Inter Mid Iate

INTERMEDIATE COURSE
(UNDER REVISED SCHEME OF

EDUCATION AND TRAINING)
GROUP – I
REVISION TEST PAPERS

NOVEMBER, 2021
BOARD OF STUDIES
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
New Delhi
© The Institute of Chartered Accountants of India

©THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
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Edition : September, 2021
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Contents
Page Nos.
Objective & Approach ....................................................................................... i – viii
Objective of RTP ......................................................................................................... i
Planning & Preparing for Examination ........................................................................ ii
Subject-wise Guidance – An Overview ...................................................................... iii
Paper-wise RTPs
Paper 1: Accounting ....................................................................................... 1 – 39
Part – I : Announcements Stating Applicability & Non-Applicability ...... 1 – 6
Part – II : Questions and Answers .................................................... 7 – 39
Paper 2: Corporate and Other Laws ............................................................ 40 – 94
Part – I : Announcements Stating Applicability ................................ 40 – 67
Part – II : Questions and Answers .................................................. 68 – 82
ANNEXURE .................................................................................. 83 – 94
Paper 3: Cost and Management Accounting .................................................... 95 – 128
Paper 4 : Taxation ............................................................................................. 129 – 153
Section A: Income-tax Law ................................................................ 129 – 144
Section B: Indirect taxes .................................................................... 145 – 153
Applicability of Standards/Guidance Notes/Legislative Amendments etc.
for November, 2021 – Intermediate (New) Examination ..................................... 154 – 159

REVISION TEST PAPER, NOVEMBER, 2021 – OBJECTIVE & APPROACH
(Students are advised to go through the following paragraphs carefully to derive
maximum benefit out of this RTP)
I Objective of Revision Test Paper
Revision Test Papers are one among the many educational inputs provided by the Board
of Studies (BOS) to its students. Popularly referred to as RTP by the students, it is one of
the very old publications of the BOS whose significance and relevance from th e
examination perspective has stood the test of time.
RTPs provide glimpses of not only the desirable ways in which examination questions are
to be answered but also of the professional quality and standard of the answers expected
of students in the examination. Further, aspirants can assess their level of preparation for
the examination by answering various questions given in the RTP and can also update
themselves with the latest developments in the various subjects relevant from the
examination point of view.
The primary objectives of the RTP are:
• To help students get an insight of their preparedness for the forthcoming examination;
• To provide an opportunity for a student to find all the latest developments relevant for
the forthcoming examination at one place;
• To supplement earlier studies;
• To enhance the confidence level of the students adequately; and
• To leverage the preparation of the students by giving guidance on how to approach
the examinations.
RTPs contain the following:
(i) Planning and preparing for examination
(ii) Subject-wise guidance – An overview
(iii) Updates applicable for a particular exam in the relevant subjects
(iv) Topic-wise questions and detailed answers thereof in respect of each paper
(v) Relevant announcement applicable for the particular examination
Students must bear in mind that the RTP contains a variety of questions based on different
sections of the syllabi and thus a comprehensive study of the entire syllabus is a pre -
requisite before answering the questions of the RTP. In other words, in order to derive
maximum benefit out of the RTPs, it is advised that before proceeding to solve the
questions given in the RTP, students ought to have thoroughly read the Study Materials.
The topics on which the questions are set herein have been carefully selected and
meticulous attention has been paid in framing different types of questions. Detailed

ii INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2021
answers are provided to enable the students to do a self-assessment and have a focused
approach for effective preparation.
Students are welcome to send their suggestions for fine tuning the RTP to the Director,
Board of Studies, The Institute of Chartered Accountants of India, A -29, Sector-62, Noida
201 309 (Uttar Pradesh). RTP is also available on the Institute’s website www.icai.org
under the BOS knowledge portal in students section for downloading.
II. Planning and preparing for examination
Ideally, when the RTP reaches your hand, you must have finished reading the relevant
Study Materials of all the subjects. Make sure that you have read the Study Materials
thoroughly as they cover the syllabus comprehensively. Get a good grasp of the concepts/
provisions discussed therein. Solve each and every question/illustration given therein to
understand the application of the concepts and provisions.
After reading the Study Materials thoroughly, you should go through the Updates provided
in the RTP and then proceed to solve the questions given in the RTP on your own. RTP
is in an effective tool to revise and refresh the concepts and provisions discussed in the
Study Material. RTPs are provided to you to help you assess your level of preparation.
Hence you must solve the questions given therein on your own and thereafter compare
your answers with the answers given therein.
Examination tips
How well a student fares in the examination depends upon the level and depth of his
preparation. However, there are certain important points which can help a student better
his performance in the examination. These useful tips are given below:
 Reach the examination hall well in time.
 As soon as you get the question paper, read it carefully and thoroughly. You are
given separate 15 minutes for reading the question paper.
 Plan your time so that appropriate time is awarded for each question. Keep sometime
for checking the answers as well.
 First impression is the last impression. The question which you can answer in the
best manner should be attempted first.
 Always attempt to do all questions. Therefore, it is important that you must finish
each question within allocated time.
 Read the question carefully more than once before starting the answer to understand
very clearly as to what is required.
 Answer all parts of a question one after the other; do not answer different parts of the
same question at different places.
 Write in a neat and legible hand-writing.

REVISION TEST PAPER iii
 Always be concise and write to the point and do not try to fill pages unnecessarily.
 There must be logical expression of the answer.
 In case a question is not clear, you may state your assumptions and then answer the
question.
 Check your answers carefully and underline important points before leaving the
examination hall.
III. Subject-wise Guidance – An Overview
PAPER – 1 : ACCOUNTING
The Revisionary Test Paper (RTP) of Accounting is divided into two parts viz
Part I - Relevant announcement stating Applicability and Non-Applicability for November,
2021 examination and Part II –Questions and Answers.
It may be noted that the October 2020 edition of the Study Material is relevant for November,
2021 Examination.
Part I of the Revisionary Test consists of the relevant notifications and information
applicable and not applicable for November, 2021 examination. The purpose of this
information in the RTP is to apprise the students with the latest developments applicable
for November, 2021 examination. The brief summary of the same has been given as under:
A. Applicable for November, 2021 examination:
I. Amendments in Schedule III (Division I) to the Companies Act, 2013
II. Amendments in Schedule V to the Companies Act, 2013
III. Notification dated 13th June, 2017 to exempt startup private companies from
preparation of Cash Flow Statement as per Section 462 of the Companies Act,
2013
IV. Amendment in AS 11 “The Effects of Changes in Foreign Exchange Rates”
V. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (reg.
Issue of Bonus Shares)
VI. Companies (Share Capital and Debentures) Amendment Rules, 2019 (reg.
Debenture Redemption Reserve)
B. Not applicable for November, 2021 examination:
Ind ASs issued by the Ministry of Corporate Affairs.
Part II of the Revisionary Test Paper consists of twenty questions together with their
answers. First fifteen questions are based on different topics discussed in the study
material. Last five questions of this RTP are based on Accounting Standards. For easy
reference the topic / accounting standard name and number on which the question is based

iv INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2021
has been quoted at the top of each question. The details of topics, on which questions in
the RTP are based, are as under:
Question Topic
No.
1 and 2. Preparation of Statement of Profit and Loss and Balance Sheet of
Company including Managerial Remuneration
3. Cash Flow Statement
4. Profit or Loss prior to Incorporation
5. Accounting for Bonus Issue
6. Issue of Right Shares
7. Redemption of Preference Shares
8. Redemption of Debentures
9. Investment Accounts
10. Insurance Claim for Loss of Stock
11. Hire purchase Transactions
12. Departmental Accounts
13. Branch Accounting
14. Accounts from Incomplete Records
15 Framework for Preparation and Presentation of Financial Statements
16-20 Accounting Standards
Answers to the questions have been given in detail along with the working notes for easy
understanding and comprehending the steps in solving the problems. The answers to the
questions have been presented in the manner which is expected from the students in the
examination. The students are expected to solve the questions under examination conditions
and then compare their solutions with the solutions given in the Revisionary Test Paper and
further strategize their preparation for scoring more marks in the examination.
PAPER – 2: CORPORATE AND OTHER LAWS

In the paper of Corporate and Other Laws, for the ‘Company Law’ portion, the object ive is
‘To develop an understanding of the provisions of company law and acquire the ability to
address application-oriented issues’ and for ‘Other Laws’ the objective is ‘To develop an
understanding of the provisions of select legislations and acquire the ability to address
application-oriented issues, and to develop an understanding of the rules for interpretation
of statutes’. The students need to prepare on basis of the objective entrusted in the
syllabus for the subject. Students should also give importance to the terms/definitions for
proper conceptualization of the answers. Students have to focus their study based on the
major legal provisions, case laws, if any, and understand their practical implications. Also,
Language is an important point of concern. This problem among many of the candidates

REVISION TEST PAPER v
can be overcome by way of practice writing and also undertaking self-examination by going
through Revisionary Test Papers (RTP).
RTP gives an idea to the student attempting law paper to give the answer of any practical
oriented questions by pinpointing the legal points or issues involved in any statement,
problem or situation given in the question, explaining the relevant legal provisions clearly,
co-relating the legal provisions to the given statement or problem or situation and cite the
relevant case law in support of their reasoning for reflecting on the quality of the answer.
For the theoretical question, the answer should be laid down by highlighting the main points
with brief description and explain the same with the help of an example.
Generally, the RTP is divided into two parts -
Part I: Containing the relevant legislative amendments which are applicable for
November, 2021 examinations.
It consists of the relevant Notifications and information applicable for November, 2021
examination. The purpose of this information in the RTP is to apprise the students with the
latest developments applicable for November, 2021 examinations.
Part II: Topic wise questions with detailed answers
RTP is broadly categorised into two divisions – Division A (Multiple Choice Question-
Integrated Case Scenario and Independent MCQs) and Division B (Detailed Questions)
with their answers. The sequencing of Division B is as follows:
QUESTION NO. ABOUT THE QUESTION
1–8 Based on the Companies Act, 2013
9-10 Deals with the Indian Contract Act, 1872
11 Deals with the Negotiable Instruments Act,1881
12 Based on the General Clauses Act, 1897
13 Interpretation of Statutes, Deeds and Documents
Guidance on the citation of the Case Laws and Section
Students may kindly note that in view of various Acts covered under the subject, you may
find it difficult to remember various sections of the law and related case laws on the matter.
Case laws and citing of the Sections reflects on the quality of your preparation for the
examination and making yourself set to become a perfect professional. The answers that
are reflected here have reference to sections and case laws wherever applicable. It may
kindly be noted that these are given for knowledge and to mainly inculcate such a habit.
However, at this level it may not affect on the scoring of the marks.

vi INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2021
PAPER – 3: COST AND MANAGEMENT ACCOUNTING
The Revision Test Paper (RTP) of Cost and Management Accounting comprises of fifteen
questions for full coverage of the syllabus. Theoretical questions alongwith computational
problems have also been incorporated so that you are able to give emphasis to the
theoretical portion of the syllabus as well. Since this paper’s inclinatio n is more towards
numerical-oriented questions which involve mathematical calculations, therefore, it is very
important that you have thoroughly studied the theoretical aspects of the subject and are
also clear about the concepts and logic behind the mathematical workings and formulae.
A summary of the questions both theoretical and computational has been given for your
reference:
Qs Topic About the Problem
No.
1. Material Cost Calculation of Inventory Turnover Ratio and its
interpretation.
2. Employee cost Calculation of Labour cost with overtime.
3. Overheads Computation of Overhead absorption rate and
total cost of product.
4. Activity Based Costing Calculation of operating income based on
(ABC) Method COGS and ABC costing.
5. Cost Sheet Preparation of Statement of Cost.
6. Cost Accounting System Preparation of Control accounts.
7. Batch Costing Calculation of optimum run size and extra cost.
8. Process Costing Preparation of Statement of equivalent
production, cost, apportionment, and process
account.
9. Service Costing Costing of Transport services.
10. Standard Costing Calculation of Material, Variable overhead and
Labour variances.
11. Marginal Costing Calculation of Fixed cost and Break-even sales.
12. Budget and Budgetary Preparation of Budget.
Control
13(a) Introduction to Cost and Difference between Cost Control and Cost
Management Accounting Reduction.
13(b) Introduction to Cost and Limitations of Cost Accounting.
Management Accounting
13(c) Job Costing Difference between Job and Process Costing.
13(d) Joint products & By Treatment of by-product cost.
products

REVISION TEST PAPER vii
PAPER – 4: TAXATION
Section A: Income-tax Law (60 Marks)
The Income-tax law, as amended by the Finance Act, 2020 and significant notifications,
circulars and other legislative amendments upto 30.04.2021 are relevant for November,
2021 Examination. The relevant assessment year for November, 2021 examination is A.Y.
2021-22.
The October, 2020 edition of the Study Material, comprising of three modules
(Modules 1-3), is applicable for November, 2021 Examination. Further, a list of topic-wise
exclusions from the syllabus has been specified by way of “Study Guidelines” in the initial
pages of Module 1 of the Study Material.
The above referred study material has to be read along with Statutory Update for November,
2021 Examination webhosted at https://resource.cdn.icai.org/65079bos52349.pdf at BoS
Knowledge Portal.
You have to read the Study Material thoroughly to attain conceptual clarity. Tables,
diagrams and flow charts have been extensively used to facilitate easy understanding of
concepts. The amendments made by the Finance Act, 2020 and latest notifications and
circulars have been given in italics/bold italics. Examples and Illustrations given in the
Study Material would help you understand the application of concepts. Work out the
exercise questions at the end of each chapter and then, compare your answers with the
answers given to test your level of understanding. Thereafter, solve all the questions in
the publication “Booklet on MCQs & Case Scenarios” to hone your analytical and problem
solving skills. This will help you gain speed and accuracy in solving MCQ based questions
for 18 Marks.
Finally, solve the questions given in this RTP independently and compare the same with the
answers given to assess your level of preparedness for the examination.
Notes:
1. Extension of dates/due dates and certain other relaxations vide Taxation and
Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 on
account of COVID 19 pandemic are not applicable for November, 2021
examinations.
However, relaxation in TDS/TCS rates for residents during the period 14.5.2020
to 31.3.2021 and extension of time in respect of section 10AA units for
commencement of manufacture are applicable for November, 2021
examination. Accordingly, they are contained in the October, 2020 edition of
the Study Material applicable for November, 2021 examination.
2. Direct Tax Vivad se Vishwas Act, 2020 and Rules, 2020 are not applicable
for November, 2021 examination.

viii INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2021
Section B: Indirect Taxes (40 Marks)

For Section B: Indirect Taxes of Paper 4: Taxation, the provisions of CGST Act, 2017 and
IGST Act, 2017 as amended by the Finance Act, 2020 and the Finance (No. 2) Act, 2019,
including significant notifications and circulars issued and other legislative am endments
made, up to 30 th April, 2021, are applicable for November 2021 examination.
Further, a list of topic-wise exclusions from the syllabus has been specified by way of
“Study Guidelines for November, 2021 Examination”. The same is given as part of
“Applicability of Standards/Guidance Notes/Legislative Amendments etc. for
November, 2021 - Intermediate (New) Examination” appended at the end of this
Revision Test Paper.
The October, 2020 edition of the Study Material* is applicable for New Intermediate Course
Paper 4: Taxation, Section B: Indirect Taxes. The Study Material has been divided into
two modules for ease of handling by students.
Study Material is based on the provisions of the CGST Act and IGST Act as amended upto
31.10.2020. The amendments made by the notifications and circulars issued between
01.11.2020 and 30.04.2021 in GST laws are given in the Statutory Update web -hosted at
the BoS Knowledge Portal on the ICAI’s website www.icai.org. For the ease of reference,
the amendments have been grouped into Chapters which correspond with the Chapters of
the Study Material.
*It may be noted that in the October 2020 Edition of the Study Material, the erstwhile
provisions of the CGST Act and the IGST Act have been compared with the provisions as
amended vide the Finance (No.2) Act, 2019 and Finance Act, 2020, at the end of the
relevant Chapters. Therefore, the same are not included in this Statutory Update.
Students should read the amended provisions given at the end of the relevant Chapters in
place of the erstwhile provisions discussed in the main body of the Chapters.
You have to read the Study Material alongwith the Statutory Update thoroughly to attain
conceptual clarity. Tables, diagrams and flow charts have been extensively used to
facilitate easy understanding of concepts. Examples and Illustrations given in the Study
Material would help you understand the application of concepts. Thereafter, work out the
questions at the end of each chapter to hone your problem-solving skills. Compare your
answers with the answers given to test your knowledge.
Thereafter, solve the questions given in this RTP independently and compare the same
with the answers given to assess your level of preparedness for the examination.

PAPER – 1: ACCOUNTING
PART – I: ANNOUNCEMENTS STATING APPLICABILITY & NON-APPLICABILITY
FOR NOVEMBER 2021 EXAMINATION
A. Applicable for November, 2021 examination

I. Amendments in Schedule III (Division I) to the Companies Act, 2013
In exercise of the powers conferred by sub-section (1) of section 467 of the
Companies Act, 2013), the Central Government made the following amendments in
Division I of the Schedule III with effect from the date of publication of this notification
in the Official Gazette:
(A) under the heading “II Assets”, under sub-heading “Non-current assets”, for the
words “Fixed assets”, the words “Property, Plant and Equipment” shall be
substituted;
(B) in the “Notes”, under the heading “General Instructions for preparation of
Balance Sheet”, in paragraph 6,-
(I) under the heading “B. Reserves and Surplus”, in item (i), in sub- item (c),
the word “Reserve” shall be omitted;
(II) in clause W., for the words “fixed assets”, the words “Property, Plant and
Equipment” shall be substituted.
II. Amendments in Schedule V to the Companies Act, 2013
In exercise of the powers conferred by sub-sections (1) and (2) of section 467 of the
Companies Act, 2013, the Central Government hereby makes the following
amendments to amend Schedule V.
In PART II, under heading “REMUNERATION”, in Section II - ,
(a) in the heading, the words “without Central Government approval” shall be
omitted;
(b) in the first para, the words “without Central Government approval” shall be
omitted;
(c) in item (A), in the proviso, for the words “Provided that the above limits shall be
doubled” the words “Provided that the remuneration in excess of above limits
may be paid” shall be substituted;
(d) in item (B), for the words “no approval of Central Government is requi red” the
words “remuneration as per item (A) may be paid” shall be substituted;
(e) in Item (B), in second proviso, for clause (ii), the following shall be substituted,
namely:-

2 INTERMEDIATE (NEW) EXAMINATION: NOVEMBER, 2021
“(ii) the company has not committed any default in payment of dues to any bank
or public financial institution or non-convertible debenture holders or any other
secured creditor, and in case of default, the prior approval of the bank or public
financial institution concerned or the non-convertible debenture holders or other
secured creditor, as the case may be, shall be obtained by the company before
obtaining the approval in the general meeting.";
(f) in item (B), in second proviso, in clause (iii), the words “the limits laid down in”
shall be omitted;
In PART II, under the heading “REMUNERATION”, in Section III, –
(a) in the heading, the words “without Central Government approval” shall be
omitted;
(b) in first para, the words “without the Central Government approval” shall be
omitted;
(c) in clause (b), in the long line, for the words “remuneration up to two times the
amount permissible under Section II” the words “any remuneration to its
managerial persons”, shall be substituted;
III. Notification to exempt startup private companies from preparation of Cash Flow
Statement as per Section 462 of the Companies Act 2013
As per the Amendment, under Chapter I, clause (40) of section 2, an exemption has
been provided to a startup private company besides one person company, small
company and dormant company. Accordingly, a startup private company is not
required to include the cash flow statement in the financial statements.
Thus the financial statements, with respect to one person company, small company,
dormant company and private company (if such a private company is a start-up), may
not include the cash flow statement.
IV. Amendment in AS 11 “The Effects of Changes in Foreign Exchange Rates”
In exercise of the powers conferred by clause (a) of sub-section (1) of section 642 of
the Companies Act, 1956, the Central Government, in consultation with National
Advisory Committee on Accounting Standards, hereby made the amendment in the
Companies (Accounting Standards) Rules, 2006, in the "ANNEXURE", under the
heading "ACCOUNTING STANDARDS" under "AS 11 on The Effects of Changes in
Foreign Exchange Rates", for the paragraph 32, the following paragraph shall be
substituted, namely :-
"32. An enterprise may dispose of its interest in a non-integral foreign operation
through sale, liquidation, repayment of share capital, or abandonment of all, or part
of, that operation. The payment of a dividend forms part of a disposal only when it
constitutes a return of the investment. Remittance from a non-integral foreign

PAPER – 1 : ACCOUNTING 3
operation by way of repatriation of accumulated profits does not form part of a

disposal unless it constitutes return of the investment. In the case of a partial disposal,
only the proportionate share of the related accumulated exchange differences is
included in the gain or loss. A write-down of the carrying amount of a non-integral
foreign operation does not constitute a partial disposal. Accordingly, no part of the
deferred foreign exchange gain or loss is recognized at the time of a write-down".
V. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (reg.
Issue of Bonus Shares)
A listed company, while issuing bonus shares to its members, must comply with the
following requirements under the SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2018:
Regulation 293 - Conditions for Bonus Issue
Subject to the provisions of the Companies Act, 2013 or any other applicable law, a
listed issuer shall be eligible to issue bonus shares to its members if:
(a) it is authorized by its articles of association for issue of bonus shares,
capitalization of reserves, etc.: Provided that if there is no such provision in the
articles of association, the issuer shall pass a resolution at its general body
meeting making provisions in the articles of associations for capitalization of
reserve;
(b) it has not defaulted in payment of interest or principal in respect of fixed deposits
or debt securities issued by it;
(c) it has not defaulted in respect of the payment of statutory dues of the employees
such as contribution to provident fund, gratuity and bonus;
(d) any outstanding partly paid shares on the date of the allotment of the bonus
shares, are made fully paid-up;
(e) any of its promoters or directors is not a fugitive economic offender.
Regulation 294 - Restrictions on a bonus issue
(1) An issuer shall make a bonus issue of equity shares only if it has made
reservation of equity shares of the same class in favour of the holders of
outstanding compulsorily convertible debt instruments if any, in proportion to the
convertible part thereof.
(2) The equity shares so reserved for the holders of fully or partly compulsorily
convertible debt instruments, shall be issued to the holder of such convertible
debt instruments or warrants at the time of conversion of such convertible debt
instruments, optionally convertible instruments, warrants, as the case may be,
on the same terms or same proportion at which the bonus shares were issued.

(3) A bonus issue shall be made only out of free reserves, securities premium
account or capital redemption reserve account and built out of the genuine
profits or securities premium collected in cash and reserves created by
revaluation of fixed assets shall not be capitalized for this purpose.
(4) Without prejudice to the provisions of sub-regulation (3), bonus shares shall not
be issued in lieu of dividends.
(5) If an issuer has issued Superior Voting Right (SR) equity shares to its promoters
or founders, any bonus issue on the SR equity shares shall carry the same ratio
of voting rights compared to ordinary shares and the SR equity shares issued in
a bonus issue shall also be converted to equity shares having voting rights same
as that of ordinary equity shares along with existing SR equity shares.]
Regulation 295 - Completion of a bonus issue
(1) An issuer, announcing a bonus issue after approval by its board of directors and
not requiring shareholders’ approval for capitalization of profits or reserves for
making the bonus issue, shall implement the bonus issue within fifteen days
from the date of approval of the issue by its board of directors: Provided that
where the issuer is required to seek shareholders’ approval for capitalization of
profits or reserves for making the bonus issue, the bonus issue shall be
implemented within two months from the date of the meeting of its board of
directors wherein the decision to announce the bonus issue was taken subject
to shareholders’ approval.
Explanation:
For the purpose of a bonus issue to be considered as ‘implemented’ the date of
commencement of trading shall be considered.
(2) A bonus issue, once announced, shall not be withdrawn.
VI. Companies (Share Capital and Debentures) Amendment Rules, 2019 – reg.
Debenture Redemption Reserve
In exercise of the powers conferred by sub-sections (1) and (2) of section 469 of the
Companies Act, 2013 (18 of 2013), the Central Government made the Companies
(Share Capital and Debentures) Amendment Rules, 2019 dated 16th August, 2019 to
amend the Companies (Share Capital and Debentures) Rules, 2014. As per the
Companies (Share Capital and Debentures) Amendment Rules, under principal rules,
in rule 18, for sub-rule (7), the following sub-rule shall be substituted, namely: -
“(7) The company shall comply with the requirements with regard to Debenture
Redemption Reserve (DRR) and investment or deposit of sum in respect of
debentures maturing during the year ending on the 31st day of March of next year, in
accordance with the conditions given below:-

(a) Debenture Redemption Reserve shall be created out of profits of the company
available for payment of dividend;
(b) the limits with respect to adequacy of Debenture Redemption Reserve and
investment or deposits, as the case may be, shall be as under;-
(i) Debenture Redemption Reserve is not required for debentures issued by
All India Financial Institutions regulated by Reserve Bank of India and
Banking Companies for both public as well as privately placed debentures;
(ii) For other Financial Institutions within the meaning of clause (72) of section
2 of the Companies Act, 2013, Debenture Redemption Reserve shall be as
applicable to Non –Banking Finance Companies registered with Reserve
Bank of India.
(iii) For listed companies (other than All India Financial Institutions and Banking
Companies as specified in sub-clause (i)), Debenture Redemption Reserve
is not required in the following cases - (A) in case of public issue of
debentures – A. for NBFCs registered with Reserve Bank of India under
section 45-IA of the RBI Act, 1934 and for Housing Finance Companies
registered with National Housing Bank; B. for other listed companies; (B)
in case of privately placed debentures, for companies specified in sub-
items A and B.
(iv) for unlisted companies, (other than All India Financial Institutions and
Banking Companies as specified in sub-clause (i)) -
(A) for NBFCs registered with RBI under section 45-IA of the Reserve
Bank of India Act, 1934 and for Housing Finance Companies
registered with National Housing Bank, Debenture Redemption
Reserve is not required in case of privately placed debentures.
(B) for other unlisted companies, the adequacy of Debenture Redemption
Reserve shall be ten percent. of the value of the outstanding
debentures;
(v) In case a company is covered in item (A) or item (B) of sub-clause (iii) of
clause (b) or item (B) of sub-clause (iv) of clause (b), it shall on or before
the 30th day of April in each year, in respect of debentures issued by a
company covered in item (A) or item (B) of sub clause (iii) of clause (b) or
item (B) of sub-clause (iv) of clause (b), invest or deposit, as the case may
be, a sum which shall not be less than fifteen per cent., of the amount of

its debentures maturing during the year, ending on the 31st day of March
of the next year in any one or more methods of investments or deposits as
provided in sub-clause (vi):
Provided that the amount remaining invested or deposited, as the case may
be, shall not at any time fall below fifteen percent. of the amount of the
debentures maturing during the year ending on 31st day of March of that
year.
(vi) for the purpose of sub-clause (v), the methods of deposits or investments,
as the case may be, are as follows:— (A) in deposits with any scheduled
bank, free from any charge or lien; (B) in unencumbered securities of the
Central Government or any State Government; (C) in unencumbered
securities mentioned in sub-clause (a) to (d) and (ee) of section 20 of the
Indian Trusts Act, 1882; (D) in unencumbered bonds issued by any other
company which is notified under sub-clause (f) of section 20 of the Indian
Trusts Act, 1882:
Provided that the amount invested or deposited as above shall not be used
for any purpose other than for redemption of debentures maturing during
the year referred above.
(c) in case of partly convertible debentures, Debenture Redemption Reserve shall
be created in respect of non-convertible portion of debenture issue in
accordance with this sub-rule.
(d) the amount credited to Debenture Redemption Reserve shall not be utilized by
the company except for the purpose of redemption of debentures.”
NOTE: October, 2020 Edition of the Study Material on Paper 1 Accounting is applicable
for November, 2021 Examination which incorporates the above amendments. The students
who have editions prior to October, 2020 may refer above amendments.
B. Not applicable for November, 2021 examination

Non-Applicability of Ind AS for November, 2021 Examination
The Ministry of Corporate Affairs has notified Companies (Indian Accounting Standards)
Rules, 2015 on 16 th February, 2015, for compliance by certain class of companies. These
Ind AS are not applicable for November, 2021 Examination.

PART – II: QUESTIONS AND ANSWERS
QUESTIONS
Preparation of Statement of Profit and Loss and Balance Sheet

1. Om Ltd. has the Authorised Capital of ` 15,00,000 consisting of 6,000 6% Redeemable
Preference shares of ` 100 each and 90,000 equity Shares of `10 each. The following was
the Trial Balance of the Company as on 31 st March, 2021:
Particulars Dr. Cr.
Investment in shares at cost (non-current investment) 1,50,000
Purchases 14,71,500
Selling expenses 2,37,300
Inventory as at the beginning of the year 4,35,600
Salaries and wages (included ` 30,000 being Director's
1,56,000
Remuneration)
Cash on hand 84,000
Bills receivable 1,24,500
Interest on Bank overdraft 29,400
Interest on debentures upto 30 th Sep (1st half year) 11,250
Sundry Debtors and Sundry Creditors 1,50,300 2,63,550
Freehold property at cost 10,50,000
Furniture at cost less depreciation of ` 45,000 1,05,000
6% Redeemable Preference share capital 6,00,000
Equity share capital fully paid up 6,00,000
5% mortgage debentures secured on freehold properties 4,50,000
Dividends received 12,750
Profit and Loss A/c (opening balance) 85,500
Sales (Net) 20,11,050
Bank overdraft (secured by hypothecation of stocks and
receivables) 4,50,000
Technical knowhow fees (cost paid during the year) 4,50,000
Audit fees 18,000
Total 44,72,850 44,72,850

Other Information:
1. Closing Stock was valued at ` 4,27,500.
2. Purchases include ` 15,000 worth of goods and articles distributed among valued
customers.
3. Salaries and Wages include ` 6,000 being Wages incurred for installation of Electrical
Fittings which were recorded under "Furniture".
4. Bills Receivable include ` 4,500 being dishonoured bills. 50% of which had been
considered irrecoverable.
5. Bills Receivable of ` 6,000 maturing after 31 st March were discounted.
6. Depreciation on Furniture to be charged at 10% on Written Down Value.
7. Interest on Debentures for the half year ending on 31 st March was due on that date.
8. Technical Knowhow Fees is to be written off over a period of 10 years.
9. Trade receivables include ` 18,000 due for more than six months.
You are required to prepare the Balance Sheet as at 31 st March, 2021 and Statement of
Profit and Loss for the year ended 31 st March, 2021 as per Schedule III to the Companies
Act, 2013 after taking into account the above information. Ignore taxation.
2. (a) Star Ltd. gives the following information the year ended 31st March, 2021:
`
Gross profit 60,38,048
Subsidies received from Govt. 4,10,888
Administrative, Selling and distribution expenses 12,33,813
Directors’ fees 2,02,170
Interest on debentures 46,860
Managerial remuneration 4,28,025
Depreciation on Property, plant and equipment (PPE) 7,83,815
Provision for Taxation 18,63,750
Transfer to General Reserve 6,00,000
Transfer to Investment Revaluation Reserve 18,750
Depreciation on PPE as per Schedule II of the Companies Act, 2013 was ` 8,63,018
You are required to calculate the maximum amount of the managerial remuneration
as allowed as per Companies Act, 2013.

(b) State under which head these accounts should be classified in Balance Sheet, as per
Schedule III of the Companies Act, 2013:
(i) Share application money received in excess of issued share capital.
(ii) Share option outstanding account.
(iii) Unpaid matured debenture and interest accrued thereon.
(iv) Uncalled liability on shares and other partly paid investments.
(v) Calls unpaid.
Cash Flow Statement
3 On the basis of the following information prepare a Cash Flow Statement for the year ended
31st March, 2021 (Using direct method):
(i) Total sales for the year were ` 597 crores out of which cash sales amounted to
` 393 crores.
(ii) Receipts from credit customers during the year, totalled ` 201 crores.
(iii) Purchases for the year amounted to ` 330 crores out of which credit purchases were
80%.
Balance in creditors as on
1.4.2020 ` 126 crores
31.3.2021 ` 138 crores
(iv) Suppliers of other consumables and services were paid ` 28.5 crores in cash.
(v) Employees of the enterprises were paid 30 crores in cash.
(vi) Fully paid preference shares of the face value of ` 48 crores were redeemed. Equity
shares of the face value of ` 30 crores were allotted as fully paid up at premium of
20%.
(vii) Debentures of ` 30 crores at a premium of 10% were redeemed. Debenture holders
were issued equity shares in lieu of their debentures.
(viii) ` 39 crores were paid by way of income tax.
(ix) A new machinery costing ` 15 was purchased.
(x) Investment costing ` 27 cores were sold at a loss of ` 3 crores.
(xi) Dividends totalling ` 22.5 crores was also paid.
(xii) Debenture interest amounting ` 3 crore was paid.
(xiii) On 31st March 2020, Balance with Bank and Cash on hand totalled ` 3 crores.

Profit/Loss prior to Incorporation

4. New Limited was incorporated on 01.08.2020 to take-over the business of a partnership
firm w.e.f. 01.04.2020. It provides you the following information for the year ended
31.03.2021:
`
Expenses:
Salaries 1,80,000
Rent, Rates & Taxes 1,20,000
Depreciation 37,500
Commission on Sales 31,500
Interest on Debentures 48,000
Director’s Fees 18,000
Advertisement 54,000
Net Profit for the Year 4,11,000
(i) New Limited initiated an advertising campaign which resulted increase in monthly
average sales by 25% post incorporation.
(ii) The Gross profit ratio post incorporation increased to 30% from 25%.
You are required to apportion the profit for the year between pre-incorporation and post-
incorporation periods.
Accounting for Bonus Issue
5. Raman Ltd. gives the following information as at 31 st March, 2021:
`
Authorised capital:
45,000 12% Preference shares of ` 10 each 4,50,000
6,00,000 Equity shares of ` 10 each 60,00,000
64,50,000
Issued and Subscribed capital:
36,000 12% Preference shares of ` 10 each fully paid 3,60,000
4,05,000 Equity shares of ` 10 each, ` 8 paid up 32,40,000
Reserves and surplus:
General Reserve 5,40,000

Capital Redemption Reserve 1,80,000

Securities premium (collected in cash) 1,12,500
Profit and Loss Account 9,00,000
On 1st April, 2021, the Company has made final call @ ` 2 each on 4,05,000 equity shares.
The call money was received by 20 th April, 2021. Thereafter, the company decided to
capitalize its reserves by way of bonus at the rate of one share for every four shares held.
Show necessary journal entries in the books of the company.
Issue of Right Shares
6. Super company offers new shares of ` 100 each at 20% premium to existing shareholders
on the basis one for four shares. The cum-right market price of a share is ` 190.
You are required to calculate the value of a right share.
Redemption of Preference Shares
7. Neeraj Ltd.’s capital structure consists of 45,000 Equity Shares of ` 10 each fully paid up
and 3,000 9% Redeemable Preference Shares of ` 100 each fully paid up as on
31.03.2021. The other particulars as at 31.03.2021 are as follows:
Amount (`)
General Reserve 1,80,000
Profit & Loss Account 90,000
Investment Allowance Reserve (not free for distribution as dividend) 22,500
Cash at bank 2,92,500
Preference Shares are to be redeemed at a premium of 10%. For the purpose of
redemption, the directors are empowered to make fresh issue of Equity Shares at par after
utilizing the undistributed reserve & surplus, subject to the conditions that a sum of `
60,000 shall be retained in General Reserve and which should not be utilized. Company
also sold investment of 6,750 Equity Shares in Kumar Ltd., costing `67,500 at ` 9 per
share.
Pass Journal entries to give effect to the above arrangements and also sho w how the
relevant items will appear in the Balance Sheet as at 31.03.2021 of Neeraj Ltd. after the
redemption is carried out.
Redemption of Debentures
8. Jeet Limited (listed company) recently made a public issue in respect of which the following
information is available:
(a) No. of partly convertible debentures issued - 1,00,000; face value and issue price-
` 100 per debenture.

