KS ACADEMY SAP 5 · KS ACADEMY SAP 5 6 (6 Marks) Answer: 3(B) An investor has decided to invest...

KS ACADEMY SAP 5

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SAP 5 (08.03.2020)

FINAL (NEW SYLLABUS) GROUP I

PAPER 2: STRATEGIC FINANCIAL MANAGEMENT

Time Allowed: 90 Minutes Maximum Marks: 50 Marks

Answer All the Questions

1(A) Cinderella Mutual Fund has the following assets in Scheme Rudolf at the close of

business on 31st March,2014.

Company No. of Shares Market Price Per Share

Nairobi Ltd. 25000 Rs.20

Dakar Ltd. 35000 Rs.300

Senegal Ltd. 29000 Rs.380

Cairo Ltd. 40000 Rs.500

The total number of units of Scheme Rudol fare 10 lacs. The Scheme Rudolf has

accrued expenses of Rs.2,50,000 and other liabilities of Rs.2,00,000. Calculate the NAV

per unit of the Scheme Rudolf.

(6 Marks) Answer:

1(B) A mutual fund that had a net asset value of Rs. 20 at the beginning of month - made income and capital gain distribution of Re. 0.0375 and Re. 0.03 per share respectively during the month, and then ended the month with a net asset value of Rs. 20.06. Calculate monthly return.

(5 Marks)

KS ACADEMY SAP 5

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Answer:

1(C) Distinguish between ‘Systematic risk’ and ‘Unsystematic risk’.

(4 Marks)

Answer:

KS ACADEMY SAP 5

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2(A) Following is the data regarding six securities:

A B C D E F

Return (%) 8 8 12 4 4 9 8

Risk (Standard deviation)

4 5 12 4 4 5 6

(i) Assuming three will have to be selected, state which ones will be picked.

(ii) Assuming perfect correlation, show whether it is preferable to invest 75% in A and 25% in C or to invest 100% in E (6Marks)

Answer:

KS ACADEMY SAP 5

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2(B) The following are the data on five mutual funds:

Fund Return Standard Deviation Beta

A 15 7 1.25

B 18 10 0.75

C 14 5 1.40

D 12 6 0.98

E 16 9 1.50

You are required to compute Reward to Volatility Ratio and rank these portfolio using:

Sharpe method and

Treynor's method

assuming the risk free rate is 6%.

(5 Marks)

Answer:

KS ACADEMY SAP 5

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2(C) Differentiate between PTS and PTC.

(4 Marks)

Answer:

3(A) Expected returns on two stocks for particular market returns are given in the following table:

Market Return Aggressive Defensive

7% 4% 9%

25% 40% 18%

You are required to calculate:

(a) The Betas of the two stocks.

(b) Expected return of each stock, if the market return is equally likely to be 7% or 25%.

(c) The Security Market Line (SML), if the risk free rate is 7.5% and market return

is equally likely to be 7% or 25%.

(d) The Alphas of the two stocks.

KS ACADEMY SAP 5

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(6 Marks)

Answer:

3(B) An investor has decided to invest Rs.1,00,000 in the shares of two companies, namely,

ABC and XYZ. The projections of returns from the shares of the two companies along

with their probabilities are as follows:

KS ACADEMY SAP 5

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Probability ABC(%) XYZ(%)

20 12 16

25 14 10

25 -7 28

30 28 -2

You are required to

(i) Comment on return and risk of investment in individual shares.

(ii) Compare the risk and return of these two shares with a Portfolio of these shares in

equal proportions.

(iii) Find out the proportion of each of the above shares to formulate a minimum risk

portfolio.

(8 Marks)

Answer:

KS ACADEMY SAP 5

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3(C) What are the drawbacks of investments in Mutual Funds?

(4 Marks)

Answer:

KS ACADEMY SAP 5

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(OR)

3(D) What are the main problems faced in securitization especially in Indian context?

(4 Marks)

Answer:

KS ACADEMY SAP 5

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KS ACADEMY SAP 5(08.03.20)

1

SAP 5 (08.03.2020)


PAPER 3 – ADVACED AUDITING AND PROFESSIONAL ETHICS

Time Allowed – 45 Marks Maximum Marks – 25 Marks

Division A – Multiple Choice Questions – 8 Marks

1. Article 150 of the constitution prescribes the role of C&AG with regards to –

(a) Perform such duties and exercise such powers in relation to the accounts of the

Union and States and of any other authority or body as may be prescribed.

(b) On the advice of the C&AG, President to to prescribe such form in which accounts

of Union and States shall be kept.

(c) Audit reports of the C&AG relating to accounts of Central/ State Government

should be submitted to the President/ Governor of the State who shall cause them

to be laid before Parliament/State Legislative Assemblies.

(d) Appointment of C&AG by the President.

(1 Mark)

2. A CA Mr.Lokesh removed from the register on cancellation of membership due to non-

payment of office from dated 17/10/2018. Menawhile he paid the fees on 18/12/2018.

The effective date in case of restoration of concelled membership, in given solution, shall

be –

(a) 17/10/2018.

