceed Rs. 40 Lakhs, each of the spouses is not required to
file income return (as it is obvious that a person does not elect to file couple when both the spouses
are earning member since we need to presume that each taxpayer is rational and uses benefits
provided by tax law)
In case a student presumes application of Sec. 50 by spouses and filing jointly (which is absurd in
case of a rational taxpayer), any of the conditions in Sec. 97 (1) will not be satisfied, requiring
them to file income return.
iii) Since, there is tax liability in case of S Enterprises for both the Income Years (whether electing
Sec. 4 (4) or making payment of taxes u/s 4 (4Ka)), and any of the other three conditions as
specified in Sec. 97 (1) (part (i) of this answer) is not satisfied, S. Enterprises require to file tax
return.
iv) Since, there is tax liability in case of V Enterprises for both the Income Years (whether electing
Sec. 4 (4) or making payment of taxes u/s 4 (4Ka)), and any of the other three conditions as
specified in Sec. 97 (1) (part (i) of this answer) is not satisfied, V Enterprises require to file tax
return.
v) Section 97 (1) (kha) states that if a person is related to the section 3(c) the person is not required to
file the income tax return for the income year. Section 3(c) is the provision for the final
withholding payments. As per these provisions, Mrs. Chaulagai is not required to file for the
income of dividend, interest, meeting allowances.
But since she has capital gain income, she is required to file income return.
c) Under Section 27: Quantification of the value of perquisite provided by PQR Ltd. to employee and
others as per the provision of IT Act.
i) Rs. 24,000
2% of salary in case of salaried person i.e. (2% of {12 x (Rs. 1,00,000)}
ii) Rs. 12,000
2% of salary in case of salaried person i.e. (2% of {12 x (Rs50,000)}
iii) Rs. 300,000
25% of rent paid or imputed rent for own house for other person i.e. (25% of (12 x Rs. 100,000)
iv) Rs. 6,000
0.5% of salary in case of salaried person i.e. (0.5% of {12 x (Rs. 1,00,000)}
v) Rs. 100,000
1% p.a. of market value of vehicle per annum i.e. (1% of x Rs. 1,00,00,000)
d)
Conversion to Rupees under section 28, Exchange differences under section 24 (4) and claim for cost
of sales under Section 15 are related for these transactions.
The company should maintain its books of accounting in accrual basis under section 22 of the Act.
Further, the section 24 (4) has mentioned the accounting for exchange difference. The provision is as
follows:
In calculating a person's income earned from a business or investment on the accrual basis, where the
person includes any payment to which the person is entitled or deducts any payment that the person is
obliged to make and a difference in the payment received or made by the person occurs as a result,
inter alia, of a change in exchange rate, the amount of difference shall be adjusted at the time when
payment is received or made.
So, the company should account in Nepalese currency and calculate foreign exchange gain or loss.
Answers:
a) Valuation of closing stock of a business for income year is done at a lower of the following:
i) Cost of closing stock that remains at the end of year or
ii) Market price of the closing stock at the end of year;
Where identification of each items stock is not possible Income Tax Act permist first in first out
(FIFO)
OR weighted average method for valuation of closing stock
The cost of closing stock (trading stock) shall not include repair and improvement cost and
depreciation of depreciable asset.
b) As per section (ka na) of the Income Tax Act, 2058, Associated person means
a. a person or
b. more than one person or
c. a group of such persons who acts as per intention of each other,
And includes –
a. Natural person and relative of such natural person, or any person and partner of such person
b. Foreign Permanent Establishment and a person having ownership in such establishment
c. Any entity either directly or indirectly through
(a) other person or
(b) related entity or
(c) other person or entities related with such related entity,
Have control over or are entitled to have benefit of 50% or more than 50% of income, capital or
voting power of any entity.
But below persons shall not be treated as associated person
a. Employee,
b. Any other person as specified by the Department
c) As per the Section 74(2) of Income Tax Act 2058,following rights are available to the tax payers:
d) As per the provision (Sec.96) of Income Tax Act 2058, the tax payer has an obligation to submit the
tax return on time.
Actual Self Assessment:
Under (Sec.99), the person submits a tax return including the information regarding the total tax
payable during the year, and the tax due for payment on the date of submitting the return; it is believe
that the income tax assessment is complete
In general terms, the filling of an annual return is the self-assessment made by the tax payer that is
treated as assessment unless the Jeopardy Assessment (u/s100) & Amended Assessment (u/s 101)
prevail.
