Question 1

During a particular period ABC Ltd has furnished the following data:
• Sales ₹ 10,00,000
• Contribution to sales ratio 37% and
• Margin of safety is 25% of sales.

A decrease in selling price and decrease in the fixed cost could change the "contribution to sales ratio" to 30% and "margin of safety" to 40% of the new sales. Calculate:
(i) Revised Fixed Cost.
(ii) Revised Sales and
(iii) New Break-Even Point.

Accepted Answer

**CVP Analysis — ABC Ltd (Revised Scenario)**

**Step 1 — Current Position Analysis**

Given: Sales = ₹10,00,000 | C/S Ratio = 37% | Margin of Safety (MOS) = 25% of Sales

**Current MOS (₹)** = 25% × ₹10,00,000 = ₹2,50,000

**Current BEP** = Sales − MOS = ₹10,00,000 − ₹2,50,000 = **₹7,50,000**

**Current Fixed Cost** = BEP × C/S Ratio = ₹7,50,000 × 37% = **₹2,77,500**

**Current Total Variable Cost** = Sales × (1 − C/S) = ₹10,00,000 × 63% = **₹6,30,000**

**Key Assumption:** Since only **selling price decreases** (not volume), the number of units sold remains unchanged. Therefore, **total variable cost remains ₹6,30,000** for the revised scenario.

**Step 2 — Revised Sales (ii)**

Under revised conditions: New C/S Ratio = 30%, so Variable Cost / New Sales = 70%

**Revised Sales** = Total Variable Cost ÷ Variable Cost Ratio = ₹6,30,000 ÷ 70% = **₹9,00,000**

**Step 3 — New Break-Even Point (iii)**

New MOS = 40% of New Sales = 40% × ₹9,00,000 = ₹3,60,000

**New BEP** = New Sales − New MOS = ₹9,00,000 − ₹3,60,000 = **₹5,40,000**

**Step 4 — Revised Fixed Cost (i)**

**Revised Fixed Cost** = New BEP × New C/S Ratio = ₹5,40,000 × 30% = **₹1,62,000**

Verification: Fixed cost has decreased from ₹2,77,500 to ₹1,62,000 — consistent with the problem statement.

**Summary of Answers:**
(i) **Revised Fixed Cost = ₹1,62,000**
(ii) **Revised Sales = ₹9,00,000**
(iii) **New Break-Even Point = ₹5,40,000**

Question 2

Mr. Krishna (aged 65 years), a furniture manufacturer, reported a profit of ₹5,28,000 for the previous year 2019-20 after debiting/crediting the following items:

Debits:
1. ₹20,000 paid to a Gundawara registered u/s 80G of the Income-tax Act in cash where no cheques are accepted.
2. ₹48,000 contributed to a university approved and notified u/s 35(1)(vi) to be used for scientific research.
3. Interest paid ₹1,67,000 on loan taken for purchase of E-vehicle on 15-02-2020 from a bank. The E-vehicle was purchased for the personal use of his wife.
4. His firm has purchased timber under a forest lease of ₹20,20,000 for the purpose of business.

Credits:
1. Income of ₹4,00,000 from royalty on patent registered under the Patent Act received from different resident clients. No TDS was needed to be …

Accepted Answer

**Computation of Total Income of Mr. Krishna for Assessment Year 2020-21 (Previous Year 2019-20)**

**Item-wise Analysis of Debits:**

**1. Donation to Gurdwara – ₹20,000 (Cash):** This is a personal donation, not a business expenditure. It is disallowed as a deduction under business income and must be added back. As regards deduction under **Section 80G of the Income-tax Act, 1961**, **Section 80G(5D)** provides that no deduction shall be allowed in respect of any donation exceeding ₹2,000 unless paid by any mode other than cash. Since ₹20,000 is paid entirely in cash, deduction under Section 80G is **NIL** (even though no cheques were accepted by the institution, the restriction applies without exception).

**2. Contribution to University u/s 35(1)(ii) – ₹48,000:** A contribution to an approved and notified university for scientific research is deductible under **Section 35(1)(ii)** of the Income-tax Act, 1961. For AY 2020-21, the deduction rate is **100%** of the contribution (the enhanced deduction of 125% was withdrawn effective AY 2018-19 by the Finance Act 2016). Since ₹48,000 is already debited to the Profit & Loss Account and the allowable deduction equals the amount debited, **no further adjustment is required**.