(b) 18/12/2018

(c) Date of order of restoration

(d) 19/12/2018

(1 Mark)

3. Supplementary audit comes under section________ of Companies Act, 2013.

(a) 143(6)(a)

(b) 142(6)(a)

(c) 143(6)(b)

(d) 143

(1 Mark)


2

4. What is the type of supplementary or test audit conducted by the Comptroller and

Auditor General?

(a) Compliance Audit

(b) Financial Audit

(c) Efficiency-cum-performance appraisal

(d) None of the above

(1 Mark)

5. Disabilities for the purpose of membership are prescribed under-

(a) Section 8 of the Chartered Accountants Act, 1949

(b) Section 20 of the Chartered Accountants Act, 1949

(c) Section 20a of the Chartered Accountants Act, 1949


(2 Marks)

6. AJ Petroleum & Refining Ltd is a Maharatna Central Public Sector Undertaking (PSU) in

India having its registered office in Uttranchal.

It is engaged in the business of oil refining, pipeline transportation & marketing,

exploration & production of crude oil & gas, petrochemicals, gas marketing and

other downstream operations.

The PSU has global aspirations for which its management is working on various

plans/ programmes so that the same can be achieved in future. It is also planning to

pursue diverse business interests by setting up of various joint ventures with reputed

business partners from India and abroad to explore global opportunities.

Considering these objectives and other factors, the C&AG directed the performance audit

in respect of its certain activities/ functions which has been in progress. Before

starting the audit, the detailed scope and composition of audit team was shared with the

management of the company and tentative timelines were also given with which the

management was fine. However, during the course of the audit the audit team

changed its audit programme to achieve the desired objectives which was approved

by the competent authority, however, the management was not happy with those

changes.

The management wants the audit team to conclude the audit with the same scope as this

is a special type of audit wherein such flexibility cannot be accepted as that would defeat

the purpose of the law. However, the audit team has a different view. Please guide.


3

(a) Changes in audit programme in such type of audits are not acceptable as specified

by the Companies Audit and Auditors Rules 2014.

(b) Changes in audit programme in such type of audits are not acceptable as specified

by the Companies Audit and Auditors Rules 2014 and the Ministry of Law.

(c) Changes in audit programme in such type of audits can be accepted provided those

are discussed with the management and approved by the Competent Authority.

(d) The C&AG should get involved in this matter after taking permission from the

Central Government and would require to change the audit team if the scope

requires any changes as the same should have been properly assessed by the audit

team before commencing the audit.

(2 Marks)

Question 1 2 3 4 5 6

Answer B A A C A C

Division B: Descriptive Questions – 17 Marks

Question no 1 is compulsory. Answer any three from rest.

1. “A performance audit is an objective and systematic examination of evidence for

the purpose of providing an independent assessment of the performance of a

government organization, program, activity, or function in order to provide information

to improve public accountability and facilitate decision-making by parties with

responsibility to oversee or initiate corrective action.”Briefly discuss the issues

addressed by Performance Auditsconductedin accordance with the guidelines issued

by C&AG.

Answer


4

(5 Marks)

2. Mr.Dice, a practising Chartered Accountant was ordered to surrender his Certificate of

Practice and he was suspended for one year on certain professional misconduct against

him. During the period of suspension, Mr.Dice, designating himself as GST Consultant,

did the work of filing GST returns and made appearance as a consultant before various


5

related authorities. He contended that there is nothing wrong in it as he, like any other

GST consultant, could take such work and his engagement as such in no way violatesthe

order of suspension inflicted on him. Is he right in his contention?

Answer

(4 Marks)

3. XYZ & Co., a CA. firm was appointed by C&AG to conduct comprehensive audit of ABC

Public undertaking. C&AG advised to cover areas such as investment decisions, project

formulation, organisational effectiveness, capacity utilisation, management of equipment,

plant and machinery, production performance, use of materials, productivity of labour,

idle capacity, costs and prices, materials management, sales and credit control,

budgetary and internal control systems, etc. Discuss stating the issues examined in

comprehensive audit.

Answer


6

(4 Marks)

4. During the opening ceremony of a new branch office of CA.Young, his friend CA.Old

introduced to CA.Young, his friend and client Mr.Rich, the owner of an Export House

whose accounts had been audited by CA.Old for more than 15 Years. After few days,

Mr.Rich approached CA.Young and offered a certification work which hitherto had been

done by CA.Old. CA.Young undertook the work for a fee which was not less than fee

charged by CA.Old in earlier period. Comment whether CA.Young had done any

professional misconduct.

Answer


7

(4 Marks)

5. Comment on the following with reference to the Chartered Accountants Act, 1949 and

schedules thereto: Mr.'A' is a practicing Chartered Accountant working as proprietor of

M/s A & Co. He went abroad for 3 months. He delegated the authority to Mr. 'Y' a

Chartered Accountant, his employee, for taking care of routine matters of his office.

During his absence, Mr. 'Y' has conducted the under mentioned jobs in the name of M/s

A & Co.:

(i) He issued the audit queries to client which were raised during the course of

audit.

