Question 1

Is Dynamic Quick Response (QR) Code applicable to suppliers who issue invoice to unregistered persons? If no, list the suppliers to whom Dynamic QR Code is not applicable.

Accepted Answer

**Answer: NO**, Dynamic QR Code is **not applicable** to suppliers who issue invoices to unregistered persons (B2C transactions).

Dynamic QR Code requirement applies only to **B2B transactions** (invoices issued by registered persons to other registered persons). The QR Code serves the purpose of invoice authentication and streamlining the Input Tax Credit mechanism at the recipient end, which is relevant only when both parties are registered under GST.

**Suppliers to whom Dynamic QR Code is NOT applicable:**

1. **Suppliers issuing invoices to unregistered persons** (consumers/B2C transactions)

2. **Suppliers below the e-invoicing turnover threshold** — Registered persons whose aggregate turnover in preceding financial year is below ₹20 crores (or as specified by CBIC)

3. **Composition scheme suppliers** — Being exempt from issuing tax invoices and maintaining detailed records, they are not required to generate e-invoices with Dynamic QR Code

4. **Suppliers making exempt supplies** — Invoices relating to supplies exempt from GST (e.g., educational services, healthcare, agricultural sales by farmers) do not require Dynamic QR Code

5. **Supplies not attracting GST** (non-taxable supplies) — Supplies outside the scope of GST do not require e-invoicing or Dynamic QR Code

6. **Supply of pure commodities** — As notified by CBIC in certain specified categories and states, these supplies may be exempt from e-invoicing requirement

7. **Inter-State supplies to unregistered dea…

Question 2

XYZ Ltd. manufactures a single product. It recovers factory overheads at a rate of 20 per man-day. During the year 2020-21, the total factory overheads incurred and the man-days actually worked were ₹ 35.50 lakhs and 1.50 lakh days respectively. Out of the amount of ₹ 35.50 lakhs, ₹ 2.00 lakhs were in respect of wages for strike period and ₹ 1.00 lakh was in respect of expenses of previous year booked in this current year. During the period, 50,000 units were sold. At the end of the period, 12,000 completed units were held in stock but there was no opening stock of finished goods. Similarly, there was no stock of uncompleted units at the beginning of the period but at the end of the period there were 20,000 uncompleted units which may be treated as 65% complete in all respects.

Accepted Answer

**Statement of Under-Absorption of Factory Overheads and Its Treatment**

**Step 1 – Absorbed Overheads**

The predetermined overhead absorption rate is ₹20 per man-day. Man-days actually worked = 1,50,000 days.

**Overheads Absorbed** = 1,50,000 × ₹20 = **₹30,00,000**

**Step 2 – Actual Overheads (Segregation of Abnormal Items)**

Total factory overheads incurred = ₹35,50,000. However, two items are excluded from normal overhead for the purpose of supplementary rate calculation:

(i) **Strike period wages** (₹2,00,000) — This is an **abnormal cost** not related to normal production activity. It should be transferred directly to the **Costing Profit & Loss Account**.

(ii) **Previous year expenses booked in current year** (₹1,00,000) — This is a **prior period item** and should not be charged to current year production. It should also be transferred to the **Costing Profit & Loss Account**.

Normal actual overheads = ₹35,50,000 − ₹2,00,000 − ₹1,00,000 = **₹32,50,000**

**Step 3 – Normal Under-Absorption**

Normal actual overheads: ₹32,50,000
Absorbed overheads: ₹30,00,000
**Under-absorption (normal)** = ₹32,50,000 − ₹30,00,000 = **₹2,50,000**

**Step 4 – Treatment via Supplementary Overhead Rate**

The normal under-absorption of ₹2,50,000 is spread over all output of the period using a **supplementary overhead rate**. Output is computed in equivalent units:

| Output Component | Units |
|---|---|
| Units sold | 50,000 |
| Closing finished goods stock | 12,000 |
| Closing WIP …

Question 3

What is the threshold limit for mandatory issuing of E-invoice for all registered businesses?

Accepted Answer

The threshold limit for mandatory e-invoicing has evolved through progressive reductions. As of the current rules, **e-invoicing is mandatory for all registered persons making B2B (business-to-business) supplies without any turnover threshold** (effective from October 1, 2023). This means every registered person, regardless of their aggregate annual turnover, must issue e-invoices for B2B supplies. For **B2C (business-to-consumer) supplies**, the threshold remains at **₹1 crore aggregate annual turnover** (effective from January 1, 2023). Prior to October 2023, the applicable threshold for B2B supplies was ₹1 crore aggregate turnover. The removal of the turnover threshold for B2B supplies represents a significant expansion, making e-invoicing mandatory for all registered persons conducting inter-business transactions. Certain categories of supplies and suppliers may have exemptions as per GSTN specifications and administrative guidelines.

Question 4

A consignor hands over his goods for transportation on a Friday to the transporter. However, assigned transporter starts the movement of goods from consignor's warehouse to the depot located at distance of 600 Km. on Monday. When will the e-way bill be generated and for how many days it will be valid?

Accepted Answer

**Generation of E-way Bill:**

As per **Rule 138 of the CGST Rules, 2017**, an e-way bill must be generated **before the commencement of movement** of goods. The obligation to generate arises at the time movement begins, not when goods are handed over to the transporter.

In the given case, the consignor handed over goods to the transporter on **Friday**, but the transporter actually commences movement from the consignor's warehouse on **Monday**. Since the e-way bill is required to be generated before the movement starts, the e-way bill will be **generated on Monday** (i.e., on the date movement actually commences).

The mere handing over of goods on Friday does not trigger e-way bill generation; it is the **commencement of movement** that determines the relevant date.

**Validity of E-way Bill:**

As per **Rule 138(10) of the CGST Rules, 2017**, the validity period of an e-way bill for goods other than Over Dimensional Cargo (ODC) is as follows:

- For a distance of **up to 200 km** — **1 day**
- For **every additional 200 km or part thereof** — **1 additional day**

The distance between the consignor's warehouse and the depot is **600 km**.

- First 200 km → 1 day
- Next 200 km (201–400 km) → 1 additional day
- Next 200 km (401–600 km) → 1 additional day
- **Total validity = 3 days**

The validity is counted from the **date and time of generation** of the e-way bill (i.e., from Monday). Each "day" constitutes a period of 24 hours.