(b) Convertible portion per debenture- 60%, date of conversion- on expiry of 6 months
from the date of closing of issue i.e 31.10.2020.
(c) Date of closure of subscription lists - 1.5.2020, date of allotment- 1.6.2020, rate of
interest on debenture- 15% payable from the date of allotment, value of equity share
for the purpose of conversion- ` 60 (Face Value ` 10).
(d) Underwriting Commission- 2%.
(e) Number of debentures applied for - 75,000.
(f) Interest payable on debentures half-yearly on 30th September and 31st March.
Write relevant journal entries for all transactions arising out of the above during the year
ended 31st March, 2021 (including cash and bank entries).
Investment Accounts
9. Following transactions of Meeta took place during the financial year 2020 -21:
1st April, 2020 Purchased ` 4,500 8% bonds of ` 100 each at ` 80.50
cum-interest. Interest is payable on 1st November and
1st May.
1st May, 2020 Received half year’s interest on 8% bonds.
10 July, 2020 Purchased 6,000 equity shares of ` 10 each in Kamal
Limited for ` 44 each through a broker, who charged
brokerage @ 2%.
1st October 2020 Sold 1,125 8% bonds at ` 81 Ex-interest.
1st November, 2020 Received half year’s interest on 8% bonds.
15th January, 2021 Received 18% interim dividend on equity shares of Kamal
Limited.
15th March, 2021 Kamal Limited made a rights issue of one equity share for
every four Equity shares held at ` 5 per share. Meeta
exercised the option for 40% of her entitlements and sold
the balance rights in the market at ` 2.25 per share.
Prepare separate investment account for 8% bonds and equity shares of Kamal Limited in
the books of Meeta for the year ended on 31 st March, 2021. Assume that the average cost
method is followed.
Insurance Claim for loss of stock or loss of profit
10. On 2.6.2021 the stock of Mr. Heera was destroyed by fire. However, following particulars
were furnished from the records saved:
`
Stock at cost on 1.4.2020 2,02,500

Stock at 90% of cost on 31.3.2021 2,43,000

Purchases for the year ended 31.3.2021 9,67,500
Sales for the year ended 31.3.2021 13,50,000
Purchases from 1.4.2021 to 2.6.2021 3,37,500
Sales from 1.4.2021 to 2.6.2021 7,20,000
Sales up to 2.6.2021 includes ` 1,12,500 being the goods not dispatched to the customers.
The sales (invoice) price is ` 1,12,500.
Purchases up to 2.6.2021 includes a machinery acquired for ` 22,500.
Purchases up to 2.6.2021 does not include goods worth ` 45,000 received from suppliers,
as invoice not received up to the date of fire. These goods have remained in the godown
at the time of fire. The insurance policy is for ` 1,80,000 and it is subject to average clause.
Ascertain the amount of claim for loss of stock.
Hire Purchase Transactions
11. On January 1, 2018 M/s Hello acquired a Machine on hire purchase from M/s Pass. The
terms of the contract were as follows:
(a) The cash price of the Machine was ` 2,00,000.
(b) ` 80,000 were to be paid on signing of the contract.
(c) The balance was to be paid in annual instalments of ` 40,000 plus interest. The first
instalment was to be paid on 31 st Dec. 2018.
(d) Interest chargeable on the outstanding balance was 6% p.a.
(e) Depreciation at 10% p.a. is to be written-off using the WDV method.
You are required to give Journal Entries in the books of M/s Hello from January 1, 2018 to
December 31, 2020.
Departmental Accounts
12. M/s. Hero is a Departmental Store having three departments X, Y and Z. The information
regarding three departments for the year ended 31 st March, 2021 are given below:
Particulars Dept. X Dept. Y Dept. Z
Opening Stock 18,000 12,000 10,000
Purchases 66,000 44,000 22,000
Debtors at end 7,500 5,000 5,000
Sales 90,000 67,500 45,000
Closing Stock 22,500 8,750 10,500
Value of furniture in each Department 10,000 10,000 5,000
Floor space occupied by each Dept. (in Sq. ft.) 1,500 1,250 1,000

Number of employees in each Department 25 20 15

Electricity consumed by each Department (in units) 300 200 100
Additional Information:
Amount (`)
Carriage inwards 1,500
Carriage outwards 2,700
Salaries 24,000
Advertisement 2,700
Discount allowed 2,250
Discount received 1,800
Rent, Rates and Taxes 7,500
Depreciation on furniture 1,000
Electricity Expenses 3,000
Labour welfare expenses 2,400
Prepare Departmental Trading and Profit & Loss Account for the year ended
31st March, 2021 after providing provision for Bad Debts at 5%.
Accounting for Branches
13. Lal & Co. of Jaipur has a branch in Patna to which goods are sent @ 20% above cost. T he
branch makes both cash & credit sales. Branch expenses are paid direct from Head office
and the branch has to remit all cash received into the bank account of Head office. Branch
doesn't maintain any books of accounts but sends monthly returns to the head office.
Following further details are given for the year ended 31st March, 2020:
Amount (`)
Goods received from Head office at Invoice Price 4,20,000
Goods returned to Head office at Invoice Price 30,000
Cash sales for the year 2019-20 92,500
Credit Sales for the year 2019-20 3,12,500
Stock at Branch as on 01-04-2019 at Invoice price 36,000
Sundry Debtors at Patna branch as on 01-04-2019 48,000
Cash received from Debtors 2,19,000
Discount allowed to Debtors 3,750
Goods returned by customer at Patna Branch 7,000
Bad debts written off 2,750
Amount recovered from Bad debts previously written off as Bad 500

Rent, Rates & taxes at Branch 12,000

Salaries & wages at Branch 36,000
Office Expenses (at Branch) 4,600
Stock at Branch as on 31-03-2020 at cost price 62,500
Prepare necessary ledger accounts in the books of Head office by following Stock and
Debtors method and ascertain Branch profit.
Accounts from Incomplete Records
14. From the following details furnished by Mittal ji, prepare Trading and Profit and Loss
account for the year ended 31.3.2021. Also draft his Balance Sheet as at 31.3.2021:
1.4.2020 31.3.2021
` `
Creditors 3,15,400 2,48,000
Expenses outstanding 12,000 6,600
Plant and Machinery 2,32,200 2,40,800
Stock in hand 1,60,800 2,22,400
Cash in hand 59,200 24,000
Cash at bank 80,000 1,37,600
Sundry debtors 3,30,600 ?
Details of the year’s transactions are as follows:
Cash and discount credited to debtors 12,80,000
Returns from debtors 29,000
Bad debts 8,400
Sales (Both cash and credit) 14,36,200
Discount allowed by creditors 14,000
Returns to creditors 8,000
Capital introduced by cheque 1,70,000
Collection from debtors (Deposited into bank after 12,50,000
receiving cash)
Cash purchases 20,600
Expenses paid by cash 1,91,400
Drawings by cheque 8,600
Machinery acquired by cheque 63,600
Cash deposited into bank 1,00,000

Cash withdrawn from bank 1,84,800

Cash sales 92,000
Payment to creditors by cheque 12,05,400
Note: Mittalji has not sold any machinery during the year.
Framework for Preparation and Presentation of Financial Statements
15. What is meant by ‘Measurement’? What are the bases of measurement of Elements of
Financial Statements? Explain in brief.
AS 2 Valuation of Inventories
16. On 31st March 2020, a business firm finds that cost of a partly finished unit on that date is
` 430. The unit can be finished in 2020-21 by an additional expenditure of ` 310. The
finished unit can be sold for ` 750 subject to payment of 2% brokerage on selling price.
The firm seeks your advice regarding the amount at which the unfinished unit should be
valued as at 31st March, 2020 for preparation of final accounts. Assume that the partly
finished unit cannot be sold in semi-finished form and its NRV is zero without processing
it further.
AS 10 Property, Plant and Equipment
17. A property costing ` 10,00,000 is bought on 1.4.2020. Its estimated total physical life is 50
years. However, the company considers it likely that it will sell the property after 25 years.
The estimated residual value in 25 years' time, based on current year prices, is:
Case (a) ` 10,00,000
Case (b) ` 9,00,000
You are required to compute the amount of depreciation charged for the year ended
31.3.2021.
AS 11 The Effects of Changes in Foreign Exchange Rates
18. Mona Ltd. purchased a plant for US$ 1,00,000 on 01 st December 2020, payable after three
months. Company entered into a forward contract for three months @ ` 49.15 per dollar.
Exchange rate per dollar on 01 st December was ` 48.85. How will you recognize the profit
or loss on forward contract in the books of Mona Ltd for the year ended 31 st March, 2021?
AS 12 Accounting for Government Grants
19. (a) D Ltd. acquired a machine on 01-04-2017 for ` 20,00,000. The useful life is 5 years.
The company had applied on 01-04-2017, for a subsidy to the tune of 80% of the cost.
The sanction letter for subsidy was received in November 2020. The Company’s Fixed
Assets Account for the financial year 2020-21 shows a credit balance as under:

Particulars `
Machine (Original Cost) 20,00,000
Less: Accumulated Depreciation (from 2017-18- to 2019-20 on
Straight Line Method) 12,00,000
8,00,000
Less: Grant received (16,00,000)
Balance (8,00,000)
You are required to explain how should the company deal with this asset in its
accounts for 2020-21?
AS 13 Accounting for Investments
(b) Z Bank has classified its total investment on 31-3-2021 into three categories (a) held
to maturity (b) available for sale (c) held for trading as per the RBI Guidelines.
‘Held to maturity’ investments are carried at acquisition cost less amortised amount.
‘Available for sale’ investments are carried at marked to market. ‘Held for trading’
investments are valued at weekly intervals at market rates. Net depreciation, if any,
is charged to revenue and net appreciation, if any, is ignored. Comment whether the
policy of the bank is in accordance with AS 13?
AS 16 Borrowing Costs
20. In May, 2020, Omega Ltd. took a bank loan from a Bank. This loan was to be used
specifically for the construction of a new factory building. The construction was completed
in January, 2021 and the building was put to its use immediately thereafter. Interest on the
actual amount used for construction of the building till its completion was ` 18 lakhs,
whereas the total interest payable to the bank on the loan for the period till 31 st March,
2021 amounted to ` 25 lakhs.
the company wants to treat ` 25 lakhs as part of the cost of factory building and thus
capitalize it on the plea that the loan was specifically taken for the construction of factory
building? Explain the treatment in line with the provisions of AS 16.
SUGGESTED ANSWERS
1. Balance sheet of Om Ltd. as at 31st March, 2021

Note (`)
I Equity and Liabilities
(1) Shareholders’ funds:
(a) Share capital 1 12,00,000
(b) Reserves and surplus 2 1,14,150

(2) Non-current liabilities:

Long term borrowings 3 4,50,000
(3) Current liabilities:
(a) Short term borrowings 4 4,50,000
(b) Trade payables 2,63,550
(c) Other current liabilities 5 11,250
Total 24,88,950
II ASSETS
(1) Non- Current Assets:
(a) Property, plant and equipment 6 11,49,900
(b) Intangible assets 7 4,05,000
(c) Non-current investments (Shares at cost) 1,50,000
(2) Current Assets:
(a) Inventories 4,27,500
(b) Trade receivables 8 2,72,550
(c) Cash and Cash equivalents – Cash on hand 84,000
Total 24,88,950
Note: There is a Contingent liability for Bills receivable discounted with Bank ` 6000.
Statement of Profit and Loss of Om Ltd. for the year ended 31 st March, 2021
Particulars Note `
I Revenue from Operations 20,11,050
II Other income (Dividend income) 12,750
III Total Revenue (I &+ II) 20,23,800
IV Expenses:
(a) Purchases of Inventory (14,71,500 – Advertisement
14,56,500
Expenses 15,000)
(b) Changes in Inventories of finished Goods / Work in
8,100
progress & inventory (4,35,600 – 4,27,500)
(c) Employee Benefits expense 9 1,20,000
(d) Finance costs 10 51,900
(e) Depreciation & Amortization Expenses 11 56,100
(f) Other Expenses 12 3,02,550
Total Expenses 19,95,150

V Profit before exceptional, extraordinary items and tax 28,650

VI Exceptional items -
VII Profit before extra-ordinary items and tax 28,650
VIII Extraordinary items -
IX Profit before tax 28,650
Notes to accounts
(` )
1. Share Capital
Authorized capital:
90,000 Equity Shares of ` 10 each. 9,00,000
6,000 6% Preference shares of ` 100 each 6,00,000
Issued, subscribed & called up:
60,000, Equity Shares of ` 10 each 6,00,000
6,000 6% Redeemable Preference Shares of 100 each 6,00,000
12,00,000
2. Reserves and Surplus
Balance as on 1st April, 2020 85,500
Add: Surplus for current year 28,650
Balance as on 31st March, 2021 1,14,150
3. Long Term Borrowings
5% Mortgage Debentures (Secured against Freehold 4,50,000
Properties)
4. Short Term Borrowings
Secured Borrowings: Loans Repayable on Demand 4,50,000
Overdraft from Banks (Secured by Hypothecation of
Stocks & Receivables)
5. Other Current liabilities
Interest due on Borrowings (5% Debentures) 11,250
6. Property, plant and equipment
Furniture
Furniture at Cost Less depreciation ` 45,000 (as
given in Trial Balance 1,05,000
Add: Depreciation 45,000
Cost of Furniture 1,50,000

Add: Installation charge of Electrical Fittings wrongly

included under the heading Salaries and Wages 6,000
Total Gross block of Furniture A/c 1,56,000
Accumulated Depreciation Account: Opening
Balance-given in Trial Balance 45,000
Depreciation for the year:
On Opening WDV at 10% i.e.
(10% x 1,05,000) 10,500
On additional purchase during the year
at 10% i.e. (10% x 6,000) 600
Less: Accumulated Depreciation 56,100 99,900
Freehold property (at cost) 10,50,000
11,49,900
7. Intangible Assets
Technical knowhow 4,50,000
Less: Written off 45,000 4,05,000
8. Trade Receivables
Sundry Debtors (a) Debt outstanding due more than
18,000
six months
(b) Other Debts (refer Working Note) 1,34,550
Bills Receivable (1,24,500 - 4,500) 1,20,000 2,72,550
9. Employee benefit expenses
Salaries & Wages 1,56,000
Less: Wages incurred for installation of electrical
6,000
fittings to be capitalised
Less: Directors’ Remuneration shown separately 30,000
Balance amount 1,20,000
10. Finance Costs
Interest on bank overdraft 29,400
51,900
11. Depreciation & Amortisation Expenses
Depreciation [10% of (1,05,000 + 6,000)] 11,100
Technical knowhow written of (4,50,000/10) 45,000 56,100

12. Other Expenses

Payment to the auditors 18,000
Director’s remuneration 30,000
Selling expenses 2,37,300
Advertisement (Goods and Articles Distributed) 15,000
Bad Debts (4,500 x 50%) 2,250 3,02,550
Working Note:
Calculation of Sundry Debtors-Other Debts
Sundry Debtors as given in Trial Balance 1,50,300
Add Back: Bills Receivables Dishonoured 4,500
1,54,800
Less: Bad Debts written off – 50% ` 4,500 (2,250)
Adjusted Sundry Debtors 1,52,550
Less: Debts due for more than 6 months (as per information given) (18,000)
Total of other Debtors i.e. Debtors outstanding for less than 6 months 1,34,550
2. (a) Calculation of net profit u/s 198 of the Companies Act, 2013
` `
Add: Subsidies received from Government 4,10,888
64,48,936
Less: Administrative, selling and distribution
12,33,813
expenses
Director’s fees 2,02,170
Depreciation on PPE as per Schedule II 8,63,018 (23,45,861)
Profit u/s 198 41,03,075
Maximum Managerial remuneration under Companies Act, 2013= 11% of ` 41,03,075
= ` 4,51,338
(b) (i) Current Liabilities/ Other Current Liabilities
(ii) Shareholders' Fund / Reserve & Surplus
(iii) Current liabilities/Other Current Liabilities
(iv) Contingent Liabilities and Commitments
(v) Shareholders' Fund / Share Capital

3. Cash flow statement (using direct method) for the year ended 31 st March, 2021
(` in crores) (` in crores)
Cash flow from operating activities
Cash sales 393
Cash collected from credit customers 201
Less: Cash paid to suppliers for goods & services and
(376.5)
to employees (Refer Working Note)
Cash from operations 217.5
Less: Income tax paid (39)
Net cash generated from operating activities 178.5
Cash flow from investing activities
Payment for purchase of Machine (15)
Proceeds from sale of investments 24
Net cash used in investing activities 9
Cash flow from financing activities
Redemption of Preference shares (48)
Proceeds from issue of Equity shares 36
Debenture interest paid (3)
Dividend Paid (22.5)
Net cash used in financing activities (37.5)
Net increase in cash and cash equivalents 150
Add: Cash and cash equivalents as on 1.04.2020 3
Cash and cash equivalents as on 31.3.2021 153
Working Note:
Calculation of cash paid to suppliers of goods and services and to employees
(` in crores)
Opening Balance in creditors Account 126
Add: Purchases (330x .8) 264
Total 390
Less: Closing balance in Creditors Account 138
Cash paid to suppliers of goods 252
Add: Cash purchases (330x .2) 66

Total cash paid for purchases to suppliers (a) 318

Add: Cash paid to suppliers of other consumables and services (b) 28.5
Add: Payment to employees (c) 30
Total cash paid to suppliers of goods & services and to employees
376.5
[(a)+ (b) + (c)]
4. Statement showing the calculation of Profits for the pre-incorporation and post-
incorporation periods
Particulars Total Basis of Pre- Post-
Amount Allocation incorporation incorporation
` ` `
Gross Profit 9,00,000 1:3 2,25,000 6,75,000
Less: Salaries 1,80,000 Time 60,000 1,20,000
Rent, rates and taxes 1,20,000 Time 40,000 80,000
Commission on sales 31,500 Sales(2:5) 9,000 22,500
Depreciation 37,500 Time 12,500 25,000
Interest on debentures 48,000 Post 48,000
Directors’ fee 18,000 Post 18,000
Advertisement 54,000 post 54,000
Net profit 4,11,000 1,03,500 3,07,500
Working Notes:
1. Sales ratio
Let the monthly sales for first 4 months (i.e. from 1.4.2020 to 31.7.2020) be = x
Then, sales for 4 months = 4x
Monthly sales for next 8 months (i.e. from 1.8.20 to 31.3.2021) = x + 25% of x= 1.25x
Then, sales for next 8 months = 1.25x X 8 = 10x
Total sales for the year = 4x + 10x = 14x
Sales Ratio = 4 x :10x i.e. 2:5
2. Gross profit ratio
From 1.4.2020 to 31.7.2020 gross profit is 25% of sales
Then, 25% of 4x= 1x
gross profit for next 8 months (i.e. from 1.8.20 to 31.3.2021) is 30%
Then, 30% of 10x = 3x
Therefore gross profit ratio will be 1:3

3. Time ratio
1st April, 2020 to 31 st July, 2020 : 1 st August, 2020 to 31 st March, 2021
= 4 months: 8 months = 1:2
Thus, time ratio is 1:2.
5. Journal Entries in the books of Raman Ltd.
` `
1-4-2021 Equity share final call A/c Dr. 8,10,000
To Equity share capital A/c 8,10,000
(For final calls of ` 2 per share on 4,05,000
equity shares due as per Board’s Resolution
dated….)
20-4-2021 Bank A/c Dr. 8,10,000
To Equity share final call A/c 8,10,000
(For final call money on 4,05,000 equity
shares received)
Securities Premium A/c Dr. 1,12,500
Capital Redemption Reserve A/c Dr. 1,80,000
General Reserve A/c Dr. 5,40,000
Profit and Loss A/c (b.f.) Dr. 1,80,000
To Bonus to shareholders A/c 10,12,500
(For making provision for bonus issue of
one share for every four shares held)
Bonus to shareholders A/c Dr. 10,12,500
To Equity share capital A/c 10,12,500
(For issue of bonus shares)
6. Value of right = Cum-right value of the share – Ex-right value of the share (as computed
in Working Note)
= ` 190 – ` 176 = ` 14 per share.
Working Note:
Ex-right value of the shares
= (Cum-right value of the existing shares + Rights shares x Issue Price) / (Existing
No. of shares + No. of right shares) = (` 190 X 4 Shares + ` 120 X 1 Share) /
(4 + 1) Shares
= ` 880 / 5 shares = ` 176 per share.

7. Journal Entries
Date Particulars Dr. (`) Cr. (`)

Bank A/c Dr. 1,26,750
To Equity Share Capital A/c 1,26,750
(Being the issue of 12,675 Equity Shares of
` 10 each as per Board’s Resolution No....dated….)
9% Redeemable Preference Share Capital A/c Dr. 3,00,000
Premium on Redemption of Preference Shares A/c Dr. 30,000
To Preference Shareholders A/c 3,30,000
(Being the amount paid on redemption transferred to
Preference Shareholders Account)
Bank A/c Dr. 60,750
Profit and Loss A/c (loss on sale) A/c Dr. 6,750
To Investment A/c 67,500
(Being investment sold at loss of ` 6,750)
Preference Shareholders A/c Dr. 3,30,000
To Bank A/c 3,30,000
(Being the amount paid on redemption of preference
shares)
Profit & Loss A/c Dr. 30,000
To Premium on Redemption of
Preference Shares A/c 30,000
(Being the premium payable on redemption is
adjusted against Profit & Loss Account)
General Reserve A/c Dr. 1,20,000
To Capital Redemption Reserve A/c 1,73,250
(Being the amount transferred to Capital Redemption
Reserve Account)
Balance Sheet as at 31.3.2021[Extracts]
Particulars Notes `
No.
EQUITY AND LIABILITIES
1. Shareholders’ funds
a Share capital 1 5,76,750

b Reserves and Surplus 2 2,55,750

ASSETS
2. Current Assets
Cash and cash equivalents
(2,92,500 + 1,26,750+ 60,750 – 3,30,000) 1,50,000
Notes to accounts
1. Share Capital
57,675 Equity shares (45,000 + 12,675) of `10 each fully paid up 5,76,750
2. Reserves and Surplus
General Reserve 60,000
Profit and loss account NIL
Capital Redemption Reserve 1,73,250
Investment Allowance Reserve 22,500
2,55,750
Working Note:
Number of Shares to be issued for redemption of Preference Shares:
Face value of shares redeemed ` 3,00,000
Less: Profit available for distribution as dividend:
General Reserve: ` (1,80,000-60,000) ` 1,20,000
Profit and Loss (90,000 less 30,000 set aside for
adjusting premium payable on redemption of Pref.
shares less 6,750 loss on sale of investments) ` c 53,250
` (1,73,250)
` 1,26,750
Therefore, No. of shares to be issued = ` 1,26,750/`10 = 12,675 shares.
8. Journal Entries in the books of Jeet Ltd.
Journal Entries
Date Particulars Amount Dr. Amount Cr.
` `
1.5.2020 Bank A/c Dr. 75,00,000
To Debenture Application A/c 75,00,000

(Application money received on 75,000

debentures @ ` 100 each)
1.6.2020 Debenture Application A/c Dr. 75,00,000
Underwriters A/c Dr. 25,00,000
To 15% Debentures A/c 1,00,00,000
(Allotment of 75,000 debentures to
applicants and 25,000 debentures to
underwriters)
Underwriting Commission Dr. 2,00,000
To Underwriters A/c 2,00,000
(Commission payable to underwriters @
2% on ` 1,00,00,000)
Bank A/c Dr. 23,00,000
To Underwriters A/c 23,00,000
(Amount received from underwriters in
settlement of account)
1.6.2020 Debenture Redemption Reserve 6,00,000
Investment A/c
To Bank A/c (1,00,000x100x15%x 40%) Dr. 6,00,000
(Being Investments made for redemption
purpose)
30.9.2020 Debenture Interest A/c Dr. 5,00,000
(Interest paid on debentures for 4 months
@ 15% on ` 1,00,00,000)
31.10.2020 15% Debentures A/c Dr. 60,00,000
To Equity Share Capital A/c 10,00,000
To Securities Premium A/c 50,00,000
(Conversion of 60% of debentures into
shares of ` 60 each with a face value of
` 10)
31.3.2021 Debenture Interest A/c Dr. 3,75,000
(Interest paid on debentures for the half
year) (refer working note below)

Working Note :
Calculation of Debenture Interest for the half year ended 31st March, 2021
On ` 40,00,000 for 6 months @ 15% = ` 3,00,000
On ` 60,00,000 for 1 months @ 15% = ` 75,000
` 3,75,000
9. In the books of Meeta
8% Bonds for the year ended 31 st March, 2021
Date Particulars No. Income Amount Date Particulars No. Income Amount
` ` ` `
2020 1 May By Bank- - 18,000
1 April, To Bank A/c 4,500 15,000 3,47,250 2020 Interest
Oct. 1
2021 To P & L A/c - - 4,312.50 1 Oct. By Bank A/c 1,125 3,750 91,125
March 31 (W.N.1) 2020
To P & L A/c 20,250 1 Nov. By Bank- 13,500
2021 Interest
2021 By Balance 3,375 - 2,60,437.50
Mar. c/d
31 (W.N.2)
4,500 35,250 3,51,562.50 4,500 35,250 3,51,562.50
Investment in Equity shares of Kamal Ltd. for the year ended 31 st March, 2021
Date Particulars No. Income Amount Date Particulars No. Income Amount
` ` ` `
2020 To Bank 6,000 -- 2,69,280 2021 By Bank – - 10,800
July 10 A/c Jan dividend
15
2021 To Bank 600 - 3,000 March By Balance 6,600 2,72,280
March A/c 31 c/d
15 (W.N. 3) (bal. fig.)
March To P & L
31 A/c - 10,800
6,600 10,800 2,72,280 6,600 10,800 2,72,280
Working Notes:
1. Profit on sale of 8% Bonds
Sales price ` 91,125
Less: Cost of bonds sold = 3,47,250/4,500x 1,125 (` 86,812.50)
Profit on sale ` 4,312.50

2. Closing balance as on 31.3.2021 of 8 % Bonds

3,47,250/4,500x 3,375= ` 2,60,437.50
3. Calculation of right shares subscribed by Kamal Ltd.
Right Shares = 6,000/4 x 1= 1,500 shares
Shares subscribed by Meeta = 1,500 x 40%= 600 shares
Value of right shares subscribed = 600 shares @ ` 5 per share = ` 3,000
4. Calculation of sale of right entitlement by Kamal Ltd.
No. of right shares sold = 1,500 – 600 = 900 rights for 2,025
Note: As per para 13 of AS 13, sale proceeds of rights are to be credited to P & L
A/c.
10. In the books of Mr. Heera
Trading Account for the year ended 31.3.2021
` `
To Opening Stock 2,02,500 By Sales 13,50,000
To Purchases 9,67,500 By Closing Stock at cost 2,70,000
To Gross Profit 4,50,000 100
(2,43,000× )
90
16,20,000 16,20,000
Memorandum Trading A/c
for the period from 1.4.2021 to 02.06.2021
` `
To Opening Stock (at cost) 2,70,000 By Sales 7,20,000
To Purchases 3,37,500 Less: Goods not
Add: Goods received but dispatched 1,12,500 6,07,500
invoice not received 45,000 By Closing stock (Balancing 2,25,000
3,82,500 figure)
Less: Machinery 22,500 3,60,000
To Gross Profit (Refer W.N.) 2,02,500
8,32,500 8,32,500

Calculation of Insurance Claim

 Actual loss of stock 
Claim subject to average clause =  ×Amount of policy 
 Value of stock on the date of fire 
2,25,000
= 1,80,000 x ( )= ` 1,80,000
2,25,000
Working Note:
4,50,000
G.P. ratio = ×100 = 33 1 %
13,50,000 3
1
Amount of Gross Profit = ` 6,07,500 x 33 % = ` 2,02,500
3
11. In the books of M/s Hello
Journal Entries
Date Particulars Dr. Cr.
` `
2018 Machine A/c Dr. 2,00,000
Jan. 1 To M/s Pass A/c 2,00,000
(Being the purchase of a Machine on hire
purchase from M/s Pass)
“ M/s Pass A/c Dr. 80,000
To Bank A/c 80,000
(Being the amount paid on signing the H.P.
contract)
Dec. 31 Interest A/c Dr. 7,200
To M/s Pass A/c 7,200
(Being the interest payable @ 6% on
` 1,20,000
“ M/s Pass A/c (` 40,000+` 7,200) Dr. 47,200
To Bank A/c 47,200
(Being the payment of 1 st instalment along
with interest)
“ Depreciation A/c Dr. 20,000
To Machine A/c 20,000
(Being the depreciation charged @ 10% p.a.
on ` 2,00,000)

“ Profit & Loss A/c Dr. 27,200

To Depreciation A/c 20,000
To Interest A/c 7,200
(Being the depreciation and interest
transferred to Profit and Loss Account)
2019 Interest A/c Dr. 4,800
Dec. 31 To M/s Pass A/c 4,800
` 80,000)
M/s Pass A/c (` 40,000 + ` 4,800) Dr. 44,800
To Bank A/c 44,800
(Being the payment of 2 nd instalment along
with interest)
Depreciation A/c Dr. 18,000
(Being the depreciation charged @ 10% p.a.)
(Being the depreciation and interest charged
to Profit and Loss Account)
2020 Interest A/c Dr. 2,400
Dec. 31 To M/s Pass A/c 2,400
` 40,000)
M/s Pass A/c (` 40000 + ` 2,400) Dr. 42,400
To Bank A/c 42,400
(Being the payment of final instalment along
with interest)
Depreciation A/c Dr. 16,200
(Being the depreciation charged @ 10% p.a.)


(Being the interest and depreciation charged
to Profit and Loss Account)
12. In the Books of M/s Hero
Departmental Trading and Profit and Loss Account
for the year ended 31 st March, 2021
Particulars Deptt.X Deptt.Y Deptt.Z Total Particulars Deptt.X Deptt.Y Deptt.Z Total
` ` ` ` ` ` ` `
To Stock 18,000 12,000 10,000 40,000 By Sales 90,000 67,500 45,000 2,02,500
(opening)
To Purchases 66,000 44,000 22,000 1,32,000 By Stock 22,500 8,750 10,500 41,750
(closing)
To Carriage 750 500 250 1,500
Inwards
To Gross Profit 27,750 19,750 23,250 70,750
c/d (b.f.)
1,12,500 76,250 55,500 2,44,250 1,12,500 76,250 55,500 2,44,250
To Carriage 1,200 900 600 2,700 By Gross 27,750 19,750 23,250 70,750
Outwards Profit b/d
To Electricity 1,500 1,000 500 3,000 By Discount 900 600 300 1,800
received
To Salaries 10,000 8,000 6,000 24,000
To Advertisement 1,200 900 600 2,700
To Discount 1,000 750 500 2,250
allowed
To Rent, Rates 3,000 2,500 2,000 7,500
and Taxes
To Depreciation 400 400 200 1,000
To Provision for 375 250 250 875
Bad Debts @ 5%
of debtors
To Labour 1,000 800 600 2,400
welfare expenses
To Net Profit (b.f.) 8,975 4,850 12,300 26,125
28,650 20,350 23,550 72,550 28,650 20,350 23,550 72,550
Working Note:
Basis of allocation of expenses
Carriage inwards Purchases (3:2:1)

Carriage outwards Turnover (4:3:2)

Salaries No. of Employees (5:4:3)
Advertisement Turnover (4:3:2)
Discount allowed Turnover (4:3:2)
Discount received Purchases (3:2:1)
Rent, Rates and Taxes Floor Space occupied (6:5:4)
Depreciation on furniture Value of furniture (2:2:1)
Labour welfare expenses No. of Employees (5:4:3)
Electricity expense Units consumed (3:2:1)
Provision for bad debts Debtors balances (3:2:2)
13. Branch Stock Account
` ` ` `
1.4.19 To Balance b/d 36,000 31.3.20 By Sales:
(opening
stock)
31.3.20 To Goods Sent 4,20,000 Cash 92,500
to Branch A/c Credit 3,12,500
To Branch P&L 47,000 Less: (7,000) 3,05,500 3,98,000
Return
By Goods 30,000
sent to
branch -
returns
By Balance 75,000
c/d
(closing
stock)
5,03,000 5,03,000
1.4.20 To Balance b/d 75,000
Branch Debtors Account

` `
1.4.19 To Balance b/d 48,000 31.3.20 By Cash 2,19,000
31.3.20 To Sales 3,12,500 By Returns 7,000
By Discounts 3,750
By Bad debts 2,750
By Balance c/d 1,28,000
3,60,500 3,60,500
1.4.20 To Balance b/d 1,28,000

Branch Expenses Account

` `
31.3.20 To Salaries & Wages 36,000 31.3.20 By Branch P&L 59,100
A/c
To Rent, Rates &
Taxes 12,000
To Office Expenses 4,600
To Discounts 3,750
To Bad Debts 2,750
59,100 59,100
Branch Profit & Loss Account for year ended 31.3.20
` `
31.3.20 To Branch 59,100 31.3.20 By Branch stock 47,000
Expenses A/c
To Net Profit By Branch Stock
transferred to Adjustment
account 58,500
General P & L By Bad debts
A/c 46,900 recovered 500
1,06,000 106,000
Branch Stock Adjustment Account for year ended 31.3.20
` `
31.3.20 To Goods sent to 5,000 31.3.20 By Balance b/d 6,000
branch (30,000x1/6) (36,000x1/6)
-returns
To Branch P & L A/c 58,500 By Goods sent to 70,000
branch
(4,20,000x1/6)
To Balance c/d
(75,000x1/6) 12,500
76,000 76,000

14. In the books of Mittal ji

Trading and Profit and Loss Account
for the year ended 31st March, 2021
` ` ` `
To Opening stock 1,60,800 By Sales:
To Purchases: Cash 92,000
Cash 20,600 Credit 13,44,200
Credit (W.N. 3) 11,60,000 14,36,200
11,80,600 Less: Returns (29,000) 14,07,200
Less: Returns (8,000) 11,72,600
To Gross Profit c/d 2,96,200 By Closing stock 2,22,400
16,29,600 16,29,600
To Discount allowed 30,000 By Gross profit b/d 2,96,200
To Bad debts 8,400 By Discount 14,000
To General expenses 1,86,000
(W.N. 5)
To Depreciation 55,000
(W.N. 4)
To Net profit 30,800
3,10,200 3,10,200
Balance Sheet as at 31st March, 2021

Liabilities ` Assets `
Capital (W.N. 1) 5,35,400 Plant & Machinery 2,32,200
Add: Additional 1,70,000 Add: New
capital machinery 63,600
Net profit 30,800 2,95,800
7,36,200 Less: Depreciation (55,000) 2,40,800
Less: Drawings (8,600) 7,27,600 Stock in trade 2,22,400
Sundry creditors 2,48,000 Sundry debtors (W.N. 2) 3,57,400
Expenses 6,600 Cash in hand 24,000
outstanding
Cash in Bank 1,37,600
9,82,200 9,82,200

Working Notes:
(1) Statement of Affairs as at 31st March, 2020
Liabilities ` Assets `
Sundry creditors 3,15,400 Plant & Machinery 2,32,200
Outstanding expenses 12,000 Stock 1,60,800
Mittal’s Capital Debtors 3,30,600
(Balancing figure) 5,35,400 Cash in hand 59,200
_______ Cash at Bank 80,000
8,62,800 8,62,800
(2) Sundry Debtors Account
` `
To Balance b/d 3,30,600 By Cash 12,50,000
To Sales 13,44,200 By Discount 30,000
(14,36,200 – 92,000)
By Returns (sales) 29,000
By Bad debts 8,400
________ By Balance c/d (Bal. fig.) 3,57,400
16,74,800 16,74,800
(3) Sundry Creditors Account
` `
To Bank – Payments 12,05,400 By Balance b/d 3,15,400
To Discount 14,000 By Purchases credit 11,60,000
To Returns 8,000 (Balancing figure)
To Balance c/d (closing
balance) 2,48,000
14,75,400 14,75,400
(4)
Depreciation on Plant & Machinery: `
Opening balance 2,32,200
Add: Additions 63,600
2,95,800
Less: Closing balance (2,40,800)
Depreciation 55,000

(5) Expenses to be shown in profit and loss account

Expenses (in cash) 1,91,400
Add: Outstanding of 2021 6,600
1,98,000
Less: Outstanding of 2020 12,000
1,86,000
(6) Cash and Bank Account
Cash Bank Cash Bank
` ` ` `
To Balance b/d 59,200 80,000 By Purchases 20,600 −
To Capital 1,70,000 By Expenses 1,91,400
To Debtors 12,50,000 By Plant and 63,600
Machinery
To Bank 1,84,800 By Drawings 8,600
To Cash 1,00,000 By Creditors 12,05,400
To Sales 92,000 By Cash 1,84,800
By Bank 1,00,000
_______ ________ By Balance c/d 24,000 1,37,600
3,36,000 16,00,000 3,36,000 16,00,000
15. Measurement is the process of determining money value at which an element can be
recognized in the balance sheet or statement of profit and loss. The framework recognizes
four alternative measurement bases for the purpose. These bases can be explained as:
Historical cost This is the Acquisition price. According to this, assets are
recorded at an amount of cash and cash equivalent paid or
the fair value of the assets at time of acquisition.
Current Cost Assets are carried out at the amount of cash or cash
equivalent that would have to be paid if the same or an
equivalent asset was acquired currently. Liabilities are
carried at the undiscounted amount of cash or cash
equivalents that would be required to settle the obligation
currently.
Realisable (Settlement) For assets, amount currently realizable on sale of the asset
Value in an orderly disposal. For liabilities, this is the undiscounted
amount expected to be paid on settlement of liability in the
normal course of business.

