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Past papers/ Taxation/ November 2018
Paper 9 Qs
Suggested Answers · November 2018

CA Inter Taxation

This page contains all 9 questions from the CA Inter Taxation Suggested Answers for the November 2018 attempt cycle, sourced from VSI Jaipur.

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Q.3(a) 10 marks hard Operations management - Economic batch quantity, run size op ⚡ Try this Q →
XYZ Ltd. has obtained an order to supply 48000 bearings per year from a concern. On a steady basis, it is estimated that it costs ₹ 0.20 as inventory holding cost per bearing per month and the set-up cost per run of bearing manufacture is ₹ 384. You are required to: (i) compute the optimum run size and number of runs for bearing manufacture. (ii) compute the interval between two consecutive runs. (iii) find the extra costs to be incurred, if company adopts a policy to manufacture 8000 bearings per run as compared to optimum run size. (iv) give your opinion regarding run size of bearing manufacture. Assume 365 days in a year.
CTTP

Worked Solution

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Economic Batch Quantity (EBQ) Analysis for XYZ Ltd.

Given Data:
Annual demand (D) = 48,000 bearings; Holding cost (h) = ₹0.20 per bearing per month = ₹2.40 per bearing per year; Set-up cost per run (S) = ₹384.

(i) Optimum Run Size and Number of Runs

The Optimum Run Size (EBQ) is calculated using the Economic Batch Quantity formula:

EBQ = √(2DS/h) = √(2 × 48,000 × 384 / 2.40) = √15,360,000 = 3,920 bearings (approx.)

Number of Runs = Annual Demand / EBQ = 48,000 / 3,920 = 12.24 ≈ 12 runs per year

(ii) Interval Between Two Consecutive Runs

Interval = (EBQ / Annual Demand) × 365 days
= (3,920 / 48,000) × 365
= 29.8 days ≈ 30 days

Alternatively: 365 days / 12 runs = 30.42 ≈ 30 days between consecutive runs

(iii) Extra Cost if Run Size = 8,000 Bearings

Total Cost at Optimum Run Size (EBQ = 3,920):
Minimum Total Cost = √(2 × D × S × h) = √(2 × 48,000 × 384 × 2.40) = √88,473,600 = ₹9,406

Total Cost at Run Size of 8,000 bearings:
Set-up Cost = (48,000 / 8,000) × 384 = 6 × 384 = ₹2,304
Holding Cost = (8,000 / 2) × 2.40 = 4,000 × 2.40 = ₹9,600
Total Cost = 2,304 + 9,600 = ₹11,904

Extra Cost = ₹11,904 − ₹9,406 = ₹2,498 per annum

(iv) Opinion on Run Size

The company should adopt the optimum run size of 3,920 bearings per run (approximately 12 runs per year, with each run every 30 days). A policy of 8,000 bearings per run significantly inflates the holding cost due to excess inventory, resulting in an avoidable additional expenditure of ₹2,498 per year compared to the optimum. While larger runs reduce set-up costs, they increase carrying costs disproportionately. The EBQ balances both costs at their lowest combined level and is the recommended policy.

PLAN

Write it like this

Time target 18 min

1The skeleton

- Convert holding cost to annual FIRST, in line 1 — write '₹0.20/month × 12 = ₹2.40 per bearing per year' as your very first step; examiners award a dedicated step mark here and missing it signals a sloppy read of the data.
- State the EBQ formula before plugging numbers — write 'EBQ = √(2DS/h)' explicitly, then substitute; examiners award a formula mark separately from the computation mark, so you lose free marks if you jump straight to the square root.
- Box or bold every final answer — 'EBQ = 3,920 bearings', 'Number of runs = 12', 'Interval = 30 days'; examiners scanning under time pressure tick the boxed figure, not a number buried mid-sentence.
- Show the two-cost split clearly in part (iii) — present Set-up Cost and Holding Cost on separate labelled lines before adding them; the marking scheme awards one mark each for the two components, so a single lump sum loses you both even if the total is right.
- Write the opinion in part (iv) as a two-line verdict, not an essay — state the recommended run size, name the extra cost (₹2,498), and give one reason (holding cost rises disproportionately); examiners reward a crisp conclusion, not a paragraph rehashing your calculations.