(ii) He attended the Income Tax proceedings for a client as authorized

representative before Income Tax Authorities.

Please comment on eligibility of Mr. 'Y' for conducting such jobs in name of M/s A & Co.

and liability of Mr. 'A' under the Chartered Accountants Act, 1949.

Answer


8

(4 Marks)

KS ACADEMY SAP 5 (08.03.20)

1

SAP 5 (08.03.2020)


PAPER 4 – CORPORATE AND ECONOMIC LAWS

Time Allowed – 45 Minutes Maximum Marks – 25 Marks

Division A: Multiple Choice Question – 7 Marks

1. PQR Limited and LMN Limited have proposed Scheme of Amalgamation between

them under Section 232 of the Companies Act 2013. They are seeking your advice on

which of the following approvals can be asked for in the petition to be filed before

NCLT for the proposedscheme.

The Petition for proposed Scheme of Amalgamation can seek approval for –

a) Change in Main Object Clause of Memorandum ofAssociation;

b) Reduction of Share Capital;

c) Dissolution of the Transferor Company without winding up;

d) All of theabove.

(1 Mark)

2. Dissenting shareholders of the transferor company wants to file an application to

Tribunal being not satisfied with the terms of the contract of transfer of their shares to

transferee company. Within how many days/ month(s) dissenting shareholders can

file such application?

(a) Within 60 days from date on which Notice was given by Transferee

company

(b) Within 90 days from date on which Notice was given by Transferee

company

(c) Within one month from date on which Notice was given by Transferee

company

(d) Within 45 days from date on which Notice was given by Transferee

company

(2 Mark)

3. ABHI Limited is a wholly owned subsidiary company of ETERNAL Limited.

ETERNAL Ltd., makes an application for merger of Holding and Subsidiary

Companies under the section 232 of the Companies Act, 2013. The Company Secretary

of the ETERNAL Ltd., states that company cannot apply for merger under section 232

of the said Act. In fact said that the company shall have to apply for merger as per


2

section 233 i.e. Fast Track Merger. State the correct statement in terms of the validity of

the difference in the opinion of the Company secretary-

(a) Opinion of the Company Secretary of the ETERNAL Ltd. is valid holding

that merger shall be as per section 233.

(b) Opinion of the Company Secretary of the ETERNAL Ltd. is invalid as

merger shall be possible only as per section 232.

(c) Opinion of the Company Secretary of the ETERNAL Ltd. is invalid as the

provisions given for fast track merger in the section 233 are of the optional

nature.

(d) Opinion of the Company Secretary of the ETERNAL Ltd. is invalid as the

provisions given for fast track merger in the section 233 can be made

between only small companies.

(2 Marks)

4. Penalty for non-compliances of section 10of SCRA Act, 1956 shall attract penalty of

_______ under Section 23G

(a) 10 Crores

(b) 25 Crores

(c) 1 Crore

(d) 50 Crores

(2 Marks)

Question 1 2 3 4

Answer D C C B Division B: Descriptive Questions – 18 Marks

1.(A) Mr. G applied to be appointed as a member in the place of his brother Mr. Kumar,

who was financial analyst (who met with an accident) in Bombay stock

exchange. Governing body of the Stock exchange finds him to be eligible as

member, considering him a closerelative of Mr. Kumar. Rather experience and

knowledge of Mr. G was not in alliance with the required skill for the

conduct of business in securities. Determine validity as to the appointment of the

Mr. G in the Stock exchange reference to the provisions of the SCRA, 1956.

Answer


3

(3 Marks)

1.(B) SEBI has asked Jaipur Stock Exchange to furnish their books of accounts and

audited financial statements for the period 1stApril 2016 to 31stMarch 2018

within 30 days of the receipt of the communication by the stock exchange. The

communication was received by the company on 30th April 2018 and no documents

were furnished to SEBI in reply to the notice till 15th May 2018. Can the stock

exchange be penalised for this inaction?

Answer

(3 Marks)

2. ABC Limited was amalgamated and merged in XYZ Limited. Some workers of ABC

Limited refuse to join as workers of XYZ Limited and claim compensation for

premature termination of service. XYZ Limited resists the claim on the ground that

their services are transferred to XYZ Limited by the order of amalgamation and

merger and, therefore, the workers must join service of XYZ Limited and cannot

claim any compensation. According to the provisions of the Companies Act, 2013,

examine whether the workers' contention is correct.


4

Answer

(4 Marks)

3. Long Lasting Ltd. applied to the Tribunal for the approval of proposed merger

scheme. State the process to be complied with for the approval of the proposed

merger scheme drawn by the directors of the Long Lasting Ltd. under the

Companies Act, 2013.

Answer


5

(4 Marks)

4. JSK, a shareholder of CRI (Private) Ltd. filed an application before erstwhile

Company Law Board, alleging various acts of oppression and mis-management in

the affairs of the Company and sought certain relief measures. The petition was

transferred to NCLT on its constitution. The NCLT passed an order on 5th October,

2017 without the consent of the parties. Aggrieved by the order, the shareholder

decided to prefer an appeal. Never the less the shareholder was suffering from low

blood pressure. He was medically advised not to move and he did not move.