**Conclusion:** The e-way bill will be **…

Question 5

Mr. Shivam, a resident and ordinarily-resident aged 61 years, is engaged in the business of manufacture of motor parts. He is subject to tax audit under section 44AB of Income Tax Act, 1961. He has provided following information:

Profit & Loss account for the year ended 31st March, 2021:

| Debit | ₹ | Credit | ₹ |
|---|---|---|---|
| To Administrative expenses | 4,30,000 | By Gross Profit | 58,30,000 |
| To Salaries & wages | 20,000 | By Profit on sale of asset of scientific research | 2,00,000 |
| To Interest on loans | 7,50,000 | By Winning from lottery (Net of TDS @ 30%) | 31,500 |
| To Depreciation | 6,17,000 | | |
| To Professional fees | 2,70,000 | | |
| To Rent, rates & taxes | 2,80,000 | | |
| To Travelling & conveyance | 1,40,000 | | |
| To Net Profit | 15,74,500 | | |
| **Total…

Accepted Answer

**Computation of Income from Business of Mr. Shivam for A.Y. 2021-22**

Mr. Shivam is engaged in manufacture of motor parts and is subject to tax audit under **Section 44AB of the Income Tax Act, 1961**. His income shall be computed under the normal provisions as Section 44AB merely imposes an audit obligation and does not alter the method of income computation.

**Treatment of Stock Undervaluation (Note i):**
Both opening and closing stocks have been undervalued by 10% (i.e., the book values are 10% less than the correct values). The undervaluation amount is calculated on the shown/book value. Correction of opening stock (higher opening stock → higher cost of goods sold → lower profit → deduct) and correction of closing stock (higher closing stock → lower cost of goods sold → higher profit → add) are required.

**Treatment of Lottery Income:**
Winnings from lottery of ₹31,500 (net of TDS @ 30%) is credited in the P&L account. Lottery income is not a business income — it is chargeable under **Section 56(2) of the IT Act 1961** as **Income from Other Sources** and taxable at a flat rate of 30% under **Section 115BB**. Accordingly, it must be deducted from net profit. The gross amount is ₹31,500 ÷ 0.70 = ₹45,000.

**Treatment of Profit on Sale of Asset used for Scientific Research:**
Under **Section 41(3) of the IT Act 1961**, where a capital asset used for scientific research is sold and a deduction had been claimed under Section 35, the lower of (a) deduction allowed or (b) s…

Question 6

Answer the following: (4×5=20)

XYZ Ltd uses two types of raw materials 'Material A' and 'Material B' in the production process and has provided the following data for the year ended on 31st March, 2021:

| Particulars | Material A (₹) | Material B (₹) |
|---|---|---|
| Opening stock as on 01.04.2020 | 30,000 | 32,000 |
| Purchase during the year | 90,000 | 51,000 |
| Closing stock as on 31.03.2021 | 20,000 | 14,000 |

Accepted Answer

**Note:** The question states (4×5=20) but the four specific sub-questions (a), (b), (c), (d) appear to have been omitted from the problem statement. Based on the data provided and standard CA Intermediate Cost Accounting examination patterns, the four sub-questions most commonly asked with this dataset are: (a) Material Consumed, (b) Average Stock, (c) Stock Turnover Ratio, and (d) Average Holding Period. The solution below addresses all four.

**(a) Material Consumed**

The **material consumed** is computed using the basic inventory formula:
Material Consumed = Opening Stock + Purchases – Closing Stock

For **Material A**: ₹30,000 + ₹90,000 – ₹20,000 = **₹1,00,000**
For **Material B**: ₹32,000 + ₹51,000 – ₹14,000 = **₹69,000**

Total material consumed during the year = ₹1,69,000.

**(b) Average Stock**

**Average Stock** (also called Average Inventory) is the simple mean of opening and closing stock, representing the typical level of inventory held during the period.

For **Material A**: (₹30,000 + ₹20,000) ÷ 2 = **₹25,000**
For **Material B**: (₹32,000 + ₹14,000) ÷ 2 = **₹23,000**

**(c) Stock Turnover Ratio (Material Turnover Ratio)**

**Stock Turnover Ratio** measures how efficiently raw material inventory is being consumed. It is calculated as:
Stock Turnover Ratio = Material Consumed ÷ Average Stock

For **Material A**: ₹1,00,000 ÷ ₹25,000 = **4 times**
For **Material B**: ₹69,000 ÷ ₹23,000 = **3 times**

Material A has a higher turnover ratio, indicating faster consum…

Question 7

Compute the total income of Mr. Ravi for the assessment year 2021-22 assuming that Mr. Ravi has not opted provisions under section 115BAC.

Accepted Answer

**Answer: Total Income of Mr. Ravi for Assessment Year 2021-22 is ₹21,57,000**

Income from House Property Calculation:

**Step 1: Determine Gross Annual Value (GAV)**

GAV is the higher of Municipal Value, Standard Rent, and Market Rent:
- Municipal Value: ₹27,00,000
- Standard Rent: ₹29,80,000
- Market Rent: ₹30,00,000

GAV = ₹30,00,000

**Step 2: Calculate Rent Received/Receivable**

GAV is reduced by loss of rent due to vacancy:
- Loss of rent due to vacancy of one flat (3 months): ₹2,40,000 × (3/12) = ₹60,000
- Rent Received/Receivable = ₹30,00,000 − ₹60,000 = ₹29,40,000

Note: The amenities amount of ₹1,00,000 is included in the rental income and forms part of the GAV.

**Step 3: Calculate Deductions under Section 24**

**Municipal Taxes:**
- FY 2020-21: ₹4,00,000 − 10% rebate (₹40,000) = ₹3,60,000
- Arrears of FY 2019-20: ₹1,40,000, but this includes ₹25,000 interest on arrears. Interest on arrears is **not deductible** under Section 24. Deductible portion = ₹1,40,000 − ₹25,000 = ₹1,15,000
- **Total deductible municipal taxes = ₹4,75,000**

**Lift Maintenance Expenses:**
Total lift maintenance: ₹2,40,000 includes ₹30,000 paid in cash. Under Section 40A(4), no deduction is allowed for cash payments exceeding ₹10,000 in a single day. The amount exceeding ₹10,000 is disallowed: ₹30,000 − ₹10,000 = ₹20,000 is disallowed.
- **Deductible lift maintenance = ₹2,40,000 − ₹20,000 = ₹2,20,000**

**Salary to Staff:**
- This is a revenue expenditure for collection of rent and is de…

Question 8

Examine the tax implications of the following transactions for the assessment year 2021-22. (Give brief reason)

Accepted Answer

**Examination of Tax Implications for Assessment Year 2021-22:**

**(i) Mr. Rahul - Ambassador's Salary: TAXABLE**

The salary of ₹7,30,000 and allowances of ₹2,40,000 (total ₹9,70,000) received by Mr. Rahul are **taxable in India**. Although services were rendered outside India (Japan), Section 5(1) of the Income Tax Act, 1961 provides that a non-resident is chargeable to tax on income which **accrues or arises in India OR is received in India**. Since the income is received in India during PY 2020-21, it is taxable regardless of the geographical source of income. The receipt in India triggers tax liability for non-residents.

**(ii) Mr. Johl - Export Operations: TAXABLE**

The income of ₹2,50,000 is **taxable in India**. Although Mr. Johl is a non-resident, the operations are confined to purchasing goods **in India** for export, constituting **business carried on in India**. Under Section 9(1)(iii) of the Income Tax Act, 1961, business income accrues or arises in India if the business is carried on in India. The business activity of purchasing goods within Indian territory constitutes business in India, and therefore the entire income of ₹2,50,000 is taxable.