**3. Interest on E-Vehicle Loan – ₹1,67,000:** The e-vehicle was purchased for the personal use of Mr. Krishna's wife, not for business purposes. Therefore, the interest of ₹1,67,000 is **not an allowable business deduction** and must be added back. Howeve…

Question 3

A machine shop has 8 identical machines manned by 6 operators. The machine cannot work without an operator wholly engaged on it. The original cost of all the 8 machines works out to ₹ 3,20,000. The following particulars are furnished for a six months period:

• Normal available hours per month per operator: 208
• Absenteeism (without pay) hours per operator: 18
• Leave (with pay) hours per operator: 20
• Normal unavoidable idle time – hours per operator: 10
• Average rate of wages per day of 8 hours per operator: ₹ 100
• Provision bonus estimated: 10% on wages
• Power consumed: ₹ 40,250
• Supervision and Indirect Labour: ₹ 16,500
• Lighting and Electricity: ₹ 6,000

The following particulars are given for a year:
• Insurance: ₹ 3,60,000
• Sundry work Expenses: ₹ 50,000
• Management Expense…

Accepted Answer

**Statement of Comprehensive Machine Hour Rate — Machine Shop (Six Months Period)**

**Step 1 — Effective Machine Hours**

Since each machine requires one operator wholly engaged, only **6 machines** (= number of operators) can run simultaneously, even though 8 machines exist.

Effective hours per operator per month:
Normal available hours: 208
Less: Absenteeism (without pay): (18)
Less: Leave (with pay): (20)
Less: Normal unavoidable idle time: (10)
**Effective hours per operator per month = 160 hours**

Total effective machine hours for 6 months = 160 × 6 operators × 6 months = **5,760 machine hours**

**Step 2 — Wages Calculation (6 months)**

Paid hours per operator per month = 208 − 18 (absent without pay) = 190 hours
Wage rate = ₹100 per 8-hour day = ₹12.50 per hour
Wages per operator for 6 months = 190 × 6 × ₹12.50 = ₹14,250
Total wages for 6 operators = ₹14,250 × 6 = **₹85,500**
Production bonus @ 10% = **₹8,550**

**Step 3 — Annual Figures Apportioned to 6 Months**

Depreciation = 10% × ₹3,20,000 × 6/12 = **₹16,000**
Repairs & Maintenance = 5% × ₹3,20,000 × 6/12 = **₹8,000**
Insurance = ₹3,60,000 × 6/12 = **₹1,80,000**
Sundry Work Expenses = ₹50,000 × 6/12 = **₹25,000**
Management Expenses = ₹5,00,000 × 6/12 = **₹2,50,000**

**Statement of Machine Hour Rate**

| Particulars | ₹ |
|---|---|
| Wages (6 operators, paid hours) | 85,500 |
| Production Bonus @ 10% on wages | 8,550 |
| Power consumed | 40,250 |
| Supervision & Indirect Labour | 16,500 |
| Lighting & Electri…

Question 4

स्कीम के अंतर्गत Halsey Scheme (50% bonus saving) और Rowan Scheme (40% bonus) के आधार पर निम्नलिखित विवरण दिया गया है। Halsey Scheme और Rowan Scheme के तहत मजदूरी की गणना करें।

Accepted Answer

**IMPORTANT NOTE:** The numerical data referenced in the question (standard time, actual time, hourly rate) is not provided in the problem statement. The solution below uses illustrative figures typical of CA Intermediate exams to demonstrate methodology. Replace with actual values from your question data.

**ASSUMED DATA FOR ILLUSTRATION:**
Standard time allowed: 20 hours | Actual time taken: 16 hours | Hourly rate: ₹50 | Time saved: 4 hours

**PART (i): SIMILARITY AND DIFFERENCE IN PERCENTAGE TERMS**

**Similarities:** Both **Halsey and Rowan schemes are incentive wage systems** that reward workers for completing work faster than standard time. Both guarantee **minimum wages equal to 100% of actual hours worked** at the prescribed rate. Both express time saved as **percentage of standard time: (Time saved ÷ Standard time) × 100**. In this case: (4 ÷ 20) × 100 = 20% efficiency gain.

**Differences:** Under **Halsey Scheme (50% bonus)**, the worker receives **50% of the monetary value of time saved** as bonus—a fixed percentage regardless of efficiency level. Under **Rowan Scheme (40% bonus)**, the bonus varies with efficiency: bonus = **(Time saved ÷ Standard time) × Actual wages × 40%**—a **lower bonus percentage** that provides diminishing returns as efficiency increases, making it more favorable to moderate performers than Halsey.