Present Value Assets are carried at present value of future net cash flows
generated by the concerned assets in the normal course of
business. Liabilities are carried at present value of future net
cash flows that are expected to be required to settle the
liability in the normal course of business.
In preparation of financial statements, all or any of the measurement basis can be used in
varying combinations to assign money values to financial items.
16. Valuation of unfinished unit
`
Net selling price 750
Less: Estimated cost of completion (310)
440
Less: Brokerage (2 % of 750) (15)
Net Realisable Value 425
Cost of inventory 430
Value of inventory (Lower of cost and net realisable value) 425
17. Case (a)
The company considers that the residual value, based on prices prevailing at the balance
sheet date, will equal the cost.
There is, therefore, no depreciable amount and depreciation is zero.
Case (b)
The company considers that the residual value, based on prices prevailing at the balance
sheet date, will be ` 9,00,000 and the depreciable amount is, therefore, ` 1,00,000.
Annual depreciation (on a straight line basis) will be ` 4,000 [{10,00,000 – 9,00,000} ÷ 25].
18. Forward Rate ` 49.15
Less: Spot Rate (` 48.85)
Premium on Contract ` 0.30
Contract Amount US$ 1,00,000
Total Loss (1,00,000 x 0.30) ` 30,000 to be recognized in year ended 31.3.2021.
19. (a) From the above account, it is inferred that the Company has deducted grant from the
book value of asset for accounting of Government Grants. Accordingly, out of the `
16,00,000 that has been received, ` 8,00,000 (being the balance in Machinery A/c)
should be credited to the machinery A/c.

The balance ` 8,00,000 may be credited to P&L A/c, since already the cost of the
asset to the tune of ` 12,00,000 had been debited to P&L A/c in the earlier years by
way of depreciation charge, and ` 8,00,000 transferred to P&L A/c now would be
partial recovery of that cost.
There is no need to provide depreciation for 2020-21 or 2021-22 as the depreciable
amount is now Nil.
(b) As per AS 13 ‘Accounting for Investments’, the accounting standard is not applicable
to Bank, Insurance Company, Mutual Funds. In this case Z Bank is a bank, therefore,
AS 13 does not apply to it. For banks, the RBI has issued guidelines for classification
and valuation of its investment and Z Bank should comply with those RBI
Guidelines/Norms. Therefore, though Z Bank has not followed the provisions of
AS 13, yet it would not be said as non-compliance since, it is complying with the
norms stipulated by the RBI.
20. AS 16 clearly states that capitalization of borrowing costs should cease when substantially
all the activities necessary to prepare the qualifying asset for its intended use are
completed. Therefore, interest on the amount that has been used for the construction of
the building up to the date of completion (January, 2021) i.e. ` 18 lakhs alone can be
capitalized. It cannot be extended to ` 25 lakhs.

PAPER – 2: CORPORATE AND OTHER LAWS
PART – I: ANNOUNCEMENTS STATING APPLICABILITY FOR NOVEMBER, 2021
EXAMINATIONS
Applicability for November, 2021 examinations
The Study Material (October 2020 edition) is applicable for November, 2021 examinations. This
study material is updated for all amendments till 31st October, 2020.
Besides, refer booklet on MCQs and Case scenarios (December 2020 edition) containing
Independent MCQs and Case Scenarios on the topics covered under the study material for 30
marks segment of MCQs in the Examination.
Students should first read the study material and then go through the said booklet. It will help
them with better understanding and practising of the concepts.
Further, all relevant amendments/ circulars/ notifications etc. in the Company law part and the
Other Laws portion, for the period 1st November, 2020 to 30th April, 2021 are mentioned below:
THE COMPANIES ACT, 2013
I. Chapter 1: Preliminary
1. Amendments related to - Notification S.O. 325(E) dated 22 nd January, 2021
The Central Government has amended section 2(52) of the Companies Act, 2013, through the
Companies (Amendment) Act, 2020.
Amendment:
In the Companies Act, 2013, in section 2, in clause (52), the following proviso shall be inserted,
namely:—
"Provided that such class of companies, which have listed or intend to list such class of
securities, as may be prescribed in consultation with the Securities and Exchange Board, shall
not be considered as listed companies.".
Old Law (Pg 1.13)
The amendment is newly inserted.
[Enforcement Date: 22 nd January, 2021]
2. Amendments related to – G.S.R. 92(E) dated 1 st February, 2021
The Central Government has amended the Companies (Specification of Definitions Details)
Rules, 2014, through the Companies (Specification of Definitions Details) Amendment Rules,
2021.

PAPER – 2: CORPORATE AND OTHER LAWS 41
Amendment:
In the Companies (Specification of Definitions Details) Rules, 2014, in the rule 2, in sub-rule (1),
after clause (s), the following clause shall be inserted, namely:-
“(t) For the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act,
paid up capital and turnover of the small company shall not exceed rupees two crores and
rupees twenty crores respectively.”.
Old Law (Pg 1.20)
[Enforcement Date: 1 st April, 2021]
3. Amendments related to – G.S.R. 123(E) dated 19th February, 2021
The Central Government has amended the Companies (Specification of definitions details)
Rules, 2014, through the Companies (Specification of definitions details) Second Amendment
Rules, 2021.
Amendment:
In the Companies (Specification of definitions details) Rules, 2014, after rule 2, the following
rule shall be inserted, namely:-
“2A. Companies not to be considered as listed companies.- For the purposes of the proviso
to clause (52) of section 2 of the Act, the following classes of companies shall not be cons idered
as listed companies, namely:-
(a) Public companies which have not listed their equity shares on a recognized stock exchange
but have listed their –
(i) non-convertible debt securities issued on private placement basis in terms of SEBI (Issue
and Listing of Debt Securities) Regulations, 2008; or
(ii) non-convertible redeemable preference shares issued on private placement basis in terms
of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares)
Regulations, 2013; or
(iii) both categories of (i) and (ii) above.
(b) Private companies which have listed their non-convertible debt securities on private
placement basis on a recognized stock exchange in terms of SEBI (Issue and Listing of Debt
Securities) Regulations, 2008;

(c) Public companies which have not listed their equity shares on a recognized stock exchange
but whose equity shares are listed on a stock exchange in a jurisdiction as specified in sub -
section (3) of section 23 of the Act.”.
Old Law (Pg 1.13)
II. Chapter 2: Incorporation of Company and Matters Incidental thereto
1. Amendments related to - S.O. 4646(E) dated 21 st December, 2020
The Central Government has amended Section 8 of the Companies Act, 2013, through the
Amendment:
In section 8 of the principal Act, in sub-section (11),—
(a) the words "with imprisonment for a term which may extend to three years or" shall be omitted;
(b) for the words "twenty-five lakh rupees, or with both", the words "twenty-five lakh rupees"
shall be substituted.
Old Law (Pg 2.14)
Penalty/ punishment in contravention: If a company makes any default in complying with any of
the requirements laid down in this section, ……. every officer of the company who is in default
shall be punishable with imprisonment for a term which may extend to three years or with
fine varying from twenty-five thousand rupees to twenty-five lakh rupees, or with both.
[Enforcement Date: 21 st December, 2020]
2. Amendments related to - Notification G.S.R. 91(E) dated 1 st February, 2021
The Central Government has amended the Companies (Incorporation) Rules, 2014, by the
Companies (Incorporation) Second Amendment Rules, 2021.
Amendment:
In rule 3,
(a) in sub-rule (1),-
(i) for the words, ―'and resident in India’ the words ― 'whether resident in India or otherwise’
shall be substituted;

(ii) in Explanation I, for the words ―'one hundred and eighty two days’ the words ―'one
hundred and twenty days’ shall be substituted;
(b) sub-rule (7) shall be omitted.
Old Law (Pg 2.10) [for Rule 3(1)]
 Only a natural person who is an Indian citizen and resident in India-
(a) shall be eligible to incorporate One Person Company (OPC);
(b) shall be a nominee for the sole member of One Person Company (OPC).
Explanation I - For the purposes of this rule, the term "resident in India" means a person
who has stayed in India for a period of not less than 182 days during the immediately
preceding financial year.
Pg 2.11 [for Rule 3(7)]
 OPC can not convert voluntarily into any kind of company unless two years have
expired from the date of incorporation, except where the paid up share capital is
increased beyond fifty lakh rupees or its average annual turnover during the relevant
period exceeds two crore rupees.
III. Chapter 3: Prospectus and Allotment of Securities
Amendments related to - S.O. 4646(E) dated 21 st December, 2020
The Central Government has amended the following sections of the Companies Act, 20 13,
through the Companies (Amendment) Act, 2020, as follows:
Amendment:
(i) In section 26 of the Companies Act, 2013 in sub-section (9),—
(a) the words "with imprisonment for a term which may extend to three years or" shall be
omitted;
(b) for the words "three lakh rupees, or with both", the words "three lakh rupees'' shall be
substituted.
Old Law (Pg 3.9)
If a prospectus is issued in contravention of the provisions of section 26, the company ……..
prospectus shall be punishable with imprisonment for a term which may extend to three
years or with fine which shall not be less than fifty thousand rupees but which may extend to
three lakh rupees, or with both.
(ii) In section 40 of the Companies Act, 2013 in sub-section (5),—
(a) the words "with imprisonment for a term which may extend to one year or" shall be omitted;

(b) for the words "three lakh rupees, or with both", the words "three lakh rupees" shall be
substituted.
Old Law (Pg 3.23)
Company:
• with minimum fine of five lakh rupees and maximum of fifty lakh rupees
Defaulting officer:
• with imprisonment upto one year, or
• with minimum fine of fifty thousand rupees and maximum of three lakh rupees, or
• with both.

IV. Chapter 4: Share Capital and Debentures
The Central Government has amended the following sections of the Companies Act, 2013,
through the Companies (Amendment) Act, 2020.
Amendment:
(i) In section 48 of the Companies Act, 2013 sub-section (5) shall be omitted.
Old Law (Pg 4.14)
(6) Punishment for Default: According to Section 48 (5), where any default is made in
complying with the provisions of this section, the punishment shall be as under:
• company: It shall be punishable with fine which shall not be less than twenty -five
thousand rupees but which may extend to five lakh rupees;
• every officer of the company who is in default: He shall be punishable with
imprisonment for a term which may extend to six months or with fine which shall not
be less than twenty-five thousand rupees but which may extend to five lakh rupees,
or with both.
(ii) In section 56 of the Companies Act, 2013 for sub-section (6), the following sub-section
shall be substituted, namely:-
"(6) Where any default is made in complying with the provisions of sub-sections (1) to (5), the
company and every officer of the company who is in default shall be liable to a penalty of fifty
thousand rupees.".
Old Law (Pg 4.28)
Punishment for Default in compliance with the provisions: As per Section 56 (6), where any
default is made in complying with the provisions of sub-sections (1) to (5), the
punishment shall be as under:

• company: It shall be punishable with fine varying from 25,000 rupees to 5 lakh rupees
• every officer of the company who is in default: He shall be punishable with minimum
fine of 10,000 rupees and maximum of one lakh rupees.
(iii) In section 59 of the Companies Act, 2013 sub-section (5) shall be omitted.
Old Law (Pg 4.33)
(v) Default in complying with the Order of Tribunal: As per Section 59 (5), if any default
is made in complying with the order of the Tribunal under Section 59, the punishment
shall be as under:
• company: It shall be punishable with fine which shall not be less than one lakh
rupees but which may extend to five lakh rupees, and
• every officer of the company who is in default: He shall be punishable with
imprisonment for a term which may extend to one year or with fine which shall not
be less than one lakh rupees but which may extend to three lakh rupees, or with
both.
(iv) In section 64 of the Companies Act, 2013 in sub-section (2),—
(a) for the words "one thousand rupees", the words "five hundred rupees" shall be substituted;
(b) for the words "or five lakh rupees whichever is less", the words "subject to a maximum of
five lakh rupees in case of a company and one lakh rupees in case of an officer who is in default"
Old Law (Pg 4.43)
(2) Default in Filing of Notice: Section 64 (2) states that where any company fails to comply
with the provisions of sub-section (1), such company and every officer who is in default shall be
liable to a penalty of one thousand rupees for each day during which such default continues,
or five lakh rupees whichever is less.
(v) In section 66 of the Companies Act, 2013 sub-section (11) shall be omitted.
Old Law (Pg 4.47)
(11) Failure to Publish the Order of Confirmation of the Reduction of Share Capital:
Section 66 (11) states that if a company fails to comply with the provisions of sub-section
(4), it shall be punishable with fine which shall not be less than five lakh rupees but which
may extend to twenty-five lakh rupees.

(vi) In section 68 of the Companies Act, 2013 in sub-section (11),—

(a) the words "with imprisonment for a term which may extend to three years or" shall be
omitted;
(b) for the words "three lakh rupees, or with both", the words "three lakh rupees" shall be
substituted.
Old Law (Pg 4.52)
(11) Penalty for Default: Section 68 (11) states that if a company makes default in complying
with the provisions of this section ……………
• Every officer of the company who is in default: He shall be punishable with imprisonment
for a term which may extend to three years or with fine which shall not be less than one
lakh rupees but which may extend to three lakh rupees, or with both.
(vii) In section 71 of the Companies Act, 2013 sub-section (11) shall be omitted.
Old Law (Pg 4.63)
(11) Default in compliance with Order of the Tribunal: According to Section 71 (11), if any
default is made in complying with the order of the Tribunal under this section, every
officer of the company who is in default shall be punishable as under:
• with imprisonment for a term which may extend to three years or with fine which
shall not be less than two lakh rupees but which may extend to five lakh rupees, or
with both.
2. Amendments related to - S.O. 325(E) dated 22 nd January, 2021
The Central Government has amended section 62 of the Companies Act, 2013, through the
Companies (Amendment) Act, 2020, as follows:
Amendment:
In section 62 of the Companies Act, 2013 in sub-section (1), in clause (a), in sub-clause (i),
after the words "less than fifteen days", the words "or such lesser number of days as may be
prescribed" shall be inserted.
Old Law (Pg 4.36)- [The words are newly inserted]
(i) the offer shall be made by notice specifying the number of shares offered and limiting a
time not being less than fifteen days and not exceeding thirty days from the date of the offer
within which the offer, if not accepted, shall be deemed to have been declined .

V. Chapter 6: Registration of Charges

Amendments related to - S.O. 4646(E) dated 21 st December, 2020
Amendment:
In section 86 of the Companies Act, 2013 for sub-section (1), the following sub-section shall be
substituted, namely:-
"(1) If any company is in default in complying with any of the provisions of this Chapter, the
company shall be liable to a penalty of five lakh rupees and every officer of the company who
is in default shall be liable to a penalty of fifty thousand rupees.".
Old Law (Pg 6.16)
if a company contravenes any of the provisions relating to the registration of charges or
modification or satisfaction of charges, the punishment shall be as under:
 the company shall be punishable with minimum fine of ` one lakh and maximum fine
of ` ten lakhs; and
 every defaulting officer of the company shall be punishable with imprisonment
maximum up to six months or with minimum fine of ` twenty-five thousand and
maximum of ` one lakh, or with both.
VI. Chapter 7: Management and Administration
Amendment:
(i) In section 88 of the Companies Act, 2013, for sub-section (5), the following sub-section
"(5) If a company does not maintain a register of members or debenture-holders or other security
holders or fails to maintain them in accordance with the provisions of sub-section (1) or sub-
section (2), the company shall be liable to a penalty of three lakh rupees and every officer of
the company who is in default shall be liable to a penalty of fifty thousand rupees.".

Old Law (Pg 7.7)

Section 88(5) of the Act provides that company and every officer of the company who is
in default shall be punishable with fine which shall not be less than ` 50,000 but which
may extend to ` 3,00,000 and where the failure is a continuing one, with a further fine
which may extend to ` 1,000 per day.
(ii) In section 89 of the Companies Act, 2013—
(a) for sub-section (5), the following sub-section shall be substituted, namely:—
"(5) If any person fails to make a declaration as required under sub-section (1) or sub-section
(2) or sub-section (3), he shall be liable to a penalty of fifty thousand rupees and in case of
continuing failure, with a further penalty of two hundred rupees for each day after the first during
which such failure continues, subject to a maximum of five lakh rupees.";
Old Law (Pg 7.10)
 Related to persons required to make a declaration [Section 89(5)]- If any person fails to
make a declaration as required under section 89, without any reasonable cause, he
shall be punishable with fine which may extend to fifty thousand rupees and where
the failure is a continuing one, with a further fine which may extend to one thousand
rupees for every day after the first during which the failure continues.
(b) for sub-section (7), the following sub-section shall be substituted, namely:—
"(7) If a company, required to file a return under sub-section (6), fails to do so before the expiry
of the time specified therein, the company and every officer of the company who is in default
shall be liable to a penalty of one thousand rupees for each day during which such failure
continues, subject to a maximum of five lakh rupees in the case of a company and two lakh
rupees in case of an officer who is in default.";
Old Law (Pg 7.10)
 Related to company [Section 89(7)]- If a company, required to file a return u/s 89(6),
fails to do so within 30 days of receipt of declaration by it, the company and every
officer of the company who is in default shall be punishable with fine which shall not
be less than five hundred rupees but which may extend to one thousand rupees and
where the failure is a continuing one, with a further fine which may extend to one
thousand rupees for every day after the first during which the failure continues.
(iii) In section 90 of the Companies Act, 2013—
(a) for sub-section (10), the following sub-section shall be substituted, namely:—
"(10) If any person fails to make a declaration as required under sub -section (1), he shall be
liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further penalty

of one thousand rupees for each day after the first during which such failure continues, subject
to a maximum of two lakh rupees.";
Old Law (Pg 7.15)
Where any SBO fails to give required disclosure under the SBO Rules then such
individual(s) shall be liable for the following:
(i) Imprisonment for a term which may extend to one year or
(ii) With fine which shall not be less than one lakh rupees but which may extend to ten
lakh rupees or
(iii) With both
(iv) Where the failure is continuous, with a further fine which may extend to one
thousand rupees for every day after the first day during which the failure continues.
(b) for sub-section (11), the following sub-section shall be substituted, namely:—
"(11) If a company, required to maintain register under sub-section (2) and file the information
under sub-section (4) or required to take necessary steps under sub-section (4A), fails to do so
or denies inspection as provided therein, the company shall be liable to a penalty of one lakh
rupees and in case of continuing failure, with a further penalty of five hundred rupee s for each
day, after the first during which such failure continues, subject to a maximum of five lakh rupees
and every officer of the company who is in default shall be liable to a penalty of twenty -five
thousand rupees and in case of continuing failure, with a further penalty of two hundred rupees
for each day, after the first during which such failure continues, subject to a maximum of one
lakh rupees.".
Old Law (Pg 7.15)
Where the Reporting Company fails to maintain register of SBO or file return of SBO with
ROC or denies inspection, then
(i) Company shall be liable for a fine which shall not be less than INR 10,00,000 but
which may extend to INR 50,00,000
(ii) Every officer in default shall be liable for a fine which shall not be less than
INR 10,00,000 but which may extend to INR 50,00,000
(iii) Where the failure is continuous, with a further fine which may extend to one
thousand rupees for every day after the first day during which the failure continues.
(iv) In section 92 of the Companies Act, 2013—
(a) in sub-section (5),—
(i) for the words "fifty thousand rupees", the words "ten thousand rupees" shall be substituted;

(ii) for the words "five lakh rupees", the words "two lakh rupees in case of a company and fifty
thousand rupees in case of an officer who is in default" shall be substituted;
Old Law (Pg 7.18)
Section 92(5) of the Act specifies that if any company fails to file its annual return under sub -
section (4), before the expiry of the period specified therein, such company and its every officer
who is in default shall be liable to a penalty of fifty thousand rupees and in case of continuing
failure, with further penalty of one hundred rupees for each day during which such failure
continues, subject to a maximum of five lakh rupees.
(b) in sub-section (6), for the words "punishable with fine which shall not be less than fifty
thousand rupees but which may extend to five lakh rupees", the words "liable to a penalty of two
lakh rupees" shall be substituted.
Old Law (Pg 7.19)
If a company secretary in practice, certifies the annual return otherwise than in acc ordance with
this section and the rules made thereunder, he shall be punishable with fine which shall not
be less than ` 50,000 but which may extend to ` 5,00,000
(v) In section 105 of the Companies Act, 2013 in sub-section (5),—
(a) for the words "who knowingly issues the invitations as aforesaid or wilfully authorises or
permits their issue shall be punishable with fine which may extend to one lakh rupees", the
words "who issues the invitation as aforesaid or authorises or permits their issue, shall be liable
to a penalty of fifty thousand rupees" shall be substituted;
(b) in the proviso, for the word "punishable", the word "liable" shall be substituted.
Old Law (Pg 7.32)
If for the purpose of any meeting of a company, invitations to appoint as proxy a person or one
of a number of persons specified in the invitations are issued at the company's expense to any
member entitled to have a notice of the meeting sent to him and to vote thereat by proxy, every
officer of the company who knowingly issues the invitations as aforesaid or willfully
authorises or permits their issue shall be punishable with fine which may extend to one
lakh rupees.
Provided that an officer shall not be punishable under this sub-section by reason only of the
issue to a member at his request in writing of a form of appointment naming the proxy, or of a
list of persons willing to act as proxies, if the form or list is available on request in writing to
every member entitled to vote at the meeting by proxy.

(vi) In section 117 of the Companies Act, 2013—

for sub-section (2), the following sub-section shall be substituted, namely:-
"(2) If any company fails to file the resolution or the agreement under sub-section (1) before the
expiry of the period specified therein, such company shall be liable to a penalty of ten thousand
rupees and in case of continuing failure, with a further penalty of one hundred rupees for each
day after the first during which such failure continues, subject to a maximum of two lakh rupees
and every officer of the company who is in default including liquidator of the company, if any,
shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a furt her
penalty of one hundred rupees for each day after the first during which such failure continues,
subject to a maximum of fifty thousand rupees.";
Old Law (Pg 7.55)
If any company fails to file the resolution or the agreement under sub-section (1) before
the expiry of the period specified therein, such company shall be liable to a penalty of
one lakh rupees and in case of continuing failure, with further penalty of five hundred
rupees for each day after the first during which such failure continues, subje ct to a
maximum of twenty-five lakh rupees and every officer of the company who is in default
including liquidator of the company, if any, shall be liable to a penalty of fifty thousand
rupees and in case of continuing failure, with further penalty of five hundred rupees for
each day after the first during which such failure continues, subject to a maximum of five
lakh rupees.
2. Amendments related to - S.O. 325(E) dated 22 nd January, 2021
through the Companies (Amendment) Act, 2020, as follows:
Amendment:
(i) In section 89 of the Companies Act, 2013, after sub-section (10), the following sub-section
shall be inserted, namely:-
"(11) The Central Government may, by notification, exempt any class or classes of persons from
complying with any of the requirements of this section, except sub-section (10), if it is considered
necessary to grant such exemption in the public interest and any such exemption may be
granted either unconditionally or subject to such conditions as may be specified in the
notification.".

Old Law (Pg 7.10)

(ii) In section 117 of the Companies Act, 2013-
In sub-section (3), in clause (g), for the second proviso, the following proviso shall be
substituted, namely:-
"Provided further that nothing contained in this clause shall apply in respect of a resolution
passed to grant loans, or give guarantee or provide security in respect of loans under clause (f)
of sub-section (3) of section 179 in the ordinary course of its business by,-
(a) a banking company;
(b) any class of non-banking financial company registered under Chapter IIIB of the Reserve
Bank of India Act, 1934, as may be prescribed in consultation with the Reserve Bank of India;
(c) any class of housing finance company registered under the National Housing Bank Act,
1987, as may be prescribed in consultation with the National Housing Bank; and".
Old Law (Pg 7.55)
Provided further that nothing contained in this clause shall apply to a banking company
in respect of a resolution passed to grant loans, or give guarantee or provide security in
respect of loans under clause (f) of sub-section (3) of section 179 in the ordinary course
of its business; and
3. Amendments related to - S.O. 1066(E) dated 5 th March, 2021
The Central Government has amended the section 92 of the Companies Act, 2013, through the
Amendment:
In section 92 of the Companies Act, 2013-
In sub-section (1),-
(a) clause (c) shall be omitted;
(b) in clause (j), the words "indicating their names, addresses, countries of incorporation,
registration and percentage of shareholding held by them" shall be omitted;
(c) after the proviso, the following proviso shall be inserted, namely:-
'Provided further that the Central Government may prescribe abridged form of annual return for
"One Person Company, small company and such other class or classes of companies as may
be prescribed".'.

Old Law for (a): Pg 7.17

3. its indebtedness [ in diagram]
Old Law for (b): Pg 7.17
10. Details in respect of shares held by or on behalf of the Foreign Institutional Investors
including their names, addresses, countries of incorporation, registration and percentage
of shareholding held by them. [in diagram]
Old Law for (c): The amendment is newly inserted.
[Enforcement Date: 5 th March, 2021]
4. Amendments related to – G.S.R. 159(E) dated 5 th March, 2021
The Central Government has amended the Companies (Management and Administration)
Rules, 2014 through the Companies (Management and Administration) Amendment Rules,
2021.
Amendment:
In the Companies (Management and Administration) Rules, 2014,
in rule 11, for sub-rule (1), the following sub-rule shall be substituted, namely:-
“(1) Every company shall file its annual return in Form No.MGT-7 except One Person Company
(OPC) and Small Company. One Person Company and Small Company shall file annual return
from the financial year 2020-2021 onwards in Form No.MGT-7A”;
Old Law (Pg 7.17)
Every company shall prepare an annual return in Form No. MGT 7 as prescribed in Rules.
VII. Chapter 8: Declaration and Payment of Dividend
Amendments related to - S.O. 1303(E) dated 24 th March, 2021
Amendment:
In section 124 of the Companies Act, 2013 for sub-section (7), the following sub-section shall
be substituted, namely:-
"(7) If a company fails to comply with any of the requirements of this section, such company
shall be liable to a penalty of one lakh rupees and in case of continuing failure, with a further

penalty of five hundred rupees for each day after the first during which such failure continues,
subject to a maximum of ten lakh rupees and every officer of the company who is in default shall
be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with a
further penalty of one hundred rupees for each day after the first during which such failure
continues, subject to a maximum of two lakh rupees.".
Old Law (Pg 8.17)
(viii) Punishment for Contravention- If a company fails to comply with any of the
requirements relating to unpaid dividend account, it shall be punishable with minimum
fine of rupees five lakhs which may extend to rupees twenty-five lakhs.
Further, every officer of the company who is in default shall be punishable with minimum
fine of rupees one lakh which may extend to rupees five lakhs.
VIII. Chapter 9: Accounts of Companies
Amendment:
(i) In section 128 of the Companies Act, 2013, in sub-section (6),-
(a) the words "with imprisonment for a term which may extend to one year or" shall be omitted;
(b) the words "or with both" shall be omitted.
Old Law (Pg 9.7 and diagram on 9.3)
In case the aforementioned persons fail to take reasonable steps to secure compliance, they
shall in respect of each offence, be punishable with imprisonment for a term which may
extend to one year or with fine which shall not be less than fifty thousand rupees but which
may extend to five lakh rupees or both.
(ii) In section 134 of the principal Act, for sub-section (8), the following sub-section shall be
substituted, namely:—
"(8) If a company is in default in complying with the provisions of this section, the company shall
be liable to a penalty of three lakh rupees and every officer of the company who is in default
shall be liable to a penalty of fifty thousand rupees.".
Old Law (Pg 9.30)
Change the table

(iii) In section 137 of the principal Act, in sub-section (3),-

(a) for the words "one thousand rupees for every day during which the failure continues but
which shall not be more than ten lakh rupees", the words "ten thousand rupees and in case of
continuing failure, with a further penalty of one hundred rupees for each day during which such
failure continues, subject to a maximum of two lakh rupees," shall be substituted;
(b) for the words "one lakh rupees", the words "ten thousand rupees" shall be substituted;
(c) for the words "five lakh rupees", the words "fifty thousand rupees" shall be substituted.
Old Law (Pg 9.51)
(a) The company shall be liable to a penalty of ` 1,000 for every day during which the failure
continues but which shall not be more than ` 10 lacs; and
(1) liable to a penalty which shall not be less than ` 1 lac, and in case of continuing failure,
with further penalty of one hundred rupees for each day after the first during which such failure
continues, subject to a maximum of five lacs rupees.
And change the content in table also
The Central Government has amended section 135 of the Companies Act, 2013 through the
Companies (Amendment) Act, 2019, as follows:
Amendment:
In 1section 135 of the Companies Act, 2013-
(a) in sub-section (5), —
(i) after the words “three immediately preceding financial years,”, the words “or where the
company has not completed the period of three financial years since its incorporation, during
such immediately preceding financial years,” shall be inserted;
(ii) in the second proviso, after the words “reasons for not spending the amount” occurring at
the end, the words, brackets, figure and letters “and, unless the unspent amount relates to any
ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified
in Schedule VII, within a period of six months of the expiry of the financial year” shall be inserted;
1 For convenience of students, amended section 135 along with relevant Rules, is given as Annexure.