2Examiner-rewarded phrases

“At the optimum run size, total cost of set-up and holding is minimised”“Holding cost = (Batch size / 2) × holding cost per unit per annum”“Extra cost incurred = Total cost at proposed run size − Minimum total cost at EBQ”

3Common trap

Don't fall for this

Most students forget to annualise the holding cost and plug ₹0.20 (monthly) straight into the EBQ formula — your EBQ comes out wildly wrong and every subsequent part collapses with it. Double-check the unit of h matches the unit of D before you touch the formula.

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Q.4 10 marks hard Cost Accounting - Control Accounts ⚡ Try this Q →
The following balances were extracted from a Company's ledger as on 30th June 2018: Raw material control a/c: Debit ₹ 2,82,450 Work-in-progress control a/c: Debit ₹ 2,38,300 Finished stock control a/c: Debit ₹ 3,92,500 General ledger adjustment a/c: Credit ₹ 9,13,250 Total: Debit ₹ 9,13,250, Credit ₹ 9,13,250 The following transactions took place during the quarter ended 30th September, 2018: (i) Factory overheads – allocated to work-in-progress: ₹ 1,36,350 (ii) Goods finished – at cost: ₹ 13,76,200 (iii) Raw materials purchased: ₹ 12,43,810 (iv) Direct wages – allocated to work-in-progress: ₹ 2,56,800 (v) Cost of goods sold: ₹ 14,26,500 (vi) Raw materials – issued to production: ₹ 13,60,430 (vii) Raw materials – credited by suppliers: ₹ 27,200 (viii) Raw materials losses – inventory audit: ₹ 6,000 (ix) Work-in-progress rejected (with no scrap value): ₹ 12,300 (x) Customer's returns (at cost) of finished goods: ₹ 45,000 You are required to prepare: (i) Raw material control a/c (ii) Work-in-progress control a/c (iii) Finished stock control a/c (iv) General ledger adjustment a/c
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Worked Solution

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Control Accounts in Cost Ledger — Quarter ended 30th September 2018

In an interlocking cost accounting system, the General Ledger Adjustment Account (GLA) acts as the counterpart for every transaction between the cost ledger and the financial ledger, ensuring the cost ledger balances independently.

Raw Material Control Account

Dr₹Cr₹
Opening Balance2,82,450WIP Control A/c (Issues)13,60,430
GLA A/c (Purchases)12,43,810GLA A/c (Returns to Suppliers)27,200
GLA A/c (Losses – Inventory Audit)6,000
Closing Balance c/d1,32,630
Total15,26,260Total15,26,260

Work-in-Progress Control Account

Dr₹Cr₹
Opening Balance2,38,300Finished Stock Control A/c13,76,200
Raw Material Control A/c (Issues)13,60,430GLA A/c (WIP Rejected – no scrap)12,300
GLA A/c (Direct Wages)2,56,800Closing Balance c/d6,03,380
GLA A/c (Factory Overheads)1,36,350
Total19,91,880Total19,91,880

Finished Stock Control Account

Dr₹Cr₹
Opening Balance3,92,500GLA A/c (Cost of Goods Sold)14,26,500
WIP Control A/c (Goods Finished)13,76,200Closing Balance c/d3,87,200
GLA A/c (Customer Returns – at cost)45,000
Total18,13,700Total18,13,700

General Ledger Adjustment Account

Dr₹Cr₹
Finished Stock Control A/c (COGS)14,26,500Opening Balance b/d9,13,250
Raw Material Control A/c (Supplier Credits)27,200Raw Material Control A/c (Purchases)12,43,810
Raw Material Control A/c (Losses)6,000WIP Control A/c (Direct Wages)2,56,800
WIP Control A/c (Rejected WIP)12,300WIP Control A/c (Factory Overheads)1,36,350
Closing Balance c/d11,23,210Finished Stock Control A/c (Customer Returns)45,000
Total25,95,210Total25,95,210

Verification: Closing balances — Raw Material ₹1,32,630 + WIP ₹6,03,380 + Finished Stock ₹3,87,200 = ₹11,23,210, which equals the GLA closing credit balance. The cost ledger is in agreement.