Therefore, he preferred the appeal with NCLAT on 5thDecember, 2017. Examine

whether the appeal is admissible with reference to time limitation?

Answer


6

(4 Marks)

SAP 5 (08.03.2020)

FINAL (NEW SYLLABUS) GROUP II

PAPER 5 – STRATEGIC COST MANAGEMENT AND PERFORMANCE EVALUATION


1. KONY Ltd., based in Kuala Lumpur, is the Malaysian subsidiary of Japan's

NY corporation, headquartered in Tokyo. KONY's principal Malaysian businesses

include marketing, sales, and after-sales service of electronic products &software

exports products. KONY set up a new factory in Penang to manufacture and sell

integrated circuit ‘Q50X-N’. The first quarter’s budgeted production and sales

were 2,000 units. The budgeted sales price and standard costs for ‘Q50X-N’ were

as follows:

(Rs.)

Standard Sales Price per unit 50

Standard Costs per unit

Circuit X (10 units @ RM 2.5) 25

Circuit Designers (6 hrs. @ RM 2) 12 (37)

Standard Contribution per unit 13

Actual results for the first quarter were as follows:

(Rs. ‘000)

Sales (2,000 units) 158

Production Costs (2,000 units)

Circuit X (21,600 units) 97.20

Circuit Designers (11,600 hours) 34.80 (132)

Actual Contribution (2,000 units) 26

The management accountant made the following observations on the actual results–

“In total, the performance agreed with budget; however, in every aspect other than

volume, there were huge differences. Sales were made at what was supposed to be

the highest feasible price, but we now feel that we could have sold for RM 82.50

with no adverse effect on volume. The Circuit X cost that was anticipated at the

time the budget was prepared was RM 2.5 per unit. However, the general market

price relating to efficient purchases of the Circuit X during the quarter was RM 4.25

per unit. Circuit designers have the responsibility of designing electronic circuits

that make up electrical systems. Circuit Designer’s costs rose dramatically with

increased demand for the specialist skills required to produce the ‘Q50X-N’, and

the general market rate was RM Rs.3.125 per hour - although KONY always paid

below the normal market rate whenever possible. In my opinion, it is not necessary

to measure the first quarter’s performance through variance analysis. Further, our

operations are fully efficient as the final contribution is equal to the original

budget.”

Required

COMMENT on management accountant’s view.

Answer

As the management accountant states, and the analysis (W.N.1) presents, the overall

variance for the KONI is nil. The cumulative adverse variances exactly offset the

favourable variances i.e. sales price variance and circuit designer’s efficiency variance.

However, this traditional analysis does not clearly show the efficiency with which the

KONI operated during the quarter, as it is difficult to say whether some of the variances

arose from the use of incorrect standards, or whether they were due to efficient or

ineffi- cient application of those standards.

In order to determine this, a revised ex post plan should be required, setting out the

standards that, with hindsight, should have been in operation during the quarter. These

revised ex post standards are presented in W.N.2.

As seen from W.N.3, on the cost side, the circuit designer’s rate variance has changed

from adverse to favourable, and the price variance for circuit X, while remaining

adverse, is significantly reduced in comparison to that calculated under the traditional

analysis (W.N.1); on the sales side, sales price variance, which was particularly large

and favourable in the traditional analysis (W.N.1), is changed into an adverse variance

in the revised approach, reflecting the fact that the KONI failed to sell at prices that

were actually available in the market.

Further, variances arose from changes in factors external to the business (W.N .4),

which might not have been known or acknowledged by standard-setters at the time of

planning are beyond the control of the operational managers. The distinction between

variances is necessary to gain a realistic measure of operational efficiency

W.N.1

KONY India Ltd.

Quarter-1

Operating Statement

Particulars Favourabl

e RM

Adverse

RM RM

Budgeted Contribution 26,000

Sales Price Variance

[(RM 79 - RM 50) × 2,000 units]

58,000 --- NIL

Circuit X Price Variance

[(RM 2.50 – RM 4.50) × 21,600 units]

43,200

Circuit X Usage Variance

[(20,000 units - 21,600 units) × RM 2.50]

4,000

Circuit Designer’s Rate Variance [(RM

2 - RM 3) × 11,600 hrs.]

11,600

Circuit Designer’s Efficiency Variance

[(12,000 hrs. - 11,600 hrs.) × RM 2.00] 800

Actual Contribution 26,000

W.N.2

Statement Showing Original Standards, Revised Standards, and Actual Results for

Quarter 1

Original

Standards (ex-

ante)

Revised

Standards (ex-

post)

Actual

Sales 2,000 units

× RM 50.00

RM

1,00,000

2,000 units

× RM 82.50

RM

1,65,000

2,000 units

× RM 79.00

RM

1,58,000

Circuit X 20,000 units

× RM 2.50

RM

50,000

20,000 units

× RM 4.25

RM

85,000

21,600 units

× RM 4.50

RM

97,200

Circuit

Designer

12,000 hrs.