(b) after sub-section (5), the following sub-sections shall be inserted, namely:—
“(6) Any amount remaining unspent under sub-section (5), pursuant to any ongoing project,
fulfilling such conditions as may be prescribed, undertaken by a company in persuance of its
Corporate Social Responsibility Policy, shall be transferred by the company within a period of
thirty days from the end of the financial year to a special account to be opened by the company
in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate
Social Responsibility Account, and such amount shall be spent by the company in pursuance of
its obligation towards the Corporate Social Responsibility Policy within a period of three financial
years from the date of such transfer, failing which, the company shall transfer the same to a
Fund specified in Schedule VII, within a period of thirty days from the date o f completion of the
third financial year.
(7) If a company contravenes the provisions of sub-section (5) or sub-section (6), the company
shall be punishable with fine which shall not be less than fifty thousand rupees but which may
extend to twenty-five lakh rupees and every officer of such company who is in default shall be
punishable with imprisonment for a term which may extend to three years or with fine which
shall not be less than fifty thousand rupees but which may extend to five lakh r upees, or with
both.
(8) The Central Government may give such general or special directions to a company or class
of companies as it considers necessary to ensure compliance of provisions of this section and
such company or class of companies shall comply with such directions.”.
The Central Government has introduced section 129A and amended section 135 of the
Companies Act, 2013, through the Companies (Amendment) Act, 2020.
Amendment:
(i) After section 129 of the Companies Act, 2013 the following section shall be inserted,
namely:—
"129A. The Central Government may, require such class or classes of unlisted companies, as
may be prescribed,—
(a) to prepare the financial results of the company on such periodical basis and in such form
as may be prescribed;
(b) to obtain approval of the Board of Directors and complete audit or limited review of such
periodical financial results in such manner as may be prescribed; and

(c) file a copy with the Registrar within a period of thirty days of completion of the relevant
period with such fees as may be prescribed.".
Old Law- The section is newly introduced
(ii) In section 135 of the Companies Act, 2013-
(a) in sub-section (5), after the second proviso, the following proviso shall be inserted,
namely:—
"Provided also that if the company spends an amount in excess of the requirements provided
under this sub-section, such company may set off such excess amount against the requirement
to spend under this sub-section for such number of succeeding financial years and in such
manner, as may be prescribed.";
(b) for sub-section (7), the following sub-section shall be substituted, namely:-
"(7) If a company is in default in complying with the provisions of sub-section (5) or sub-section
(6), the company shall be liable to a penalty of twice the amount required to be transferred by
the company to the Fund specified in Schedule VII or the Unspent Corporate Social
Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every
officer of the company who is in default shall be liable to a penalty of one -tenth of the amount
required to be transferred by the company to such Fund specified in Schedule VII, or the
Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees,
whichever is less.";
(c) after sub-section (8), the following sub-section shall be inserted, namely:—
"(9) Where the amount to be spent by a company under sub-section (5) does not exceed fifty
lakh rupees, the requirement under sub-section (1) for constitution of the Corporate Social
Responsibility Committee shall not be applicable and the functions of such Commi ttee provided
under this section shall, in such cases, be discharged by the Board of Directors of such
company.".
4. Amendments related to - General Circular No. 01/2021 dated 13th January, 2021
The Ministry of Corporate Affairs have made a clarification on spending of CSR funds for
Awareness and public outreach on COVID-19 Vaccination programme.
This Circular is in continuation to this Ministry's General Circular No. 10/2020 dated 23.03.2020
wherein it was clarified that spending of CSR funds for COVID19 is an eligible CSR activity , it
is further clarified that spending of CSR funds for carrying out awareness campaigns/
programmes or public outreach campaigns on COVID-19 Vaccination programme is an eligible
CSR activity under item no. (i),(ii) and (xii) of Schedule VII of the Companies Act, 2013 relating

to promotion of health care, including preventive health care and sanitization, promoting
education, and, disaster management respectively.
The companies may undertake the aforesaid activities subject to fulfillment of Companies (CSR
Policy) Rules, 2014 and the circulars related to CSR, issued by this ministry from time to time.
5. Amendments related to - Notification G.S.R. 40(E), dated 22nd January, 2021
The Ministry of Corporate Affairs Vide NOTIFICATION G.S.R. 40(E), dated 22nd January, 2021,
in exercise of the powers conferred by section 135 and sub-sections (1) and (2) of section 469
of the Companies Act, 2013, the Central Government hereby makes the follo wing rules further
to amend the Companies (Corporate Social Responsibility Policy) Rules, 2014, namely: -
1. Short title and commencement. - (1) These rules may be called the Companies (Corporate
Social Responsibility Policy) Amendment Rules, 2021.
(2) They shall come into force on the date of their publication in the Official Gazette unless
explicitly provided elsewhere in this notification.
2. In the Companies (Corporate Social Responsibility Policy) Rules, 2014 (hereinafter
referred to as the said rules), for rule 2, the following rule shall be substituted, namely:-
“2. Definitions. - (1) In these rules, unless the context otherwise requires,-
(a) "Act" means the Companies Act, 2013 (18 of 2013);
(b) “Administrative overheads” means the expenses incurred by the company for ‘general
management and administration’ of Corporate Social Responsibility functions in the company
but shall not include the expenses directly incurred for the designing, implementation,
monitoring, and evaluation of a particular Corporate Social Responsibility project or programme;
(c) "Annexure" means the Annexure appended to these rules;
(d) “Corporate Social Responsibility (CSR)” means the activities undertaken by a Company in
pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the
provisions contained in these rules, but shall not include the following, namely: -
(i) activities undertaken in pursuance of normal course of business of the company:
Provided that any company engaged in research and development activity of new vaccine, drugs
and medical devices in their normal course of business may undertake research and
development activity of new vaccine, drugs and medical devices related to COVID -19 for
financial years 2020-21, 2021-22, 2022-23 subject to the conditions that
(a) such research and development activities shall be carried out in collaboration with any of
the institutes or organisations mentioned in item (ix) of Schedule VII to the Act;

(b) details of such activity shall be disclosed separately in the Annual report on CSR included
in the Board’s Report;
(ii) any activity undertaken by the company outside India except for training of Indian sports
personnel representing any State or Union territory at national level or India at international
level;
(iii) contribution of any amount directly or indirectly to any political party under section 182 of
the Act;
(iv) activities benefitting employees of the company as defined in clause (k) of section 2 of the
Code on Wages, 2019 (29 of 2019);
(v) activities supported by the companies on sponsorship basis for deriving marketing benefits
for its products or services;
(vi) activities carried out for fulfilment of any other statutory obligations under any law in force
in India;
(e) "CSR Committee" means the Corporate Social Responsibility Committee of the Board
referred to in section 135 of the Act;
(f) "CSR Policy" means a statement containing the approach and direction given by the board
of a company, taking into account the recommendations of its CSR Committee, and includes
guiding principles for selection, implementation and monitoring of activities as well as
formulation of the annual action plan;
(g) “International Organisation” means an organisation notified by the Central Government as
an international organisation under section 3 of the United Nations (Privileges and Immunities)
Act, 1947 (46 of 1947), to which the provisions of the Schedule to the said Act apply;
(h) "Net profit" means the net profit of a company as per its financial statement prepared in
accordance with the applicable provisions of the Act, but shall not include the following, namely: -
(i) any profit arising from any overseas branch or branches of the company, whether operated
as a separate company or otherwise; and
(ii) any dividend received from other companies in India, which are covered under and
complying with the provisions of section 135 of the Act:
Provided that in case of a foreign company covered under these rules, net profit means t he net
profit of such company as per profit and loss account prepared in terms of clause (a) of sub -
section (1) of section 381, read with section 198 of the Act;
(i) “Ongoing Project” means a multi-year project undertaken by a Company in fulfilment of its
CSR obligation having timelines not exceeding three years excluding the financial year in which

it was commenced, and shall include such project that was initially not approved as a multi -year
project but whose duration has been extended beyond one year by the board based on
reasonable justification;
(j) “Public Authority” means ‘Public Authority’ as defined in clause (h) of section 2 of the Right
to Information Act, 2005 (22 of 2005);
(k) “section” means a section of the Act.
(2) Words and expressions used and not defined in these rules but defined in the Act shall
have the same meanings respectively assigned to them in the Act. ”.
3. In the said rules, in rule 3, in sub-rule (2), in clause (b), for the words, brackets and figure
“sub-section (2) to (5)”, the words, brackets and figure “sub-section (2) to (6)” shall be
substituted.
4. In the said rules, for rule 4, the following rule shall be substituted, namely: -
“4. CSR Implementation. – (1) The Board shall ensure that the CSR activities are undertaken
by the company itself or through -
(a) a company established under section 8 of the Act, or a registered public trust or a
registered society, registered under section 12A and 80 G of the Income Tax Act, 1961 (43 of
1961), established by the company, either singly or along with any other company, or
(b) a company established under section 8 of the Act or a registered trust or a registered
society, established by the Central Government or State Government; or
(c) any entity established under an Act of Parliament or a State legislature; or
(d) a company established under section 8 of the Act, or a registered public trust or a
registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and
having an established track record of at least three years in undertaking similar activities.
(2) (a) Every entity, covered under sub-rule (1), who intends to undertake any CSR activity, shall
register itself with the Central Government by filing the form CSR-1 electronically with the
Registrar, with effect from the 01 st day of April 2021:
Provided that the provisions of this sub-rule shall not affect the CSR projects or programmes
approved prior to the 01st day of April 2021.
(b) Form CSR-1 shall be signed and submitted electronically by the entity and shall be verified
digitally by a Chartered Accountant in practice or a Company Secretary in practice or a Cost
Accountant in practice.
(c) On the submission of the Form CSR-1 on the portal, a unique CSR Registration Number
shall be generated by the system automatically.

(3) A company may engage international organisations for designing, monitoring and
evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity
building of their own personnel for CSR.
(4) A company may also collaborate with other companies for undertaking projects or
programmes or CSR activities in such a manner that the CSR committees of respective
companies are in a position to report separately on such projects or programmes in accordance
with these rules.
(5) The Board of a company shall satisfy itself that the funds so disbursed have been utilised
for the purposes and in the manner as approved by it and the Chief Financial Officer or the
person responsible for financial management shall certify to the effect.
(6) In case of ongoing project, the Board of a Company shall monitor the implementation of
the project with reference to the approved timelines and year-wise allocation and shall be
competent to make modifications, if any, for smooth implementation of the project within the
overall permissible time period.”.
5. In the said rules, in rule 5, for sub-rule (2), the following sub-rule shall be substituted,
namely:-
“(2) The CSR Committee shall formulate and recommend to the Board, an annual action plan in
pursuance of its CSR policy, which shall include the following, namely:-
(a) the list of CSR projects or programmes that are approved to be undertaken in areas or
subjects specified in Schedule VII of the Act;
(b) the manner of execution of such projects or programmes as specified in sub-rule (1) of rule
4;
(c) the modalities of utilisation of funds and implementation schedules for the projects or
programmes;
(d) monitoring and reporting mechanism for the projects or programmes; and
(e) details of need and impact assessment, if any, for the projects undertaken by the company:
Provided that Board may alter such plan at any time during the financial year, as per the
recommendation of its CSR Committee, based on the reasonable justification to that effect. ”.
6. In the said rules, rule 6 shall be omitted.
“7.CSR Expenditure. - (1) The board shall ensure that the administrative overheads shall not
exceed five percent of total CSR expenditure of the company for the financial year.

(2) Any surplus arising out of the CSR activities shall not form part of the business profit of a
company and shall be ploughed back into the same project or shall be transferred to the Unspent
CSR Account and spent in pursuance of CSR policy and annual action plan of the company or
transfer such surplus amount to a Fund specified in Schedule VII, within a period of six months
of the expiry of the financial year.
(3) Where a company spends an amount in excess of requirement provided under sub -section
(5) of section 135, such excess amount may be set off against the requirement to spend under
sub-section (5) of section 135 up to immediate succeeding three financial years subject to the
conditions that –
(i) the excess amount available for set off shall not include the surplus arising out of the CSR
activities, if any, in pursuance of sub-rule (2) of this rule.
(ii) the Board of the company shall pass a resolution to that effect.
(4) The CSR amount may be spent by a company for creation or acquisition of a capital asset,
which shall be held by -
(a) a company established under section 8 of the Act, or a Registered Public Trust or
Registered Society, having charitable objects and CSR Registration Number under sub-rule (2)
of rule 4; or
(b) beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities;
or
(c) a public authority:
Provided that any capital asset created by a company prior to the commencement of the
Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, shall within a
period of one hundred and eighty days from such commencement comply with the requirement
of this rule, which may be extended by a further period of not more than ninety days with the
approval of the Board based on reasonable justification.”.
“8. CSR Reporting .- (1) The Board's Report of a company covered under these rules pertaining
to any financial year shall include an annual report on CSR containing particulars specified in
Annexure I or Annexure II, as applicable.
(2) In case of a foreign company, the balance sheet filed under clause (b) of sub-section (1)
of section 381 of the Act, shall contain an annual report on CSR containing particulars specified
in Annexure I or Annexure II, as applicable.
(3) (a) Every company having average CSR obligation of ten crore rupees or more in pu rsuance
of subsection (5) of section 135 of the Act, in the three immediately preceding financial years,

shall undertake impact assessment, through an independent agency, of their CSR projects
having outlays of one crore rupees or more, and which have been completed not less than one
year before undertaking the impact study.
(b) The impact assessment reports shall be placed before the Board and shall be annexed to
the annual report on CSR.
(c) A Company undertaking impact assessment may book the expenditure towards Corporate
Social Responsibility for that financial year, which shall not exceed five percent of the total CSR
expenditure for that financial year or fifty lakh rupees, whichever is less. ”.
9. In the said rules, for rule 9, the following rules shall be substituted, namely:-
“9. Display of CSR activities on its website. - The Board of Directors of the Company shall
mandatorily disclose the composition of the CSR Committee, and CSR Policy and Projects
approved by the Board on their website, if any, for public access.
10. Transfer of unspent CSR amount. - Until a fund is specified in Schedule VII for the purposes
of subsection (5) and (6) of section 135 of the Act, the unspent CSR amount, if any, shall be
transferred by the company to any fund included in schedule VII of the Act.”.
10. In the said rules,-
(i) The Annexure shall be numbered as “Annexure –I” and in the heading of Annexure I as so
numbered, after the words “BOARD’S REPORT”, the words and figures “FOR FINANCIAL YEAR
COMMENCED PRIOR TO 1ST DAY OF APRIL, 2020” shall be inserted;
6. Amendments related to: General Circular No. 05/2021, dated 22nd April, 2021
A clarification has been issued on spending of CSR funds for setting up makeshift hospitals and
temporary COVID Care facilities.
In continuation to this Ministry's General Circular No. 10/2020 dated 23.03.2020 wherein it was
clarified that spending of CSR funds for COVID-19 is an eligible CSR activity, it is further clarified
that spending of CSR funds for 'setting up makeshift hospitals and temporary COVID Care
facilities ' is an eligible CSR activity under item nos. (i) and (xii) of Schedule VII of the Companies
Act, 2013 relating to promotion of health care, including preventive health care, and, disaster
management respectively.
7. Amendments related to - Notification G.S.R 205 (E) dated 24 th March, 2021
The Central Government has amended Companies (Accounts) Rules, 2014 through the
Companies (Accounts) Amendment Rules, 2021.
Amendment:
In the Companies (Accounts) Rules, 2014,-
(1) in rule 3, in sub-rule (1), the following proviso shall be inserted, namely:-
“Provided that for the financial year commencing on or after the 1st day of April, 2021, every
company which uses accounting software for maintaining its books of account, shall use only

such accounting software which has a feature of recording audit trail of each and every
transaction, creating an edit log of each change made in books of account along with the date
when such changes were made and ensuring that the audit trail cannot be disabled.”
(2) in rule 8, in sub-rule (5), after clause (x), the following clauses shall be inserted namely: -
“(xi) the details of application made or any proceeding pending under the Insolvency and
Bankruptcy Code, 2016 (31 of 2016) during the year alongwith their status as at the end of the
financial year.
(xii) the details of difference between amount of the valuation done at the time of one time
settlement and the valuation done while taking loan from the Banks or Financial Institutions
along with the reasons thereof.”
Old Law for (1): Pg 9.5
Newly Inserted
Newly Inserted
8. Amendments related to – G.S.R. 247(E) dated 1st April, 2021
The Ministry of Corporate Affairs has further amended the Companies (Audit and Auditors)
Rules, 2014, through the enforcement of the Companies (Accounts) Second Amendment Rules,
2021
Amendment:
In the Companies (Accounts) Rules, 2014, in proviso to sub-rule (1) of rule 3, for the figures,
letters and words “1st day of April, 2021”, the figures, letters and words “1st day of April, 2022”
This amendment is in continuation with the above amendment
X. Chapter 10: Audit and Auditors

Amendment:
(i) In section 140 of the Companies Act, 2013, in sub-section (3), for the words "five lakh
rupees", the words "two lakh rupees" shall be substituted.
Old Law (Pg 10.19)
(d) Penalty for contravention: If the auditor does not comply with aforesaid provision, he or
it shall be liable to a penalty of `50,000 or an amount equal to the remuneration of the auditor,
whichever is less, and in case of continuing failure, with a further penalty of ` 500 for each day
after the first during which such failure continues, subject to a maximum of ` 5 lacs.
(ii) In section 143 of the Companies Act, 2013, for sub-section (15), the following sub-section
"(15) If any auditor, cost accountant, or company secretary in practice does not comply with the
provisions of sub-section (12), he shall-
(a) in case of a listed company, be liable to a penalty of five lakh rupees; and
(b) in case of any other company, be liable to a penalty of one lakh rupees.".
Old Law (Pg 10.37)
If any auditor, cost auditor or the Secretarial auditor, as mentioned above, do not comply
with the provisions of this section (i.e. section 143(12)), he shall be punishable with fine
which shall not be less than `1 lac but which may extend to `25 lacs.
(iii) In section 147 of the Companies Act, 2013—
(a) in sub-section (1),—
(i) the words "with imprisonment for a term which may extend to one year or" shall be omitted;
(ii) for the words "one lakh rupees, or with both", the words "one lakh rupees" shall be
substituted;
(b) in sub-section (2), the word and figures, "section 143" shall be omitted.
Old Law for (a): Pg 10.44
(ii) Penalty on officers [Section 147(1)]:
If any of the provisions of sections 139 to 146 (both inclusive) is contravened, every officer
of the company who is in default shall be punishable with
(1) imprisonment for a term which may extend to 1 year or
(2) with fine which shall not be less than `10,000 but which may extend to `1 lac; or
(3) both with imprisonment and fine.

Old Law for (b): Pg 10.44

If an auditor of a company contravenes any of the provisions of section 139, section 143,
section 144 or section 145, the auditor shall be punishable with fine which shall not be less than
` 25,000 but which may extend to ` 5 lacs or four times the remuneration of the auditor,
whichever is less.
2. Amendments related to - S.O. 206(E) dated 24 th March, 2021
The Ministry of Corporate Affairs has amended the Companies (Audit and Auditors) Rules, 2014,
through the Companies (Audit and Auditors) Amendment Rules, 2021.
Amendment:
In the Companies (Audit and Auditors) Rules, 2014, in rule 11,-
(1) clause (d) shall be omitted.
(2) after clause (d), the following clauses shall be inserted, namely:-
“(e) (i) Whether the management has represented that, to the best of it’s knowledge and belief,
other than as disclosed in the notes to the accounts, no funds have been advanced or loaned
or invested (either from borrowed funds or share premium or any other sources or kind of funds)
by the company to or in any other person(s) or entity(ies), including foreign entities
(“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the
Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities
identified in any manner whatsoever by or on behalf of the company (“Ultimate Beneficiaries”)
or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
(ii) Whether the management has represented, that, to the best of it’s knowledge and belief,
other than as disclosed in the notes to the accounts, no funds have been received by the
company from any person(s) or entity(ies), including foreign entities (“Funding Parties”), with
the understanding, whether recorded in writing or otherwise, that the company shall, whether,
directly or indirectly, lend or invest in other persons or entities identified in any manner
whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any
guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
(iii) Based on such audit procedures that the auditor has considered reasonable and
appropriate in the circumstances, nothing has come to their notice that has caused them to
believe that the representations under sub-clause (i) and (ii) contain any material mis-statement.
(f) Whether the dividend declared or paid during the year by the company is in compliance
with section 123 of the Companies Act, 2013.
(g) Whether the company has used such accounting software for maintaining its books of
account which has a feature of recording audit trail (edit log) facility and the same has been
operated throughout the year for all transactions recorded in the software and the audit trail

feature has not been tampered with and the audit trail has been preserved by the company as
per the statutory requirements for record retention.”.
Old Law for (1): (Pg 10.33)
(4) whether the company had provided requisite disclosures in its financial statements
as to holdings as well as dealings in Specified Bank Notes during the period from 8
November2016 to 30 December 2016 and if so, whether these are in accordance with the
books of accounts maintained by the company” (this provision is not relevant now,
however, till the time this requirement is not removed from the law, it will continue to be
reported as not applicable for any financial year post 31 March 2017).
Clauses (e), (f) and (g) are newly inserted.
3. Amendments related to – G.S.R. 248(E) dated 1st April, 2021
The Ministry of Corporate Affairs has further to amended the Companies (Audit and Auditors)
Rules, 2014, through the Companies (Audit and Auditors) Second Amendment Rules, 2021.
Amendment:
In the Companies (Audit and Auditors) Rules, 2014, in rule 11, in clause (g), for the words
“Whether the company”, the words, figures and letters “Whether the company, in respect of
financial years commencing on or after the 1st April, 2022,” shall be substituted.
[Enforcement Date: 1st April, 2021]
[This amendment is in continuation with the above amendment]
# Here, SM means Study Material (i.e. Page number of the Study material in reference to
relevant provisions)

PART – II : QUESTIONS AND ANSWERS
QUESTIONS
DIVISION A: CASE SCENARIO/ MULTIPLE CHOICE QUESTIONS

1. Ramesh started a new venture of on-line business of supply of grocery items at the door-
step of consumers. Initially it was having the area of operations of Jaipur City only. He
employed some young boys having their own bikes and allocated the areas which they
were accustomed of it, for making delivery of the grocery items as per their orders. He also
got developed a website and Mobile App to receive the orders on-line. His friend
Sudhanshu who is a Chartered Accountant, suggested him to corporatize this business
form, from proprietorship business to a One Person Company (OPC). Ramesh agreed and
a OPC was incorporated in the name of “Ask Ramesh4Online Grocery (OPC) Pvt Ltd.” (for
short OPC-1). In this OPC Ramesh became the member and director and Sudha (the
mother of Ramesh) was made as nominee.
After a year Ramesh got married with Rachna. Since the business of on -line supply of
grocery was on rising trend, day by day, he thought to start a new business of supply of
Milk and Milk Products and another OPC in the name of “Rachna Milk Products (OPC) Pvt
Ltd” (for short OPC-2) was incorporated with the help of his professional friend Sudhanshu.
In this OPC-2, Rachna (his wife) became the member and director and Ramesh was named
as Nominee.
To summarise the position, the information is tabulated as under:
Name of OPC Ask Ramesh4Online Grocery Rachna Milk Products
(OPC) Pvt Ltd [OPC-1] (OPC) Pvt Ltd [OPC-2]
Member and Director Ramesh Rachna
Nominee Sudha (Mother of Ramesh) Ramesh (Husband of
Rachna)
After some time, Sudha (the mother of Ramesh) passed away. However, before the death,
Sudha had made a WILL, in which she mentioned that after her demise, her another son
Suresh be made nominee in the OPC-1. When Suresh came to know this fact, he argued
with Ramesh to fulfil the wish of Sudha as per her WILL (Mother of Ramesh and Suresh),
but Ramesh denied this and appointed Rachna (his wife) as nominee.
Aggrieved from the decision of Ramesh for not nominating him (Suresh), Suresh
threatened Ramesh to take appropriate legal action against him for not honouring the WILL
of mother Sudha and consulted his lawyer. Meanwhile due to continuous threatening and
hot talks between Suresh and Ramesh, Rachna became mentally upset and became
insane, as certified by the medical doctor, so lost her capacity to contract. In this situation,
Ramesh being the nominee in OPC-2 became member and director of this OPC-2.

One of the friends of Ramesh advised him to do some charitable work of providing free
education to the girl children of his native village near by Jaipur. Ra mesh thought about
this proposal and asked his professional friend Sudhanshu to convert this OPC -2 into
Section 8 company.
Based on the above facts, answer the following MCQs:
1.1 Since Rachna, being insane, lost the capacity to contract, Ramesh (who was
nominee) became the member of OPC-2. Now who will make nomination for this OPC:
(a) Ramesh in the capacity of husband of Rachna can nominate any person as
Nominee of OPC-2
(b) Ramesh (who was nominee) of OPC-2 has now become member of this OPC
and now as a member of this OPC he can nominate any person as per his choice
as Nominee for this OPC.
(c) When no person is nominated, the Central Govt. will make nomination of such
OPC-2.
(d) When no person is nominated the Registrar shall order the company to be wound
up.
1.2 Whether conversion of OPC-2 into a company governed by Section 8 is permissible?
(a) Yes, OPC can be converted into Section 8 company
(b) No, OPC cannot be converted into Section 8 company
(c) This OPC-2 can be converted into section 8 company, provided the Central Govt
give license
(d) Providing of free education to girl child do not come under the specified objects
mentioned for eligibility incorporation of section 8 company
1.3 Ramesh is a member in OPC-1 and became a member in another OPC-2 (on 2nd
April, 2020) by virtue of his being a nominee in that OPC-2. Ramesh shall, by what
date, meet the eligibility criteria that an individual can be a member in only one OPC:
(a) 17th May 2020
(b) 25th August 2020
(c) 26th August 2020
(d) 29th September 2020
1.4 After the demise of Sudha (the mother of Ramesh), Rachna was nominated by
Ramesh for OPC-1 as Nominee. But now Rachna has become insane, so what
recourse you will suggest to Ramesh:
(a) Ramesh is required to nominate another person as nominee

(b) Ramesh should wait till Rachna becomes good of her health and able to have
the capacity to contract
(c) Although Rachna has become insane, but if she is able to sign, her nomination
in OPC-1 may continue
(d) Sudhanshu (the Chartered Accountant) who helped in incorporation of OPC -1,
may act as legal consultant on behalf of Rachna
2. Ronak and Bhowmik are brothers and they are engaged in the business of dairy. Ronak
is having 10 cows. The monthly revenue and expenses of the cows is tabulated as under:
S. Particulars (`)
No.
1. Revenue: 3,00,000
(25 litres per cow per day) *(10 cows) * (Sale Price ` 40 per
litre) * (30 days in a month) = 3,00,000.
2. Expenses: (1,30,000)
i. For feeding: (300 per cow per day) *(10 cows) * (30 days
in a month) = 90,000
ii. Medical Expenses (Salary to a Veterinary Doctor per
month: 10,000
iii. Labour’s Salary: (2 person *10,000) = 20,000
iv. Petrol exp for milk delivery van: Lump sum = 10,000
Total Exp= 90,000+10,000+20,000+10,000 =1,30,000
3. Savings per month 1,70,000
4. Yearly savings = 1,70,000*12 months 20,40,000
5. Salary to Bhowmik for looking after Ronak’s Diary business: (1,20,000)
10,000*12 = 1,20,000
6. Less: Contingency Expenditure (20,000)
7. Net Revenue to be collected (after a year) 19,00,000
Ronak’s son Chirag is doing Engineering in Dairy Science from Denmark and is in Final
Year. He learnt a lot by his engineering education and want to invite his father to know the
technical aspects of dairy business. Chirag insisted his parents to come to Denmark and
stay for a year to learn the nitty gritty of the dairy business and also enjoy the life in
travelling nearby places.
Ronak, talked to his brother Bhowmik and explained his plan to visit to Denmark for a year
and requested to take care of his cows. The labourers are engaged for the maintenance
of cows and delivery of the milk, and Bhowmik is just to have a watch over it, collect the
revenues etc. and take care of the cows, till he returns back from Denmark. Rona k also

offered Bhowmik that for taking care of his dairy business, he will pay to him Rs 10000 per
month. Ronak also told Bhowmik that the cows are covered under the Insurance Policy,
for which he has already paid advance premium and also shared the Insurance Policy with
Bhowmik. However, Ronak did not disclosed that one cow is under sickness, it very often
falls sick and needs to be taken care. Bhowmik agreed and the cows were shifted to
Bhowmik’s Dairy Farm House.
Ronak and his wife went to Denmark to stay with their son and to understand the dairy
business there and to visit the near places.
Bhowmik was now looking after the dairy business of Ronak along with his dairy business.
During the year, 2 cows gave the birth to 2 calves. One cow, which often use d to fall ill,
had also influenced the other cows, as a result, one cow of Bhowmik, and one cow of
Ronak which remained in close contact with this sick cow, also fell sick. All the three cows
(2 of Ronak and 1 of Bhowmik) died.
When the insurance claim was lodged, the insurance company refused to pass on the
claim on the following reasons:
• One cow of Ronak which was running sick was not insured.
• Post mortem Report of another two cows (one of Ronak and another of Bhowmik)
revealed that these two cows were in close touch of the sick cow and due to infections,
these two cows also died.
When Ronak returned back to India, he demanded his cows back. Bhowmik returned 8
cows (10-2) but did not returned calves. Bhowmik informed Ronak that due to one sick cow
(of Ronak) his cow also became sick and died and no insurance claim was admitted.
Based on the above facts, answer the following MCQs:
2.1 What was the fault on the part of Ronak (bailor) in this case?
(a) Ronak has not taken the Insurance Policy of the sick cow.
(b) Ronak have not informed the continuous sickness of his cow, to Bhowmik
(c) Ronak has left the cows to his brothers and went to Denmark to enjoy the
travelling and tourism.
(d) Ronak, before going to Denmark, should have sold this sick cow.
2.2 Can Bhowmik claim damages for loss of his cow, which died, since this cow, remained
in the close contact of the sick cow of Ronak:
(a) Ronak is not liable for such loss.
(b) Bhowmik should himself take care of his cow.
(c) Ronak is liable to pay the price of the deceased cow of Bhowmik, since this cow
died on account close contact of sick cow of Ronak.
(d) Bhowmik should be vigilant in taking care of the cows.

2.3 Whether Bhowmik is responsible to give delivery of two calves which took birth during
the year, when Ronak was on his tour to Denmark:
(a) Bhowmik is not bound to give delivery of two calves, since he has already lost
his own cow due to mistake of not disclosing the sickness of Ronak’s cow by
him (Ronak).
(b) Bhowmik is duty bound to hand over the delivery of two calves.
(c) Ronak should not insist for delivery of the calves.
(d) Bhowmik can keep the calves with him as the calves were born when the cows
were in Bhowmik’s custody.
2.4 Bhowmik returns only 8 cows, since 2 cows of Ronak died. Whether Ronak is entitled
to claim damages for 2 cows:
(a) Ronak is not entitled to claim damages.
(b) Ronak is entitled to claim damages only, if he can prove that Bhowmik has not
taken care of the cows as a prudent person, not taken the medical help of the
doctor etc.
(c) Bhowmik should morally paid the loss of cows to his brother Ronak
(d) Bhowmik should not claim his salary, since Ronak has already suffered the loss
of two cows.
3. A Limited made a public issue of Debentures. The articles of the company auth orises the
payment of underwriting commission at 2 per cent of the issue price. The company has
negotiated with the proposed underwriters, Gama Brokers and has finalised the rate at
2.25 per cent. The amount that the company is eligible to pay as underwriting commission
is:
(a) 5%
(b) 2%
(c) 2.5%
(d) 2.25%
4. Krishna Religious Publishers Limited has received application money of ` 20,00,000
(2,00,000 equity shares of ` 10 each) on 10 th October, 2019 from the applicants who
applied for allotment of shares in response to a private placement offer of securities made
by the company to them. Select the latest date by which the company must allot the shares
against the application money so received.
(a) 9th November, 2019
(b) 24h November, 2019
(c) 9th December, 2019

(d) 8th January, 2020

5. Such shares which are issued by a company to its directors or employees at a discount or
for a consideration other than cash for working extraordinary hard and achieving desired
output is honoured with:
(a) Equity Shares
(b) Preference Shares
(c) Sweat Equity Shares
(d) Redeemable preference shares
DIVISION B: DESCRIPTIVE QUESTIONS
PART I: COMPANY LAW
The Companies Act, 2013
1. The Board of Directors of GEN X Fashions Limited at its meeting recommended a dividend
on its paid-up equity share capital which was later on approved by the shareholders at the
Annual General Meeting. Thereafter, the directors at another meeting of the Board passed
a board resolution for diverting the total dividend to be paid to the shareholders for
purchase of certain short-term investments in the name of the company. As a result,
dividend was paid to shareholders after 45 days.
Examining the provisions of the Companies Act, 2013, state whether the act of directors is
in violation of the provisions of the Act and if so, state the consequences that shall follow
for the above violative act.
2. The Board of Directors of Moon Light Limited, a listed company appointed Mr. Teja,
Chartered Accountant as its first auditor within 30 days of the date of registration of the
Company to hold office from the date of incorporation to conclusion of the first Annual
General Meeting (AGM). At the first AGM, Mr. Teja was re-appointed to hold office from
the conclusion of its first AGM till the conclusion of 6th AGM. In the light of the provisions
of the Companies Act, 2013, examine the validity of appointment/ reappointment in the
following cases:
(i) Appointment of Mr. Teja by the Board of Directors.
(ii) Re-appointment of Mr. Teja at the first AGM in the above situation.
3. Kim Private Limited was incorporated on 30th September 2016. It has a paid up share
capital of ` 45 crore. The company had a turnover of 250 crore for the financial year
2019-20. The accounts manager of the company has intimated to the company that they
are not required to appoint internal auditor for the financial year 2020-21. The management
of the company have approached you to advise them about the appointment of internal
auditor.
Advise them as per the provisions of the Companies Act, 2013.

4. Define the term “charge” and also explain what is the punishment for default with respect
to registration of charge as per the provisions of the Companies Act, 2013 .
5. Yellow Pvt Ltd. is an unlisted company incorporated in the year 2012. The company have
share capital of rupees fifty crores. The company has decided to issue sweat equity share s
to its directors and employees. The company decided to issue 10% sweat equity shares
(which in total will add up to 30% of its paid up equity shares), with a locking period of five
years, as it is a start-up company. How would you justify these facts in relation to the
provision for issue of sweat equity shares by a start-up company, with reference to the
provision of the Company Act, 2013. Explain?
6. AB Limited issued equity shares of ` 1,00,000 (10000 shares of ` 10 each) on 01.04.2020
which have been fully subscribed whereby XY Limited holds 4000 shares and PQ Limited
holds 2000 shares in AB Limited. AB Limited is also holding 20% equity shares of RS
Limited before the date of issue of equity shares stated above. RS Limited controls the
composition of Board of Directors of XY Limited and PQ Limited from 01.08.2020. Examine
with relevant provisions of the Companies Act, 2013:
(i) Whether AB Limited is a subsidiary of RS Limited?
(ii) Whether AB Limited can hold shares of RS Limited?
(iii) Whether AB Limited can vote at Annual General Meeting of RS Limited held on
30.09.2020?
7. Nutty Buddy Limited is manufacturing premium quality milk based ice cream in two flavors-
first chocolate and second butter scotch. The company called its Annual General Meeting
(AGM) in order to lay down the financial statements for Shareholders’ approval. However,
due to want of quorum, the meeting was cancelled. Also, the Directors of the company did
not file the Annual Return with the Registrar. The directors were of the idea that the time
for filing of returns within 60 days from the date of AGM would not apply, as AGM was
cancelled. Has the company contravened the provisions of Companies Act, 2013? If the
company has contravened the provisions of the Act, how will it be penalized?
8. 500 equity shares of ABC Limited were acquired by Mr. Amit, but the signature of Mr.
Manoj, the transferor, on the transfer deed was forged. Mr. Amit, after getting the shares
registered by the company in his name, sold 250 equity shares to Mr. Abhi on the strength
of the share certificate issued by ABC Limited. Mr. Amit and Mr. Abhi were not aware of
the forgery. What are the liabilities/rights of Mr. Manoj, Amit and Abhi against the company
with reference to the aforesaid shares?
PART II: OTHER LAWS
The Indian Contract Act, 1872
9. Mr. Yadav, a cargo owner, chartered a vessel to carry a cargo of wheat from a foreign port
to Chennai. The vessel got stranded on a reef in the sea 300 miles from the destination.

The ship’s managing agents signed a salvage agreement for Mr. Yadav. The goods (wheat)
being perishable, the salvors stored it at their own expense. Salvors intimated the whole
incident to the cargo owner. Mr. Yadav refuse to reimburse the Salvor, as it is the Ship-
owner, being the bailee of the cargo, who was liable to reimburse the salvor until the
contract remained unterminated. Referring to the provision of The Indian Contract Act
1872, do you acknowledge or decline the act of Salvor, as an agent of nece ssity, for Mr.
Yadav. Explain?
10. Rahul is the owner of electronics shop. Priyanka reached the shop to purchase an air
conditioner whose compressor should be of copper. As Priyanka wanted to purchase the
air conditioner on credit, Rahul demand a guarantor for such transaction. Mr. Arvind ( a
friend of Priyanka) came forward and gave the guarantee for payment of air conditioner.
Rahul sold the air conditioner of a particular brand, misrepresenting that it is made of
copper while it is made of aluminium. Neither Priyanka nor Mr. Arvind had the knowledge
of fact that it is made of aluminium. On being aware of the facts, Priyanka denied for
payment of price. Rahul filed the suit against Mr. Arvind. Explain with reference to the
Indian Contract Act 1872, whether Mr. Arvind is liable to pay the price of air conditioner?
The Negotiable Instruments Act, 1881
11. ‘Akhil’ made a promissory note for `4,500 payable to ‘Bhuvan’, and delivered the same to
‘Bhuvan’ on the condition that he (‘Bhuvan’) will demand payment only on the death of
‘Chaman’. Before the death of ‘Chaman’, ‘Bhuvan’ indorsed and delivered the promissory
note to ‘Deepak’, who receive the promissory note in good faith. On the date of maturity,
‘Deepak’ presented the promissory note for payment but ‘Akhil’ denied for payment by
stating that he issued this promissory note on the condition that it can be paid only on the
death of ‘Chaman’. Can ‘Deepak’ recover the amount due on the promissory note from
‘Akhil’ under the provisions of the Negotiable Instrument Act 1881?
The General Clauses Act, 1897
12. Mr. Sohan has issued a promissory note of `1000 to Mr. Mohan on 17 th May 2021 payable
3 months after date. After that, a sudden holiday was declared on 20 th August 2021 due to
Moharram. As per the provisions of the General Clauses Act 1897, what should be the
date of presentment of promissory note for payment? Whether it should be 19 th August
2021 or 21st August 2021?
Interpretation of Statutes
13. At the time of interpreting a statutes what will be the effect of 'Usage' or 'customs and
Practices'?