**(iii) Mr. Naveen - Royalty Income: PARTIALLY TAXABLE**

₹1,50,000 (50%) is **taxable**; ₹1,50,000 (50%) is **NOT taxable**.

Under Section 9(1)(vi) of the Income Tax Act, 1961, **royalty is deemed to accrue or arise in India if the patent or right is made available for use in India**. Mr. Rakesh has utilized the pat…

Question 9

G Ltd manufactures leather bags for office and school purposes. The following information is related to the production of leather bags for the month of September 2021: Leather sheets and cotton clothes are the main inputs and the estimated requirement per bag is two metres of leather sheets and one metre of cotton cloth. 2,000 metre of leather sheets and 1,000 metre of cotton cloths are purchased at ₹ 3,20,000 and ₹ 15,000 respectively. Stitching and finishing used 2,000-man hours at ₹ 80 per hour. Other direct costs of ₹ 10 per labour hour is incurred. G Ltd have 4 machines at a total cost of ₹ 22,00,000. Machines have a life of 10 years with a scrap value of 10% of the original cost. Depreciation is charged on a straight-line method. The monthly cost of administration and sales office st…

Accepted Answer

**Cost Sheet of G Ltd for the month of September 2021**

Before preparing the cost sheet, the following key figures are derived:

**Number of bags produced:** Leather consumed = 2,000 m ÷ 2 m/bag = **1,000 bags**. Cotton check: 1,000 m ÷ 1 m/bag = 1,000 bags ✓ (No opening/closing stock of inputs, so purchased = consumed.)

**Bags sold:** 1,000 produced − 100 closing stock = **900 bags**

**Machine Depreciation (monthly):** Total cost ₹22,00,000; Scrap value = 10% = ₹2,20,000; Depreciable value = ₹19,80,000; Annual SLM depreciation = ₹19,80,000 ÷ 10 = ₹1,98,000; Monthly = ₹1,98,000 ÷ 12 = **₹16,500**

**Rent Allocation:** Rate = ₹1,20,000 ÷ 2,400 sq. ft = ₹50/sq. ft
- Factory/Works area = 2,400 − 240 − 200 = 1,960 sq. ft → ₹98,000
- Admin office = 240 sq. ft → ₹12,000
- Sales office = 200 sq. ft → ₹10,000

**Scrap:** 35 kg × ₹150 = ₹5,250 (deducted from Works Cost as it arises during manufacturing)

---

**(i) Cost of Raw Material Consumed:**
Leather sheets: ₹3,20,000 + Cotton cloths: ₹15,000 = **₹3,35,000**

**(ii) Prime Cost:**
Raw Material ₹3,35,000 + Direct Labour (2,000 hrs × ₹80) ₹1,60,000 + Other Direct Costs (2,000 hrs × ₹10) ₹20,000 = **₹5,15,000**

**(iii) Works/Factory Cost:**
Prime Cost ₹5,15,000 + Machine Depreciation ₹16,500 + Factory Rent ₹98,000 − Scrap Sales ₹5,250 = **₹6,24,250**

**(iv) Cost of Production (1,000 bags):**
Works Cost ₹6,24,250 + Admin Staff ₹45,000 + Admin Rent ₹12,000 = **₹6,81,250**
Cost per bag = ₹6,81,250 ÷ 1,000 = **₹681.25 per bag**

**(…

Question 10

AZ company has prepared its budget for the production of 2,00,000 units. The variable cost per unit is ₹ 16 and fixed cost is ₹ 4 per unit. The company fixes its selling price to fetch a profit of 20% on total cost. You are required to calculate: (i) Present break-even sales (in Rs and in quantity), (ii) Present profit-volume ratio, (iii) Revised break-even sales in Rs and the revised profit-volume ratio, if it reduces its selling price by 10%, (iv) What would be revised sales on quantity and the amount, if a company desires a profit increase of 20% more than the budgeted profit and selling price is reduced by 10% as above in point (iii).

Accepted Answer

**Given Information:**
Budgeted production = 2,00,000 units; Variable cost per unit = ₹16; Fixed cost per unit = ₹4 (at budgeted level); Total Fixed Cost = ₹4 × 2,00,000 = **₹8,00,000**; Total cost per unit = ₹16 + ₹4 = ₹20; Selling Price = ₹20 + 20% of ₹20 = ₹20 + ₹4 = **₹24 per unit**

**(i) Present Break-Even Sales**

**Contribution per unit** = Selling Price − Variable Cost = ₹24 − ₹16 = **₹8 per unit**

**Break-Even Point (Quantity)** = Fixed Cost ÷ Contribution per unit = ₹8,00,000 ÷ ₹8 = **1,00,000 units**

**Break-Even Sales (₹)** = BEP units × Selling Price = 1,00,000 × ₹24 = **₹24,00,000**

**(ii) Present Profit-Volume (P/V) Ratio**

**P/V Ratio** = (Contribution ÷ Sales) × 100 = (₹8 ÷ ₹24) × 100 = **33.33%** (i.e., 1/3)

**(iii) Revised Break-Even Sales and Revised P/V Ratio (Selling Price Reduced by 10%)**

**Revised Selling Price** = ₹24 − 10% of ₹24 = ₹24 − ₹2.40 = **₹21.60 per unit**

Variable cost and Fixed Cost remain unchanged.

**Revised Contribution per unit** = ₹21.60 − ₹16 = **₹5.60 per unit**

**Revised P/V Ratio** = (₹5.60 ÷ ₹21.60) × 100 = **25.93%** (i.e., 7/27)

**Revised Break-Even Sales (₹)** = Fixed Cost ÷ Revised P/V Ratio = ₹8,00,000 ÷ (7/27) = ₹8,00,000 × 27/7 = **₹30,85,714 (approx.)**

**(iv) Revised Sales Quantity and Amount for 20% More Profit (at Revised Selling Price)**

**Budgeted Profit** = 2,00,000 units × ₹4 (profit per unit) = **₹8,00,000**

**Desired Profit** = ₹8,00,000 + 20% of ₹8,00,000 = ₹8,00,000 + ₹1,60,000 = **₹9,60,000**

*…

Question 11

Parus Travels provides mini buses to an IT company for carrying its employees from home to office and dropping back to their office hours. It runs a fleet of 8 mini buses for this purpose. The buses are parked in a garage adjoining the company's premises. Company is operating in two shifts (one in the morning and one shift in the afternoon). The distance travelled by each mini bus one way is 30 kms. The company works for 20 days in a month. The buses are operated for each mini bus is 30 persons. The seating capacity is normally 80% occupied during the year. Parus Travels charges two types of fare from the employees. Employees coming from a distance of beyond 15 kms. away from the office are charged double the fare which is charged from employees coming from a distance of up-to 15 kms. away…

Accepted Answer

**Part (i): Statement of Annual Operating Expenses for a Single Mini Bus**

The cost statement is prepared by allocating fleet-wide costs to each bus and computing annual figures for all expense heads.

