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Past papers › Taxation › November 2019

CA Inter Taxation — Suggested Answers — November 2019

This page contains all 15 questions from the CA Inter Taxation Suggested Answers for the November 2019 attempt cycle, sourced from VSI Jaipur.

QbCash Flow Statement - AS-3
8 marks hard
M/s X Limited has furnished the following information relating to the financial year ended 31st March, 2019: Net Profit ₹2,50,000; Dividend 1,00,000; Provision for income tax 80,000; Income tax paid 65,000; Loss on sale of Plant & Machinery 1,000; Book value of plant & machinery (sold) 4,500; Depreciation debited to profit & loss account 12,000; Purchases of furniture & fixtures 1,11,000; Investment in joint venture 40,000; Proceeds from issue of 12% debentures 20,000; Increase in working capital (Excluding cash and bank balance) 18,000; Closing cash and cash equivalent 50,000. Prepare the cash flow statement in accordance with AS-3 for the year ended 31st March, 2019.
QcWorking Capital Management
0 marks easy
Following information relate to a firm: Current ratio: 1.5:1 Inventory Turnover Ratio (Based on COGS): 8 Sales: ₹ 40,000,000 Working capital: ₹ 2,83,000 Gross Profit Ratio: 20% You are required to find out: (i) The value of opening stock presuming that the closing stock is ₹ 40,000 more than the opening stock. (ii) The value of Bank overdraft, presuming that the Bank overdraft and other current liabilities are in a ratio of 2:1.
QdCost of Capital
0 marks hard
ABC Private Limited wishes to raise additional finance of ₹ 30 lakh for purchasing a machine. It has ₹ 16 lakh in the form of retained earnings which is available for investment purposes. The following details are provided by the company: (1) Debt-equity mix: 1:1 (2) Earnings per share: ₹ 10 (3) Current Market Price per share: ₹ 50 (4) Tax rate: 30% (5) Dividend payout: 50% of earning (6) Expected growth rate in dividend: 10% (7) Cost of debt: upto ₹ 6 lakh: 12% (before tax), beyond ₹ 6 lakh: 15% (before tax)
Q2aProcess Costing
8 marks very hard
PQR Ltd. processes a range of products including a toy 'Alpha', which passes through three processes before completion and transfer to the finished goods warehouse. The information relating to the month of October 2019 are as follows: Particulars | Process-I | Process-II | Process-III | Total Raw materials (2,000 units) | ₹ 12,000 | - | - | ₹ 12,000 Direct raw material added in process | ₹ 17,000 | ₹ 19,000 | ₹ 11,000 | ₹ 47,000 Direct wages | ₹ 8,000 | ₹ 12,000 | ₹ 24,000 | ₹ 44,000 Direct Expenses | ₹ 2,400 | ₹ 1,860 | ₹ 2,680 | ₹ 6,940 Production overhead | - | - | - | ₹ 33,000 Output (Units) | 1,840 | 1,740 | 1,580 | - Normal loss in process of input (%) | 10 | 5 | 10 | - Scrap value per unit | ₹ 2 | ₹ 5 | ₹ 10 | -
Q3Inventory Valuation - Periodic Inventory System
8 marks hard
M/s XYZ Traders is a distributor of an electronic calculator. A periodic inventory of electronic calculator on hand is taken when books are closed at the end of each quarter. The following summary of information is available for the quarter ended on 30th September, 2019: Sales: ₹ 14,60,000, Opening Stock: 2500 calculator @ ₹ 2.00 per calculator, Administrative Expenses: ₹ 3,75,000, Purchases (including freight inward): July 1, 2019 - 50000 calculator @ ₹ 1.91 per calculator; September 30, 2019 - 25000 calculator @ ₹ 2.10 per calculator, Closing stock - September 30, 2019: 32000 calculator. You are required to compute the following by WAM (Weighted Average Method), FIFO method and LIFO method: (i) Value of Inventory on 30th September, 2019. (ii) Profit or loss for the quarter ended 30th September, 2019.
Q3Working Capital Management / Credit Policy
8 marks hard
XYZ Ltd. is making a turnover of ₹ 70 lakhs out of which 60% is made on credit. The company allows credit for 30 days. The company is considering proposals to liberalize the credit policy. Information regarding options available are as under: Credit period: Proposal-A: 45 days, Proposal-B: 60 days Anticipated credit sales: Proposal-A: ₹ 65 lakh, Proposal-B: ₹ 80 lakh The product yield an average contribution of 20% on sales. Fixed costs are ₹ 6 lakhs per annum. The company expects a pre-tax return of 18% on capital employed. At present company makes a provision for bad debts @ 0.5% which is expected to go up to 1% for Proposal-A and to 2% for Proposal-B. Assume 360 days in a year. Evaluate the proposals and give your recommendations.
Q5Cost Accounting - Process Costing
5 marks medium
The production overhead is absorbed as a percentage of direct wages. There was no opening and closing stock. Prepare the following accounts: (i) Process-I, (ii) Process-II, (iii) Process-III, (iv) Abnormal Loss, (v) Abnormal Gain
Q5Capital Budgeting - Investment Appraisal
8 marks hard
A firm is willing to purchase a new machine and is having two options. Information related to the options are as follows: Option-I - Cost of Machine: ₹ 30,00,000, Expected Life: 5 years, Salvage value of Machine: ₹ 5,00,000, Expected Earning (After tax): ₹ 7,75,000. Option-II - Cost of Machine: ₹ 35,00,000, Expected Life: 6 years, Salvage value of Machine: ₹ 5,00,000, Expected Earning (After tax): ₹ 8,25,000. The firm charges depreciation on the machine as per straight line method. The cost of capital is 14%. The present value of ₹ 1 @ 14% is as under: Year 1: 0.877, Year 2: 0.769, Year 3: 0.675, Year 4: 0.592, Year 5: 0.519, Year 6: 0.455
Q5aCost Accounting - Waste and Spoilage
8 marks hard
Explain the meaning of 'Waste' and 'Spoilage' and give the accounting treatment of each one.
Q5dCapital Structure - Finance
0 marks easy
Explain 'Net Income (NI) Approach' and 'Net Operating Income (NOI) Approach' of capital structure.
Q6(b)Financial Leverage, ROI, EBIT, EBT, Asset Turnover
8 marks very hard
Case: ABC Private Limited Financial Data: Sales ₹80,00,000, Variable Cost ₹46,00,000, Fixed Costs ₹6,50,000, 11% Borrowed Capital ₹50,00,000, Equity Capital ₹45,00,000, Retained earnings ₹15,00,000
Following information have been provided by ABC Private Limited: Sales ₹80,00,000, Variable Cost ₹46,00,000, Fixed Costs ₹6,50,000, 11% Borrowed Capital ₹50,00,000, Equity Capital ₹45,00,000, Retained earnings ₹15,00,000. Required:
Q6aStandard Costing - Material and Labour Variance
8 marks very hard
A manufacturing firm produces a specific product and adopts standard costing system. The product is produced within a single cost centre. Following information related to the product are available from the standard cost sheet of the product: Direct material 5 kg @ ₹15 per kg = ₹75.00; Direct wages 4 hours @ ₹20 per hour = ₹80.00. During the month of October 2019, the firm purchased 3,50,000 kg of material at the rate of ₹14 per kg. Production records for the month: Material used 3,20,000 kg; Direct wages 2,20,000 hours ₹46,20,000. The production schedule requires completion of 60,000 units in a month. The firm produced 62,000 units in the month of October, 2019. There are no opening and closing work-in-progress.