× RM 2.00

RM

24,000

12,000 hrs.

× RM 3.125

RM

37,500

11,600 hrs.

× RM 3.00

RM

34,800

(15 Marks)

2. GL Ltd. is a multiproduct manufacturing concern functioning with four divisions. The

Electrical Division of the company is producing many electrical products including

electrical switches. This division functioning at its maximum capacity sells its switches

in the open market atRs.25 each. The variable cost per switch to the division is Rs.16.

The Household Division, another division of GL Ltd., functioning at 70% capacity asked the Electrical Division to supply 5,000 switches per month at the rate of Rs.18 each to fit in night lamps produced by it. The total cost per night lamp is being estimated as detailed below;

Particulars Rs.

Components purchased from outside suppliers 50.00

Switch if purchased internally 18.00

Other variable costs 40.00

Fixed overheads 21.00

Total cost per night lamp 129.00

The Household Division is marketing night lamps at a price of Rs.130 each, with a very small margin, as it is doing business in a very competitive environment. Any increase in price made by the division will push out the division from the market. Therefore, the

division cannot pay anything more to switches if they the Electrical Division. Further, the manager of the division informed that it is very much essential to keep on the market share for night lamps by the Household Division to retain the experienced workers of the division. The company is using return on investments (ROI) as a scale to measure the divisional performances and also marginal costing approach for decision making.

Would you RECOMMEND the supply of switches to Household Division by Electrical Division at a price of Rs.18 each? Substantiate your recommendation with suitable reasons.

ANALYZE whether it would be beneficial to the company as a whole the

supply of switches to Household Division at a unit price of Rs.18 by Electrical Division.

Do you feel that- the Divisional Managers should accept the inter-divisional

transfers in principle? If yes, what should be the range of transfer price?

SUGGEST the steps to be taken by the chief executive of the company to change

the attitude of divisional heads if they are against the inter-divisional transfers.

Answer

Electrical Division is operating at full capacity and selling its switches in the open market at `25 each. Therefore, it can transfer its production internally by giving up equal number of units saleable in the open market. In this situation, transfer price should be based on variable cost plus opportunity cost {`16 + (`25 - `16)} = `25/-.

As the price quoted by Household Division `18 is less than the transfer price based on

opportunity cost, the Electrical Division should not accept internal transfer. Fur ther, the company is measuring divisional performances based on ROI. Therefore, transferring for a price which is less than the minimum price would affect the return on investments and divisional performance severely.

(ii) In the total cost per night lamp, the Fixed Overheads being a fixed cost is not relevant for decision making. Similarly, the variable cost of switch (`16 p.u.) included in the cost of night lamp is also irrelevant as it is common for both internal and external transfers. The only relevant cost is the loss of revenue when units are transferred internally.

Accordingly, the benefit from internal transfer would be {`130 - (`50 + `40) - `25) =`15/- on each unit sale on night lamp. Therefore, it is beneficial to the company as a whole to the extent of `15 per unit of night lamp sold.

Hence, internal transfer is profitable to the company as a whole. Further, Household

Division is operating at 70% capacity and has experienced workers which may be

utilized for other divisions requirements if any and based on contribution earned fixed

cost could be minimized due to large scale of production.

(iii) Internal transfer pricing develops a competitive setting for managers of each division, it is possible that they may operate in the best interest of their individual performance. This can lead to sub-optimal utilization of resources. In such cases, transfer pricing policy may be established to promote goal congruence. The market price of `25 per switch leaves Electrical Division in an identical position to sale outside. Thus, `25 is top of the price range. Division Household will not pay to Electrical Division anything above (`130 - `50 - `40) = `40/-. The net benefit from each unit of night lamp sold internally is Rs.15. Thus, any transfer price within the range of `25 to `40 per unit will benefit both

divisions. Divisional Managers should accept the inter divisional transfers in principle

when the transfer price is within the above range.

(iv) Transfer at marginal cost are unsuitable for performance evaluation since they

do not provide an incentive for the supplying division to transfer goods and services

internally. This is because they do not contain a profit margin for the supplying division.

Chief Executive’s intervention may be necessary to instruct the supplying division to meet

the receiving division's demand at the marginal cost of the transfers. Thus, divisional

autonomy will be undermined. Transferring at cost plus a mark-up creates the opposite

conflict. Here the transfer price meets the performance evaluation requirement but will

not induce managers to make optimal decisions.

To resolve the above conflicts the following transfer pricing methods have been

suggested:

Dual Rate Transfer Pricing System

The supplying division records transfer price by including a normal profit margin thereby

showing reasonable revenue. The purchasing division records transfer price at marginal cost

thereby recording purchases at minimum cost. This allows for better evaluation of each

division’s performance. It also improves co-operation between divisions, promoting goal

congruence and reduction of sub-optimization of resources. Two Part Transfer Pricing System

This pricing system is again aimed at resolving problems related to distortions caused by

the full cost based transfer price. Here, transfer price = marginal cost of production + a

lump-sum charge (two part to pricing).