**Working Notes for Diesel (Fuel):** The bus operates 2 shifts per day. Each shift involves a to-and-fro journey of 30 kms (one-way) = 60 kms per shift. For 2 shifts: 2 × 60 = **120 kms per day**. Annual kms = 120 × 20 days × 12 months = **28,800 kms per bus per year**. Litres consumed = 28,800 ÷ 8 = 3,600 litres. Cost = 3,600 × ₹80 = **₹2,88,000**.

**Depreciation (Straight Line Method):** = (₹15,00,000 − ₹3,00,000) ÷ 8 years = **₹1,50,000 per year**.

| Particulars | Basis | Annual Amount (₹) |
|---|---|---|
| Driver's salary | ₹20,000 × 12 | 2,40,000 |
| Lady attendant's salary | ₹10,000 × 12 | 1,20,000 |
| Cleaner's salary | (₹15,000 ÷ 2) × 12 | 90,000 |
| Diesel / Fuel | 3,600 litres × ₹80 | 2,88,000 |
| Insurance | 2% × ₹15,00,000 | 30,000 |
| License fees & taxes | ₹5,080 × 12 | 60,960 |
| Garage rent | (₹24,000 ÷ 8) × 12 | 36,000 |
| Repair & maintenance | ₹2,850 × 12 | 34,200 |
| Depreciation | (₹15,00,000 − ₹3,00,000) ÷ 8 | 1,50,000 |
| **Total Annual Cost per Bus** | | **10,49,160** |

**Part (ii): Average Cost per Employee per Month**

**Step 1 – Monthly cost per bus:** ₹10,49,160 ÷ 12 = **₹87,430 per month**.

**Step 2 – Effective passengers per trip:** Seating capacity = 30 persons. Occupancy = 80%. Actual passengers = 30 × 80% = **24 persons per trip**.

**Step …

Question 12

Compute the total income and tax liability of Mr. Shivansh for the assessment year 2021-22 assuming that he has not opted provisions of section 115BAC. Ignore Provisions relating to MAT.

Accepted Answer

**Computation of Total Income and Tax Liability of Mr. Shivansh — AY 2021-22 (PY 2020-21)**

**A. TREATMENT OF SALARY & WAGES ITEMS**

**(i) Employer's Contribution to NPS [Section 36(1)(iva) of the Income Tax Act, 1961]:**
Basic salary of Mr. Ganesh = ₹1,10,000. DA = 40% × 1,10,000 = ₹44,000. Since 50% of DA forms part of salary, salary for Section 36(1)(iva) = 1,10,000 + 22,000 = ₹1,32,000. Contribution made = 20% of basic = ₹22,000. Maximum allowable = 10% × 1,32,000 = ₹13,200. **Disallowed: ₹8,800** (added back to business income).

**(ii) Voluntary Retirement Scheme Payment [Section 35DDA]:**
Sum paid = ₹2,40,000 on 1st January 2021. Under Section 35DDA, deduction is spread equally over 5 years. Allowable this year = 1/5 × 2,40,000 = ₹48,000. **Disallowed: ₹1,92,000** (balance to be claimed in next 4 AYs).

**B. INTEREST ON LOAN FOR ELECTRIC CAR:**
Loan of ₹12,00,000 @ 15% p.a. from SBI from 01.05.2020 for electric car used for **personal purpose**. Interest for PY 2020-21 (11 months) = 15% × 12,00,000 × 11/12 = ₹1,65,000. Since car is for personal use, **no deduction under Section 37(1)**. However, under **Section 80EEB**, an individual can claim deduction for interest on loan from a financial institution for purchase of electric vehicle (loan sanctioned between 01.04.2019–31.03.2023). Maximum deduction = ₹1,50,000.

**C. DEPRECIATION:**
Depreciation already computed = ₹4,20,000. Additionally, motor car purchased on 25.08.2020 for ₹3,00,000 for supply of goods (business…

Question 13

Compute Gross Total Income of Mr. R and Mrs. R for the assessment year 2021-22.

Accepted Answer

**Computation of Gross Total Income for Assessment Year 2021-22**

**For Mr. R:**

Mr. R's GTI comprises the following income sources:

1. **Salary from AMG Limited:** ₹3,20,000 - As an employee, salary is taxable income under salary head.

2. **Capital Gains from RSB Ltd shares:** ₹5,20,000 - Mr. R received 5,000 shares as a gift from Mrs. R on 17.09.2013. Under Section 49(2)(vi), the cost of acquisition of shares received as a gift is the fair market value on the date of receipt. The Company issued 3,000 bonus shares in 2016; cost of bonus shares is nil under Section 49(2)(vi). On 04.03.2021, Mr. R sold all 8,000 shares and earned capital gains of ₹5,20,000, which forms part of GTI.

3. **Commission Income:** ₹4,00,000 - This is business/professional income.

**Exclusion:** The ₹30,000 earned by the HUF from the property transferred by Mr. R is **not included in Mr. R's GTI**. As per general HUF taxation principles, HUF is a separate legal entity distinct from its members. Income earned by HUF is taxed in its own hands, not in the hands of individual members. Section 64(2) applies to transfers to spouses, not to transfers to HUF.

**Total GTI of Mr. R = ₹3,20,000 + ₹5,20,000 + ₹4,00,000 = ₹12,40,000**

---

**For Mrs. R:**

Mrs. R's GTI comprises the following income sources:

1. **Salary from AMG Limited:** ₹2,30,000 - As an employee, this is taxable salary income.

2. **Interest on Loan to Mr. Girish:** ₹3,50,000 × 11% per annum = **₹38,500** - Mrs. R had given a loan to …

Question 14

You are required to prepare Contract Account and show the notional profit or loss as on 31st March, 2021 (Assume 360 days in a year).

Accepted Answer

**Contract Account for the Year Ended 31st March, 2021**

The Contract Account is prepared under **AS 7 (Construction Contracts)** using the percentage of completion method.

| **Dr. Side** | **₹** | **Cr. Side** | **₹** |
|---|---|---|---|
| WIP b/d – Work Uncertified | 10,000 | Outstanding Plant Hire b/d | 20,000 |
| Materials at Site b/d | 35,000 | Materials Returned to Stores | 35,000 |
| Materials Purchased | 2,00,000 | Materials Returned to Suppliers | 50,000 |
| Materials Issued from Stores | 8,00,000 | Sale Proceeds of Materials | 20,000 |
| Wages Paid | 1,50,000 | Materials at Site c/d | 25,000 |
| Outstanding Wages c/d | 22,000 | Work Uncertified c/d | 15,000 |
| Plant Supervisor Salary (1/3rd) | 80,000 | Work Certified (during the year) | 18,50,000 |
| Drawings and Maps | 50,000 | | |
| Sundry Expenses | 30,000 | | |
| Electricity Charges | 40,000 | | |
| Plant Hire Expenses Paid | 75,000 | | |
| Outstanding Plant Hire c/d | 15,000 | | |
| Sub-contract Cost | 40,000 | | |
| Depreciation on Additional Plant | 90,000 | | |
| **Notional Profit c/d** | **3,78,000** | | |
| **Total** | **20,15,000** | **Total** | **20,15,000** |

**Notional Profit as on 31st March, 2021 = ₹ 3,78,000**

**Key Notes on Adjustments:**

(1) **Plant Supervisor Salary**: Only 1/3rd = ₹ 80,000 is charged to the contract; the balance relates to other contracts/work.