PLAN

Write it like this

Time target 18 min

1The skeleton

- Write one line on the interlocking system before touching the accounts — examiners want to see you know WHY a GLA exists; one sentence ('In an interlocking system, the GLA acts as the counterpart to the financial ledger, keeping the cost ledger self-balancing') signals conceptual clarity and picks up presentation marks.
- Sequence your accounts in this exact order: RM → WIP → Finished Stock → GLA last — each account feeds the next, so this order makes narrations self-consistent and stops you from hunting for figures mid-paper.
- Write full dual narrations in every entry (e.g., 'GLA A/c (Purchases)', not just 'Purchases') — the narration in brackets is what the examiner ticks; a bare amount with no account reference loses the narration mark even if the number is right.
- Balance and total each account fully before moving to the next one — ICAI awards 1 mark per correctly totalled account; an untotalled account is a guaranteed half-mark loss even if every figure inside is correct.
- Close with a 3-line verification: add the three closing balances and show they equal GLA's closing credit — this one sentence proves your entire paper is internally consistent and earns the agreement/verification mark that most students skip.

2Examiner-rewarded phrases

“General Ledger Adjustment Account (credit balance represents the cost ledger's net investment in stocks)”“issued to production / allocated to work-in-progress / at cost”“the cost ledger is in agreement / closing balances of control accounts equal the General Ledger Adjustment Account balance”

3Common trap

Don't fall for this

The single biggest killer here: students put supplier credits (returns to suppliers) and inventory losses on the DEBIT side of GLA because they feel like 'reductions' — but anything that reduces Raw Material Control goes CREDIT on RM and DEBIT on GLA. Flip that, and both your RM account AND GLA are wrong simultaneously, costing you 3-4 marks in one error.

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Q.4 10 marks very hard Cost Accounting - Transport/Operating Costing ⚡ Try this Q →
Case: M/s XY Travels has been given a 25 km. long route to run an air-conditioned luxury Bus. The cost of bus is ₹ 2,00,000. It has been insured @ 3% premium per annum while annual fuel tax amounts to ₹ 36,000. Annual repairs will be ₹ 50,000 and the bus is likely to last for 5 years. The driver's salary will be ₹ 2,40,000 per annum and the conductor's salary will be ₹ 1,80,000 per annum in addition to 10% of the takings as commission (to be shared by the driver and the conductor equally). Office and administration overheads will be ₹ 3,18,000 per annum. Diesel and oil will be ₹ 1,500 per 100 km. Th…
M/s XY Travels has been given a 25 km. long route to run an air-conditioned luxury Bus. The cost of bus is ₹ 2,00,000. It has been insured @ 3% premium per annum while annual fuel tax amounts to ₹ 36,000. Annual repairs will be ₹ 50,000 and the bus is likely to last for 5 years. The driver's salary will be ₹ 2,40,000 per annum and the conductor's salary will be ₹ 1,80,000 per annum in addition to 10% of the takings as commission (to be shared by the driver and the conductor equally). Office and administration overheads will be ₹ 3,18,000 per annum. Diesel and oil will be ₹ 1,500 per 100 km. The bus will make 4 round trips carrying on an average 40 passengers on each trip. Assuming 25% profit on takings and considering that the bus will run on an average 25 days in a month, you are required to: (i) prepare operating cost sheet (for the month), (ii) calculate fare to be charged per passenger km.
CTTP

Worked Solution

✓ Verified

Operating Cost Sheet for M/s XY Travels (For the Month)