**PART (ii): DETERMINED WAGES UNDER BOTH SCHEMES**

**Halsey Scheme:**
Basic/Determined Wages = Actual time wages + [50% × Time saved × Hourly…

Question 5

निम्नलिखित विवरण 30 अप्रैल 2020 के लिए दिया गया है। कुल लागत ₹ 1,20,000 (overheads capitalised 120%) है। Asset cost = ₹ 4,00,000, Asset = ₹ 5,00,000 के साथ माल की लागत की गणना करें।

Accepted Answer

**Note:** The question as provided appears to have incomplete source data (several cost line items are missing from the original table). The following solution is constructed using the available figures — **Factory Overhead = ₹1,20,000 at 120% of Direct Wages**, **Opening Finished Goods Stock = ₹4,00,000**, **Closing Finished Goods Stock = ₹5,00,000** — along with standard assumed values for remaining items, clearly labelled. The cost sheet format and method are fully exam-compliant.

**Standard Cost Sheet for the period ending 30th April 2020**

**(i) Prime Cost (प्रचार लागत):**

Prime Cost comprises all **Direct Costs** — Direct Materials + Direct Wages + Direct Expenses.

Direct Materials consumed: ₹2,00,000
Direct Wages (Direct Labour): ₹1,00,000
Direct Expenses: ₹50,000
**Prime Cost = ₹3,50,000**

**(ii) Works Cost (कार्यकर्ता लागत):**

Works Cost = Prime Cost + Factory/Works Overheads ± WIP Adjustment.

Factory Overheads are absorbed at **120% of Direct Wages** = 120% × ₹1,00,000 = **₹1,20,000**.

Add: Opening WIP = ₹60,000
Less: Closing WIP = ₹80,000

**Works Cost = ₹3,50,000 + ₹1,20,000 + ₹60,000 − ₹80,000 = ₹4,50,000**

**(iii) Cost of Production (उत्पादन की लागत):**

Cost of Production = Works Cost + Office & Administration Overheads.

Office & Admin Overheads (assumed): ₹40,000

**Cost of Production = ₹4,50,000 + ₹40,000 = ₹4,90,000**

**(iv) Cost of Goods Sold / Cost of Production of Goods Sold (निर्मित माल की लागत):**

Adjusted for opening and closing stock of **…

Question 6

Examine TDS/TCS implications in case of following transactions, briefly explain whether involved assuming that all the payees are residents; state the rate and amount to be deducted, in case TDS/TCS is required to be deducted/collected.
(i) On 1.5.2019, Mr. Brijesh made three fixed deposits of nine months each of ₹ 3 lakh each, carrying interest @ 9% with Oriental Bank, Delhi Branch and Chandigarh Branch of PNB Bank, a bank which had adopted CBS. These Fixed Deposits mature on 31.01.2020.
(ii) Mr. Mukesh, aged 80 years, holds 6% Gold Bonds, 1977 of ₹ 2,00,000 and 7% Gold Bonds 1980 of ₹ 3,00,000. He received yearly interest on these bonds on 28.02.2020.
(iii) M/s AG Pvt. Ltd. took a loan of ₹ 50,00,000 from Mr. Haridas. It credited interest of ₹ 79,000 payable to Mr. Haridas during the pre…

Accepted Answer

**Governing Law:** All TDS/TCS provisions discussed below are under the **Income Tax Act, 1961** for **Previous Year 2019-20 (Assessment Year 2020-21)**.

**(i) Fixed Deposits – Mr. Brijesh | Section 194A**

**Section 194A** requires TDS on interest (other than on securities) paid/credited by a banking company. The threshold limit for banks (raised by Finance Act 2019 w.e.f. 01.04.2019) is **₹40,000** per annum per bank.

Interest per FD = ₹3,00,000 × 9% × 9/12 = **₹20,250** per FD.

**Oriental Bank, Delhi Branch (1 FD):** Interest = ₹20,250. Since only one branch and ₹20,250 < ₹40,000, **no TDS** is deductible.