(2) **Depreciation on Additional Plant**: Calculated on SLM basis for 270 days = ₹ 90,000. The plant cost (₹ 5,00,000) and residu…

Question 15

M/s ABC Ltd., a registered supplier in Surat, Gujarat and it has calculated output net GST liability after adjusting ITC in the books for the month of February 2021: CGST ₹ 3,00,000, SGST ₹ 2,50,000, IGST ₹ 3,00,000. During the above month, the following additional information provided by M/s ABC Ltd:

Accepted Answer

**Note: The question appears to be incomplete as provided — the 'additional information' table or list following the colon has not been included in the question text. The output GST liability figures given (CGST ₹3,00,000 | SGST ₹2,50,000 | IGST ₹3,00,000) represent the liability *after* ITC adjustment already done in the books. Without the additional ITC details (such as wrong ITC claimed, ITC reversal required, blocked credits under Section 17(5) of the CGST Act 2017, or interest/late fee adjustments), the final corrected liability cannot be computed.**

**Framework for solving this type of question (once data is available):**

**Step 1 — Identify additional ITC to be reversed:** Under Section 17(5) of the CGST Act 2017, certain credits are blocked (e.g., motor vehicles for personal use, food & beverages, club memberships). Any such ITC already claimed must be reversed, increasing net liability.

**Step 2 — Apply ITC cross-utilisation rules under Section 49 of the CGST Act 2017 read with Rule 88A of the CGST Rules 2017:**
- IGST credit is utilised first against IGST liability, then against CGST liability, then against SGST liability (in that order).
- CGST credit can be used only against CGST and then IGST liability (NOT against SGST).
- SGST credit can be used only against SGST and then IGST liability (NOT against CGST).
- CGST and SGST credits cannot be cross-utilised against each other.

**Step 3 — Compute net cash payable:** After proper utilisation of available ITC bal…

Question 16

Q Ltd is engaged exclusively in supply of taxable goods from the following states. The particulars of inter-state supplies for the month of May 2021 are as follows: Madhya Pradesh (₹5,00,000), Gujarat (₹14,00,000), Tripura (₹12,00,000)

Accepted Answer

**Part (i): Liability for GST Registration**

Q Ltd must determine its liability for GST registration based on **aggregate turnover** and **inter-state supplies**, as prescribed under **Section 22 of the CGST Act, 2017**.

The registration threshold is **₹40 lakhs** for general taxable persons. For special category states (North-East states, J&K, Himachal Pradesh), the threshold is **₹20 lakhs**.

Q Ltd's inter-state supplies in May 2021 are:
- Madhya Pradesh: ₹5,00,000
- Gujarat: ₹14,00,000
- Tripura: ₹12,00,000
- **Total inter-state supplies: ₹31,00,000**

Since Tripura is a **special category state**, we analyze separately:
- Supplies from Tripura: ₹12,00,000 (below ₹20 lakh threshold for special category states)
- Supplies from other states (MP + Gujarat): ₹19,00,000 (below ₹40 lakh threshold)

Alternatively, aggregate inter-state supplies = ₹31,00,000, which is **below the ₹40 lakh threshold** for inter-state supplies.

**Conclusion**: Q Ltd is **not liable for GST registration** under the turnover threshold as provided in Section 22 of CGST Act, 2017, since the inter-state supplies fall short of the applicable threshold limit.

**Part (ii): Supply of Petrol & Diesel**

If Q Ltd supplies only **petrol and diesel** from Tripura instead of other taxable goods, the answer **would not be different**.

Reasoning: The **GST registration threshold is based on aggregate turnover, not the nature of goods**. Petrol and diesel are **taxable goods under GST at 5%** (as notified). Th…

Question 17

M/s PQR Ltd. have filed their GSTR3B return for the month of August, 2020 within the due date i.e. 20.09.2020. It was noticed in October 2020 that tax dues for the month of August, 2020 have been short paid by ₹10,000. The shortfall of ₹10,000 was paid through cash ledger and credit ledger amounting to ₹7,500 and ₹2,500 respectively while filing GSTR3B of October 2020 which was filed on 20.11.2020.

Accepted Answer

**Part (i): Interest on Late Payment of Shortfall**

Under **Section 50 of the CGST Act, 2017**, interest is payable on any tax that remains unpaid after the due date at the rate of **18% per annum**.

**Timeline Analysis:**
Due date for August 2020 tax: 20.09.2020 (GSTR-3B filing and payment deadline)
Payment of shortfall: 20.11.2020
Period of non-payment: 21.09.2020 to 20.11.2020 = 61 days

The shortfall of ₹10,000 remained unpaid from the due date (20.09.2020) until its payment on 20.11.2020. Interest accrues on this amount at 18% p.a. for 61 days.

**Interest Calculation:**
Using the formula: Interest = (Principal × Rate × Period in days) / 365
Interest = (10,000 × 18 × 61) / (100 × 365)
Interest = **₹300.82 (or ₹301 rounded)**

---

**Part (ii): Interest if Return and Payment Were Both Late**

If the GSTR-3B for August 2020 had been filed belatedly on 20.11.2020 and tax of ₹10,000 paid simultaneously:

**The interest payable remains the same at ₹301.**

This is because interest under Section 50 is calculated from the **statutory due date** (20.09.2020) to the **date of actual payment** (20.11.2020), regardless of when the return is filed. The period of 61 days remains constant.

**Key Distinction:** While the interest is identical to part (i), **late filing of GSTR-3B also attracts a late fee under Section 47 of the CGST Act, 2017** (₹100 per day for 61 days, capped at ₹5,000). However, this is a separate liability from interest and was not the focus of the question.

Question 18

Answer any four of the following:

Accepted Answer

*(Answering all five sub-parts; attempt any four in the exam.)*

**(a) Techniques of Costing**

Techniques of costing refer to the methods used to ascertain costs for the purpose of cost control and decision-making. The major techniques are:

**1. Marginal Costing:** Only variable costs are charged to products; fixed costs are treated as period costs and written off in the period incurred. It aids in decision-making through contribution analysis.

**2. Standard Costing:** Pre-determined (standard) costs are set for products/processes. Actual costs are compared with standards to compute **variances**, which are analysed for control purposes.

**3. Budgetary Control:** Future costs and revenues are estimated (budgets), and actual performance is measured against these estimates. Deviations are identified and corrective action is taken.

**4. Uniform Costing:** Multiple organisations in the same industry adopt the same costing principles and procedures to enable meaningful inter-firm comparison.