Preliminary Workings:
- One-way distance: 25 km; Round trip: 50 km
- Daily distance: 4 round trips × 50 km = 200 km
- Monthly distance: 200 km × 25 days = 5,000 km
- One-way trips per day: 4 × 2 = 8 trips
- Daily passenger km: 8 trips × 40 passengers × 25 km = 8,000 passenger km
- Monthly passenger km: 8,000 × 25 days = 2,00,000 passenger km

(i) Operating Cost Sheet (Monthly)

A. Standing (Fixed) Charges:

ParticularsWorking₹
Depreciation(₹2,00,000 ÷ 5 years) ÷ 123,333
Insurance(3% × ₹2,00,000) ÷ 12500
Fuel tax₹36,000 ÷ 123,000
Driver's salary₹2,40,000 ÷ 1220,000
Conductor's salary₹1,80,000 ÷ 1215,000
Office & Admin overheads₹3,18,000 ÷ 1226,500
Total (A)68,333

B. Running (Variable) Charges:

ParticularsWorking₹
Diesel & Oil(₹1,500 ÷ 100) × 5,000 km75,000
Repairs₹50,000 ÷ 124,167
Total (B)79,167

Total Cost (excluding commission) = A + B = ₹1,47,500

Commission (10% of takings): Let Total Takings = T
Since profit = 25% on takings → Cost = 75% of T
1,47,500 + 0.10T = 0.75T → T = 1,47,500 ÷ 0.65 = ₹2,26,923
Commission = 10% × ₹2,26,923 = ₹22,692

₹
Cost excl. commission1,47,500
Add: Commission (10% of takings)22,692
Total Operating Cost1,70,192
Add: Profit (25% on takings)56,731
Total Takings2,26,923

(ii) Fare per Passenger km

Fare per passenger km = Total Takings ÷ Total Passenger km
= ₹2,26,923 ÷ 2,00,000
= ₹1.135 per passenger km

Alternatively (algebraic): Let fare = x per passenger km.
Total takings = 2,00,000x; Commission = 20,000x
1,47,500 + 20,000x = 0.75 × 2,00,000x
1,47,500 = 1,30,000x
x = ₹1.135 per passenger km

PLAN

Write it like this

Time target 18 min

1The skeleton

- Start with Preliminary Workings as a separate block — examiners can't follow your cost sheet if the 5,000 km and 2,00,000 passenger km appear from nowhere; show the route → daily km → monthly km chain explicitly to pocket easy reading marks.
- Split your cost sheet into Standing (Fixed) vs Running (Variable) with clear sub-totals — ICAI's format demands this two-part structure; if you dump everything in one table you lose the classification marks even if every rupee is correct.
- Show the algebraic setup for commission visibly — write 'Let Total Takings = T, Cost = 0.75T, therefore 1,47,500 + 0.10T = 0.75T' before solving; examiners award method marks here and a bare answer with no working gets nothing.
- Build the reconciliation table (Cost + Commission + Profit = Takings) — this one table proves your T is consistent and doubles as your Part (i) answer closer; skip it and you risk losing 2 marks on presentation.
- State the fare formula explicitly before plugging in — write 'Fare per passenger km = Total Takings ÷ Total Passenger km' then substitute; one-line answers without the formula lose the formula mark in Part (ii).

2Examiner-rewarded phrases

“Standing charges (Fixed): ₹ ___; Running charges (Variable): ₹ ___; Total Operating Cost: ₹ ___”“Commission is payable on takings; since profit is 25% on takings, total cost = 75% of takings”“Fare per passenger km = Total Takings / Total Passenger Kilometres”

3Common trap

Don't fall for this

Heads up — most students treat repairs as a Fixed charge because it's given as an annual figure, but ICAI classifies repairs under Running (Variable) charges in transport costing. Getting this wrong flips your sub-totals and cascades the error all the way to the fare calculation.