While marginal cost ensures recovery of additional cost of production rela ted to the

goods transferred, lump-sum charge enables the recovery of some portion of the fixed cost

of the supplying division. Therefore, while the supplying division can show better

profitability, the purchasing division can purchase the goods at lower r ate compared to

the market price.

(15 Marks)

3. Star Bus Tours Co. Ltd. (SBTCL) is an open top double-decker bus sightseeing

company, particularly identified with its special red and cream-colored buses. It

commenced operating in small town of Meghalaya in June 2014 with four buses and

as of 2018 operated over 44 buses in north east region of India. SBTCL operates five

routes with stops at tourist destinations. The company runs hop-on, hop-off bus

tours of various hills, with one 24-hour ticket valid for unlimited journeys on the

route.

Budget Process/ Incentive Plan

As a part of management performance control and incentive scheme it has been

following participative budgeting approach. In SBTCL, budgeting is a joint process

in which functional divisions develop their plans in conformity with corporate goals

for the next financial year. Based on these plans, divisions prepare functional

budgets and send to the appropriate management for review and approval. The

budgets after the incorporation of the feedback and suggestions received from the

said management, are finalised for the implementation. Then, finalised budgets are

used as yardstick for performance measurement. Comparing the actual performance

with the yardstick, bonus and other performance related incentives are considered.

The higher management believe that this performance control and incentive scheme

is very helpful to measure the performance and fixing responsibilities for the

responsibility centres.

Budgeted Income Statement (Rs.’000)

Revenue 1,13,800

Less:

Variable Costs-

Direct Material (Fuel, Lubricants and Sundries) 13,600

Direct Labour 40,500

Variable Overheads 7,700

Fixed Costs-

Operating Overheads (Buses, Garage, Salaries) 18,100

Marketing and Administration 10,700

Profit/ (Loss) before taxes 23,200

Tabel-1

Current Year’s Income Statement (Rs.’000)

Revenue 93,500

Less:

Variable Costs:

Direct Material (Fuel, Lubricants, and Sundries)

19,600



Fixed Costs:



Profit/ (Loss) before taxes (250)

Table-2

Other Information

Surprisingly above given current year’s actual results were not up to the mark.

Actual results were clearly showing adverse performance in comparison with

budgeted figures.

Managers of SBTCL were upset because they did not receive the bonus. Ms. Maggie,

Tour Manager of Route No. 3, said –

“We lost 2 month’s revenue and fuel prices are almost doubled. We did our best but

these circumstances were beyond our control and we should not penalize at all.”

In support of her statement, Ms. Meggie provided following additional information –

a. Rain is common in Northern Region. But, the past year set a record in

numbers. In July, the expected average was 1,577 mm and received was

1,810 mm, In August the expected average rain was 990 mm and actual

received was 1,535 mm. Heavy rain in these two months disrupted normal

life of the region.

b. The fuel prices have risen almost continuously since last year due to surge in global crude prices.

c. Additional operational expenses Rs.22,00,000 also incurred to remove the

milky appearance and give the stainless a nice new look effected by heavy

rain.

She claimed that –

“Revised budget with consideration of the above factors would give different results

and lead to different conclusions”

Required

ANALYSE the tour manager’s view.

(20 Marks)

Answer:

It appears that SBTCL has been badly hit by the weather – high rain in July and August

have led to a slump in business. Revenue have seen a fall of 18% over the budgeted

figure. Direct Material (most of the fuel) is 21% of the Sales (compared to 12% of

budgeted level) because of hike in fuel price. Variable Overheads are almost same.

However, interestingly, there is a saving of Rs.1,50,000 in Operating Overheads as

compared to the budgeted figure after catering additional Operational Expenses of

Rs.22,00,000 (for removal of milky appearance etc.). Furthermore, there is reduction in

Marketing & Administration Cost. The ratio of Salary to Sales rose to 40% in 2018 from

36% (as budgeted). This appears to be atypical. Instead, there should be a cut in this

ratio due to slump in business.

Award of bonus in case of losses is not justified and managers should be held accountable

for their operations. However, they should not be held accountable for the events beyond

their control. A manager cannot control movements in fuel price, yet he/ she is

supposed to have the most information and he/ she is expected to correctly forecast

movements in the prices of fuel. Managers shouldn't be penalized for the uncontrollable

events.

Accordingly, in SBTCL, there should be revision in the budget to account uncontrollable

events. Refer Table-X.

Revised Budgeted Income Statement (Rs.’000)

Revenue* 94,833

Less:

Variable Costs-

Direct Material** (Fuel, Lubricants, and Sundries)

19,879



Fixed Costs-



Profit/ (Loss) before taxes 3,787

Table-X

*10 months revenue; ** at actual price levels

The Revised Profit Margin has come down to 4% as against the Target Profit Margin of

20%. This clearly indicates that the performance was benchmarked against the higher

target. If original budget figure is used to measure the performance, it will punish

employees for the reason which are beyond their control.

SBTCL is not too far away from Revised Profit Margin. Therefore, at least some bonus

may be considered to be awarded to the employees which may create more employee

loyalty and may be beneficial for long term.