**5. Historical Costing:** Costs are ascertained only after they have been incurred. It is a post-mortem analysis and provides limited scope for control.

**6. Absorption Costing (Total Costing):** Both fixed and variable costs are absorbed into product costs. It is used for external financial reporting and stock valuation.

Each technique serves a specific managerial purpose and may be used in combination with a method of costing (e.g., job costing, process costing).

---

**(b) Joint P…

Question 19

An order is placed to T & Co., Sholapur on 18th August, 2021 for supply of fabrics to make garments. Company accepted the order on 4th September, 2021 and after completion of the order issued the invoice on 15th September, 2021. The payment against the same was received on 30th September, 2021.

Accepted Answer

**Time of Supply: 15th September, 2021**

According to **Section 12(2) of the CGST Act, 2017**, the time of supply of goods is the **earlier of the following two dates**: (a) the date of issue of invoice by the supplier, or (b) the date of receipt of payment by the supplier.

**Application to Given Facts:**

The relevant dates in the given scenario are:
- Date of issue of invoice: **15th September, 2021**
- Date of receipt of payment: 30th September, 2021

Since the invoice was issued on 15th September, 2021 and payment was received on 30th September, 2021, the earlier of these two dates is **15th September, 2021**.

**Important Clarifications:**

(1) The date when the order was placed (18th August, 2021) and the date when the order was accepted (4th September, 2021) are **not relevant** for determining the Time of Supply. These dates relate to when the contractual obligation arose, but ToS is determined only by invoice issuance or payment receipt.

(2) The invoice being issued "after completion of the order" indicates that the goods were delivered or made available to the recipient on or before 15th September, 2021. However, even if delivery occurred earlier, the ToS is determined by the invoice issuance date (not the delivery date) unless the invoice is issued more than 30 days after delivery, in which case ToS would be the delivery date.

(3) Section 12(3) provides that **if an invoice is not issued within 30 days from the date of delivery** of goods (or making available t…

Question 20

HM Industries Ltd. engaged the services of a transporter for road transport of a consignment on 20th May 2021. However, the consignment could not be sent immediately on account of a strike in the factory, and instead was sent on 20th July 2021. Invoice was received from the transporter on 20th June 2021 and payment was made on 25th August 2021.

Accepted Answer

The time of supply of the transporter's service is **20th June 2021**, the date on which the invoice was received (issued).

**Relevant Provisions:** Section 12(2) of the Central Goods and Services Tax Act, 2017 provides that in the case of supply of services, the time of supply shall be the **earlier of** (a) the date of issue of the invoice, or (b) the date on which payment is received, if received before the date of invoice.

**Application to Facts:** In the given case:
- Service engagement date: 20th May 2021 (date of contract/order placement)
- Service performed/completed: 20th July 2021 (when consignment was actually sent)
- Date of invoice: 20th June 2021 (when invoice was issued by transporter)
- Date of payment: 25th August 2021 (when payment was made)

**Analysis:** Under GST law, the time of supply is determined by invoice issuance or payment receipt—**not by the date the service was actually performed or when it was ordered**. The strike at the factory and the resulting delay in performing the service are commercially relevant facts but legally immaterial for GST purposes. The critical dates are the invoice date and the payment date. Since the invoice was issued on 20th June 2021 and payment was made on 25th August 2021, the invoice date (20th June 2021) is earlier. Therefore, the time of supply is the earlier of these two dates: **20th June 2021**.

**Conclusion:** HM Industries Ltd. must account for GST on the transporter's service effective **20th June 2021** (…

Question 21

Mr. Q, a Casual Taxable Person of Gujarat state is a trader of taxable notified handicraft goods. It makes supplies to the states of Maharashtra, Rajasthan and Andhra Pradesh. Turnover for October 2021 is ₹18 Lakhs.

Accepted Answer

**Part (i): CTP Registration Provisions and Mr. Q's Liability**

A **Casual Taxable Person (CTP)** under Section 24 of the CGST Act, 2017, is a non-registered person who occasionally makes inter-state supplies of taxable goods or services. Rule 8 of the CGST Rules, 2017 prescribes the registration procedure.

**Key Provisions for CTP Registration:**

1. **Mandatory Registration:** A CTP must register in every state to which he makes inter-state supplies of taxable goods. There is **no minimum turnover threshold** for CTP registration—even a single transaction triggers the obligation.

2. **Exemption Available:** Registration is not required only if the CTP supplies goods or services specifically **notified as exempt** under Schedule I or Schedule II of the GST Act.

3. **Timeline:** Registration must be completed within 5 days of commencing supply; failure attracts penalties.

**Application to Mr. Q:**

Mr. Q is liable for CTP registration because: (a) He is making inter-state supplies to three states (Maharashtra, Rajasthan, and Andhra Pradesh), (b) The goods are described as **taxable notified handicraft goods**—the term "taxable" indicates they are not exempt from GST despite being notified, (c) No turnover threshold applies to CTP; the ₹18 lakhs monthly turnover is irrelevant for this registration requirement, (d) As an occasional trader (not a permanent resident supplier in those states), he must register in each destination state.

**Conclusion:** Mr. Q is **liable to r…

Question 22

A Drug store is presently selling three types of drugs namely 'Drug A', 'Drug B' and 'Drug C'. Due to some constraints, it has decided to go for only one product line of drugs. It has provided the following data for the year 2020-21 for each product line: Revenues (in ₹): Drug A: 74,50,000, Drug B: 1,11,25,000, Drug C: 1,36,25,000; Cost of goods sold (in ₹): Drug A: 41,42,500, Drug B: 68,16,750, Drug C: 1,26,63,750; Number of purchase orders placed (in nos): Drug A: 560, Drug B: 810, Drug C: 630; Number of deliveries received: Drug A: 950, Drug B: 1,000, Drug C: 850; Hours of shelf-stocking time: Drug A: 960, Drug B: 1,250, Drug C: 2,150; Units sold (in Nos): Drug A: 1,75,200, Drug B: 1,20,300, Drug C: 1,44,500. Additional information: Drug Licence fee: ₹5,00,000 to be distributed in ratio…

Accepted Answer

**(i)(a) Traditional Costing — Support Costs Allocated in Ratio of COGS**

**Total Support Costs** = Drug Licence ₹5,00,000 + Ordering ₹8,30,000 + Delivery ₹18,20,000 + Shelf Stocking ₹32,40,000 + Customer Support ₹28,20,000 = **₹92,10,000**

**Total COGS** = ₹41,42,500 + ₹68,16,750 + ₹1,26,63,750 = **₹2,36,23,000**

Allocation ratio — Drug A: Drug B: Drug C = 41,42,500 : 68,16,750 : 1,26,63,750 (i.e., 17.54% : 28.86% : 53.60%)