Deemed Self Assessment:
Even in the case of a person who fails to file the annual tax return, the income tax for the year is
deemed as assessed on due date of Asoj-end under the following basis:
i) The total tax liability of the tax payer during the year is equal to the amount of withholding tax
deducted by withholding agents on its payments, and the amount of advance tax paid by it.
The deemed tax assessment shows that there is no more tax payable for the year by such tax payer.
6. Namaste Steel Private Limited, a VAT registered Company, has witnessed stiff downfall
in demand of its products, and hence its operation has been shut down since the past 3
months. The company is considering for closure of the business.
Below is the detail of its assets and liabilities, and VAT receivable payable:
a. As per VAT return filed for the previous VAT period, it has VAT credit of Rs. 1
million.
b. Below is the detail of its stock and capital goods and other assets and liabilities as on
the immediately previous VAT period:
i. Finished Goods Inventory (VAT applicable) – Rs. 5 million (Market Value Rs. 4
million)
ii. Raw Material (VAT applicable) – Rs. 1 million (Market Value Rs. 1.5 million)
iii. Damaged Goods (VAT applicable) – Rs. 5,00,000 (Market Value Rs.
1,00,000)
iv. Plant and Machinery (VAT applicable) – Rs. 9 million (Market Value Rs. 4
million)
v. Vehicle – 4 Wheeler (VAT applicable) – Rs. 3 million (Market Value Rs. 4
million)
vi. Vehicle – 2 Wheeler (VAT applicable) – Rs. 1,00,000 (Market Value Rs.
1,00,000)
vii. Land – Rs. 20 million (Market Value Rs. 50 million)
viii. Sundry Debtors – Rs. 6 million (Rs. 3 million is bad debts)
ix. Sundry Creditors – Rs. 4 million (all amount payable)
Answers:
As such, as per Section 11 (1) (a) as the company is considering closure, the VAT registration may be
cancelled when a closure notice is filed with concerned tax officer. For Namaste Steel Private Ltd. to go
for immediate cancellation of registration, it may do so if its turnover of preceding consecutive 12 months
is Rs. 50 Lakhs or less. Unless any of these two conditions is satisfied, it cannot make an application for
cancellation of registration.
Hence, following the above provisions of the law, Namaste Steel Private Limited can cancel its‘ VAT
registration.
7.
a) Silver Imports and Exports, Kathmandu has the following transactions of garments
and ginger:
The company has no previous debit/credit balance in its VAT return. The Company
needs your advice to get refund of the VAT amount for these months. 5
b) Horizon Enterprise, Kathmandu has wholesale transactions of clothes and rice from
two business houses with same PAN. It has the following transactions for 2073
Bhadra to Kartik:
Months Clothes Sales Rs. Rice Sales Rs.
Bhadra 2073 1,00,000 3,00,000
Aswin 2073 5,00,000 5,00,000
Kartik 2073 5,00,000 6,00,000
The enterprise recorded its clothes sales Rs. 31 lakh and rice sales Rs. 20 lakh from
Bhadra 2073 to Shrawan 2074. Then, it has following sales in 2074 Bhadra to Kartik:
Tax officer has issued a notice to register the business in VAT on 2074/05/10 to the
enterprise. The tax officer has calculated interest, additional fees, and penalties as per
VAT Act. Justify whether the enterprise is required to register in VAT or not. If it is
required to register, then when it has to do so and from when it has to collect tax? 5
Answers:
a)
Section 24 of VAT Act, 2052 has provisions for VAT refund. As per the provisions, when tax
becomes receivable for the month, excess amount may be adjusted with any outstanding amount, if
there is still receivable amount, remaining amount may be adjusted with the payable amount for the
next month. If it is continuous for 6 months, then registered person can apply for a lump sum refund.
For the export business for the fiscal year 2073/74 and 2074/75, any registered person whose export
sales for a month are 40 % or more of his/her total sales for that month, S/he shall be entitled to a
refund of the remaining excess after adjusting any outstanding amount.
Months Local sales VAT Purchase Rs. VAT Paid Rs. VAT
Rs. collected Receivable
Rs. (Rs.)
Jestha 2074 700,000 91,000 8,00,000 1,04,000 13,000
Ashad 2074 6,00,000 78,000 7,00,000 91,000 13,000
Sharawan 5,00,000 65,000 10,00,000 1,30,000 65,000
2074
As per the above mentioned provisions and export percentage, the silver export and import can make
adjustment of Rs. 13,000 for the month of Jestha, 2073 continuously next 6 months, if it is not
adjusted, then after it can claim for refund. It has less than the 40 % export during the month.