Further, continuous monitoring of Budget Performance (achievement/ failure) in SBTCL

is essential to overcome this situation. This helps to identify where revisions are required

in the budget to account changing conditions, errors, modification to company’s plan

etc. Monitoring of Budget Performance should be the responsibility of the managers in

SBTCL. The essence of the effective monitoring of Budget Performance is that the

managers should provide accurate, relevant, actionable information on time to the

appropriate management level so that budget can give a realistic target to measure the

performance.

It is also important to note that at the time of revising the budget, the primary budget as

well as past information should not be ignored as they are the basis for preparing all

budgets.

KS ACADEMY SAP 5

SAP 5 (08.03.2020)

FINAL (NEW GROUP) GROUP II

PAPER 7: DIRECT TAX LAWS

Time Allowed: 45 Minutes Maximum Marks: 25 Marks

Division : Answer all the Questions

1. Helpageis a charitable trust set up on 1.4.2010 with the object of providing relief

of the poor. Later on, in April, 2012, it changed its object to medical relief. It applied for

registration on the basis of its new object, i.e., medical relief, on 1.9.2012 and was granted

registration on1.2.2013.

On 1.4.2019, Helpage got merged with M/s. Medicare (P) Ltd, a pharmaceutical company

not entitled for registration under section 12AA. All the assets and liabilities of

theerstwhile trust became the assets and liabilities of M/s. Medicare (P) Ltd. The trust

appointed a registered valuer for the valuation of its assets and liabilities. From the

following particulars (including the valuation report), calculate the tax liability in the

hands ofthe trust arising as a result of suchmerger:

(i) Land

Location Date of purchase

Stamp duty value on 1.4.2019

Value which the land would fetch, if sold in

the open market on1.4.2019

Book Value on 1.4.2019

Rs. Rs. Rs.

Noida 1.9.2010 55 lakhs 58 lakhs 50 lakhs

Gurgaon 1.9.2013 100 lakhs 120 lakhs 110 lakhs

Shares

# on the basis of report of Merchant Banker

(ii) Liabilities

Book value of liabilities on 1.4.2019 = Rs. 120 lakhs. This includes –

Type of shares Date of purchase

Face value

of each share

Purchase price of

each share

Price at which each share is quoted on BSE as on 1.4.2019

Open market value as

on 1.4.2019 #

Highest price

Lowest price

Rs. Rs. Rs. Rs. Rs.

5000 Quoted equity shares of ALtd.

1.5.2014 100 110 320 300

2000 Preference shares of B Ltd.

1.9.2015 100 100 - - 180

KS ACADEMY SAP 5

(a) Corpus fund Rs. 12Lakhs.

(b) Provision for taxation Rs. 8 lakhs;and

(c) Reserves and Surplus Rs. 18lakhs

(10 Marks)

Answer:

KS ACADEMY SAP 5

2 A charitable institution registered under section 12AA of the Income-tax Act, 1961 filled

in Form No.10 for seeking permission to accumulate unapplied income under section 11(2)

of the Act for the objects of the institution and submitted it to the Assessing Officer along

with the resolution for accumulation. The Assessing Officer found that the objects for

which accumulation was sought were not particularised in as much as they covered the

entire range of objects of the institution. Can the Assessing Officer deny the benefit

ofaccumulation in such acase?

(6 Marks)

Answer:

KS ACADEMY SAP 5

KS ACADEMY SAP 5

KS ACADEMY SAP 5

KS ACADEMY SAP 5

3 The books of account maintained by a National Political Party registered with Election

Commission for the year ended on 31.3.2020 discloses the followingreceipts:

(e) Cash contribution @ Rs. 2,100 each from 1,000 members (recorded in books of account)

21,00,000

(f) Net profit of cafeteria run in the premises at Delhi 3,00,000

Compute the total income of the political party for the assessment year 2020-21, with

reasons for inclusion or otherwise.

(5 Marks)

Particulars Rs.

(a) Rent of property let out to a departmental store at Chennai 6,00,000

(b) Interest on deposits other than banks 5,00,000

(c) Contribution from 100 persons (who have secreted their names) of

Rs. 21,000 each

21,00,000

(d) Contribution from 10 persons by way of electoral bonds of Rs. 25,000 each

2,50,000

KS ACADEMY SAP 5

Answer:

KS ACADEMY SAP 5

4. Work out, from the following particulars, the amount of capital gain which shall be

deemed to have been applied for charitable or religious purpose arising out of sale of a capital asset utilized for the purposes of trust to the extent of 60%:

Particulars Rs.

Cost of transferred asset 2,40,000

Sale consideration 3,60,000

Cost of new asset purchased 3,00,000

(5 Marks)

Answer:

(OR)

5. In a case where the charitable trust is deemed to be registered under section 12A due

tonon-disposal of application within the period of 6 months, as stipulated under section

12AA(2), from when would such deemedregistration take effect?

(5 Marks)

Answer:

KS ACADEMY SAP 5


1

SAP 5 (08.03.2020)

FINAL (NEW SYLLABUS) GROUP II

PAPER 8 – INDIRECT TAX LAWS


Division A: Multiple Choice Questions – 8 Marks

1. The time-limit for issuance of order of Best Judgment assessment is:

(a) 5 years from the date specified for furnishing of the annual return for the financial year to which the tax not paid relates.