**PNB (CBS adopted) – Delhi Branch + Chandigarh Branch:** Since PNB has adopted **Core Banking Solution (CBS)**, all branches are treated as a single unit for computing the threshold. Total interest = ₹20,250 + ₹20,250 = **₹40,500**, which exceeds ₹40,000. **TDS is applicable.**

**Rate:** 10% | **TDS Amount:** 10% × ₹40,500 = **₹4,050** (to be deducted by PNB).

**(ii) Gold Bonds – Mr. Mukesh | Section 193**

**Section 193** governs TDS on interest on securities. The proviso to Section 193 exempts TDS on interest on **6½% Gold Bonds, 1977** and **7% Gold Bonds, 1980** only if the **nominal value does not exceed ₹10,000** in the case of an individual.

Mr. Mukesh's holdings exceed this limit (₹2,00,000 and ₹3,00,000 respectively). Therefore, **TDS is applicable** under Section 193. The age of Mr. Mukesh (80 years) does not confer any higher threshold under Section 19…

Question 7

Mr. Xavier, an Indian resident individual, set up an unit in Special Economic Zone (SEZ) in the financial year 2015-16 for production of Mobile Phones. The unit fulfills all the conditions of Section 10AA of the Income-tax Act, 1961.

Accepted Answer

**Section 10AA of the Income-tax Act, 1961** provides a profit-linked deduction to units set up in a **Special Economic Zone (SEZ)** for export of articles, things, or services. The deduction is available for **15 consecutive assessment years** beginning from the year in which the unit commences production or service.

**Quantum and Period of Deduction under Section 10AA:**

The deduction is structured in three blocks:

**Block 1 – First 5 years (AY 2016-17 to AY 2020-21):** 100% of profits and gains derived from export of articles/things or from provision of services is deductible.

**Block 2 – Next 5 years (AY 2021-22 to AY 2025-26):** 50% of such profits and gains is deductible.

**Block 3 – Subsequent 5 years (AY 2026-27 to AY 2030-31):** 50% of profits is deductible, **subject to the condition** that an equivalent amount is credited to the **Special Economic Zone Re-investment Reserve Account** (SEZ RRA) before the due date of filing return under Section 139(1). The reserve must be utilised within **3 years** from the end of the year of creation for acquiring plant and machinery, or for the business of the SEZ unit. If misused or not used within 3 years, the amount is deemed as profits of the year in which it is misused/lapses.

**Formula for computing deduction:**

Deduction = Profits of SEZ unit × (Export Turnover of SEZ unit ÷ Total Turnover of the SEZ unit)

**'Export Turnover'** means consideration in respect of export by the SEZ unit received in, or brought into, I…

Question 8

Z Ltd is working by employing 50 skilled workers. It is considering the introduction of an incentive scheme – either Halsey Scheme (with 50% bonus) or Rowan Scheme – of wage payment for increasing their labour productivity to adjust with the increasing demand for its products by 40%. The company feels that if the proposed incentive workers could bring about an average 20% increase in the overall earnings of the workers, it could act as sufficient incentive for them to produce more and the company has accordingly given assurance to the workers. Because of this assurance, an increase in productivity has been observed. Data: Hourly rate of wages (guaranteed) ₹ 50; Average time for producing one unit by one worker at the previous performance 1.975 hours; Number of working days in a month 24; N…

Accepted Answer

**Statement of Wages under Halsey and Rowan Incentive Schemes for Z Ltd.**

Before computing wages, the key parameters are established. Each worker works 24 days × 8 hours = **192 hours per month**. For 50 workers, total actual hours = 50 × 192 = **9,600 hours**. The **standard time (time allowed)** for producing one unit is **1.975 hours** (the previous performance level serves as the standard). Standard hours for actual production of 6,120 units = 6,120 × 1.975 = **12,087 standard hours**.

**Time Saved** = Standard Hours − Actual Hours = 12,087 − 9,600 = **2,487 hours**

**Basic Wages (Guaranteed)** = 9,600 hours × ₹50 = **₹4,80,000** (for 50 workers)

---

**(a) Halsey Scheme (50% Bonus):**

Under Halsey, bonus = 50% × Time Saved × Hourly Rate = 50% × 2,487 × ₹50 = **₹62,175**

Total Wages = ₹4,80,000 + ₹62,175 = **₹5,42,175**

Earnings per worker per month = ₹5,42,175 ÷ 50 = **₹10,843.50**

Previous earnings per worker = 192 × ₹50 = ₹9,600

% Increase in earnings = (₹10,843.50 − ₹9,600) ÷ ₹9,600 × 100 = **12.95%**

This does **not** meet the company's assurance of 20% increase.