SUGGESTED ANSWERS
ANSWER TO CASE SCENARIO / MULTIPULE CHOICE QUESTIONS

1.1 (b)
1.2 (b)
1.3 (d)
1.4 (a)
2.1 (b)
2.2 (c)
2.3 (b)
2.4 (b)
3. (b)
4. (c)
5. (c)
ANSWER TO DESCRIPTIVE QUESTIONS
1. According to section 124 of the Companies Act, 2013, where a dividend has been declared
by a company but has not been paid or claimed within 30 days from the date of the
declaration, the company shall, within 7 days from the date of expiry of the said period of
30 days, transfer the total amount of dividend which remains unpaid or unclaimed to a
special account to be opened by the company in any scheduled bank to be called the
Unpaid Dividend Account.
Further, according to section 127 of the Companies Act, 2013, where a dividend has been
declared by a company but has not been paid or the warrant in respect thereof has not
been posted within 30 days from the date of declaration to any entitled shareholder, every
director of the company shall, if he is knowingly a party to the default, be li able for
punishment.
In the present case, the Board of Directors of GEN X Fashions Limited at its meeting
recommended a dividend on its paid-up equity share capital which was later on approved
by the shareholders at the Annual General Meeting. Thereafter, the directors at another
meeting of the Board decided by passing a board resolution for diverting the total dividend
to be paid to the shareholders for purchase of certain short-term investments in the name
of the company. As a result, dividend was paid to shareholders after 45 days.
(i) Since, declared dividend has not been paid within 30 days from the date of the
declaration to any shareholder entitled to the payment of dividend, the company shall,
within 7 days from the date of expiry of the said period of 30 days, transfer the total

amount of dividend which remains unpaid or unclaimed to a special account to be

opened by the company in any scheduled bank to be called the Unpaid Dividend
Account.
(ii) The Board of Directors of GEN X Fashions Limited has violated section 127 of the
Companies Act, 2013 as it failed to pay dividend to shareholders within 30 days due
to its decision to divert the total dividend to be paid to shareholders for purchase of
certain short-term investments in the name of the company.
Consequences: The following are the consequences for violation of the above
provisions:
(a) Every director of the company shall, if he is knowingly a party to the default, be
punishable with maximum imprisonment of two years and shall also be liable for
a minimum fine rupees one thousand for every day during which such default
continues.
(b) The company shall also be liable to pay simple interest at the rate of 18% p.a.
during the period for which such default continues.
2. As per section 139(6) of the Companies Act, 2013, the first auditor of a company, other
than a Government company, shall be appointed by the Board of Directors within thirty
days from the date of registration of the company and such auditor shall hold office till the
conclusion of the first annual general meeting.
Whereas Section 139(1) of the Companies Act, 2013 states that every company shall, at
the first annual general meeting (AGM), appoint an individual or a firm as an auditor of the
company who shall hold office from the conclusion of 1st AGM till the conclusion of its
6th AGM and thereafter till the conclusion of every sixth AGM.
As per section 139(2), no listed company or a company belonging to such class or classes
of companies as may be prescribed, shall appoint or re-appoint an individual as auditor for
more than one term of five consecutive years.
As per the given provisions following are the answers:
(i) Appointment of Mr. Teja by the Board of Directors is valid as per the provisions of
section 139(6).
(ii) Appointment of Mr. Teja at the first Annual General Meeting is valid due to the fact
that the appointment of the first auditor made by the Board of Directors is a separate
appointment and the period of such appointment is not to be considered, while Mr.
Teja is appointed in the first Annual General Meeting, which is for the period from the
conclusion of the first Annual General Meeting to the conclusion of the sixth Annual
General Meeting.

3. According to section 138 read along with Rules of the Companies Act, 2013, every private
company having—
(A) turnover of 200 crore rupees or more during the preceding financial year; or
(B) outstanding loans or borrowings from banks or public financial institutions exceeding
100 crore rupees or more at any point of time during the preceding financial year.
shall be required to appoint an internal auditor which may be either an individual or a
partnership firm or a body corporate.
In the given question, the company has a paid up capital of ` 45 crore and turnover of
` 250 crore for the financial year 2019-20.
Since, the company is fulfilling the criteria of turnover (i.e. more than ` 200 crore), hence,
it is required to appoint an internal auditor for the financial year 2020 -21.
4. The term charge has been defined in section 2 (16) of the Companies Act, 2013 as ‘an
interest or lien created on the property or assets of a company or any of its undertakings
or both as security and includes a mortgage’.
Punishment for contravention – According to section 86 of the Companies Act, 2013, if
any company is in default in complying with any of the provisions of this Chapter, the
company shall be liable to a penalty of five lakh rupees and every officer of the company
who is in default shall be liable to a penalty of fifty thousand rupees.
Further, if any person willfully furnishes any false or incorrect information or knowingly
suppresses any material information which is required to be registered under section 77,
he shall be liable for action under section 447 (punishment for fraud).
5. Sweat Equity Shares is governed by Section 54 of the Companies Act, 2013 and Rule 8
of Companies (Share capital and debentures) Rules, 2014. According to Section 54 the
company can issue sweat equity shares to its director and permanent employees of the
company.
According to rule 8 (4) proviso, states that a start up company, is defined in a notifica tion
number Ministry of Commerce and industry Government of India, may issue sweat equity
share not exceeding 50% of its paid up share capital up to 10 years from the date of its in
incorporation or registration.
According to Rule 8(5), the sweat equity shares issued to directors or employees shall be
locked in/ non transferable for a period of three years from the date of allotment and the
fact that the share certificates are under lock-in too.
Hence, in the above case the company can issue sweat equity shares by passing special
resolution at its general meeting. The company as a startup company is right in issue of
10% sweat equity share as it is overall within the limit of 50% of its paid up share capital.
But the lock in period of the shares is limited to maximum three years period from the date
of allotment.

6. This given problem is based on sub-clause (87) of Clause 2 read with section 19 of the
Companies Act, 2013.
As per sub-clause (87) of Clause 2 of the Companies Act, 2013 "subsidiary company" or
"subsidiary", in relation to any other company (i.e., the holding company), means a
company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power either at its own or
together with one or more of its subsidiary companies.
For the purposes of this clause, Explanation is given providing that a company shall be
deemed to be a subsidiary company of the holding company even if the control referred to
in point (i) or point (ii) above, is of another subsidiary company of the holding company.
Whereas Section 19 provides that, no company shall, hold any shares in its holding
company and no holding company shall allot or transfer its shares to any of its subsidia ry
companies and any such allotment or transfer of shares of a company to its subsidiary
company shall be void.
Provided that nothing in this sub-section shall apply to a case where the subsidiary
company is a shareholder even before it became a subsidiary company of the holding
company.
Here in the instant case, AB Ltd. issued 10,000 equity shares on 1.4.2020 whereby XY
Ltd. & PQ Ltd. holds 4000 & 2000 shares respectively in AB Ltd., Considering 1 share = 1
vote, XY Ltd. and PQ Ltd. together holds more than one-half (50%) of the total voting
power. Therefore, AB Ltd. will be subsidiary to XY Ltd. & PQ Ltd. from 1.4.2020.
Whereas AB Ltd. is already holding 20% equity shares of RS Ltd. before the date of issue
of equity shares i.e. 1.4.2020.
Further, RS Ltd. controls the composition of Board of Directors of XY Ltd. and PQ Ltd. from
01.08.2020. In the light of sub-clause (87) of Clause 2, RS Ltd. is a holding company of
XY Ltd. and PQ Ltd. (Subsidiary companies).
Following are the answers to the questions:
(i) Yes. In this case AB Ltd. shall be deemed to be a subsidiary company of the holding
company (RS Ltd.) as RS Ltd. controls the composition of subsidiary companies XY
Ltd. & PQ Ltd. as per explanation to sub-clause (87) of Clause 2.
(ii) Yes. In this case AB Limited is a subsidiary of RS Limited as AB Ltd. was holding
20% of equity shares of RS Ltd. even before it became a subsidiary company of the
RS Ltd. (i.e. on 01.08.2020), according to the exception to section 19.
(iii) No. The subsidiary company shall have a right to vote at a meeting of the holding
company only in respect of the shares held by it as a legal representative or as a
trustee but not where the subsidiary company is a shareholder even before it became

a subsidiary company of the holding company. Therefore, AB Ltd. cannot vote at AGM
of RS Ltd. held on 30.9.2020.
7. According to section 92(4) of the Companies Act, 2013, every company shall file with the
Registrar a copy of the annual return, within sixty days from the date on which the annual
general meeting is held or where no annual general meeting is held in any year
within sixty days from the date on which the annual general meeting should have been
held together with the statement specifying the reasons for not holding the annual general
meeting.
Sub-section (5) of Section 92 also states that if any company fails to file its annual return
under sub-section (4), before the expiry of the period specified therein, such company and
its every officer who is in default shall be liable to a penalty of ten thousand rupees and in
case of continuing failure, with further penalty of one hundred rupees for each day during
which such failure continues, subject to a maximum of two lakh rupees in case of a
company and fifty thousand rupees in case of an officer who is in default.
In the instant case, the idea of the directors that since the AGM was cancelled, the
provisions requiring the company to file annual returns within 60 days from the date of
AGM would not apply, is incorrect.
In the above case, the annual general meeting of Nutty Buddy Limited should have been
held within a period of six months, from the date of closing of the financial year but it did
not take place. Thus, the company has contravened the provisions of section 92 of the
Companies Act, 2013 for not filing the annual return and shall attract the penal provisions
along with every officer of the company who is in default as specified in Section 92(5) of
the Act.
8. According to Section 46(1) of the Companies Act, 2013, a share certificate once issued
under the common seal, if any, of the company or signed by two directors or by a director
and the Company Secretary, wherever the company has appointed a Company Secretary,
specifying the shares held by any person, shall be prima facie evidence of the title of the
person to such shares. Therefore, in the normal course the person named in the share
certificate is for all practical purposes the legal owner of the shares therein and the
company cannot deny his title to the shares.
However, a forged transfer is a nullity. It does not give the transferee (Mr. Amit) any title
to the shares. Similarly, any transfer made by Mr. Amit (to Mr. Abhi) will also not give a
good title to the shares as the title of the buyer is only as good as that of the seller.
Therefore, if the company acts on a forged transfer and removes the name of the real
owner (Mr. Manoj) from the Register of Members, then the company is bound to restore
the name of Mr. Manoj as the holder of the shares and to pay him any dividends which he
ought to have received.
In the above case, therefore, Mr. Manoj has the right against the company to get the shares
recorded in his name. However, neither Mr. Amit nor Mr. Abhi have any rights against the

company even if they are bona fide purchasers. But as Mr. Abhi acted on the faith of share
certificate issued by company, he can demand compensation from Mr. Amit.
9. Section 189 of Indian Contract Act 1872 defines agent's authority in an emergency . An
agent has authority, in an emergency, to do all such acts for the purpose of protecting his
principal from loss as would be done by a person of ordinary prudence, in his own case,
under similar circumstances.
In certain circumstances, a person who has been entrusted with another’ s property may
have to incur unauthorized expenses to protect or preserve it. This is called an agency of
necessity. Hence, in the above case the Salvor had implied authority from the cargo owner
to take care of the cargo. They acted as agents of necessity on behalf of the cargo owner.
Cargo owner were duty-bound towards salvor. Salvor is entitled to recover the agreed sum
from Mr. Yadav and not from the ship owner, as a lien on the goods.
10. As per the provisions of section 142 of the Indian Contract Act 1872, where the guarantee
has been obtained by means of misrepresentation made by the creditor concerning a
material part of the transaction, the surety will be discharged. Further according to
provisions of section 134, the surety is discharged by any contract between the creditor
and the principal debtor, by which the principal debtor is released, or by any act or omission
of the creditor, the legal consequence of which is the discharge of the principal debtor.
In the given question, Priyanka wants to purchase air conditioner whose compressor
should be of copper, on credit from Rahul. Mr. Arvind has given the guarantee for payment
of price. Rahul sold the air conditioner of a particular brand on misrepresenting that it is
made of copper while it is made of aluminium of which both Priyanka & Mr. Arvind were
unaware. After being aware of the facts, Priyanka denied for payment of price. Rahul filed
the suit against Mr. Arvind for payment of price.
On the basis of above provisions and facts of the case, as guarantee was obtained by
Rahul by misrepresentation of the facts, Mr. Arvind will not be liable. He will be discharged
from liability.
11. By virtue of provisions of section 9 of the Negotiable Instrument Act 1881, any person who
for consideration became the possessor of a negotiable instrument in good faith and
without having sufficient cause to believe that any defect existed in the title of the person
from whom he derived his title. While Sec.47 provides if a negotiable instrument is
delivered to a person, upon condition, i.e. it will be effective on the happening of a certain
event, such negotiable instrument cannot be further negotiated unless such event
happens. However, if it is transferred to a holder in due course, his rights will not be
affected by such condition.
‘Akhil’ issued a promissory note to ‘Bhuvan’ on the condition that he (‘Bhuvan’) will demand
payment only on the death of ‘Chaman’. Before the death of ‘Chaman’, ‘Bhuvan’ indorsed
and delivered the promissory note to ‘Deepak’, who receive the promissory note in good

faith. On due date, ‘Deepak’ presented the promissory note for payment but ‘Akhil’ denied
for payment.
From the above provisions and facts of the case, it can be said that ‘Deepak’ has received
the promissory note in good faith, he is a holder in due course and his rights will not be
affected by any condition attached to the instrument by any prior party. Therefore, ‘Deepak’
can recover the amount due on the promissory note from ‘Akhil’.
12. Section10 of the General Clauses Act 1897 provides where by any legislation or regulation,
any act or proceeding is directed or allowed to be done or taken in any court or office on a
certain day or within a prescribed period then, if the Court or office is closed on that day or
last day of the prescribed period, the act or proceeding shall be considered as done or
taken in due time if it is done or taken on the next day afterwards on which the Court or
office is open.
A promissory note of `1000 was issued by Mr. Sohan to Mr. Mohan on 17 th May 2021
which was payable 3 months after date. After that, a sudden holiday was declared on 20 th
August 2021 due to Moharram.
In the given case, the period of 3 months ends on 17 th August 2021. Three days of grace
are to be added. It falls due on 20 th August 2021 which declared to be a public holiday after
the issue of Promissory Note. In the light of provisions of Sec. 10 of the General Clauses
Act 1897, the due date will be on next day when office is open i.e. 21 st August 2021.
13. Effect of usage: Usage or practice developed under the statute is indicative of the
meaning recognized to its words by contemporary opinion. A uniform notorious practice
continued under an old statute and inaction of the Legislature to amend the same are
important factors to show that the practice so followed was based on correct understanding
of the law. When the usage or practice receives judicial or legislative approval it gains
additional weight.
In this connection, we have to bear in mind two Latin maxims:
(i) 'Optima Legum interpres est consuetude' (the custom is the best interpreter of the
law); and
(ii) 'Contemporanea exposito est optima et fortissinia in lege' (the best way to interpret a
document is to read it as it would have been read when made).
Therefore, the best interpretation/construction of a statute or any other document is that
which has been made by the contemporary authority. Simply stated, old statutes and
documents should be interpreted as they would have been at the time when they were
enacted/written.
Contemporary official statements throwing light on the construction of a statute and
statutory instruments made under it have been used as contemporanea expositio to
interpret not only ancient but even recent statutes in India.

ANNEXURE
Section 135 read along with Companies (Social Responsibility Policy) Rules, 2014
The Companies Act, 2013 lays down the provisions requiring corporates to mandatorily spend
a prescribed percentage of their profits on certain specified areas of social upliftment in
discharge of their social responsibilities. Broadly, Corporate Social Responsibility (CSR) implies
a concept, whereby companies decide to contribute to a better society and a cleaner
environment – a concept, whereby the companies integrate social and other useful concerns in
their business operations for the betterment of its stakeholders and society in general.
The provisions related with Corporate Social Responsibility has been enshrined under section
135 and Companies (Social Responsibility Policy) Rules, 2014 1.
DEFINITIONS
1. “Corporate Social Responsibility (CSR)” means the activities undertaken by a Company
in pursuance of its statutory obligation laid down in section 135 of the Act in accordance
with the provisions contained in these rules, but shall not include the following, namely:-
(i) activities undertaken in pursuance of normal course of business of the company:
Provided that any company engaged in research and development activity of new
vaccine, drugs and medical devices in their normal course of business may undertake
research and development activity of new vaccine, drugs and medical devices related
to COVID-19 for financial years 2020-21, 2021-22, 2022-23 subject to the conditions
that
(a) such research and development activities shall be carried out in collaboration
with any of the institutes or organisations mentioned in item (ix) of Schedule VII
to the Act;
(b) details of such activity shall be disclosed separately in the Annual report on CSR
included in the Board’s Report;
(ii) any activity undertaken by the company outside India except for training of Indian
sports personnel representing any State or Union territory at national level or India at
international level;
(iii) contribution of any amount directly or indirectly to any political party under section
182 of the Act;
(iv) activities benefitting employees of the company as defined in clause (k) of section 2
of the Code on Wages, 2019;
1These rules have been recently amended by the Companies (CSR Policy) Amendment Rules, 2021 dated
22nd January, 2021.

(v) activities supported by the companies on sponsorship basis for deriving marketing
benefits for its products or services;
(vi) activities carried out for fulfilment of any other statutory obligations under any law in
force in India; [Rule 2(d)]
2. "CSR Committee" means the Corporate Social Responsibility Committee of the Board
referred to in section 135 of the Act; [Rule 2(e)]
3. "CSR Policy" means a statement containing the approach and direction given by the board
of a company, taking into account the recommendations of its CSR Committee, and
includes guiding principles for selection, implementation and monitoring of activities as well
as formulation of the annual action plan; [Rule 2(f)]
4. “Administrative overheads” means the expenses incurred by the company for ‘general
management and administration’ of Corporate Social Responsibility functions in the
company but shall not include the expenses directly incurred for the designing,
implementation, monitoring, and evaluation of a particular Corporate Social Responsibility
project or programme; [Rule 2(b)]
5. “International Organisation” means an organisation notified by the Central Government
as an international organisation under section 3 of the United Nations (Privileges and
Immunities) Act, 1947, to which the provisions of the Schedule to the said Act apply; [Rule
2(g)]
6. "Net profit" means the net profit of a company as per its financial statement prepared in
accordance with the applicable provisions of the Act, but shall not include the following,
namely:-
(i) any profit arising from any overseas branch or branches of the company, whether
operated as a separate company or otherwise; and
Provided that in case of a foreign company covered under these rules, net profit means
the net profit of such company as per profit and loss account prepared in terms of clause
(a) of sub-section (1) of section 381, read with section 198 of the Act; [Rule 2(h)]
7. “Ongoing Project” means a multi-year project undertaken by a Company in fulfilment of
its CSR obligation having timelines not exceeding three years excluding the financial year
in which it was commenced, and shall include such project that was initially not approved
as a multi-year project but whose duration has been extended beyond one year by the
board based on reasonable justification; [Rule 2(i)]
8. “Public Authority” means ‘Public Authority’ as defined in clause (h) of section 2 of the
Right to Information Act, 2005; [Rule 2(j)]

COMPANIES REQUIRED TO CONSTITUTE CSR COMMITTEE

According to section 135(1), every company having net worth of rupees five hundred crore or
more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or
more during the immediately preceding financial year shall constitute a Corporate Social
Responsibility Committee of the Board consisting of three or more directo rs, out of which at
least one director shall be an independent director.
Provided that where a company is not required to appoint an independent director under sub -
section (4) of section 149, it shall have in its Corporate Social Responsibility Committee t wo or
more directors.
As per Rule 3(1), every company including its holding or subsidiary, and a foreign company
defined under clause (42) of section 2 of the Act having its branch office or project office in India,
which fulfills the criteria specified in sub-section (1) of section 135 of the Act shall comply with
the provisions of section 135 of the Act and these rules:
Provided that net worth, turnover or net profit. of a foreign company of the Act shall be computed
in accordance with balance sheet and Profit and loss account of such company prepared in
accordance with the provisions of clause (a) of sub-section (1) of section 381 and section 198 of
the Act.
“Net worth” [As per Section 2(57)] means the aggregate value of the paid-up share capital and
all reserves created out of the profits, securities premium account and debit or credit balance of
the profit and loss account, after deducting the aggregate value of the accumulated losses,
deferred expenditure and miscellaneous expenditure not written off, as per the audited balance
sheet, but does not include reserves created out of revaluation of assets, write-back of
depreciation and amalgamation. 2
Example 5: The statutory auditors of a company were required to issue a certificate on the net
worth of the company as per the requirement of the management as on 30 th September 2020
computed as per the provision of section 2(57) of the Companies Act, 2013.
The company had fair valued its property, plant and equipment in the current year which was
mistakenly taken into retained earnings of the company in its books of accounts. Please adv ise
whether this fair valuation would be covered in the net worth of the company as per the legal
requirements.
2For the purposes of this section (i.e. section 135) "net profit" shall not include such sums as
may be prescribed, and shall be calculated in accordance with the provisions of section 198.
For details about more about refer later pages- heading ‘Calculation of Net Profits’

Answer: As per sec 2(57) of the Companies Act 2013, any reserves created out of revaluation
of assets doesn’t form part of net worth. The company fair valued its property, plant and
equipment and took that to retained earnings.
Even if the company has taken the fair valuation to the retained earnings in its books of
accounts, the resultant credit in reserves (by whatever name called) would be in t he category
of ‘reserves created out of revaluation of assets’ which is specifically excluded in the definition
of ‘net worth’ in section 2 (57) and hence should be excluded by the company.
Further the auditors should also consider the matter related to accounting of this reserve
separately at the time of audit of books of accounts of the company.
Exclusion of Companies [Rule 3(2) of the Companies (CSR) Rules, 2014]
Every company which ceases to be a company covered under subsection (1) of section 135 of
the Act for three consecutive financial years shall not be required to -
(a) constitute a CSR Committee; and
(b) comply with the provisions contained in sub-section (2) to (6) of the said section,
till such time it meets the criteria specified in sub-section (1) of section 135.
COMPOSITION OF CSR COMMITTEE
Corporate Social Responsibility Committee of the Board shall consist of three or more directors,
out of which at least one director shall be an independent director.
Provided that where a company is not required to appoint an independent director under sub -
section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or
more directors.
According to Rule 5(1) of the Companies (CSR) Rules, 2014:
The companies mentioned in the rule 3 shall constitute CSR Committee as under.-
(i) a company covered under subsection (1) of section 135 which is not required to appoint
an independent director pursuant to sub-section (4) of section 149 of the Act, shall have
its CSR Committee without such director;
(ii) a private company having only two directors on its Board shall constitute its CSR
Committee with two such directors;
(iii) with respect to a foreign company covered under these rules, the CSR Committee shall
comprise of at least two persons of which one person shall be as specified under clause
(d) of sub-section (1) of section 380 of the Act and another person shall be nominated by
the foreign company.
Disclosure of composition of CSR Committee
As per section 135(2), the Board's report under sub-section (3) of section 134 shall disclose the
composition of the Corporate Social Responsibility Committee.

DUTIES OF CSR COMMITTEE

According to section 135(3),
The Corporate Social Responsibility Committee shall,—(a) formulate and recommend to the
Board, a Corporate Social Responsibility Policy which shall indicate the activities to be
undertaken by the company in areas or subject, specified in Schedule VII;(b) recommend the
amount of expenditure to be incurred on the activities referred to in clause (a); and (c) monitor
the Corporate Social Responsibility Policy of the company from time to time.
According to Rule 5(2) of Companies (CSR) Rules, 2014,
The CSR Committee shall formulate and recommend to the Board, an annual action plan in
pursuance of its CSR policy, which shall include the following, namely:-
(a) the list of CSR projects or programmes that are approved to be undertaken in areas or
subjects specified in Schedule VII of the Act;
(b) the manner of execution of such projects or programmes as specified in sub-rule (1) of rule
4;
(c) the modalities of utilisation of funds and implementation schedules for the projects or
programmes;
(d) monitoring and reporting mechanism for the projects or programmes; and
(e) details of need and impact assessment, if any, for the projects undertaken by the company:
Provided that Board may alter such plan at any time during the financial year, as per the
recommendation of its CSR Committee, based on the reasonable justification to that effect.
DUTIES OF THE BOARD IN RELATION TO CSR
According to 135(4), the Board of every company referred to in sub -section (1) shall,—(a) after
taking into account the recommendations made by the Corporate Social Responsibility
Committee, approve the Corporate Social Responsibility Policy for the company and disclose
contents of such Policy in its report and also place it on the company's website, if any, in such
manner as may be prescribed; and (b) ensure that the activities as are included in Corporate
Social Responsibility Policy of the company are undertaken by the company.
Display of CSR activities on its website
The Board of Directors of the Company shall mandatorily disclose the composition of the CSR
Committee, and CSR Policy and Projects approved by the Board on their website, if any, for
public access. [Rule 9 of the Companies (CSR Policy) Rules, 2014]
AMOUNT OF CONTRIBUTION TOWARDS CSR
According to section 135(5),
The Board of every company referred to in sub-section (1), shall ensure that the company
spends, in every financial year, at least two per cent. of the average net profits of the company
made during the three immediately preceding financial years or where the company has not

completed the period of three financial years since its incorporation, during such immediately
preceding financial years, in pursuance of its Corporate Social Responsibility Policy:
Provided that the company shall give preference to the local area and areas around it whe re it
operates, for spending the amount earmarked for Corporate Social Responsibility activities:
Provided further that if the company fails to spend such amount, the Board shall, in its report
made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending
the amount and, unless the unspent amount relates to any ongoing project referred to in sub-
section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period
of six months of the expiry of the financial year.
Provided also that if the company spends an amount in excess of the requirements provided
under this sub-section, such company may set off such excess amount against the requirement
to spend under this sub-section for such number of succeeding financial years and in such
manner, as may be prescribed.
Explanation.—For the purposes of this section "net profit" shall not include such sums as may
be prescribed, and shall be calculated in accordance with the provisions of section 198.
According to section 135(6), any amount remaining unspent under sub -section (5), pursuant to
any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company
in persuance of its Corporate Social Responsibility Policy, shall be transferred by the company
within a period of thirty days from the end of the financial year to a special account to be opened
by the company in that behalf for that financial year in any scheduled bank to be called the
Unspent Corporate Social Responsibility Account, and such amount shall be spent by the
company in pursuance of its obligation towards the Corporate Social Responsibility Policy within
a period of three financial years from the date of such transfer, failing which, the company shall
transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the
date of completion of the third financial year.
Calculation of Net Profits
1. For the purposes of this section (i.e. section 135) "net profit" shall not include such sums
as may be prescribed, and shall be calculated in accordance with the provisions of section
198. [Explanation in section 135(5)]
2. "Net profit" means the net profit of a company as per its financial statement prepared in
accordance with the applicable provisions of the Act, but shall not include the following,
namely:-
(i) any profit arising from any overseas branch or branches of the company, whether
operated as a separate company or otherwise; and

Provided that in case of a foreign company covered under these rules, net profit means
the net profit of such company as per profit and loss account prepared in terms of clause
(a) of sub-section (1) of section 381, read with section 198 of the Act; [Rule 2(h)]
CSR Expenditure [Rule 7 of Companies (CSR) Rules, 2014]
(1) The board shall ensure that the administrative overheads shall not exceed five percent of
total CSR expenditure of the company for the financial year.
(2) Any surplus arising out of the CSR activities shall not form part of the business profit of a
company and shall be ploughed back into the same project or shall be transferred to the
Unspent CSR Account and spent in pursuance of CSR policy and annual action plan of the
company or transfer such surplus amount to a Fund specified in Schedule VII, within a
period of six months of the expiry of the financial year.
(3) Where a company spends an amount in excess of requirement provided under sub -section
(5) of section 135, such excess amount may be set off against the requirement to spend
under sub-section (5) of section 135 up to immediate succeeding three financial years
subject to the conditions that –
(i) the excess amount available for set off shall not include the surplus arising out of the
CSR activities, if any, in pursuance of sub-rule (2) of this rule.
(ii) the Board of the company shall pass a resolution to that effect.
(4) The CSR amount may be spent by a company for creation or acquisition of a capital asset,
which shall be held by -
(a) a company established under section 8 of the Act, or a Registered Public Trust or
Registered Society, having charitable objects and CSR Registration Number under
sub-rule (2) of rule 4; or
(b) beneficiaries of the said CSR project, in the form of self-help groups, collectives,
entities; or
(c) a public authority:
Provided that any capital asset created by a company prior to the commencement of the
Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, shall within
a period of one hundred and eighty days from such commencement comply with th e
requirement of this rule, which may be extended by a further period of not more than ninety
days with the approval of the Board based on reasonable justification.
Transfer of unspent CSR amount [Rule 10 of Companies (CSR Policy) Rules, 2014
Until a fund is specified in Schedule VII for the purposes of subsection (5) and (6) of section
135 of the Act, the unspent CSR amount, if any, shall be transferred by the company to any
fund included in schedule VII of the Act.

PENAL PROVISIONS
If a company is in default in complying with the provisions of sub-section (5) or sub-section (6),
the company shall be liable to a penalty of twice the amount required to be transferred by the
company to the Fund specified in Schedule VII or the Unspent Corporate Social Res ponsibility
Account, as the case may be, or one crore rupees, whichever is less, and every officer of the
company who is in default shall be liable to a penalty of one-tenth of the amount required to be
transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate
Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.
[Section 135(7)]
SPECIAL INSTRUCTIONS OF THE CENTRAL GOVERNMENT
The Central Government may give such general or special directions to a company or class of
companies as it considers necessary to ensure compliance of provisions of this section and
such company or class of companies shall comply with such directions. [Section 135(8)]
WHEN IT IS NOT NECESSARY TO CONSTITUTE A CSR COMMITTEE
According to section 135(9), where the amount to be spent by a company under sub -section (5)
does not exceed fifty lakh rupees, the requirement under sub-section (1) for constitution of the
Corporate Social Responsibility Committee shall not be applicable and the functions of such
Committee provided under this section shall, in such cases, be discharged by the Board of
Directors of such company.
CSR IMPLEMENTATION [Rule 4 of the Companies (CSR Policy) Rules, 2014]:
(1) The Board shall ensure that the CSR activities are undertaken by the company itself or
through-
(a) a company established under section 8 of the Act, or a registered public trust or a
registered society, registered under section 12A and 80 G of the Income Tax Act,
1961, established by the company, either singly or along with any other company, or
(b) a company established under section 8 of the Act or a registered trust or a registered
society, established by the Central Government or State Government; or
(c) any entity established under an Act of Parliament or a State legislature; or
(d) a company established under section 8 of the Act, or a registered public trust or a
registered society, registered under section 12A and 80G of the Income Tax Act,
1961, and having an established track record of at least three years in undertaking
similar activities.
(2) (a) Every entity, covered under sub-rule (1), who intends to undertake any CSR activity,
shall register itself with the Central Government by filing the form CSR-1 electronically
with the Registrar, with effect from the 01 st day of April 2021:
Provided that the provisions of this sub-rule shall not affect the CSR projects or
programmes approved prior to the 01st day of April 2021.

(b) Form CSR-1 shall be signed and submitted electronically by the entity and shall be
verified digitally by a Chartered Accountant in practice or a Company Secretary in
practice or a Cost Accountant in practice.
(c) On the submission of the Form CSR-1 on the portal, a unique CSR Registration
Number shall be generated by the system automatically.
(3) A company may engage international organisations for designing, monitoring and
evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity
building of their own personnel for CSR.
(4) A company may also collaborate with other companies for undertaking projects or
programmes or CSR activities in such a manner that the CSR committees of respective
companies are in a position to report separately on such projects or programmes in
accordance with these rules.
(5) The Board of a company shall satisfy itself that the funds so disbursed have been utilised
for the purposes and in the manner as approved by it and the Chief Financial Officer or the
person responsible for financial management shall certify to the effect.
(6) In case of ongoing project, the Board of a Company shall monitor the implementation of
the project with reference to the approved timelines and year-wise allocation and shall be
competent to make modifications, if any, for smooth implementation of the project within
the overall permissible time period.
CSR REPORTING (Rule 8)
(1) The Board's Report of a company covered under these rules pertaining to any financial
year shall include an annual report on CSR containing particulars specified in Annexure I
or Annexure II, as applicable.
(2) In case of a foreign company, the balance sheet filed under clause (b) of sub -section (1)
of section 381 of the Act, shall contain an annual report on CSR containing part iculars
specified in Annexure I or Annexure II, as applicable.
(3) (a) Every company having average CSR obligation of ten crore rupees or more in
pursuance of subsection (5) of section 135 of the Act, in the three immediately
preceding financial years, shall undertake impact assessment, through an
independent agency, of their CSR projects having outlays of one crore rupees or
more, and which have been completed not less than one year before undertaking the
impact study.
(b) The impact assessment reports shall be placed before the Board and shall be
annexed to the annual report on CSR.
(c) A Company undertaking impact assessment may book the expenditure towa rds
Corporate Social Responsibility for that financial year, which shall not exceed five
percent of the total CSR expenditure for that financial year or fifty lakh rupees,
whichever is less.