**Statement of Operating Income — Traditional Costing (₹)**

| Particulars | Drug A | Drug B | Drug C |
|---|---|---|---|
| Revenue | 74,50,000 | 1,11,25,000 | 1,36,25,000 |
| Less: COGS | 41,42,500 | 68,16,750 | 1,26,63,750 |
| **Gross Margin** | **33,07,500** | **43,08,250** | **9,61,250** |
| Less: Support Costs | 16,15,036 | 26,57,646 | 49,37,318 |
| **Operating Income** | **16,92,464** | **16,50,604** | **(39,76,068)** |
| **Operating Income % of Revenue** | **22.72%** | **14.84%** | **(29.19%)** |

---

**(i)(b) Activity-Based Costing — Support Costs via Cost Drivers**

**Activity Rates:** Ordering = ₹8,30,000 ÷ 2,000 orders = **₹415/order** | Delivery = ₹18,20,000 ÷ 2,800 = **₹650/delivery** | Shelf Stocking = ₹32,40,000 ÷ 4,500 hrs = **₹720/hr** | Customer Support = ₹28,20,000 ÷ 4,70,000 units = **₹6/unit**

Note: Shelf stocking hours (960+1,250+2,150 = 4,360) and units sold (1,75,200+1,20,300+1,44,500 = 4,40,000) are less than the denominator used for rate computation; the difference of ₹2,80,800 represents **cost of idle/unused capacity** an…

Question 23

Mr. X, an employee of the Central Government is posted at New Delhi. He retired from service on 1st February, 2017. Details of his income for the previous year 2020-21, are as follows: (i) Basic salary: ₹ 3,80,000 (ii) Dearness allowance: ₹ 1,20,000 (40% forms part of pay for retirement benefits) (iii) Both Mr. X and Government contribute 20% of basic salary to the pension scheme referred to in Section 80CCD. (iv) Gift received by X's minor son on his birthday from friend: ₹ 70,000. No other gift is received by him during the previous year 2020-21) (v) During the year 2013-14, Mr. X gifted a sum of ₹ 6,00,000 to Mrs. X. She started a business by introducing such amount as capital. On 1st April, 2020, her total investments in business was ₹ 10,00,000. During the previous year 2021, she has …

Accepted Answer

**Answer: Total Income for AY 2021-22: ₹2,52,000**

**Income Computation:**

Mr. X's salary comprises **Basic Salary** of ₹3,80,000 and **Dearness Allowance** of ₹1,20,000 (100% taxable). The fact that 40% of DA forms part of pay for retirement benefits is relevant only for pension/gratuity calculations, not for income tax. **Total Salary Income: ₹5,00,000**.

The **gift of ₹70,000** received by Mr. X's minor son from a friend is **not taxable** under Section 56(2)(vii). Gifts are taxable only when received from specified relations (parents, siblings, spouse). Gifts from friends, whether to minors or adults, are excluded from income.

Mrs. X's **business loss of ₹1,30,000** is her own loss and does not affect Mr. X's taxable income. They are separate legal entities; spousal losses cannot reduce the other's income.

**Gross Total Income: ₹5,00,000**

**Deductions under Section 80:**

**Section 80C:** Sukanya Samridhi Account deposit (₹70,000) and LIC Annuity Plan under Section 80CCC (₹40,000) = ₹1,10,000. Both fall within the ₹1,50,000 annual ceiling of Section 80C.

**Section 80CCD(1):** Mr. X's employee contribution is 20% of ₹3,80,000 = ₹76,000. However, the deduction limit is the lower of (i) 10% of Gross Total Income or (ii) ₹50,000. Since 10% of ₹5,00,000 = ₹50,000 and the prescribed limit is ₹50,000, the deductible amount is capped at **₹50,000**.

**Section 80CCD(2):** Government's (employer's) contribution is 20% of ₹3,80,000 = ₹76,000. Employer contributions under Se…

Question 24

Mr. Kailash, a resident and ordinarily resident in India, could not file his return of income for the assessment year 2021-22 before due date prescribed under section 139(1). Advise Mr. Kailash as a tax consultant: What are the consequences for non-filing of return of Income within the due date under section 139(1)?

Accepted Answer

**Consequences for Mr. Kailash for non-filing return within due date under Section 139(1):**

**1. Penalty under Section 234F**
A penalty is imposed for delay in furnishing return of income:
- ₹1,000 if the total income does not exceed ₹5 lakhs
- ₹10,000 if the total income exceeds ₹5 lakhs
This penalty will be added to the tax liability in addition to the tax due.

**2. Loss of Carry Forward of Losses**
If the return is not filed within the prescribed period specified in Section 139(4):
- Capital losses cannot be carried forward to subsequent assessment years
- Business losses cannot be carried forward to subsequent years  
- The taxpayer will lose the benefit of adjusting these losses against future income
This is a critical consequence as the losses are completely forfeited and cannot be recovered in any manner.

**3. Deemed Assessment under Section 139(9)**
If the return is not filed by the extended deadline specified in Section 139(4):
- The Assessing Officer can proceed with assessment based on information available or best judgment
- The assessment will be made without ensuring adequate consideration of the taxpayer's claims and reliefs
- This can result in a higher assessment of income and corresponding tax demand.

**4. Interest on Unpaid Tax**
If any tax is found due on assessment:
- Interest will be charged at the prescribed rate (currently 8% per annum for individuals)
- Interest accrues from the due date of the original return until payment is made
- This substan…

Question 25

Mr. Sitaram is engaged in the business of trading of cement having turnover of ₹ 10 crores during the financial year 2021-21. As a tax consultant advise him what are the particulars to be furnished under section 36(3) along with Return of Income?

Accepted Answer

**Understanding Section 36 Deductions and Disclosure Requirements**

Section 36 of the Income Tax Act, 1961 permits deductions from business income for various expenses and charges. When filing a Return of Income (ROI), Mr. Sitaram must furnish detailed particulars of deductions claimed under Section 36. Given his turnover of ₹10 crores, he is mandatorily required to obtain an **Audit Report under Section 44AB** and the auditor must report on these particulars in **Form 3CD (Audit Report - Continuation Sheet)**.

**Mandatory Particulars to be Furnished:**

**1. Interest on Borrowed Capital (Section 36(1)(c)):** If Mr. Sitaram has claimed deductions for interest on borrowed capital, he must furnish the name and address of the lender(s), amount of capital borrowed, rate of interest charged, tenure of the loan, and the amount of interest paid or payable during the financial year.

**2. Details of Borrowed Capital:** Particulars of all loans and borrowings (both short-term and long-term) including the purpose of borrowing, whether it is for business or other purposes. This is essential because interest is deductible only on capital borrowed for business purposes.

**3. Repairs and Renewals:** Itemized details of repairs and renewals expenses claimed under Section 36(1)(vii), including nature, date, amount, and whether the expenditure is for maintaining the existing asset or amounts to capital expenditure (which would not be deductible).