For the month of Ashadh and Shrawan, it has export more than 40 percent, so it is entitled for refund
of those receivable amounts during the filing of VAT Return.
b)
As per Rule 6 and Rule 7, there is exemption from registration to small vendors having 50 lakh or less
taxable transaction of goods during the previous twelve months. If the turnover of transaction carried
on by any person exceeds 50 lakh, the person carrying on such transaction has to make an application
in the format referred to in Schedule-1 to the concerned Tax Officer to get the transaction registered
within 30 days of the date of such excess.
Determination of Turnover Threshold- Rice is nontaxable sales, as such; the turnover of rice does not
have any role in determination of threshold for registration
Total Taxable Sales in last 12
Month
months (in lakhs)
12 Months to Shrawan 31
2074
12 months to Bhadra 2074 31-1+10= 40
12 months to Ashwin 2074 31-1-5+10+16= 51
12 Months to Kartik 2074 31-1-5-5+10+16+10=61
The Enterprise has tax exempted and taxable transactions, the taxable transaction exceeds 50 lakhs
(31 lakh-1 lakh-5 lakh + 10 lakh +16 lakh) on Aswin, 2074, the actual date is not given in the
questions, and only 1 lakhs is exceeded than prescribed limit.
The notice issued by tax officer is not compliance with VAT Act and Rules, total transactions of Rs.
51 lakh (31+20) from Bhadra 2073 to Sharawan 2074 is including VAT exempted goods.
The Enterprise is required to submit application within 30 days from Aswin, 2074; it can collect tax
after registration on VAT.
b) Purchase of Under Invoiced Goods as per Value Added Tax Act, 2052
Sale of goods at a price lower than fair market price of such goods at the time of sale of such goods is
known as sale of goods at under invoice. VAT is levied on a transaction value which is a fair market
value. Hence, if any tax payer shows sale of goods at a price lower than fair market price, then there is
avoidance of VAT, and loss of revenue. To protect such activity, VAT Act, 2052 has provided
specific provisions under section 23ga of VAT Act 2052 which provides special rights to Tax officer
to sale or purchase such under invoiced goods. As per the provisions of section 23ga,
1. Notwithstanding anything mentioned in any other laws in force, if any person is found to have
shown transaction by under invoicing by selling goods at a price less than the fair market price,
then Tax Officer can stop the further sale of such goods which are in stock, and may sale or order
for sale such goods at the under invoiced price.
2. If the person refuses to sale goods while purchasing or causing to purchase by the department or
Inland Revenue Office as per sub/rule (1), the department or the office may take in possession of
the goods and shall pay the amount, calculated on the basis of under invoice value, to the person
when the person comes to receive the payment.
3. The goods purchased or caused to be purchased pursuant to Sub-sections (1) and (2) may be sold
or caused to be sold at such price and in accordance with such procedures as may be specified by
the Director General.
c) Taxable value for imported goods: According to Sec. 12(5) and Rule 48; in case of goods, respective
custom office collects VAT based on taxable value. Section 12(6), provides the revaluation of
purchase price at market price in case of significant under-invoicing found or reasons to be believed.
Taxable value for the purpose of import shall be computed as follow:
Value paid to vendor or value as determined for custom duty
Custom duty and custom service charge
Excise or countervailing duty
Other duties
Demurrage or other penalties
Insurance and transportation
d) Generally, it means period for which VAT assessment is carried out. Tax period for VAT is inter-related
to the related VAT Return.
Tax Period means a period prescribed by the Act or Rules for calculation of net VAT payable or
receivable.
A registered person has to adopt a month as per Nepali Calendar as tax period. The tax starts from day1 st
of a month and ends at the end day of the same month.
As per the provisions (Rule 26) of VAT Rule, if deemed fit by the tax officer, different tax periods may
have to be adopted / accepted by certain specified tax payers.
i) Tax Period of 2 months:
Under such circumstances, the tax period may be Shrawan and Bhadra, Ashwin and Kartik, Marga
and Poush, Magh and Falgun, Chaitra and Baisakh, and Jestha and Ashad. This tax period is generally
adopted by hotel and tourism enterprises if specifically applied for the same.
ii) Tax Period of 4 months:
Tax period of 4 months is adopted by tax payers specifically, if paper or electronic media or brick
producer applies so.
iii) Different tax period:
In case the registered person maintains its accounts in the approved computer systems, on application
by the tax payer, the tax officer can allow different tax period to be adopted provided the tax officer
deemed fit.
iv) Tax period for 1st time of registration:
In such cases, tax period starts right from time of its registration to the end of the month.
- End-