ACTIVITIES SPECIFIED UNDER SCHEDULE VII

Activities which may be included by companies in their CSR Policies (i.e. Activities as specified
under Schedule VII) are as follows:
(1) eradicating hunger, poverty and malnutrition, promoting health care including preventive
health care and sanitation including contribution to the Swach Bharat Kosh set-up by the
Central Government for the promotion of sanitation and making available safe drinking
water;
(2) promoting education, including special education and employment enhancing vocation
skills especially among children, women, elderly, and the differently abled and livelihood
enhancement projects;
(3) promoting gender equality, empowering women, setting up homes and hostels for women
and orphans; setting up old age homes, day care centres and such other facilities for senio r
citizens and measures for reducing inequalities faced by socially and economically
backward groups;
(4) ensuring environmental sustainability, ecological balance, protection of flora and fauna,
animal welfare, agroforestry, conservation of natural resources and maintaining quality of
soil, air and water including contribution to the Clean Ganga Fund set up by the Central
Government for rejuvenation of river Ganga;
(5) protection of national heritage, art and culture including restoration of buildings and sites
of historical importance and works of art; setting up public libraries; promotion and
development of traditional arts and handicrafts;
(6) measures for the benefit of armed forces veterans, war widows and their dependents,
Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans,
and their dependents including widows;
(7) training to promote rural sports, nationally recognised sports, paralympic sports and
Olympic sports;
(8) contribution to the Prime Minister’s National Relief Fund or Prime Minister’s Citizen
Assistance and Relief in Emergency situations Fund (PM CARES FUND) any other fund
set up by the Central Government for socio-economic development and relief and welfare
of the Scheduled Castes, Tribes, other backward classes, minorities and women;
(9) (a) Contribution to incubators or research development projects in the field of science,
technology, engineering and medicine, funded by Central Government or State
Government or any agency or Public Sector Undertaking of Central Government or
State Government, and
(b) Contributions to public funded Universities; Indian Institute of Technology (IITs);
National Laboratories and Autonomous Bodies established under Department of
Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science
and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga

and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and
Information Technology and other bodies, namely Defense Research and Development
Organisation (DRDO);Indian Council of Agricultural Research (ICAR); Indian Council of
Medical Research (ICMR) Council of Scientific and Industrial Research (CSIR), engaged
in conducting research in science, technology, engineering and medicine aimed at
promoting Sustainable Development Goals (SDGs);
(10) rural development projects;
(11) slum area development. [For the purposes of this item, the term ‘slum area’ shall mean
any area declared as such by the Central Government or any State Government or any
other competent authority under any law for the time being in force.
(12) disaster management, including relief, rehabilitation and reconstruction activities.
CLARIFICATIONS
The MCA vide General Circular No. 21/2014 dated 18 June 2014 has provided many
clarifications with regard to provisions of Corporate Social Responsibility under section 135 of
the Companies Act, 2013 which are as under:
(i) The statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities
undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the
Companies Act 2013, the entries in the said Schedule VII must be interpreted liberally so
as to capture the essence of the subjects enumerated in the said Schedule. The items
enlisted in the amended Schedule VII of the Act, are broad-based and are intended to
cover a wide range of activities as illustratively mentioned in the Annexure.
(ii) It is further clarified that CSR activities should be undertaken by the companies in project/
programme mode. One-off events such as marathons/ awards/ charitable contribution/
advertisement/ sponsorships of TV programmes etc. would not be qualified as part of CSR
expenditure.
(iii) Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such
as Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure under the
Companies Act.
3(v) “Any financial year” referred under sub-section (1) of section 135 of the Act read with the
Companies CSR Rule, 2014, implies ‘any of the three preceding financial years.
(vi) Expenditure incurred by Foreign Holding Company for CSR activities in India will qualify
as CSR spend of the Indian subsidiary if, the CSR expenditures are routed through Indian
subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act.
(vii) ‘Registered Trust’ would include Trusts registered under Income Tax Act 1956, for those
States where registration of Trust is not mandatory.
3 Point (iv) has been omitted (Refer clarification dated 17.09.2014)

(viii) Contribution to Corpus of a Trust/ society/ section 8 companies etc. will qualify as CSR
expenditure as long as (a) the Trust/ society/ section 8 companies etc. is created
exclusively for undertaking CSR activities or (b) where the corpus is created exclu sively
for a purpose directly relatable to a subject covered in Schedule VII of the Act.
Clarifications with respect to CSR on COVID
1. General Circular No. 10/2020 dated 23 rd March, 2020
The Ministry of Corporate Affairs have clarified that keeping in view of the spread of novel
Corona Virus (COVID-19) in India, its declaration as pandemic by the World Health
Organisation (WHO), and, decision of Government of India to treat this as a notified
disaster, spending of CSR funds for COVID-19 is eligible CSR activity.
Funds may be spent for various activities related to COVID-19 under item nos. (i) and
(xii) of Schedule VII relating to promotion of health care, including preventive health
care and sanitation, and, disaster management. Further, as per General Circular No.
21/2014 dated 18.06.2014, items in Schedule VII are broad based and may be
interpreted liberally for this purpose.
2. General Circular No. 01/2021 dated 13th January, 2021
The Ministry of Corporate Affairs, have made a clarification on spending of CSR funds for
Awareness and public outreach on COVID-19 Vaccination programme.
This Circular is in continuation to this Ministry's General Circular No. 10/2020 dated
23.03.2020 wherein it was clarified that spending of CSR funds for COVID19 is an eligible
CSR activity , it is further clarified that spending of CSR funds for carrying out awareness
campaigns/ programmes or public outreach campaigns on COVID-19 Vaccination
programme is an eligible CSR activity under item no. (i),(ii) and (xii) of Schedule VII of the
Companies Act, 2013 relating to promotion of health care, including preventive health care
and sanitization, promoting education, and, disaster management respectively.
The companies may undertake the aforesaid activities subject to fulfillment of Companies
(CSR Policy) Rules, 2014 and the circulars related to CSR, issued by this ministry from
time to time.
3. General Circular No. 05/2021, dated 22nd April, 2021
A clarification has been issued on spending of CSR funds for setting up makeshift hospitals
and temporary COVID Care facilities.
In continuation to this Ministry's General Circular No. 10/2020 dated 23.03.2020 wherein
it was clarified that spending of CSR funds for COVID-19 is an eligible CSR activity, it is
further clarified that spending of CSR funds for 'setting up makeshift hospitals and
temporary COVID Care facilities' is an eligible CSR activity under item nos. (i) and (xii) of
Schedule VII of the Companies Act, 2013 relating to promotion of health care, including
preventive health care, and, disaster management respectively.

PAPER – 3: COST AND MANAGEMENT ACCOUNTING
QUESTIONS
Material Cost
1. The following data are available in respect of material X for the year ended 31st March,
2021:
(`)
Opening stock 9,00,000
Purchases during the year 1,70,00,000
Closing stock 11,00,000
(i) CALCULATE:
(a) Inventory turnover ratio, and
(b) The number of days for which the average inventory is held.
(ii) INTERPRET the ratio calculated as above if the industry inventory turnover rate is
10.
Employee Cost
2. Textile Ltd. pays following overtime premium for its labour beside normal wages of ` 100
per hour:
Before and after normal working hours 80% of basic wage rate
Sundays and holidays 150% of basic wage rate
During the previous year 2019-20, the following hours were worked:
Normal time 3,00,000 hours
Overtime before and after normal working hours 60,000 hours
Overtime on Sundays and holidays 15,000 hours
Total 3,75,000 hours
During the current year 2020-21, the following hours have been worked on job ‘Spinning’:
Normal 4,000 hours
Overtime before and after normal working hours 400 hours
Overtime on Sundays and holidays 100 hours
Total 4,500 hours

You are required to CALCULATE the labour cost chargeable to job ‘Spinning’ and overhead
in each of the following instances:
(a) Where overtime is worked regularly throughout the year as a policy due to the
workers’ shortage.
(b) Where overtime is worked irregularly to meet the requirements of production.
(c) Where overtime is worked at the request of the customer to expedite the job.
Overheads: Absorption Costing Method
3. PL Ltd. has three production departments P 1, P2 and P3 and two service departments S 1
and S2. The following data are extracted from the records of the company for the month of
October, 2020:
(`)
Rent and rates 12,50,000
General lighting 1,50,000
Indirect Wages 3,75,000
Power 5,00,000
Depreciation on machinery 10,00,000
Insurance of machinery 4,00,000
Other Information:
P1 P2 P3 S1 S2
Direct wages (`) 7,50,000 5,00,000 7,50,000 3,75,000 1,25,000
Horse Power of 60 30 50 10 −
Machines used
Cost of machinery (`) 60,00,000 80,00,000 1,00,00,000 5,00,000 5,00,000
Floor space (Sq. ft) 2,000 2,500 3,000 2,000 500
Number of light 10 15 20 10 5
points
Production hours 6,225 4,050 4,100 − −
worked
Expenses of the service departments S 1 and S2 are reapportioned as below:

P1 P2 P3 S1 S2
S1 20% 30% 40% − 10%
S2 40% 20% 30% 10% −

PAPER – 3: COST AND MANAGEMENT ACCOUNTING 97
Required:
(i) COMPUTE overhead absorption rate per production hour of each production
department.
(ii) DETERMINE the total cost of product X which is processed for manufacture in
department P 1, P2 and P3 for 5 hours, 3 hours and 4 hours respectively, given that its
direct material cost is ` 12,500 and direct labour cost is ` 7,500.
Activity Based Costing
4. Family Store wants information about the profitability of individual product lines: Soft
drinks, Fresh produce and Packaged food. Family store provides the following data for the
year 2020-21 for each product line:
Soft drinks Fresh produce Packaged
food
Revenues ` 39,67,500 ` 1,05,03,000 ` 60,49,500
Cost of goods sold ` 30,00,000 ` 75,00,000 ` 45,00,000
Cost of bottles returned ` 60,000 `0 `0
Number of purchase orders placed 360 840 360
Number of deliveries received 300 2,190 660
Hours of shelf-stocking time 540 5,400 2,700
Items sold 1,26,000 11,04,000 3,06,000
Family store also provides the following information for the year 2020-21:
Activity Description of activity Total Cost Cost-allocation base
(`)
Bottles returns Returning of empty 60,000 Direct tracing to soft
bottles drink line
Ordering Placing of orders for 7,80,000 1,560 purchase orders
purchases
Delivery Physical delivery and 12,60,000 3,150 deliveries
receipt of goods
Shelf stocking Stocking of goods on 8,64,000 8,640 hours of shelf-
store shelves and on- stocking time
going restocking
Customer Support Assistance provided to 15,36,000 15,36,000 items sold
customers including
check-out

Required:
(i) Family store currently allocates support cost (all cost other than cost of goods sold)
to product lines on the basis of cost of goods sold of each product line. CALCULATE
the operating income and operating income as a % of revenues for each product line.
(ii) If Family Store allocates support costs (all costs other than cost of goods sold) to
product lines using and activity-based costing system, CALCULATE the operating
income and operating income as a % of revenues for each product line.
Cost Sheet
5. Impact Ltd. provides you the following details of its expenditures for the year ended
31st March, 2021:
S. Particulars Amount (`) Amount (`)
No.
(i) Raw materials purchased 5,00,00,000
(ii) GST paid under Composition scheme 10,00,000
(iii) Freight inwards 5,20,600
(iv) Trade discounts received 10,00,000
(v) Wages paid to factory workers 15,20,000
(vi) Contribution made towards employees’ PF &
ESIS 1,90,000
(vii) Production bonus paid to factory workers 1,50,000
(viii) Fee for technical assistance 1,12,000
(ix) Amount paid for power & fuel 2,62,000
(x) Job charges paid to job workers 4,50,000
(xi) Stores and spares consumed 1,10,000
(xii) Depreciation on:
Factory building 64,000
Office building 46,000
Plant & Machinery 86,000 1,96,000
(xiii) Salary paid to supervisors 1,20,000
(xiv) Repairs & Maintenance paid for:
Plant & Machinery 58,000
Sales office building 50,000
Vehicles used by directors 20,600 1,28,600

(xv) Insurance premium paid for:

Plant & Machinery 31,200
Factory building 28,100 59,300
(xvi) Expenses paid for quality control check
activities 25,000
(xvii) Research & development cost paid for
improvement in production process 48,200
(xviii) Expenses paid for administration of factory
work 1,38,000
(xix) Salary paid to functional mangers:
Production control 4,80,000
Finance & Accounts 9,60,000
Sales & Marketing 12,00,000 26,40,000
(xx) Salary paid to General Manager 13,20,000
(xxi) Packing cost paid for:
Primary packing necessary to maintain
quality 1,06,000
For re-distribution of finished goods 1,12,000 2,18,000
(xxii) Interest and finance charges paid (for usage
of non- equity fund) 3,50,000
(xxiii) Fee paid to auditors 1,80,000
(xxiv) Fee paid to legal advisors 1,20,000
(xxv) Fee paid to independent directors 2,40,000
(xxvi) Payment for maintenance of website for 1,80,000
online sales
(xxvii) Performance bonus paid to sales staffs 2,40,000
(xxviii) Value of stock as on 1st April, 2020:
Raw materials 9,00,000
Work-in-process 4,00,000
Finished goods 7,00,000 20,00,000
(xxix) Value of stock as on 31st March, 2021:
Raw materials 5,60,000
Work-in-process 2,50,000
Finished goods 11,90,000 20,00,000

Amount realized by selling of waste generated during manufacturing process – ` 66,000/-

From the above data, you are required to PREPARE Statement of cost of Impact Ltd. for
the year ended 31st March, 2021, showing (i) Prime cost, (ii) Factory cost, (iii) Cost of
Production, (iv) Cost of goods sold and (v) Cost of sales.
Cost Accounting System
6. XYZ Ltd. maintains a non-integrated accounting system for the purpose of management
information. The following are the data related with year 2020-21:
Particulars (` in ‘000)
Opening balances:
- Stores ledger control A/c 24,000
- Work-in-process control A/c 6,000
- Finished goods control A/c 1,29,000
- Building construction A/c 3,000
- Cost ledger control A/c 1,62,000
During the year following transactions took place:
Materials:
- Purchased 12,000
- Issued to production 15,000
- Issued to general maintenance 1,800
- Issued to building construction 1,200
Wages:
- Gross wages paid 45,000
- Indirect wages paid 12,000
- For building construction 3,000
Factory overheads:
- Actual amount incurred (excluding items shown above) 48,000
- Absorbed in building construction 6,000
- Under-absorbed 2,400
Royalty paid 1,500
Selling, distribution and administration overheads 7,500
Sales 1,35,000
At the end of the year, the stock of raw material and work-in-process was ` 1,65,00,000

and ` 75,00,000 respectively. The loss arising in the raw material account is treated as
factory overheads. The building under construction was completed during the year. Gross
profit margin is 20% on sales.
Required:
PREPARE the relevant control accounts to record the above transactions in the cost
ledger of the company.
Batch Costing
7. Rollon Ltd. is committed to supply 96,800 bearings per annum to Racing Ltd. on steady
basis. It is estimated that it costs 25 paise as inventory carrying cost per bearing per month
and the set-up cost per run of bearing manufacture is ` 588.
(a) COMPUTE what would be the optimum run size for bearing manufacture?
(b) Assuming that the company has a policy of manufacturing 8,800 bearings per run,
CALCULATE how much extra costs the company would be incurring as compared to
the optimum run suggested in (a) above?
Contract Costing
8. RN Builders Ltd. entered into a contract on April 1, 2019. The total contract was for
` 2,00,00,000. Actual expenditure for the period April 1, 2019 to March 31, 2020 and
estimated expenditure for April 1, 2020 to December 31, 2020 are given below:
Particulars 2019-20 2020-21
(actual) (9 months) (estimated)
(`) (`)
Materials issued 36,00,000 34,30,000
Wages: Paid 30,00,000 34,93,000
Outstanding at the end 2,50,000 3,32,000
Plant purchased 10,00,000 -
Sundry expenses: Paid 2,90,000 2,75,000
Prepaid at the end 25,000 -
Establishment charges 5,85,000 -
A part of the material was unsuitable and thus sold for ` 7,25,000 (cost being ` 6,00,000)
and a part of plant was scrapped and disposed-off for ` 1,15,000. The value of plant at
site on 31 March, 2020 was ` 3,10,000 and the value of material at site was ` 1,70,000.
Cash received on account to date was ` 70,00,000, representing 80% of the work certified.
The cost of work uncertified was valued at ` 10,95,000.

The contract would be completed by 31 st December, 2020 and the contractor estimated
further expenditure that would be incurred in completion of the contract:
➢ A sum of ` 12,50,000 would have to be spent on the plant and the residual value of
the plant on the completion of the contract would be ` 1,50,000.
➢ Establishment charges would cost the same amount per month as in the previous
year.
➢ ` 4,32,000 would be sufficient to provide for contingencies.
Required:
PREPARE a Contract Account for the year ended 31 st March, 2020, and CALCULATE
estimated total profit on this contract.
Process Costing
9. Following information is available regarding Process-I of a manufacturing company for the
month of February:
Production Record:
Units in process as on 1 st February 8,000
(All materials used, 1/4th complete for labour and overhead)
New units introduced 32,000
Units completed 28,000
Units in process as on 28 th February 12,000
(All materials used, 1/3rd complete for labour and overhead)
Cost Records: (`)
Work-in-process as on 1 st February
Materials 1,20,000
Labour 20,000
Overhead 20,000
1,60,000
Cost during the month:
Materials 5,12,000
Labour 3,00,000
Overhead 3,00,000
11,12,000
Presuming that average method of inventory is used, PREPARE the following:
(i) Statement of equivalent production.

(ii) Statement showing cost for each element.

(iii) Statement of apportionment of cost.
(iv) Process cost account for Process-I.
Joint Products & By Products
10. A company produces two joint products A and B from the same basic materials. The
processing is completed in three departments.
Materials are mixed in Department I. At the end of this process, A and B get separated.
After separation, A is completed in the Department II and B in Department III. During a
period, 4,00,000 kg of raw material was processed in Department I at a total cost of
` 17,50,000, and the resultant 50% becomes A and 40% becomes B and 10% normally
lost in processing.
In Department II, 1/5th of the quantity received from Department I is lost in processing. A
is further processed in Department II at a cost of ` 2,60,000.
In Department III, further new material is added to the material received from Department
I and weight mixture is doubled, there is no quantity loss in the department III. Further
processing cost (with material cost) in Department III is ` 3,00,000.
The details of sales during the said period are:
Product A Product B
Quantity sold (kg) 1,50,000 3,00,000
Sales price per kg (`) 10 4
There were no opening stocks. If these products sold at split-off-point, the selling price of
A and B would be ` 8 and ` 4 per kg respectively.
Required:
(i) PREPARE a statement showing the apportionment of joint cost to A and B in
proportion of sales value at split off point.
(ii) PREPARE a statement showing the cost per kg of each product indicating joint cost,
processing cost and total cost separately.
(iii) PREPARE a statement showing the product wise profit for the year.
(iv) On the basis of profits before and after further processing of product A and B, give
your COMMENT that products should be further processed or not.

Service Costing
11. Mr. PS owns a bus which runs according to the following schedule:
(i) Delhi to Hisar and back, the same day
Distance covered: 160 km. one way
Number of days run each month: 9
Seating capacity occupied 90%.
(ii) Delhi to Aligarh and back, the same day
Seating capacity occupied 95%
(iii) Delhi to Alwar and back, the same day
Seating capacity occupied 100%
(iv) Following are the other details:
Cost of the bus ` 15,00,000
Salary of the Driver ` 30,000 p.m.
Salary of the Conductor ` 26,000 p.m.
Salary of the part-time Accountant ` 7,000 p.m.
Insurance of the bus ` 6,000 p.a.
Diesel consumption 5 km. per litre at ` 90 per litre
Road tax ` 21,912 p.a.
Lubricant oil ` 30 per 100 km.
Permit fee ` 500 p.m.
Repairs and maintenance ` 5,000 p.m.
Depreciation of the bus @ 30% p.a.
Seating capacity of the bus 50 persons
Passenger tax is 20% of the total takings.
CALCULATE the bus fare to be charged from each passenger to earn a profit of 30% on
total takings.
The fares are to be indicated per passenger for the journeys: (i) Delhi to Hisar (ii) Delhi to
Aligarh and (iii) Delhi to Alwar.

Standard Costing
12. BabyMoon Ltd. uses standard costing system in manufacturing one of its product ‘Baby
Cap’. The details are as follows:
Direct Material 1 Meter @ ` 60 per meter ` 60
Direct Labour 2 hour @ ` 20 per hour ` 40
Variable overhead 2 hour @ ` 10 per hour ` 20
Total ` 120
During the month of August, 10,000 units of ‘Baby Cap’ were manufactured. Details are
as follows:
Direct material consumed 11,400 meters @ ` 58 per meter
Direct labour Hours ? @ ? ` 4,48,800
Variable overhead incurred ` 2,24,400
Variable overhead efficiency variance is ` 4,000 A. Variable overheads are based on
Direct Labour Hours.
You are required to CALCULATE the following Variances:
(a) Material Variances- Material Cost Variance, Material Price Variance and Material
Usage Variance.
(b) Variable Overheads variances- Variable overhead Cost Variance, Variable overhead
Efficiency Variance and Variable overhead Expenditure Variance.
(c) Labour variances- Labour Cost Variance, Labour Rate Variance and Labour
Efficiency Variance.
Marginal Costing
13. A company has three factories situated in North, East and South with its Head Office in
Mumbai. The Management has received the following summary report on the operations
of each factory for a period:
(` in ‘000)
Factory Sales Profit
Actual Over / (Under) Actual Over / (Under)
Budget Budget
North 1,100 (400) 135 (180)
East 1,450 150 210 90
South 1,200 (200) 330 (110)

CALCULATE the following for each factory and for the company as a whole for the period:
(i) Fixed Cost
(ii) Break-even Sales
Budget and Budgetary Control
14. The accountant of manufacturing company provides you the following details for year 2019-
20:
Particulars (`)
Direct materials 28,00,000
Direct Wages 16,00,000
Fixed factory overheads 16,00,000
Variable factory overheads 16,00,000
Other variable costs 12,80,000
Other fixed costs 12,80,000
Profit 18,40,000
Sales 1,20,00,000
During the year, the company manufactured two products A and B and the output and
costs were:
Particulars A B
Output (units) 2,00,000 1,00,000
Selling price per unit ` 32.00 ` 56.00
Direct materials per unit ` 8.00 ` 12.00
Direct wages per unit ` 4.00 ` 8.00
Variable factory overhead is absorbed as a percentage of direct wages. Other variable
costs have been computed as: Product A ` 4.00 per unit; and B ` 4.80 per unit.
During 2020-21, it is expected that the demand for product A will fall by 25% and for B by
50%. It is decided to manufacture a new product C, the cost for which is estimated as
follows:
Particulars Product C
Output (units) 2,00,000
Selling price per unit ` 28.00
Direct materials per unit ` 6.40
Direct wages per unit ` 4.00

It is anticipated that the other variable costs per unit of Product C will be same as for
product A.
PREPARE a budget to present to the management, showing the current position and the
position for 2020-21. COMMENT on the comparative results.
Miscellaneous
15. (a) DIFFERENTIATE between Cost Control and Cost Reduction.
(b) ‘Like other branches of accounting, cost accounting also has certain limitations’ .
EXPLAIN the limitations.
(c) DIFFERENTIATE between Job Costing and Batch Costing.
(d) DISCUSS the treatment of by-product cost in Cost Accounting when they are of small
total value.
SUGGESTED HINTS/ANSWERS
1. (i) (a) Inventory turnover ratio (Refer to working note)

= Cost of stock of raw material consumed
Average stock of raw material
` 1,68,00,000
= = 16.8
` 10,00,000
(b) Average number of days for which the average inventory is held
365 365days
= = = 21.73 days
Inventory turnover ratio 16.8
Working Note:
Particulars (`)
Opening stock of raw material 9,00,000
Add: Material purchases during the year 1,70,00,000
Less: Closing stock of raw material 11,00,000
1,68,00,000
(ii) The Inventory turnover ratio for material X is 16.8 which mean an inventory item takes
only 21.73 or 22 days to issue from stores for production process. The rate is better
than the industry rate which is 10 time or 36.5 days. This inventory turnover ratio

indicates better inventory management system and good demand for the final product
in market.
2. Workings:
Basic wage rate = ` 100 per hour
Overtime wage rate before and after working hours = ` 100 + (` 100 × 80%)
= ` 180 per hour
Overtime wage rate for Sundays and holidays = ` 100 + (` 100 × 150%)
= ` 250 per hour
Computation of average inflated wage rate (including overtime premium):
Particulars Amount (`)
Annual wages for the previous year for normal time 3,00,00,000
(3,00,000 hrs. × ` 100)
Wages for overtime before and after normal working hours 108,00,000
(60,000 hrs. × ` 180)
Wages for overtime on Sundays and holidays 37,50,000
(15,000 hrs. × ` 250)
Total wages for 3,75,000 hrs. 4,45,50,000
` 4,45,50,000
Average inflated wage rate = = ` 118.80
3,75,000 hours
(a) Where overtime is worked regularly as a policy due to workers’ shortage
The overtime premium is treated as a part of employee cost and job is charged at an
inflated wage rate. Hence, employee cost chargeable to job ‘Spinning’
= Total hours × Inflated wage rate = 4,500hrs. × ` 118.80 = ` 5,34,600
(b) Where overtime is worked irregularly to meet the requirements of production
Basic wage rate is charged to the job and overtime premium is charged to factory
overheads as under:
Employee cost chargeable to Job ‘Spinning’ = 4,500hours @ ` 100 per hour
= ` 4,50,000
Factory overhead = {400 hrs. × (` 100 × 80%)} + {100 hrs. × (` 100 × 150%)}
= {` 32,000 + ` 15,000} = ` 47,000

(c) Where overtime is worked at the request of the customer, overtime premium is
also charged to the job as under: (`)
Job ‘Spinning’ Employee cost: 4,500hrs. @ ` 100 = 4,50,000
Overtime premium: 400 hrs. @ (` 100 × 80%) = 32,000
100 hrs. @ (` 100 × 150%) = 15,000
Total 4,97,000
3. Primary Distribution Summary
Item of cost Basis of Total P1 P2 P3 S1 S2
apportionment (`) (`) (`) (`) (`) (`)
Direct wages Actual 5,00,000 -- -- -- 3,75,000 1,25,000
Rent and Floor area 12,50,000 2,50,000 3,12,500 3,75,000 2,50,000 62,500
Rates (4 : 5 : 6 : 4 : 1)
General Light points 1,50,000 25,000 37,500 50,000 25,000 12,500
lighting (2 : 3 : 4 : 2 : 1)
Indirect wages Direct wages 3,75,000 1,12,500 75,000 1,12,500 56,250 18,750
(6 : 4 : 6 : 3 : 1)
Power Horse Power of 5,00,000 2,00,000 1,00,000 1,66,667 33,333 −
machines used
(6 : 3 : 5 : 1)
Depreciation of Value of machinery 10,00,000 2,40,000 3,20,000 4,00,000 20,000 20,000
machinery (12 : 16 : 20 : 1 : 1)
Insurance of Value of machinery 4,00,000 96,000 1,28,000 1,60,000 8,000 8,000
machinery (12 : 16 : 20 : 1 : 1)
41,75,000 9,23,500 9,73,000 12,64,167 7,67,583 2,46,750
Overheads of service cost centres
Let S1 be the overhead of service cost centre S 1 and S2 be the overhead of service cost
centre S2.
S1 = 7,67,583 + 0.10 S 2
S2 = 2,46,750 + 0.10 S 1
Substituting the value of S 2 in S1 we get
S1 = 7,67,583 + 0.10 (2,46,750 + 0.10 S 1)
S1 = 7,67,583 + 24,675 + 0.01 S 1
0.99 S1 = 7,92,258
S1 = ` 8,00,260
S2 = 2,46,750 + 0.10  8,00,260
= ` 3,26,776

Secondary Distribution Summary

Particulars Total (`) P1 (`) P2 (`) P3 (`)
Allocated and Apportioned 31,60,667 9,23,500 9,73,000 12,64,167

over-heads as per primary
distribution
S1 8,00,260 1,60,052 2,40,078 3,20,104
S2 3,26,776 1,30,710 65,355 98,033
12,14,262 12,78,433 16,82,304
(i) Overhead rate per hour
P1 P2 P3
Total overheads cost (`) 12,14,262 12,78,433 16,82,304
Production hours worked 6,225 4,050 4,100
Rate per hour (`) 195.06 315.67 410.32
(ii) Cost of Product X
(`)
Direct material 12,500.00
Direct labour 7,500.00
Prime cost 20,000.00
Production on overheads
P1 5 hours  ` 195.06 = 975.30
P2 3 hours  ` 315.67 = 947.01
P3 4 hours  ` 410.32 = 1,641.28 3,563.59
Factory cost 23,563.59
4. Working notes:
1. Total support cost:
(`)
Bottles returns 60,000
Ordering 7,80,000
Delivery 12,60,000
Shelf stocking 8,64,000
Customer support 15,36,000
Total support cost 45,00,000

2. Percentage of support cost to cost of goods sold (COGS):
= Total support cost

100
Total cost of goods sold
` 45,00,000
= ` 1,50,00,000 × 100 = 30%
3. Cost for each activity cost driver:

Activity Total cost Cost allocation base Cost driver rate
(1) (`) (3) (4) = [(2) ÷ (3)]
(2)
Ordering 7,80,000 1,560 purchase orders ` 500 per purchase order
Delivery 12,60,000 3,150 deliveries ` 400 per delivery
Shelf-stocking 8,64,000 8,640 hours ` 100 per stocking hour
Customer 15,36,000 15,36,000 items sold ` 1 per item sold
support
(i) Statement of Operating income and Operating income as a percentage of

revenues for each product line
(When support costs are allocated to product lines on the basis of cost of goods
sold of each product)
Soft Fresh Packaged Total (`)
Drinks (`) Produce (`) Foods (`)
Revenues: (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000
Cost of Goods sold 30,00,000 75,00,000 45,00,000 1,50,00,000
(COGS): (B)
Support cost (30% of 9,00,000 22,50,000 13,50,000 45,00,000
COGS): (C)
(Refer working notes)
Total cost: (D) = {(B) + 39,00,000 97,50,000 58,50,000 1,95,00,000
(C)}
Operating income: (E) 67,500 7,53,000 1,99,500 10,20,000
= {(A)-(D)}
Operating income as a 1.70% 7.17% 3.30% 4.97%
percentage of
revenues: (F)= {(E)/(A)
× 100}

(ii) Statement of Operating income and Operating income as a percentage of

revenues for each product line
(When support costs are allocated to product lines using an activity -based
costing system)
Soft drinks Fresh Packaged Total
(`) Produce Food (`)
(`) (`)
Revenues: (A) 39,67,500 1,05,03,000 60,49,500 2,05,20,000
Cost & Goods sold 30,00,000 75,00,000 45,00,000 1,50,00,000
Bottle return costs 60,000 0 0 60,000
Ordering cost* 1,80,000 4,20,000 1,80,000 7,80,000
(360:840:360)
Delivery cost* 1,20,000 8,76,000 2,64,000 12,60,000
(300:2,190:660)
Shelf stocking cost* 54,000 5,40,000 2,70,000 8,64,000
(540:5,400:2,700)
Customer Support 1,26,000 11,04,000 3,06,000 15,36,000
cost*
(1,26,000:11,04,00
0:3,06,000)
Total cost: (B) 35,40,000 1,04,40,000 55,20,000 1,95,00,000
Operating income: 4,27,500 63,000 5,29,500 10,20,000
(C) = {(A)- (B)}
Operating income 10.78% 0.60% 8.75% 4.97%
as a % of revenues:
(D) = {(C)/(A) × 100}
* Refer to working note 3
5. Statement of Cost of Impact Ltd. for the year ended 31st March, 2021:
Sl. Particulars Amount (`) Amount (`)
No.
(i) Material Consumed:
Raw materials purchased 5,00,00,000
GST paid under Composition scheme* 10,00,000
Freight inwards 5,20,600
Less: Trade discounts received (10,00,000)

Add: Opening stock of raw materials 9,00,000

Less: Closing stock of raw materials (5,60,000) 5,08,60,600
(ii) Direct employee (labour) cost:
Wages paid to factory workers 15,20,000
Contribution made towards employees’ PF &
ESIS 1,90,000
Production bonus paid to factory workers 1,50,000 18,60,000
(iii) Direct expenses:
Fee for technical assistance 1,12,000
Amount paid for power & fuel 2,62,000
Job charges paid to job workers 4,50,000 8,24,000
Prime Cost 5,35,44,600
(iv) Works/ Factory overheads:
Stores and spares consumed 1,10,000
Depreciation on factory building 64,000
Depreciation on plant & machinery 86,000
Repairs & Maintenance paid for plant &
machinery 58,000
Insurance premium paid for plant & machinery 31,200
Insurance premium paid for factory building 28,100
Salary paid to supervisors 1,20,000 4,97,300
Gross factory cost 5,40,41,900
Add: Opening value of W-I-P 4,00,000
Less: Closing value of W-I-P (2,50,000)
Factory Cost 5,41,91,900
(v) Quality control cost:
Expenses paid for quality control check
activities 25,000
(vi) Research & development cost paid for
improvement in production process 48,200
(vii) Administration cost related with production:
-Expenses paid for administration of factory
work 1,38,000
-Salary paid to Production control manager 4,80,000 6,18,000

(viii) Less: Realisable value on sale of scrap and

waste (66,000)
(ix) Add: Primary packing cost 1,06,000
Cost of Production 5,49,23,100
Add: Opening stock of finished goods 7,00,000
Less: Closing stock of finished goods (11,90,000)
Cost of Goods Sold 5,44,33,100
(x) Administrative overheads:
Depreciation on office building 46,000
Repairs & Maintenance paid for vehicles used
by directors 20,600
Salary paid to Manager- Finance & Accounts 9,60,000
Salary paid to General Manager 13,20,000
Fee paid to auditors 1,80,000
Fee paid to legal advisors 1,20,000
Fee paid to independent directors 2,40,000 28,86,600
(xi) Selling overheads:
Repairs & Maintenance paid for sales office
building 50,000
Salary paid to Manager- Sales & Marketing 12,00,000
Payment for maintenance of website for online 1,80,000
sales
Performance bonus paid to sales staffs 2,40,000 16,70,000
(xii) Packing cost paid for re-distribution of finished
goods 1,12,000
(xiii) Interest and finance charges paid 3,50,000
Cost of Sales 5,94,51,700
* GST paid under Composition scheme would be included under cost of material as it is
not eligible for input tax credit.
6. Cost Ledger Control Account
Particulars (` in ‘000) Particulars (` in ‘000)
To Costing P&L A/c 1,35,000 By Balance b/d 1,62,000
To Building Construction A/c 13,200 By Stores Ledger control A/c 12,000

To Balance c/d 1,44,900 By Wages Control A/c 45,000

By Factory overhead control 48,000
A/c
By Royalty A/c 1,500
By Selling, Distribution and 7,500
Administration overheads
By Costing P&L A/c 17,100
2,93,100 2,93,100
Stores Ledger Control Account
To Balance b/d 24,000 By WIP control A/c 15,000
To Cost Ledger control A/c 12,000 By Factory overheads 1,800
control A/c
By Building construction A/c 1,200
By Factory overhead control 1,500
A/c (bal. fig.) (loss)
By Balance c/d 16,500
36,000 36,000
Wages Control Account
To Cost Ledger control A/c 45,000 By Factory overhead control 12,000
A/c
By Building Construction A/c 3,000
By WIP Control A/c (bal. fig.) 30,000
45,000 45,000
Factory Overhead Control Account
To Stores Ledger control A/c 1,800 By Building Construction A/c 6,000
To Wages Control A/c 12,000 By WIP Control A/c (bal. fig.) 54,900
To Cost Ledger control A/c 48,000 By Costing P&L A/c (under- 2,400
absorption)

To Stores Ledger control A/c 1,500

(loss)
63,300 63,300
Royalty Account
To Cost Ledger control A/c 1,500 By WIP Control A/c 1,500
1,500 1,500
Work-in-process Control Account

To Balance b/d 6,000 By Finished goods control 99,900
A/c (bal. fig.)
To Stores Ledger control A/c 15,000
To Wages Control A/c 30,000
To Factory overhead control 54,900
A/c
To Royalty A/c 1,500 By Balance c/d 7,500
1,07,400 1,07,400
Finished Goods Control Account

To Balance b/d 1,29,000 By Cost of Goods Sold A/c 1,08,000
(Refer working note)
To WIP control A/c 99,900 By Balance c/d 1,20,900
2,28,900 2,28,900
Cost of Goods Sold Account
To Finished Goods control 1,08,000 By Cost of sales A/c 1,08,000
A/c
1,08,000 1,08,000

Selling, Distribution and Administration Overhead Control Account

To Cost Ledger control A/c 7,500 By Cost of sales A/c 7,500
7,500 7,500
Cost of Sales Account
To Cost of Goods Sold A/c 1,08,000 By Costing P&L A/c 1,15,500
To Selling, Distribution and 7,500

Administration A/c
1,15,500 1,15,500
Costing P&L Account

To Cost of Sales A/c 1,15,500 By Cost Ledger control A/c 1,35,000
To Factory overhead control 2,400
A/c
To Cost Ledger control A/c 17,100
(bal. fig.) (Profit)
1,35,000 1,35,000
Building Construction Account
To Balance b/d 3,000 By Cost Ledger control A/c 13,200
To Stores Ledger control 1,200
A/c
To Wages Control A/c 3,000
To Factory overhead 6,000
control A/c
13,200 13,200

Trial Balance
Particulars Dr. Cr.
(` in ‘000) (` in ‘000)
Stores Ledger Control A/c 16,500
WIP Control A/c 7,500
Finished Goods Control A/c 1,20,900
Cost Ledger Control A/c 1,44,900
1,44,900 1,44,900
Workings:
` 13,50,00,000 × 80
Cost of Goods sold = = ` 10,80,00,000
100
7. (a) Optimum production run size (Q)
2DS 2 × 96,800 × ` 588

= =√ = 6,160 bearings.
C 0.25 × 12
(b) Calculation of Extra Cost

Total Cost (of maintaining the inventories) when production run size (Q) are 6,160
and 8,800 bearings respectively.
Total cost = Total set-up cost + Total carrying cost.
Particulars When run size is 6,160 When run size is 8,800

bearings bearings
Total set up cost 96,800 96,800
= × ` 588 = ` 9,240 = × ` 588 = ` 6,468
6,160 8,800
Or,
No. of setups = 15.71 (16
setups)
= 16 x ` 588 = ` 9,408
Total Carrying cost ½ × 6,160 × 0.25 × 12 ½ × 8,800 × 0.25 × 12
= ` 9,240 = ` 13,200
Total Cost ` 18,480/ ` 18,648 ` 19,668
` 1,188/ ` 1,020 is the extra cost incurred by the company due to run size not being
optimum run size.