**4. Insurance Premiums:** Details of all …

Question 26

B Ltd. showed a Net Profit of ₹3,60,740 as per their cost accounts for the year ended 31st March, 2021. The following information was revealed as a result of scrutiny of the figures from the both sets of accounts: (i) Cost recovery of selling overheads in cost accounts: ₹10,250 (ii) Over valuation of closing stock in cost accounts: ₹7,300 (iii) Rent received credited in financial accounts: ₹5,450 (iv) Bad debts provided in financial accounts: ₹3,250 (v) Income tax provided in financial accounts: ₹15,900 (vi) Loss on sale of capital asset debited in financial accounts: ₹5,800 (vii) Under recovery of administration overheads in cost accounts: ₹3,600. Prepare a reconciliation statement showing the profit as per financial records.

Accepted Answer

**Reconciliation of Cost Profit to Financial Profit**

For the year ended 31st March, 2021

**Net Profit as per Cost Accounts: ₹3,60,740**

**Add:** Rent received credited in financial accounts: ₹5,450

**Less:**
Cost recovery of selling overheads (not treated as product cost in financial accounts): ₹10,250
Over-valuation of closing stock in cost accounts: ₹7,300
Bad debts provision in financial accounts: ₹3,250
Income tax provision in financial accounts: ₹15,900
Loss on sale of capital asset in financial accounts: ₹5,800
Under-recovery of administration overheads (unabsorbed overhead): ₹3,600

**Net Profit as per Financial Accounts: ₹3,20,090**

The reconciliation adjusts for differences in treatment between cost and financial accounting. Selling overheads recovery in cost accounts increases product cost but is excluded in financial accounting. The over-valued closing stock is written down to actual value. Financial account items like rent received, bad debts provision, income tax, capital losses, and unabsorbed administration overheads do not feature in cost accounts and must be adjusted. The over-valuation of stock artificially increased cost profit and is corrected downward.

Question 27

What is Bill of Material? Describe the uses of Bill of Material in following departments: (i) Purchases Department (ii) Production Department (iii) Stores Department (iv) Cost/Accounting Department

Accepted Answer

**Bill of Material (BOM)** is a comprehensive list of raw materials, components, sub-assemblies, and quantities required to manufacture a finished product. It serves as a detailed specification document that itemizes all inputs needed for production, including material codes, descriptions, quantities, units, and sometimes costs. It is essentially a recipe for manufacturing, representing the composition of the final product.

**Uses in Purchases Department:** The BOM enables the purchasing department to determine the exact quantities and types of materials to be procured. It facilitates accurate purchase requisition preparation, helps in supplier selection by enabling quotation comparisons for bulk quantities specified in the BOM, and assists in inventory planning to ensure timely availability of materials. The BOM helps in standardizing purchases and achieving economies of scale through consolidated procurement of materials across production batches.

**Uses in Production Department:** The BOM guides the production planning and scheduling process by specifying the exact materials and components needed for each unit of output. It helps in determining production lead times, sequencing of operations, and resource allocation. The production department uses BOM to issue material requisitions, schedule manufacturing activities, and coordinate with other departments. It also helps in maintaining quality standards by ensuring only approved materials are used as per specification.

**…

Question 28

You are required to calculate the following variances for the month of April 2021:

Accepted Answer

**Note:** The question does not provide the underlying data (budgeted hours, actual hours, standard rates, actual output, actual overheads, working days, etc.) required for numerical computation. The solution below presents the complete framework, all six variance formulas with definitions, and a worked template — so that if the data is substituted, the answer can be derived instantly. This is the standard approach taught for CA Intermediate Cost and Management Accounting (Paper 3) under the ICAI syllabus.

**Overhead Variance Framework**

All overhead variances are computed by comparing **Absorbed (Standard) Overhead** with **Budgeted Overhead** and **Actual Overhead**.

Key notations used:
- SR(F) = Standard Fixed Overhead Rate per hour = Budgeted Fixed OH ÷ Budgeted Hours
- SR(V) = Standard Variable Overhead Rate per hour = Budgeted Variable OH ÷ Budgeted Hours
- SH(AO) = Standard Hours for Actual Output
- BH = Budgeted Hours
- AH = Actual Hours Worked
- RBOH = Revised Budgeted Hours = (Budgeted Hours ÷ Budgeted Days) × Actual Days

**(i) Overhead Cost Variance (OCV)**
= Absorbed Overhead − Actual Overhead
= [SR(F) + SR(V)] × SH(AO) − [Actual Fixed OH + Actual Variable OH]
Favourable if absorbed > actual; Adverse if absorbed < actual.

**(ii) Fixed Overhead Cost Variance (FOCV)**
= Absorbed Fixed OH − Actual Fixed OH
= SR(F) × SH(AO) − Actual Fixed OH
This measures total under/over-absorption of fixed overhead.

**(iii) Variable Overhead Cost Variance (VOCV)**
= Absorbed V…

Question 29

On investigation, it was found that 40% of the unabsorbed overheads were due to factory inefficiency and the rest were attributable to increase in the cost of indirect materials and indirect labour. You are required to:

Accepted Answer

**Note:** The question references preceding data (budgeted overheads, actual overheads, budgeted/actual output or hours) that has not been provided in the extracted text. The solution below presents the standard methodology and accounting treatment applicable to any such question, including the framework for Part (i) and the complete treatment for Part (ii).

**Part (i): Calculation of Unabsorbed Overheads**

Unabsorbed (Under-absorbed) Overhead = Actual Overhead Incurred − Overhead Absorbed

Overhead Absorbed = Actual Output (or Actual Hours) × Pre-determined Overhead Absorption Rate

Pre-determined Rate = Budgeted Overheads ÷ Budgeted Output (or Budgeted Hours)

Once the total unabsorbed overhead is determined:
- **40%** is attributable to **factory inefficiency** (abnormal cause)
- **60%** is attributable to **increase in cost of indirect materials and indirect labour** (normal cause — price variance)

**Part (ii): Accounting Treatment of Unabsorbed Overheads**

The treatment depends on the cause of under-absorption, as per **ICAI Cost Accounting guidelines**:

**Treatment of 40% (Factory Inefficiency — Abnormal Cause):** This portion arises due to avoidable inefficiency. It should NOT be loaded onto the cost of production, as doing so would distort product costs. This amount is **transferred directly to the Costing Profit & Loss Account** and treated as a loss for the period.

**Treatment of 60% (Increase in Cost of Indirect Materials/Labour — Normal Cause):** This portio…

Destination	Units	Rate (₹)	Amount (₹)
Cost of Sales	50,000	3.33	1,66,667
Closing Finished Goods Stock	12,000	3.33	40,000
Closing WIP	13,000	3.33	43,333
Total	75,000		2,50,000

CA Inter Taxation

Drill 5 questions from this paper — instant grading

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap

Output Component	Units
Units sold	50,000
Closing finished goods stock	12,000
Closing WIP (20,000 × 65%)	13,000
Total equivalent units	75,000

Treatment	Amount (₹)
Distributed via supplementary rate	2,50,000
Strike wages → Costing P&L A/c	2,00,000
Prior period expenses → Costing P&L A/c	1,00,000
Total	5,50,000