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Q.5 05 marks medium Cost accounting - Fixed cost and break-even analysis ⚡ Try this Q →
You are required to: (i) calculate fixed cost and break-even point. (ii) calculate the volume of sales to earn profit of 20% on sales. (iii) if management is willing to invest ₹ 10,00,000 with an expected return of 20%, calculate units to be sold to earn this profit. (iv) Management expects additional sales if the selling price is reduced to ₹ 44. Calculate units to be sold to achieve the same profit as desired in note (iii).
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Q.5 10 marks very hard Production budget, Purchase budget, Cost accounting ⚡ Try this Q →
An electronic gadget manufacturer has prepared sales budget for the next few months. In this respect, following figures are available: January 5000 units, February 6000 units, March 7000 units, April 7500 units, May 8000 units. To manufacture an electronic gadget, a standard cost of ₹ 1,500 is incurred and it is sold through dealers at a uniform price of ₹ 2,000 per gadget to customers. Dealers are given a discount of 15% on selling price. Apart from other materials, two units of batteries are required to manufacture a gadget. The company wants to hold stock of batteries at the end of each month to cover 30% of next month's production and to hold stock of manufactured gadgets to cover 25% of the next month's production. 3250 units of batteries and 1200 units of manufactured gadgets were in stock on 1st January.
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Q.5 10 marks hard Labour costing, Employee cost analysis ⚡ Try this Q →
Case: M/s ABC Private Limited employee costing data
Following data have been extracted from the books of M/s ABC Private Limited: Salary (each employee, per month) ₹ 30,000; Bonus 25% of salary; Employer's contribution to PF, ESI etc. 15% of salary; Contribution at employees' welfare activities ₹ 6,61,500 per annum; Total leave permitted during the year 30 days; No. of employees 175; Normal idle time 70 hours per annum; Abnormal idle time (due to failure of power supply) 50 hours; Working days per annum 310 days of 8 hours.
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Q.6 20 marks very hard Cost Accounting - Responsibility centres, Materials manageme ⚡ Try this Q →
Answer any four of the following:
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Q.6(b) 10 marks hard Cost accounting - Activity based costing vs absorption costi ⚡ Try this Q →
M/s HMB Limited is producing a product in (0) batches each of 1500 units is a year and incurring overhead on: Material procurement: ₹ 22,50,000 Maintenance: ₹ 17,30,000 Setup: ₹ 6,84,500 Quality control: ₹ 5,14,800 Total: ₹ 51,39,300 The company is using currently the method of absorbing overheads on the basis of prime cost. Now it wants to shift to activity based costing. Activity Driver details: Material orders: 9080 Maintenance hours: 2250 No. of set-ups: 40 No. of inspections: 25 The company has produced a batch of 1500 units and has incurred ₹ 26,38,700 and ₹ 3,75,200 on materials and wages respectively. The usage of activities of the said batch are as follows: Material orders: 48 orders Maintenance hours: 810 hours No. of set-ups: 40 No. of inspections: 25 You are required to: (i) find out cost of product per unit on absorption costing basis for the said batch. (ii) determine cost driver rate, total cost and cost per unit of output of the said batch on the basis of activity based costing.
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Q.11 00 marks hard Cost Accounting - Service Department Allocation, Overhead Di ⚡ Try this Q →
Case: Mr. NOP Limited power plant cost allocation scenario
Mr. NOP Limited has its own power plant and generates its own power. Information regarding power requirements and power used are as follows: Needed capacity production (Horse power hours): Production Dept. A=20,000, B=25,000; Service Dept. X=15,000, Y=10,000. Used during quarter ended September 2018: Production Dept. A=16,000, B=20,000; Service Dept. X=12,000, Y=8,000. During the quarter ended September 2018, costs for generating power amounted to ₹ 12.60 lakhs out of which ₹ 4.20 lakhs was considered as fixed cost. Service department X renders services to departments A, B, and Y in the ratio of 6:4:2 whereas department Y renders services to department A and B in the ratio of 4:1. The direct labour hours of department A and B are 67500 hours and 48750 hours respectively.
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