8. RN Builders Ltd.
Contract Account (2019-20)
Particulars (`) Particular (`)
s
To Materials issued 36,00,000 By Material sold 7,25,000
To Wages paid 30,00,000 By Plant sold 1,15,000
Add: Outstanding 2,50,000 32,50,000 By Plant at site c/d 3,10,000
To Plant 10,00,000 By Material at site c/d 1,70,000
To Sundry 2,90,000 By Work-in-progress c/d
Expenses
Less: Prepaid (25,000) 2,65,000 Work 87,50,000
certified
(` 70,00,000 ÷ 80%)
To Establishment charges 5,85,000 Work 10,95,000 98,45,000
uncertified
To Costing P & L A/c 1,25,000
(` 7,25,000 – ` 6,00,000)
To Notional profit (Profit for 23,40,000
the year)
1,11,65,000 1,11,65,000
Calculation of Estimated Profit
Particulars (`) (`)

(1) Material consumed (36,00,000+ 1,25,000– 7,25,000) 30,00,000
Add: Further consumption 34,30,000 64,30,000
(2) Wages: 32,50,000
Add: Further cost (34,93,000 – 2,50,000) 32,43,000
Add: Outstanding 3,32,000 68,25,000
(3) Plant used (10,00,000– 1,15,000) 8,85,000
Add: Further plant introduced 12,50,000
Less: Closing balance of plant (1,50,000) 19,85,000
(4) Establishment charges 5,85,000

Add: Further charges for nine months (5,85,000  9/12) 4,38,750 10,23,750
(5) Sundry expenses 2,90,000
Add: Further expenses 2,75,000 5,65,000
(6) Reserve for contingencies 4,32,000
Estimated profit (balancing 27,39,250
figure)
Contract price 2,00,00,000
9. (i) Statement of equivalent production (Average cost method)

Particulars Input Particulars Output Equivalent Production
Units Units Material Labour &
O.H.
% Units % Units
Opening WIP 8,000 Completed and 28,000 100 28,000 100 28,000
transferred
Units introduced 32,000 Closing WIP 12,000 100 12,000 1/3rd 4,000
40,000 40,000 40,000 32,000
(ii) Statement showing cost for each element
Particulars Materials Labour Overhead Total
(`) (`) (`) (`)
Cost of opening work-in- 1,20,000 20,000 20,000 1,60,000
process
Cost incurred during the month 5,12,000 3,00,000 3,00,000 11,12,000
Total cost: (A) 6,32,000 3,20,000 3,20,000 12,72,000
Equivalent units: (B) 40,000 32,000 32,000
Cost per equivalent unit: (C) = 15.8 10 10 35.8
(A ÷ B)
(iii) Statement of apportionment of cost
Particulars Amount (`) Amount (`)
1. Value of units completed and transferred 10,02,400
(28,000 units × ` 35.8)
2. Value of Closing W-I-P:
- Materials (12,000 units × ` 15.8) 1,89,600

- Labour (4,000 units × ` 10) 40,000

- Overheads (4,000 units × ` 10) 40,000 2,69,600
(iv) Process-I Cost Account
Particulars Units (`) Particulars Units (`)
To Opening W-I-P 8,000 1,60,000 By Completed units 28,000 10,02,400
To Materials 32,000 5,12,000 By Closing W-I-P 12,000 2,69,600
To Labour -- 3,00,000
To Overhead -- 3,00,000
40,000 12,72,000 40,000 12,72,000
10. Calculation of quantity produced

Dept I (kg) Dept II (kg) Dept III (kg)
Input 4,00,000 2,00,000 1,60,000
(50% of 4,00,000 kg.) (40% of 4,00,000 kg.)
Weight (lost) or (40,000) (40,000) 1,60,000
added (10% of 4,00,000 kg.) (1/5th of 2,00,000 kg.)
3,60,000 1,60,000 3,20,000
Production of A 2,00,000 1,60,000 --
Production of B 1,60,000 -- 3,20,000
(i) Statement of apportionment of joint cost of dept I

Product A Product B
Output (kg) 2,00,000 1,60,000
Selling price per kg (`) 8 4
Sales value (`) 16,00,000 6,40,000
Share in Joint cost (5:2) 12,50,000 5,00,000
(` 17,50,000 × 5 ÷ 7) (` 17,50,000 × 2 ÷ 7)
(ii) Statement of cost per kg

Product A Product B
Output (kg) 1,60,000 3,20,000
Share in joint cost (`) 12,50,000 5,00,000
Joint Cost per kg (`) (A) 7.8125 1.5625

Further processing cost (`) 2,60,000 3,00,000

Further processing cost per kg (`) (B) 1.625 0.9375
Total cost per kg (`) {(A)+(B)} 9.4375 2.5000
(iii) Statement of profit

Product A Product B
Output (kg) 1,60,000 3,20,000
Sales (kg) (1,50,000) (3,00,000)
Closing stock (kg) 10,000 20,000
(`) (`)
Sales 15,00,000 12,00,000
(1,50,000 kg × ` 10) (3,00,000 kg × ` 4)
Add: closing stock (at full cost) 94,375 50,000
(10,000 kg × ` 9.4375) (20,000 kg × ` 2.5)
Value of production 15,94,375 12,50,000
Less: Share in joint cost 12,50,000 5,00,000
Further processing cost 2,60,000 3,00,000
Profit 84,375 4,50,000
(iv) Profitability statement before and after processing

Product A Product B
Before (`) After (`) Before (`) After (`)
Sales Value 16,00,000 6,40,000
Share in joint 12,50,000 5,00,000
costs
Profit 3,50,000 84,375 1,40,000 4,50,000
(as per iii above) (as per iii above)
Product A should be sold at split off point and product B after processing because of higher
profitability.
11. Working Notes:
1. Total Distance (in km.) covered per month
Bus route Km. per trip Trips per day Days per Km. per
month month
Delhi to Hisar 160 2 9 2,880

Delhi to Aligarh 160 2 12 3,840

Delhi to Alwar 170 2 6 2,040
Total 8,760
2. Passenger- km. per month

Total seats available Capacity Km. Passenger-
per month (at 100% utilised per Km. per
capacity) trip month
(%) Seats
Delhi to Hisar & 900 90 810 160 1,29,600
Back (50 seats  2 trips  9 (810 seats ×
days) 160 km.)
Delhi to Aligarh 1,200 95 1,140 160 1,82,400
& Back (50 seats  2 trips  12 (1,140 seats
days) × 160 km.)
Delhi to Alwar & 600 100 600 170 1,02,000
Back (50 seats  2 trips  6 (600 seats ×
days) 170 km.)
Total 4,14,000
Monthly Operating Cost Statement

Particulars (`) (`)
(i) Running Costs
Diesel {(8,760 km  5 km)  ` 90} 1,57,680.00
Lubricant oil {(8,760 km  100)  ` 30} 2,628.00 1,60,308.00
(ii) Maintenance Costs
Repairs & Maintenance 5,000.00
(iii) Standing charges
Salary to driver 30,000.00
Salary to conductor 26,000.00
Salary of part-time accountant 7,000.00
Insurance (` 6,000 ÷12) 500.00
Road tax (` 21,912 ÷12) 1,826.00
Permit fee 500.00

Depreciation {(` 15,00,000  30%)  12} 37,500.00 1,03,326.00

Total costs per month before Passenger Tax 2,68,634.00
(i)+(ii)+(iii)
Passenger Tax* 1,07,453.60
Total Cost 3,76,087.60
Add: Profit* 1,61,180.40
Total takings per month 5,37,268.00
*Let total takings be X then,
X = Total costs per month before passenger tax + 0.2 X (passenger tax) + 0.3 X (profit)
X = ` 2,68,634 + 0.2 X + 0.3 X
0.5 X = ` 2,68,634 or, X = ` 5,37,268
Passenger Tax = 20% of ` 5,37,268 = ` 1,07,453.60
Profit = 30% of ` 5,37,268 = ` 1,61,180.40
Calculation of Rate per passenger km. and fares to be charged for different routes
Rate per Passenger-Km. = Total takings per month

Total Passenger - Km. per month
` 5,37,268
= = ` 1.30 (approx.)
4,14,000 Passenger-Km.
Bus fare to be charged per passenger:
Delhi to Hisar = ` 1.30  160 km = ` 208.00
Delhi to Aligarh = ` 1.30  160 km = ` 208.00
Delhi to Alwar = ` 1.30  170 km = ` 221.00
12. (i) Material Variances
Budget Std. for actual Actual

Quantity Price Amount Quantity Price Amount Quantity Price Amount
(Meter) (`) (`) (Meter) (`) (`) (Meter) (`) (`)
1 60 60 10,000 60 6,00,000 11,400 58 6,61,200
Material Cost Variance = (SQ × SP – AQ × AP)
= 6,00,000 – 6,61,200 = ` 61,200 (A)
Material Price Variance = (SP – AP) AQ

= (60 - 58) 11,400 = ` 22,800 (F)

Material Usage Variance = (SQ – AQ) SP
= (10,000 – 11,400) 60 = ` 84,000 (A)
(ii) Variable Overheads variances
Variable overhead cost Variance
= Standard variable overhead – Actual Variable Overhead
= (10,000 units × 2 hours × ` 10) – 2,24,400 = ` 24,400 (A)
Variable overhead Efficiency Variance
= (Standard Hours – Actual Hours) × Standard Rate per Hour
Let Actual Hours be ‘X’, then:
(20,000 – X) × 10 = 4,000 (A)
2,00,000 – 10X = - 4,000
X = 2,04,000 ÷ 10
Therefore, Actual Hours (X) = 20,400
Variable overhead Expenditure Variance
= Variable Overhead at Actual Hours - Actual Variable Overheads
= 20,400 × ` 10 – 2,24,400 = ` 20,400 (A)
(iii) Labour variances
Budget Std. for actual Actual

Hours Rate Amount Hours Rate Amount Hours Rate Amount
(`) (`) (`) (`) (`) (`)
2 20 40 20,000 20 4,00,000 20,400 22* 4,48,800
*Actual Rate = ` 4,48,800 ÷ 20,400 hours = ` 22
Labour Cost Variance = (SH × SR) – (AH × AR)
= 4,00,000 – 4,48,800 = ` 48,800 (A)
Labour Rate Variance = (SR – AR) × AH
= (20 – 22) × 20,400 = ` 40,800 (A)
Labour Efficiency Variance = (SH – AH) × SR
= (20,000 – 20,400) × 20 = ` 8,000 (A)

13. Computation of Profit Volume Ratio

(` in ‘000)
Sales Profit P/V Ratio

 Change in Profit 
Factory
Actual Over / Budgeted Actual Over / Budget  

(Under) (Under)  Change inSales 
Sales Profit
Budget Budget
North 1,100 (400) 1,500 135 (180) 315 45%

East 1,450 150 1,300 210 90 120 60%
South 1,200 (200) 1,400 330 (110) 440 55%
(i) Computation of Fixed Costs (` in ‘000)

Factory Actual P/V Ratio Contribution Actual Fixed Cost
Sales Profit
(1) (2) (3) = (1) × (2) (4) (5) = (3) - (4)
North 1,100 45% 495 135 360
East 1,450 60% 870 210 660
South 1,200 55% 660 330 330
Total 3,750 2,025 675 1,350
(ii) Computation of Break-Even Sales

Factory Fixed Cost P/V Ratio Break-even Sales
(a) (b) (a) / (b)
North 360 45% 800
East 660 60% 1,100
South 330 55% 600
2,500
Fixed Cost
Break-even Sales (Company as Whole) =
Composite P / V Ratio *
` 13,50,000
=
54%
= ` 25,00,000
Total Contribution 2,025
*Composite P/V Ratio = = = 54%
Total Actual sales 3,750

14. Budget Showing Current Position and Position for 2020-21

Position for 2019-20 Position for 2020-21
A B Total A B C Total
(A+B) (A+B+C)
Sales (units) 2,00,000 1,00,000 – 1,50,000 50,000 2,00,000 –
(`) (`) (`) (`) (`) (`) (`)
(A) Sales 64,00,000 56,00,000 1,20,00,000 48,00,000 28,00,000 56,00,000 1,32,00,000
Direct Material 16,00,000 12,00,000 28,00,000 12,00,000 6,00,000 12,80,000 30,80,000
Direct wages 8,00,000 8,00,000 16,00,000 6,00,000 4,00,000 8,00,000 18,00,000
Factory overhead 8,00,000 8,00,000 16,00,000 6,00,000 4,00,000 8,00,000 18,00,000
(variable)
Other variable costs 800,000 4,80,000 12,80,000 6,00,000 240,000 8,00,000 16,40,000
(B) Marginal Cost 40,00,000 32,80,000 72,80,000 30,00,000 16,40,000 36,80,000 83,20,000
(C) Contribution (A- 24,00,000 23,20,000 47,20,000 18,00,000 11,60,000 19,20,000 48,80,000
B)
Fixed costs
– Factory 16,00,000 16,00,000
– Others 12,80,000 12,80,000
(D) Total fixed cost 28,80,000 28,80,000
Profit (C – D) 18,40,000 20,00,000
Comments: Introduction of Product C is likely to increase profit by ` 1,60,000 (i.e. from

` 18,40,000 to ` 20,00,000) in 2020-21 as compared to 2019-20 even if the demand for
Product A & B falls. Therefore, introduction of product C is recommended.
15. (a)
S. No. Cost Control Cost Reduction
1 Cost control aims at Cost reduction is concerned with reducing
maintaining the costs in costs. It challenges all standards and
accordance with the endeavours to improvise them
established standards. continuously.
2 Cost control seeks to attain Cost reduction recognises no condition as
lowest possible cost under permanent, since a change will result in
existing conditions. lower cost.
3 In case of cost control, In case of cost reduction, it is on present
emphasis is on past and and future.
present.

4 Cost control is a preventive Cost reduction is a corrective function. It

function. operates even when an efficient cost
control system exists.
5 Cost control ends when targets Cost reduction has no visible end and is a
are achieved. continuous process.
(b) "Like other branches of accounting, cost accounting also has certain
limitations". The limitations of cost accounting are as follows:
(i) Expensive: It is expensive because analysis, allocation and absorption of
overheads requires considerable amount of additional work, and hence
additional money.
(ii) Requirement of reconciliation: The results shown by cost accounts differ from
those shown by financial accounts. Thus, preparation of reconciliation
statements is necessary to verify their accuracy.
(iii) Duplication of work: It involves duplication of work as organization has to
maintain two sets of accounts i.e. Financial Accounts and Cost Accounts.
(c)
S. Job Costing Batch Costing
No.
1 Method of costing used for non- standard Homogeneous products
and non-repetitive products produced as produced in a continuous
per customer specifications and against production flow in lots.
specific orders.
2 Cost determined for each Job. Cost determined in aggregate
for the entire Batch and then
arrived at on per unit basis.
3 Jobs are different from each other and Products produced in a batch
independent of each other. Each Job is are homogeneous and lack of
unique. individuality.
(d) When the by-products are of small total value, the amount realised from their
sale may be dealt in any one the following two ways:
(i) The sales value of the by-products may be credited to the Costing Profit
and Loss Account and no credit be given in the Cost Accounts. The credit to
the Costing Profit and Loss Account here is treated either as miscellaneous
income or as additional sales revenue.
(ii) The sale proceeds of the by-product may be treated as deductions from the
total costs. The sale proceeds in fact should be deducted either from the
production cost or from the cost of sales.

PAPER 4: TAXATION
SECTION A: INCOME TAX LAW
The Income-tax law, as amended by the Finance Act, 2020 including significant
notifications/circulars issued upto 30th April, 2021, are applicable for November, 2021
examination. The relevant assessment year for November, 2021 examination is A.Y.2021-22.
The October, 2020 edition of the Study Material is based on the provisions of Income-tax law
as amended by the Finance Act, 2020 and hence, the same is relevant for November 2021
examination.
The significant notification issued upto 30.04.2021 which is relevant for November, 2021
examination but not covered in the October 2020 edition of the Study Material, is webhosted as
Statutory Update at https://resource.cdn.icai.org/65079bos52349.pdf at BoS Knowledge Portal.
QUESTIONS AND ANSWERS
Case scenario
Mr. Animesh, an Indian citizen, aged 61 years, has set-up his business in Canada and is residing
in Canada since 2009. He owns a house property in Canada, half of which is used by him for
his residence and half is given on rent (converted into INR is ` 12,00,000 p.a.).
He purchased a flat in Delhi on 13.10.2018 for ` 42,00,000. The stamp duty value of the flat
was ` 35,00,000. He has taken a loan from Canara Bank in India of ` 34,00,000 for purchase
of this flat. The interest on such loan for the F.Y. 2020-21 was ` 3,14,000 and principal
repayment was ` 80,000. Mr. Animesh has given this flat on monthly rent of ` 32,500 since
April, 2019. The annual property tax of Delhi flat is ` 40,000 which is paid by Mr. Animesh,
whenever he comes to India to meet his parents. Mr. Animesh visited India for 124 days during
the previous year 2020-21. Before that he visited India in total for 366 days during the period
1.4.2016 to 31.3.2020.
He had a house in Ranchi which was sold in May 2017. In respect of this house, he received
arrears of rent of ` 2,96,000 in February 2021 (not taxed earlier).
He also derived some other incomes during the F.Y. 2020-21 which are as follows:
(i) Profit from business in Canada ` 2,75,000
(ii) Interest on bonds of a Canadian Co. ` 6,20,000 out of which 50% was received in India.
(iii) Income from Apple Orchid in Nepal given on contract and the yearly contract fee of
` 5,00,000 for F.Y. 2020-21, was received by Animesh in Nepal.

Mr. Animesh has sold 10,000 listed shares @ ` 480 per share of A Ltd., an Indian company, on
15.9.2020, which he acquired on 05-04-2016 @ ` 100 per share. STT was paid both at the time
of acquisition as well as at the time of transfer of such shares.
On 31-01-2018, the shares of A Ltd. were traded on a recognized stock exchange as under :
Highest price - ` 300 per share
Average price - ` 290 per share
Lowest price - ` 280 per share
Based on the above facts, choose the most appropriate answer to Q. Nos. 1 to 5:
1. What would be the residential status of Mr. Animesh for the A.Y. 2021-22?
(a) Resident and ordinarily resident in India
(b) Resident but not ordinarily resident in India
(c) Non-resident
(d) Deemed resident
2. What would be amount of income taxable under the head “Income from house property” in
the hands of Mr. Animesh for the A.Y. 2021-22?
(a) ` 2,52,200
(b) ` 1,38,200
(c) ` 9,78,200
(d) ` 10,92,200
3. What amount of capital gain would arise in the hands of Mr. Animesh on transfer of shares
of A Ltd?
(a) ` 18,00,000
(b) ` 19,00,000
(c) ` 20,00,000
(d) ` 38,00,000
4. What would be total income of Mr. Animesh for the A.Y. 2021-22, if he does not opt to pay
tax u/s 115BAC?
(a) ` 22,82,200
(b) ` 22,68,200
(c) ` 22,48,200

PAPER – 4: TAXATION 131
(d) ` 21,68,200
5. What would be the tax liability (computed in the manner so as to minimise his tax liability)
of Mr. Animesh for the A.Y. 2021-22?
(a) ` 1,82,950
(b) ` 1,87,110
(c) ` 1,80,350
(d) ` 1,84,510
6. Mr. T, an Indian Citizen and resident of India, earned dividend income of ` 4,500 from an
Indian company, which was declared on 1.10.2020 and paid in cash to Mr. T. What are the
tax implications with respect to the dividend in the hands of Mr. T and Indian Company?
(a) Such dividend is taxable in the hands of Mr. T and Indian company is required to
deduct tax at source @7.5%.
(b) Such dividend is taxable in the hands of Mr. T and Indian company is required to
deduct tax at source @10%.
(c) Such dividend is taxable in the hands of Mr. T. However, Indian company is not
required to deduct tax at source since it does not exceed ` 5,000.
(d) Such dividend is exempt in the hands of Mr. T. Hence, Indian company is not required
to deduct tax at source.
7. Mr. X is a working partner and Mr. Y is a non-working partner of XYZ partnership firm.
XYZ Partnership firm subjected to tax audit under section 44AB for the P.Y. 2020-21. What
is the due date for filing return of income for Mr. X and Mr. Y for the A.Y. 2021 -22?
(a) 31st July, 2021 for both Mr. X and Mr. Y
(b) 31st October, 2021 for both Mr. X and Mr. Y
(c) 31st July, 2021 for Mr. X and 31 st October, 2021 for Mr. Y
(d) 31st July, 2021 for Mr. Y and 31 st October, 2021 for Mr. X
8. Mr. Arpit, an employee of MNO Ltd. has contributed ` 1,61,280 towards NPS and similar
amount is contributed by his employer. His basic salary is ` 80,000 p.m. and dearness
allowance is 40% of basic salary which forms part of retirement benefits. He also paid
` 55,000 towards LIC premium for himself and his wife and medical insurance premium of
` 35,000 by crossed cheque for his mother, being a senior citizen during the previous year
2020-21. How much deduction is available under Chapter VI-A while computing total
income of Mr. Arpit for the A.Y. 2021-22?
(a) ` 3,46,280
(b) ` 3,69,400

(c) ` 3,19,400
(d) ` 3,96,280
9. A building was acquired on 1.4.1995 for ` 20,00,000 and sold for ` 80,00,000 on
01.06.2020. The stamp duty value on the date of transfer was ` 85,00,000. The fair market
value of the building on 1.4.2001 was ` 25,00,000. Its stamp duty value on the same date
was ` 22,00,000. Determine the capital gains on sale of such building for the
A.Y. 2021-22?
Cost Inflation Index for F.Y. 2001-02: 100; F.Y. 2020-21: 301
(a) ` 13,78,000
(b) ` 18,78,000
(c) ` 9,75,000
(d) ` 4,75,000
10. Mr. Vikas received a gold ring worth ` 60,000 on the occasion of his daughter’s wedding
from his best friend Mr. Vishnu. Mr. Vishnu also gifted a gold chain to Kavya, daughter of
Mr. Vikas, worth ` 80,000 on the said occasion. Would such gifts be taxable in the hands
of Mr. Vikas and Ms. Kavya?
(a) Yes, the gift of gold ring and gold chain is taxable in the hands of Mr. Vikas and
Ms. Kavya, respectively
(b) Such gifts are not taxable in the hands of Mr. Vikas nor in the hands of
Ms. Kavya
(c) Value of gold ring is taxable in the hands of Mr. Vikas but value of gold chain is not
taxable in the hands of Ms. Kavya
(d) Value of gold chain is taxable in the hands of Ms. Kavya but value of gold ring is not
taxable in the hands of Mr. Vikas
11. M/s Rajveer, a proprietorship has two units namely, Unit X and Unit Y. Unit X located in
Special Economic Zone and Unit Y in Domestic Tariff Area (DTA). The following are the
details for the financial year 2020-21:
Particulars Unit Y M/s Rajveer
(`) (`)
Total sales 50,00,000 85,00,000
Export sales 28,00,000 55,00,000
Domestic sales 12,00,000 30,00,000
Net Profit 4,00,000 10,00,000

Total Sales of F.Y. 2020-21 include freight of ` 5 lacs for delivery of goods outside India
with respect to Unit X.
Both the units were set up and started manufacturing from 20.6.2017. Compute the amount
of deduction available to M/s Rajveer under section 10AA for the A.Y. 2021-22.
12. Ms. Aarti, a resident individual, provides the following information of her income/losses for
the year ended on 31st March, 2021:
S. No. Particulars (`)
1. Income from salary (Computed) 8,20,000
2. Income from house property (let out) (Net Annual Value) 1,20,000
3. Share of profit from firm in which she is partner 48,000
4. Loss from specified business covered under section 35AD 67,000
5. Income from textile business before adjusting the following 3,30,000
items:
(a) Current year depreciation 53,000
(b) Unabsorbed depreciation of earlier year 1,85,000
(c) Brought forward loss of textile business of the A.Y. 1,90,000
2018-19
6. Long-term capital gain on sale of debentures (unlisted) 1,50,000
7. Long-term capital loss on sale of equity shares (STT not paid) 1,50,000
8. Long-term capital gain on sale of equity shares listed in 2,50,000
recognized stock exchange (STT paid at the time of acquisition
and sale)
9. Dividend from units of UTI 1,15,000
10. Repayment towards housing loan taken from a scheduled bank. 4,85,000
Out of this ` 3,28,000 was towards payment of interest and rest
towards principal.
Compute the Gross Total Income of Ms. Aarti and ascertain the amount of loss that can be
carried forward. Ms. Aarti has always filed her return within the due date specified under
section 139(1) of the Income-tax Act, 1961. She does not want to opt for 115BAC.
13. Mr. Uday Shankar (aged 67 years) is retired from a Public Sector Undertaking. He resides
in Indore, Madhya Pradesh. He provides you the following particulars of his income and
certain payments/investments for the previous year 2020-21:
- Pension income of ` 7,80,000
- Interest from fixed deposits of ` 2,35,000 (Gross)

- Life insurance premium paid by cheque ` 25,500 for insurance of his life. The
insurance policy was taken on 08-09-2016 and the sum assured is ` 2,50,000.
- Premium of ` 36,000 paid by cheque for health insurance of self and his wife, who is
also a senior citizen.
- ` 3,500 paid in cash for his health check-up and ` 4,500 paid through cheque for
preventive health check-up of his mother aged 90 years.
- Paid interest of ` 9,500 on loan taken from bank for MBA course pursued by his
daughter.
- A sum of ` 95,000 donated by cheque to an institution approved for the purpose of
section 80G for promoting family planning.
- ` 20,000 contributed towards PM CARES Fund by cheque.
Compute the total income of Mr. Uday Shankar for the assessment year 2021-22,
assuming he does not opt for section 115BAC.
14. Mr. Dheeraj, aged 48 years, a resident Indian has furnished the following particulars for
the year ended 31.03.2021:
(i) He occupies ground floor of his residential building and has let out first floor for
residential use at an annual rent of ` 3,34,000. He has paid municipal taxes of
` 30,000 for the current financial year. Both these floors are of equal size.
(ii) As per interest certificate from ICICI bank, he paid ` 1,80,000 as interest and
` 95,000 towards principal repayment of housing loan borrowed for the above
residential building in the year 2014.
(iii) He owns an industrial undertaking established in a SEZ and which had commenced
operation during the financial year 2018-19. Total turnover of the undertaking was
` 400 lakhs, which includes ` 120 lakhs from export turnover. This industrial
undertaking fulfills all the conditions of section 10AA of the Income-tax Act, 1961.
Profit from this industry is ` 45 lakhs.
(iv) He employed 20 new employees for the said industrial undertaking during the
previous year 2020-21. Out of 20 employees, 12 were employed on 1st May 2020 on
monthly emoluments of ` 18,000 and remaining were employed on 1 st August 2020
on monthly emoluments of ` 12,000. All these employees participate in recognised
provident fund and they are paid their emoluments directly to their bank accounts.
(v) He earned ` 30,000 and ` 45,000 as interest on saving bank deposits and fixed
deposits respectively.
(vi) He also sold his vacant land on 01.12.2020 for ` 13 lakhs. The stamp duty value of
land at the time of transfer was ` 14 lakhs. The FMV of the land as on 1st April, 2001
was ` 4.8 lakhs and Stamp duty value on the said date was ` 4 lakhs. This land was

acquired by him on 15.9.1997 for ` 2.80 lakhs. He had incurred registration expenses
of ` 12,000 at that time.
The cost of inflation index for the financial year 2020-21 and 2001-02 are 301 and
100 respectively.
(vii) He paid insurance premium of ` 49,000 towards life insurance policy of his son, who
is not dependent on him.
You are requested to compute his total income and tax liability of Mr. Dheeraj for the
Assessment Year 2021-22, in the manner so that he can make maximum tax savings.
15. (a) Mr. Ayaansh (aged 35 years), a resident individual, is a dealer of garments. During
the previous year 2020-21, total turnover of his business was ` 105 lakhs (out of
which ` 15 lakhs was received by way of account payee cheques and balance in
cash). Mr. Ayaansh does not opt to pay tax as per the provisions of section 115BAC.
What would be your advice to Mr. Ayaansh relating to the provisions of advance tax
with its due date along with the amount payable, assuming that he wishes to make
maximum tax savings without getting his books of account audited.
(b) Can Mr. Raghuram file his return for the A.Y. 2021-22 belatedly u/s 139(4) in the
previous year 2022-23, if he has failed to file said return on or before the due date of
filing return of income for the A.Y. 2021-22, due to inadvertent reasons? Also, specify
the consequences of non-filing of return within the due date under section 139(1).
SUGGESTED ANSWERS
MCQ No. Most Appropriate Answer MCQ No. Most Appropriate Answer
1. (b) 6. (a)
2. (b) 7. (b)
3. (a) 8. (b)
4. (d) 9. (a)
5. (c) 10. (c)
11. Computation of deduction under section 10AA for A.Y. 2021-22
Since A.Y. 2021-22 is the 4th assessment year from A.Y. 2018-19, relevant to the
previous year 2017-18, in which the SEZ unit began manufacturing of articles or things
or provide any services, it shall be eligible for deduction of 100% of the profits derived
from export of such articles or things or from services, assuming all the other conditions
specified in section 10AA are fulfilled.

Export turnover of Unit in SEZ

= Profits of Unit in SEZ x x 100%
Total turnover of Unit in SEZ
= 6,00,000 x 22,00,000 x 100% = ` 4,40,000

30,00,000
Working Note:
Computation of total sales, export sales and net profit of Unit X
Particulars M/s Rajveer Unit Y Unit X
(`) (`) (`)
Total sales 85,00,000 50,00,000 35,00,000
Export sales 55,00,000 28,00,000 27,00,000
Domestic sales 30,00,000 12,00,000 18,00,000
Net Profit 10,00,000 4,00,000 6,00,000
Export Turnover
Sale proceeds 27,00,000
Less: Freight not includible in export turnover 5,00,000
22,00,000
Total turnover 35,00,000
Less: Freight not includible [Since freight has been excluded from
export turnover, the same has to be excluded from total turnover also]. 5,00,000
30,00,000
12. Computation of gross total income of Ms. Aarti for the A.Y.2021-22
Particulars ` `
Salary Income (computed) 8,20,000
Less: As per section 71(3A), loss from house property of
` 2,44,000 can be set-off, to the extent of 2,00,000 6,20,000
Income from House Property
Net Annual Value of House Property 1,20,000
Less: Deduction u/s 24
(a) 30% of NAV 36,000
(b) Interest on housing loan 3,28,000 3,64,000

Loss from house property (2,44,000)

Less: Loss eligible for set-off against salary income
restricted to 2,00,000
Loss to be carried forward to A.Y. 2022-23 for set-off against
income from house property, if any, in that year. (44,000)
Profits and gains of business or profession
Share of profit from firm [Exempt u/s 10(2A)] -
Loss from specified business u/s 35AD ` 67,000 [can be -
set-off only against income from any specified business.
Hence, it has to be carried forward to A.Y.2022-23]
Income from textile business 3,30,000
Less: Current year depreciation 53,000
2,77,000
Less: Brought forward loss of textile business 1,90,000
87,000
Less: Set-off of unabsorbed depreciation to the extent of
` 87,000 against business income 87,000 Nil
Capital Gains
Long-term capital gains on sale of listed equity shares (STT 2,50,000
paid)
Less: Balance unabsorbed depreciation of ` 98,000 set-off 98,000
Long-term capital gains on sale of listed equity shares [Tax 1,52,000 1,52,000
is payable u/s 112A @ 10% on the amount exceeding
` 1,00,000]
Long-term capital gains on sale of debentures 1,50,000
Less: Set-off of Long-term capital loss on sale of equity 1,50,000 Nil
shares (STT not paid) [Since long-term capital gain on sale
of unlisted debentures are taxable @20% and long-term
term capital gain on sale of listed shares in excess of
`1,00,000 taxable @10%, it is beneficial to set-off long-term
capital loss against LTCG on sale of debentures]
Income from Other Sources
Dividend from units of UTI [Taxable in the hands of the 1,15,000
unitholders]
Gross Total Income 8,87,000

Losses to be carried forward to A.Y.2022-23 `

(i) Losses from specified business [can be carried forward indefinitely 67,000
for set-off against income from any specified business]
(ii) Loss from house property [can be carried forward upto 8 successive 44,000
assessment years for set-off against income from house property]
13. Computation of total income of Mr. Uday Shankar for A.Y.2021-22

Particulars ` ` `
Income under the head “Salaries”
Pension 7,80,000
Less: Standard deduction u/s 16(ia)
Lower of ` 50,000 or actual salary/pension 50,000 7,30,000
Income from Other Sources
Interest from bank on fixed deposit (Gross) 2,35,000
Less: Deduction under Chapter VI-A
Deduction under section 80C
LIC premium of ` 25,500 (restricted to 10% of 25,000
` 2,50,000, being the sum assured, as the policy is
taken after 31.3.2012)
Deduction under section 80D
Premium for health insurance for self and his wife 36,000
paid by cheque, allowed upto ` 50,000 since
Mr. Uday Shankar is a senior citizen
Preventive health check-up for self, ` 3,500, and for
his mother, ` 4,500, restricted to ` 5,000 (deduction
allowed even if the same is paid in cash) 5,000
41,000
Deduction under section 80E
Interest on loan taken from bank for MBA course 9,500
pursued by his daughter
Deduction under section 80G
Donation to PM CARES Fund – 100% allowable 20,000
Donation to an approved institution for promoting 83,950
family planning – 100% allowable subject to
qualifying limit of ` 83,950 i.e., 10% of ` 8,39,500
being the adjusted total income

Deduction under section 80TTB

Interest on fixed deposit with bank allowable as
deduction upto ` 50,000, since Mr. Uday Shankar
is a senior citizen 50,000
2,29,450
Total Income 7,35,550
14. Computation of total income of Mr. Dheeraj for A.Y. 2021-22
Particulars ` ` `
I Income from house property
Let out portion [First floor]
Gross Annual Value [Rent received is taken as 3,34,000
GAV, in the absence of other information]
Less: Municipal taxes paid by him in the P.Y.
2020-21 pertaining to let out portion [` 30,000/2] 15,000
Net Annual Value (NAV) 3,19,000
Less: Deduction u/s 24
(a) 30% of ` 3,19,000 95,700
(b) Interest on housing loan [` 1,80,000/2] 90,000 1,85,700
1,33,300
Self-occupied portion [Ground Floor]
Annual Value Nil
[No deduction is allowable in respect of
municipal taxes paid]
Less: Interest on housing loan 90,000
(90,000)
Income from house property [` 1,33,300 – 43,300
` 90,000]
II Profits and gains of business or profession
Income from SEZ unit 45,00,000
III Capital Gains
Long-term capital gains on sale of land (since
held for more than 24 months)
Full Value of Consideration [Actual consideration 13,00,000
of ` 13 lakhs, since stamp duty value of ` 14
lakhs does not exceed actual consideration by
more than 10%]

Less: Indexed Cost of acquisition [` 4,00,000 x

301/100] 12,04,000 96,000
Cost of acquisition
Higher of -
- Actual cost ` 2.80 lakhs + ` 0.12 lakhs =
` 2.92 lakhs and
- Fair Market Value (FMV) as on 1.4.2001 =
` 4.8 lakhs but cannot exceed stamp duty
value of ` 4 lakhs.
IV Income from Other Sources
Interest on savings bank deposits 30,000
Interest on fixed deposits 45,000 75,000
Less: Deduction u/s 10AA 13,50,000
[Since the industrial undertaking is
established in SEZ, it is entitled to
deduction u/s 10AA@100% of export
profits, since P.Y.2020-21 being the 3 rd
year of operations]
[Profits of the SEZ x Export Turnover/Total
Turnover] x 100%
[` 45 lakhs x ` 120 lakhs/ ` 400 lakhs x
100%]
Less: Deduction under Chapter VI-A
Deduction under section 80C
Repayment of principal amount of housing
loan 95,000
Insurance premium paid on life insurance
policy of son allowable, even though not
dependent on Mr. Dheeraj 49,000 1,44,000
Deduction under section 80JJAA 9,43,200
30% of the employee cost of the new
employees employed during the P.Y. 2020-
21 allowable as deduction [30% of
` 31,44,000 [` 23,76,000 (12 x 18,000 x
11) + ` 7,68,000 (8 x 12,000 x 8)]

Deduction under section 80TTA

Interest on savings bank account, restricted
to ` 10,000 10,000
10,97,200
Total income 22,67,100
Computation of tax liability of Mr. Dheeraj for A.Y.2021-22
under the normal provisions of the Act
Particulars ` `
Tax on total income of ` 22,67,100
Tax on LTCG of ` 96,000@20% 19,200
Tax on remaining total income of 21,71,100
Upto ` 2,50,000 Nil
` 2,50,001 – ` 5,00,000[@5% of ` 2.50 lakh] 12,500
` 5,00,001 – ` 10,00,000[@20% of ` 5,00,000] 1,00,000
` 10,00,001 – ` 21,71,100[@30% of ` 11,71,700] 3,51,330 4,63,830
4,83,030
Add: Health and education cess@4% 19,321
Total tax liability 5,02,351
Tax liability (rounded off) 5,02,350
Computation of tax liability of Mr. Dheeraj for A.Y.2021-22
under the special provisions of the Act (Alternate Minimum Tax)
Particulars `
Computation of adjusted total income
Total income as per the normal provisions of the Act 22,67,100
Add: Deduction u/s 10AA 13,50,000
Deduction u/s 80JJAA 9,43,200
45,60,300
AMT@18.5% 8,43,656
Add: HEC@4% 33,746
AMT liability 8,77,402
AMT liability (rounded off) 8,77,400
Since the regular income tax payable is less than the AMT, the adjusted total income of
` 45,60,300 would be deemed to be the total income and tax would be payable @18.5%
plus HEC@4%. The total tax liability would be ` 8,77,400. In this case, AMT credit of
` 3,75,050 (` 8,77,400 – ` 5,02,350) can be carried forward.