(b) 4 years from the date specified for furnishing of the annual return for the financial year to which the tax not paid relates.

(c) 3 years from the date specified for furnishing of the annual return for the financial year to which the tax not paid relates.


(1 Mark)

2. Which of the following statements is correct while issuing a tax invoice?

(i) Place of supply in case of inter-State supply is not required to be mentioned

(ii) The power of attorney holder can sign the tax invoice in case the taxpayer or his authorised representative has been travelling abroad

(iii) Quantity is not required to be mentioned in case of goods when goods are sold on “as is where is basis”

(iv) Description of goods is not required to be given in case of mixed supply of goods

(a) (ii), (iii)

(b) (i), (ii), (iii)

(c) None of the above

(d) All of the above

(2 Marks)

3. ASC, a registered person supplied goods amounting to Rs. 1,18,000/- (inclusive of GST, taxable @ 18%) to BSC, a registered person on 30-9-2018. BSC further sold such goods to CSC, a consumer who came to his shop on 30-10-2018 in cash for Rs. 2,36,000/- (inclusive of GST, taxable @ 18%). ASC, issued a credit note of Rs.11,800/- (10000+1800/-GST) for rate difference on 2-11-2018 to BSC. BSC, then entered a credit note in its books for the same amount in the name of CSC, without intimating CSC on 2- 11-2018 and reduced its output tax liability accordingly.

As per the provisions of GST law, which of the above mentioned suppliers are allowed to reduce their output tax liability?


2

(a) ASC

(b) BSC

(c) Both ASC and BSC

(d) None of the above, since incidence of tax has been passed on to other person.

(2 Marks)

4. If a taxable person has done the following act, inspection can be ordered:

(a) Suppression of any transaction of supply of goods or services

(b) Suppression of stock of goods in hand

(c) Contravention of any provision of the GST law to evade tax

(d) All of the above

(1 Mark)

5. Kaushal Industries (P) Ltd. is an unregistered person having Head Office in Delhi. It has started supplying goods through e-commerce operator all over India. The turnover achieved by its two businesses during financial year 2018-19 is as follows:

Turnover from first business located in Delhi: Rs. 10,50,000. Turnover from second business located in Assam: Rs. 8,00,000.

As a GST consultant of Kaushal Industries (P) Ltd., you are required to guide Mr. Kaushal, Director of Kaushal Industries (P) Ltd. as to which business vertical is liable to be registered under GST?

(a) Delhi

(b) Assam

(c) Both

(d) Registration not required

(1 Mark)

6. Which among the following cannot be a reason for cancellation of registration?

(a) There is a change in the constitution of business from partnership firm to proprietorship.

(b) The business has been discontinued.

(c) A composition taxpayer has not furnished returns for three consecutive tax periods.

(d) A registered person, other than composition taxpayer, has not furnished returns for three consecutive tax periods.

(1 Mark)


3

Question 1 2 3 4 5 6

Answer A C A D C D

Division B: Descriptive Questions – 17 Marks 1. Rishab Enterprises - a sole proprietorship firm started an air-conditioned restaurant in

Virar, Maharashtra in the month of February wherein the customers are served cooked food as well as cool drinks / non alcoholic beverages. In March, the firm opened a liquor shop in Kohima, Nagaland for trading of alcoholic liquor for human consumption.

Determine whether Rishab enterprises is liable to be registered under GST law with the help of the following information:

Particulars February (Rs.)* March(Rs.)*

Serving of cooked food and cold drinks / non alcoholic beverages in restaurant in Maharashtra

15,50,000 6,50,000

Sale of alcoholic liquor for human consumption in Nagaland

Nil 5,00,000

Interest received from Banks on FD 10,00,000 1,00,000

Export of packed food items from restaurant in Maharashtra

1,50,000 2,00,000

* The above values are excluding GST.

You are required to provide reasons for treatment of various items given above

Answer


4

(5 Marks)

2. In what cases, assessment order passed by proper officer may be withdrawn?

Answer

(4 Marks)

3. The aggregate turnover of Laakhan services Ltd. Exceeded Rs.20,00,000 on 25th Sep. He applied for registration on 15th Oct and was granted the registration Certificate on 20th Oct. You are required to advice Laakhan services Ltd. as to what is the effective date of registration in its case. It has also sought your advice regarding period for issuance of revised tax invoices.

Answer

(4 Marks)


5

4. AB Private Ltd., Pune provides consultancy services. The company supplies its services

exclusively through an e-commerce website owned and managed by Hitech India Pvt

Ltd., Pune. The turnover of AB Private Ltd. in the current FY is Rs. 18,00,000.

Advice AB Private Ltd. as to whether they are required to obtain GST registration. Will

your advice be any different if AB Private Ltd. sells ready-made garments exclusively

through the e-commerce website owned and managed by Hitech India Pvt Ltd.

Answer

(4 Marks)

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