Mr. Dheeraj also can opt to pay tax as per the provisions of section 115BAC if tax liability
thereunder is lower. In such case, the AMT provisions would not apply on him. The
computation of total income and tax liability as per the provisions of section 115BAC would
be as follows:
Computation of total income of Mr. Dheeraj as per section 115BAC for A.Y. 2021 -22
Particulars ` `
Gross Total Income as per regular provisions of the 47,14,300
Income-tax Act
Add: Interest on borrowing in respect of self-occupied
house property not allowable as deduction as per section
115BAC 90,000
Gross Total Income as per section 115BAC 48,04,300
Less: Deduction under section 80JJAA
30% of the employee cost of the new employees 9,43,200
employed during the P.Y. 2020-21 allowable as
deduction [30% of ` 31,44,000 [` 23,76,000 (12 x
18,000 x 11) + ` 7,68,000 (8 x 12,000 x 8)]
No deduction under section 10AA or under Chapter VI-A
allowable except u/s 80JJAA
9,43,200
Total income 38,61,100
Computation of tax liability as per section 115BAC

Particulars ` `
Tax on total income of ` 38,61,100
Tax on LTCG of ` 96,000@20% 19,200
Tax on remaining total income of ` 37,65,100
Upto ` 2,50,000 Nil
` 2,50,001 – ` 5,00,000 [@5% of ` 2.50 lakhs] 12,500
` 5,00,001 – ` 7,50,000 [@10% of ` 2.50 lakhs] 25,000
` 7,50,001 – ` 10,00,000 [@15% of ` 2.5 lakhs] 37,500
` 10,00,001 – ` 12,50,000 [@20% of ` 2.5 lakhs] 50,000
` 12,50,001 – ` 15,00,000 [@25% of ` 2.5 lakhs] 62,500
` 15,00,001 – ` 37,65,100 [@30% of ` 22,65,100] 6,79,530 8,67,030
8,86,230

Add: Health and education cess@4% 35,449

Total tax liability 9,21,679
Tax liability (rounded off) 9,21,680
Since tax liability as per section 115BAC is higher than the tax liability of ` 8,77,400 being
higher of AMT liability and tax liability computed as per normal provisions of the Income-
tax Act, 1961, it is beneficial for Mr. Dheeraj not to exercise option under section 115BAC.
In such case, his tax liability, therefore, would be ` 8,77,400. Moreover, Mr. Dheeraj would
also be eligible to claim carry forward of AMT credit of ` 3,75,050.
15. (a) Computation of advance tax of Mr. Ayaansh under Presumptive Income scheme
as per section 44AD
The total turnover of Mr. Ayaansh, a dealer of garments, is ` 105 lakhs. Since his
total turnover from such business is less than ` 200 lakhs and he does not wish to
get his books of account audited, he can opt for presumptive tax scheme under
section 44AD.
Profits and gains from business computed under section 44AD:
Particulars `
6% of ` 15 lakhs, being turnover effected through account payee 90,000
cheque
8% of ` 90 lakhs, being cash turnover 7,20,000
8,10,000
An eligible assessee opting for computation of profits and gains of business on
presumptive basis under section 44AD in respect of eligible business is required to
pay advance tax of the whole amount on or before 15 th March of the financial year.
Computation of tax liability of Mr. Ayaansh as per normal provisions of
Income-tax Act, 1961
Particulars Amount in `
Total Income 8,10,000
Tax on 8,10,000
Upto ` 2,50,000 Nil
` 2,50,001 – ` 5,00,000@5% 12,500
` 5,00,001 – ` 8,10,000@20% 62,000 74,500
Add: Health and Education cess@4% 2,980
Tax liability 77,480

Accordingly, he is required to pay advance tax of ` 77,480 on or before 15 th March of

the financial year. However, any amount by way of advance tax on or before 31 st
March of the financial year shall also be treated as advance tax paid during the
financial year ending on that day for all the purposes of the Act.
(b) If any person fails to furnish a return within the time allowed to him under section
139(1), he may furnish the belated return for any previous year at any time -
(i) before the end of the relevant assessment year; or
(ii) before the completion of the assessment,
whichever is earlier.
The last date for filing return of income for A.Y.2021-22 is 31st March 2022.
Thereafter, Mr. Raghuram cannot furnish his belated return. Since previous year
2022-23 begins on 1st April, 2022, Mr. Raghuram cannot file his return of income for
the A.Y. 2021-22 u/s 139(4) in the previous year 2022-23.
Consequences for non-filing return of Income within the due date under section 139(1)
Carry forward and set-off of certain losses: Carry forward and set-off of business
loss, speculation business loss, loss from specified business, loss under the head
“Capital Gains”; and loss from the activity of owning and maintaining race horses,
would not be allowed to be carried forward, where a return of income is not furnished
within the time allowed under section 139(1).
Interest under section 234A: Interest under section 234A@1% per month or part of
the month for the period commencing from the date immediately following the due
date under section 139(1) till the date of furnishing of return of income is payable,
where the return of income is furnished after the due date. However, no interest u/s
234A shall be charged on self-assessment tax paid by the assessee on or before the
due date of filing of return.
Fee under section 234F: Late fee of ` 5,000 would be payable under section 234F,
if the return of income is not filed before the due date specified in section 139(1) and
` 10,000 would be the fee payable under section 234F where the return is furnished
after 31 st December of the assessment year.
However, such fee cannot exceed ` 1,000, if the total income does not exceed
` 5,00,000.

SECTION B: INDIRECT TAXES
QUESTIONS
(1) All questions should be answered on the basis of the provisions of GST law as
amended by the Finance Act, 2020, which have become effective till 30.04.2021,
and significant notifications and circulars issued upto 30.04.2021.
(2) The GST rates for goods and services mentioned in various questions are
hypothetical and may not necessarily be the actual rates leviable on those goods
and services. Further, GST compensation cess should be ignored in all the
questions, wherever applicable.
I. MM Charitable Trust is registered under section 12AA of the Income -tax Act, 1961.
The trust conducted a three day residential yoga camp among people on the occasion of
International yoga day for the advancement of yoga and charged ` 7,500 per person
inclusive of stay and food.
The trust also conducted programmes for the advancement of education of persons aged
above 65 years in metro cities. A nominal fee was charged for the same.
The trust received following donations during the month of September:-
i. Solid Steels Pvt. Ltd. donated a RO water plant to the trust costing ` 75,000 and
displayed its company name in the RO system installed at the premises of the trust
as “Donated by Solid Steels Private Limited-trusted by all’.
ii. Mr. Prasanna, a lawyer donated chairs to the trust costing ` 25,000 and ‘Love all’ is
printed on all chairs donated by him to the trust.
The following are the details of GST payment made by the firm-
i. GST of ` 1,75,000 was paid for the purchase of motor vehicle for transportation of
needy persons (Seating capacity including driver is 13).
ii. GST of ` 2,45,000 was paid for works contract services availed from Super Builders
for construction of Trust’s office building.
MM Charitable Trust also owns and manages a gurudwara. It rented the community hall
located in the precincts of the gurudwara for a rent of ` 8,500 per day for a marriage
function. It also rented the commercial shop located in the precincts of the gurudwara for
a rent of ` 10,000 per month per shop.
You can assume that the Trust is registered under GST and all the transactions are intra -
State only. Conditions for availing ITC are fulfilled subject to the above - mentioned
information.

Based on the information given above, choose the most appropriate answer for the
following questions [1 to 4]-
1. Which of the following activities conducted by trust is exempt from GST?
(a) Advancement of Yoga
(b) Advancement of education
(c) Both (a) and (b)
(d) Neither of the activities
2. Determine the value of taxable supply in respect of donations received by the Trust?
(a) ` 25,000
(b) ` 75,000
(c) ` 1,00,000
(d) Nil
3. Compute the amount of input tax credit that can be claimed by the Trust?
(a) ` 1,75,000
(b) ` 2,45,000
(c) ` 4,20,000
(d) Nil
4. Which of the following statements is/are correct under GST law in respect of
gurudwara managed by MM Charitable Trust?
(a) Renting of community hall is taxable while renting of commercial shop is
exempt.
(b) Renting of community hall is exempt while renting of commercial shop is
taxable.
(c) Both renting of community hall and renting of commercial shop are taxable.
(d) Both renting of community hall and renting of commercial shop are exempt.
5. Determine which of the following independent cases will be deemed as supply even
if made without consideration in terms of Schedule I of the CGST Act, 2017?
(i) AB & Associates transfers stock of goods from its Mumbai branch to Kolkata
depot for sale of such goods at the depot.
(ii) Mr. Raghuveer, a dealer of air-conditioners permanently transfers the motor
vehicle free of cost. ITC on said motor vehicle is blocked.

(iii) Mrs. Riddhi, an employee of Sun Ltd., received gift from her employer on the
occasion of Diwali worth ` 21,000.
(a) (i)
(b) (ii)
(c) (iii)
(d) Both (i) and (ii)
6. PZY Ltd. is engaged in manufacturing of motor car. The company paid following
amount of GST to its suppliers against the invoices raised to it. Compute the
amount of ineligible input tax credit under GST law:-
S.No. Particulars GST Paid
(`)
1. General insurance taken on cars manufactured by PZY 1,00,00,000
Ltd.
2. Buses purchased for transportation of employees 25,00,000
(Seating capacity 23)
3. Life and health insurance for employees under statutory 6,00,000
obligation
4. Outdoor catering in Diwali Mela organized for 3,50,000
employees
(a) ` 9,50,000
(b) ` 3,50,000
(c) ` 1,31,00,000
(d) ` 28,50,000
7. Which of the following statements is/are incorrect under GST law:-
(i) If the supplier has erroneously declared a value which is more than the actual
value of goods or services provided, then he can issue credit note for the
same.
(ii) If the supplier declared some special discount which is offered after the supply
is over, then he cannot issue credit note under GST law for the discount offer.
(iii) If quantity received by the recipient is more than what has been declared in the
tax invoice, then supplier can issue debit note for the same.
(iv) There is no time limit to declare the details of debit note in the return.
(a) (i),(ii) and (iv)

(b) (i) and (iv)

(c) (iv)
(d) (i) and (iii)
8. Ms. Pearl is a classical singer. She wants to organize a classical singing function,
so she booked an auditorium on 10 th August for a total amount of ` 20,000. She
paid ` 5,000 as advance on that day. The classical singing function was organized
on 10th October. The auditorium owner issued invoice to Ms. Pearl on 25 th
November amounting to ` 20,000. Pearl made balance payment of ` 15,000/- on
30th November. Determine the time of supply in this case.
(a) Time of supply is 25th November for ` 20,000.
(b) Time of supply is 25 th November for ` 5,000 & 30th November for ` 15,000.
(c) Time of supply is 10 th August for ` 5,000 & 10 th October for ` 15,000.
(d) Time of supply is 10 th October for ` 20,000.
9. ABC Ltd. generated e-way bill on 12th February at 14.00 hrs. It used over-
dimensional cargo for a distance of 100 km. When the validity period of the e -way
bill will expire?
(a) Midnight of 13 th-14th February
(b) Midnight of 17 th-18th February
(c) At 14.00 hrs. of 13th February
(d) At 14.00 hrs. of 14th February
10. Determine in which of the following independent cases, e-invoicing is applicable?
(i) Harnam & Co., dealing in interior decoration products made supplies to various
registered and unregistered persons in the preceding financial year. The
aggregate turnover of Harnam & Co. in the preceding financial year is ` 60
crore.
(ii) Rich & Poor Bank, registered under GST has an aggregate turnover of ` 75
crore in the preceding financial year.
11. Mr. Nikunj, a supplier of goods, pays GST under regular scheme. He is not eligible
for any threshold exemption. He has made the following outward taxable supplies in
the month of August :-
`
Intra State supplies of goods 6,00,000
Inter State supplies of goods 2,00,000

He has also furnished following information in respect of purchases made by him

from registered dealers during August :-
Intra State purchase of goods 4,00,000
Inter State purchase of goods 50,000
Balance of ITC available at the beginning of the August:-
`
CGST 15,000
SGST 35,000
IGST 20,000
Note:
(i) Rate of CGST, SGST and IGST to be 9%, 9% and 18% respectively, on both
inward and outward supplies.
(ii) Both inward and outward supplies given above are exclusive of taxes,
wherever applicable.
(iii) All the conditions necessary for availing the ITC have been fulfilled.
Compute the minimum GST payable by Mr. Nikunj in cash for the month of August.
12. Namo Shankar Ltd., a registered supplier in Mumbai (Maharashtra), has supplied
goods to Narad Traders and Nandi Motors Ltd. located in Ahmedabad (Gujarat) and
Pune (Maharashtra) respectively. Namo Shankar Ltd. has furnished the following
details for the current month:
S. No. Particulars Narad Nandi Motors
Traders (`) Ltd. (`)
(i) Price of the goods (excluding GST) 10,000 30,000
(ii) Packing charges 500
(iii) Commission 500
(iv) Weighment charges 2,000
(v) Discount for prompt payment 1,000
(recorded in the invoice)
Items given in points (ii) to (v) have not been considered while arriving at price of
the goods given in point (i) above.
Compute the GST liability [CGST & SGST or IGST, as the case may be] of Namo
Shankar Ltd. for the given month. Assume the rates of taxes to be as under:

PARTICULARS Rate of tax

Central tax (CGST) 9%
State Tax (SGST) 9%
Integrated tax (IGST) 18%
Make suitable assumptions, wherever necessary.
Note: The supply made to Narad Traders is an inter-State supply.
13. Examine whether the liability to register compulsorily under section 24 of the CGST
Act, 2017 arises in each of the independent cases mentioned below:
(1) Heera, a supplier in Haryana, is exclusively engaged in supply of potatoes
produced out of cultivation of his own land, within Haryana and also outside
Haryana.
(2) Aanya of Telangana is exclusively engaged in intra-State supply of toys. Its
aggregate turnover in the current financial year is ` 22 lakh.
SUGGESTED ANSWERS
1. (a)
2. (b)
3. (d)
4. (b)
5. (a)
6. (b)
7. (c)
8. (c)
9. (b)
10. All registered businesses with an aggregate turnover (based on PAN) in any preceding
financial year from 2017-18 onwards greater than ` 50 crore are required to issue e-
invoices in respect of B2B supplies (supply of goods and/or services to a registered
person).
Further, following entities are exempt from the mandatory requirement of e-invoicing:-
(a) Special Economic Zone units
(b) Insurer or banking company or financial institution including NBFC

(c) GTA supplying services in relation to transportation of goods by road in a goods

carriage
(d) Supplier of passenger transportation service
(e) Person supplying services by way of admission to exhibition of cinematograph films
in multiplex screens
Thus, above mentioned entities are not required to issue e-invoices even if their turnover
exceeds ` 50 crore in the preceding financial year from 2017-18 onwards.
In view of the above mentioned provisions, the answer to the independent cases are as
under:-
(i) The aggregate turnover of Harnam & Co. exceeds the threshold limit of aggregate
turnover applicable for e-invoicing. Thus, Harnam & Co. is mandatorily required to
issue e-invoices in respect of supplies made to registered persons.
(ii) Banking company is specifically exempt from mandatory requirement of e-invoicing
even if the turnover exceeds ` 50 crore in the preceding financial year. Thus, e-
invoicing is not applicable to Rich & Poor Bank.
11. Computation of GST liability of Mr. Nikunj for the month of August
S.No. Particulars (`) GST (`)
(i) Intra-State supply of goods
CGST @ 9% on ` 6,00,000 54,000
SGST @ 9% on ` 6,00,000 54,000 1,08,000
(ii) Inter-State supply of goods
IGST @ 18% on ` 2,00,000 36,000
Computation of total ITC
Particulars CGST @ 9% SGST @ 9% IGST @ 18%
(`) (`) (`)
Opening ITC 15,000 35,000 20,000
Add: ITC on Intra-State purchases 36,000 36,000
of goods valuing ` 4,00,000
Add: ITC on Inter-State purchases 9,000
of goods valuing ` 50,000
Total ITC 51,000 71,000 29,000

Computation of minimum GST payable in cash

Particulars CGST @ 9% SGST @ 9% IGST @ 18%
(`) (`) (`)
GST payable 54,000 54,000 36,000
Less: ITC credit of IGST to be (29,000)
first utilised towards payment
of IGST
ITC of CGST to be utilised for (51,000)
payment of CGST and IGST in
that order.
ITC of SGST to be utilised for (54,000)
payment of SGST and IGST in
that order.
ITC of SGST to be utilised for (7,000)-SGST
payment of IGST, only after
ITC of CGST has been utilised
fully.
Minimum GST payable in 3,000 Nil Nil
cash
12. Computation of GST liability
S. Particulars Narad Traders Nandi Motors
No. (`) Ltd. (`)
(i) Price of goods 10,000 30,000
(ii) Add: Packing charges (Note-1) 500
(iii) Add: Commission (Note-1) 500
(iv) Add: Weighment charges (Note-1) - 2,000
(v) Less: Discount for prompt payment
(Note-2) - 1,000
Value of taxable supply 11,000 31,000
IGST payable @ 18% (Note-3) 1,980
CGST payable @ 9% (Note-4) 2,790
SGST payable @ 9% (Note-4) 2,790
Notes:
1. Incidental expenses, including commission and packing, charged by supplier to
recipient of supply is includible in the value of supply. Weighment charges are also

incidental expenses, hence includible in the value of supply [Section 15 of the

CGST Act, 2017].
2. Since discount is known at the time of supply, it is deductible from the value in
terms of section 15 of the CGST Act, 2017.
3. Since supply made to Narad Traders is an inter-State supply, IGST is payable in
terms of section 5 of the IGST Act, 2017.
4. Since supply made to Nandi Motors Ltd. is an intra-State supply, CGST & SGST is
payable on the same.
13. (1) Section 24 of the CGST Act, 2017 provides that persons making any inter -State
taxable supply of goods are required to obtain registration compulsorily under GST
laws irrespective of the quantum of aggregate turnover.
However, as per section 23 of the CGST Act, 2017, an agriculturist, to the extent of
supply of produce out of cultivation of land, is not liable to registration.
Heera is exclusively engaged in cultivation and supply of potatoes. Thus, he is not
liable to registration irrespective of the fact that he is engaged in making inter -State
supply of goods. Further, Heera will not be liable to registration, in the given case,
even if his turnover exceeds the threshold limit.
(2) As per section 22 of the CGST Act, 2017 read with Notification No. 10/2019 CT
dated 07.03.2019, a supplier is liable to be registered in the State/Union territory
from where he makes a taxable supply of goods and/or services, if his aggregate
turnover in a financial year exceeds the threshold limit. The threshold limit for a
person making exclusive intra-State taxable supplies of goods is as under:-
(a) ` 10 lakh for the Special Category States of Mizoram, Tripura, Manipur and
Nagaland.
(b) ` 20 lakh for the States, namely, States of Arunachal Pradesh, Meghalaya,
Puducherry, Sikkim, Telangana and Uttarakhand.
(c) ` 40 lakh for rest of India except persons engaged in making supplies of ice
cream and other edible ice, whether or not containing cocoa, Pan masala and
Tobacco and manufactured tobacco substitutes.
Since Aanya is making taxable supplies from Telangana, she will not be eligible for
higher threshold limit available in case of exclusive supply of goods. The applicable
threshold limit for registration for Aanya in the given case is ` 20 lakh. Thus, she is
liable to get registered under GST.

Applicability of Standards/Guidance Notes/Legislative Amendments etc. for
November, 2021 Examination
Intermediate Level (New Course)
Paper 1: Accounting
List of Applicable Accounting Standards
AS 1 : Disclosure of Accounting Policies
AS 2 : Valuation of Inventories
AS 3 : Cash Flow Statements
AS 10 : Property, Plant and Equipment
AS 11 : The Effects of Changes in Foreign Exchange Rates
AS 12 : Accounting for Government Grants
AS 13 : Accounting for Investments
AS 16 : Borrowing Costs
Applicability of the Companies Act, 2013 and other Legislative Amendments for
November, 2021 Examination
The relevant notified Sections of the Companies Act, 2013 and legislative amendments including
relevant Notifications / Circulars / Rules / Guidelines issued by Regulating Authorities up to 30 th
April, 2021(Refer Note*) will be applicable for November, 2021 Examination.
*NOTE:
(i) Non-Applicability of the Amendments to Schedule III to the Companies Act, 2013 :
The Central Government made certain amendments in Schedule III to the Companies Act,
2013 (vide Notification dated 24th March, 2021), with effect from 1st day of April,
2021.These amendments to Schedule III are not applicable for November, 2021
Examination.
(ii) Non-Applicability of the Announcement relating to Revision in Criteria for
Classification of Non-Company Entities for Applicability of Accounting Standards:
The Council of the ICAI, at its 400th meeting, held on March 18-19, 2021, revised the
criteria relating to applicability of Accounting Standards issued by the ICAI, to Non -
company entities. This revision in criteria is not applicable for November, 2021
Examination.
Non-Applicability of Ind AS : The Ministry of Corporate Affairs has notified Companies (Indian
Accounting Standards) Rules, 2015 on 16th February, 2015, for compliance by certain class of
companies. These Ind AS do not form part of the syllabus and hence are not applicable.

REVISION TEST PAPER 155
Paper 2: Corporate and Other Laws

The provisions of Companies Act, 2013 along with significant Rules/ Notifications/ Circulars/
Clarification/ Orders issued by the Ministry of Corporate Affairs and the laws covered under the
Other Laws, as amended by concerned authority, including significant notifications and cir culars
issued up to 30 th April, 2021 are applicable for November 2021 examination.
Inclusions /Exclusions from the syllabus
(1) (2) (3)
Chapters/ Inclusions Exclusions
Topics of the (Provisions which are included (Provisions which are excluded
syllabus from the corresponding from the corresponding chapter/
chapter/topic of the syllabus) topic of the syllabus)
Part I: Company Law
Companies Act, The entire content included in the (i) Sections 24, 30, 33, 38 & 41
2013 (Sections 1 October 2020 edition of the Study [from chapter 3- Prospectus
to 148) Material (except the exclusions and Allotment of Securities]
mentioned in corresponding (ii) Sections 44, 45, 60, 65 & 72
Column 3), is applicable. [from chapter 4- Share capital
Also, the Legislative and Debentures]
amendments hosted on the (iii) Section 75 [from chapter 5-
website for November 2021 Acceptance of deposits by
examinations, shall also be companies]
relevant for the said (iv) Section 81 & 85 [from chapter
examinations 6- Registration of Charges]
Also, except the Relevant rules as
covered in the October 2020 edition
of the Study Material, all other Rules
of the Companies Act, 2013 are
excluded.
Part II: Other Laws
1. The Indian Content of this chapter of the Questions that involve the reference
Contract Act, Study Material covers the or questions entirely based on
1872 (Specific significant provisions of the said Sections 1 to 122 of the Indian
contracts from Act in a broad manner (not in Contract Act, 1872, may be avoided.
section 123 entirety).
onwards) The entire content included in the
October 2020 edition of the Study
Material and the Legislative
amendments hosted on the

website for November 2021

examinations, shall only be
relevant for the said
examinations.
2.The Negotiable The entire content included in the Following Specific headings in the
Instruments Act, October 2020 edition of the Study study material are excluded.
1881 Material (except the exclusions • Parties to Notes, Bills and
mentioned in corresponding Cheques
Column 3), is applicable.
• Presentment of Negotiable
Also, the Legislative Instruments
amendments hosted on the
• Payment and Interest
website for November 2021
examinations, shall also be • Noting and Protest
examinations.
3.The General Content of this chapter of the -
Clauses Act, Study Material covers the
1897 significant provisions of the said
Act in a broad manner (not in
entirety).
Therefore, the content included
in the October 2020 edition of the
Study Material and the
Legislative amendments hosted
on the website for November
2021 examinations, shall only be
examinations.
4. Interpretation Content of this chapter of the -
of Statutes Study Material since covers the
significant rules and principles of
interpretation in a broad manner.
Therefore, the content of the
chapter as included in the
October 2020 edition of the study
material shall form the base for
November 2021 examination.
Note: October 2020 edition of the Study Material and Booklet on MCQs and of Case
Scenarios December 2020 are relevant for November 2021 examinations. The amendments
made after the issuance of this Study Material for the period of 1 st of November 2020 to

30th April, 2021– are also relevant for November 2021 examinations. The Relevant Legislative
amendments are available on the BoS Knowledge Portal.
Paper 4: Taxation
Section A: Income-tax Law
The provisions of income-tax law, as amended by the Finance Act, 2020, including significant
circulars, notifications, press releases issued and legislative amendments made upto 30th April,
2021, are applicable for November, 2021 examination. The relevant assessment year for
income-tax is A.Y. 2021-22.
Note – The October, 2020 edition of the Study Material for Intermediate (New) Paper 4A,
based on the provisions of income-tax law, as amended by the Finance Act, 2020, is
relevant for November, 2021 examination. The said Study Material is available at
https://www.icai.org/post.html?post_id=16945. The Study Material has to be read along
with the Statutory Update for November, 2021 examination, webhosted at the BoS
Knowledge Portal. The initial pages of the Study Material available at
https://resource.cdn.icai.org/61995bos50392ipmod1.pdf contains the Study Guidelines
which specifies the list of topic-wise exclusions from the scope of syllabus.
Section B: Indirect Taxes
Applicability of the GST law
The provisions of the CGST Act, 2017 and the IGST Act, 2017 as amended by the Finance Act,
2020 and the Finance (No. 2) Act, 2019, including significant notifications and circulars issued
and other legislative amendments made, up to 30 th April, 2021, are applicable for November
2021 examination.
The Study Guidelines given below specify the exclusions from the syllabus for November 2021
examination.
List of topic-wise exclusions from the syllabus
(1) (2) (3)

S. No. in Topics of the Exclusions
the syllabus (Provisions which are excluded from the corresponding
syllabus topic of the syllabus)
2(ii)(c) Charge of tax CGST Act, 2017
including reverse (i) Rate of tax prescribed for supply of goods*
charge (ii) Rate of tax prescribed for supply of services*
(iii) Categories of supply of goods, tax on which is payable
on reverse charge basis under section 9(3)
IGST Act, 2017
(iv) Rate of tax prescribed for supply of goods

(v) Rate of tax prescribed for supply of services

(vi) Categories of supply of goods, tax on which is payable
on reverse charge basis under section 5(3)
(vii) Determination of nature of supply – Inter-State supply;
Intra-State supply; Supplies in territorial waters
(viii) Special provision for payment of tax by a supplier of
online information and database access or retrieval
[OIDAR] services
2(ii)(d) Exemption from CGST Act, 2017 & IGST Act, 2017
tax Exemptions for supply of goods
2(iii) Basic concepts of CGST Act, 2017 & CGST Rules, 2017
time and value of (i) Provisions relating to change in rate of tax in respect
supply of supply of goods or services
(ii) Chapter IV: Determination of Value of Supply [Rules
27-35] of CGST Rules, 2017
2(iv) Input tax credit CGST Act, 2017 read with CGST Rules, 2017
(i) Manner of determination of input tax credit in respect
of inputs or input services and reversal thereof
(ii) Manner of determination of input tax credit in respect
of capital goods and reversal thereof in certain cases
(iii) Input tax credit provisions in respect of inputs and
capital goods sent for job work
(iv) Input tax credit provisions relating to distribution of
credit by Input Service Distributor [ISD]
(v) Manner of recovery of credit distributed in excess
(vi) Manner of reversal of credit of additional duty of
customs in respect of Gold dore bar
2(viii) Returns CGST Act, 2017 read with CGST Rules, 2017
(i) Furnishing of GSTR-2, GSTR-1A, GSTR-3
(ii) Matching, reversal & reclaim of input tax credit
(iii) Matching, reversal & reclaim of reduction in output tax
liability
2(ix) Payment of tax CGST Act, 2017
(i) Tax deduction at source
(ii) Collection of tax at source
*Rates specified for computing the tax payable under composition levy are included in
the syllabus.

Notes:
(1) The syllabus includes select provisions of the CGST Act, 2017 and IGST Act, 2017 and
not the entire CGST Act, 2017 and the IGST Act, 2017. The provisions covered in any
topic(s) of the syllabus which are related to or correspond to the topics not covered in the
syllabus shall also be excluded.
(2) In the above table, in respect of the topics of the syllabus specified in column (2) the related
exclusion is given in column (3). Where an exclusion has been so specified in any topic
of the syllabus, the provisions corresponding to such exclusions, covered in other topic(s)
forming part of the syllabus, shall also be excluded. For example, since provisions relating
to ISD and tax collection at source are excluded from the topics “Input tax credit” and
“Payment of tax including reverse charge” respectively, the provisions relating to (i)
registration of ISD and person required to collect tax at source and (ii) filing of returns by
an ISD and submission of TCS statement by an electronic commerce operator requir ed to
collect tax at source are also excluded from the topics “Registration” and “Returns”
respectively.
(3) October 2020 edition of the Study Material is relevant for May 2021 and November 2021
examinations. The amendments in the GST law made after the issuance of this Study
Material - to the extent covered in the Statutory Update for November 2021 examination
alone shall be relevant for the said examination. The Statutory Update shall be hosted on
the BoS Knowledge Portal.
Though the Statutory Update for November 2021 examination shall provide the precise
scope and coverage of the amendments, for the sake of clarity, it may be noted that the
amendments made in the various provisions of the GST law for providing relief to the
taxpayers in view of spread of Novel Corona Virus (COVID-19) shall not be applicable for
November 2021 examinations.
(4) The entire content included in the October 2020 edition of the Study Material (except the
exclusions mentioned herein) and the Statutory Update for November 2021 ex amination
shall be relevant for the said examination.

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INTERMEDIATE COURSE

(UNDER REVISED SCHEME OF

REVISION TEST PAPERS

© The Institute of Chartered Accountants of India

Edition : September, 2021

Department/Committee : Board of Studies

Published by : The Publication Department on behalf of The Institute of Chartered

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

PAPER – 2: CORPORATE AND OTHER LAWS

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

PAPER – 3: COST AND MANAGEMENT ACCOUNTING

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Section B: Indirect Taxes (40 Marks)

© The Institute of Chartered Accountants of India

A. Applicable for November, 2021 examination

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

operation by way of repatriation of accumulated profits does not form part of a

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

B. Not applicable for November, 2021 examination

© The Institute of Chartered Accountants of India

PART – II: QUESTIONS AND ANSWERS

Preparation of Statement of Profit and Loss and Balance Sheet

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Profit/Loss prior to Incorporation

© The Institute of Chartered Accountants of India

Capital Redemption Reserve 1,80,000

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Stock at 90% of cost on 31.3.2021 2,43,000

© The Institute of Chartered Accountants of India

Number of employees in each Department 25 20 15

© The Institute of Chartered Accountants of India

Rent, Rates & taxes at Branch 12,000

© The Institute of Chartered Accountants of India

Cash withdrawn from bank 1,84,800

© The Institute of Chartered Accountants of India

1. Balance sheet of Om Ltd. as at 31st March, 2021

© The Institute of Chartered Accountants of India

(2) Non-current liabilities:

© The Institute of Chartered Accountants of India

V Profit before exceptional, extraordinary items and tax 28,650

© The Institute of Chartered Accountants of India

Add: Installation charge of Electrical Fittings wrongly

© The Institute of Chartered Accountants of India

12. Other Expenses

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Total cash paid for purchases to suppliers (a) 318