---

**(b) Rowan Scheme:**

Under Rowan, Bonus = (Time Saved ÷ Standard Time) × Actual Time × Hourly Rate

Bonus = (2,487 ÷ 12,087) × 9,600 × ₹50 = 0.20577 × ₹4,80,000 = **₹98,764 (approx.)**

Total Wages = ₹4,80,000 + ₹98,764 = **₹5,78,764**

Earnings per worker per month = ₹5,78,764 ÷ 50 = **₹11,575.28**

% Increase in earnings = (₹11,575.28 − ₹9,600) ÷ ₹9,600 × 100 = **20.57%**

This **meets a…

Question 9

Other information:
1. Depreciation in books of accounts is computed by applying the rates prescribed under the Income tax laws.
2. Mr. Krishna purchased a new car of ₹ 12,00,000 on 1st September, 2019 and the same was put to use in the business on the same day. No depreciation has been taken on car in the books of account.
3. Mr. Krishna had sold a house on 30th March, 2017 and deposited the long term capital gains of ₹ 25,00,000 in capital gain account scheme by the due date of filing return of income for that year. On 1st March, 2020, he sold another house property in which he resided for ₹ 1 crore. He earned a long term capital gain of ₹ 50,00,000 on sale of the property. On 25th March, 2020, he withdrew money out of his capital gain account and invested ₹ 1 crore on construction of new…

Accepted Answer

**Computation of Total Income and Tax Payable by Mr. Krishna for Assessment Year 2020-21 (Previous Year 2019-20)**

**Note:** The 'Other information' items provided are analysed below. A complete total income statement would require the base business income/other income figures from the main scenario. The treatment of each item is as follows:

**1. Depreciation on Car (Point 2)**

The car was purchased on 1st September, 2019 for ₹12,00,000 and put to use on the same date. For assets acquired during the year, if the asset is used for **less than 180 days**, depreciation is restricted to 50% of the normal rate. Period of use: 1st September, 2019 to 31st March, 2020 = **212 days**, which exceeds 180 days. Hence, full depreciation rate of **15%** is applicable on motor cars under the **Income Tax Act, 1961 (Schedule XIV / Rule 5 read with Appendix I)**.

Depreciation = 15% × ₹12,00,000 = **₹1,80,000**. Since no depreciation was recorded in books (as per Point 1, rates are as per IT Act), this amount is admissible as a deduction and will **reduce the business income by ₹1,80,000**.

**2. Long Term Capital Gains — Treatment under Section 54 of the Income Tax Act, 1961 (Point 3)**

**(a) First House (sold 30th March, 2017):** The LTCG of ₹25,00,000 was deposited in the **Capital Gain Account Scheme (CGAS)** by the due date of return filing for AY 2017-18. Under Section 54, construction of a new house must be completed within **3 years** from the date of transfer. Three years from 30…

Question 10

Two manufacturing companies A and B are planning to merge. The details are as follows: Capacity utilisation (%): A = 90, B = 60; Sales (₹): A = 63,00,000, B = 48,00,000; Variable Cost (₹): A = 39,60,000, B = 22,50,000; Fixed Cost (₹): A = 13,00,000, B = 15,00,000. Assuming that the proposal is implemented, calculate: (i) Break-even sales of the merged plant and the capacity utilisation at that stage. (ii) Profitability of the merged plant at 80% capacity utilisation. (iii) Turnover of the merged plant to earn a profit of ₹ 60,00,000. (iv) When the merged plant is working at a capacity to earn a profit of ₹ 60,00,000, what percentage of increase in selling price is required to sustain an increase of 5% in fixed overheads.

Accepted Answer

**Merged Plant — Preliminary Data**

Upon merger, the combined figures are: Total Sales = ₹1,11,00,000; Total Variable Cost = ₹62,10,000; Total Contribution = ₹48,90,000; Total Fixed Cost = ₹28,00,000.

**P/V Ratio** = Contribution ÷ Sales = 48,90,000 ÷ 1,11,00,000 = **163/370 = 44.054%**

**Full Capacity Sales** of merged plant: Company A at 100% = 63,00,000 ÷ 0.90 = ₹70,00,000; Company B at 100% = 48,00,000 ÷ 0.60 = ₹80,00,000. Total Full Capacity Sales = **₹1,50,00,000**.

**(i) Break-Even Sales and Capacity Utilisation**

**Break-Even Sales** = Fixed Cost ÷ P/V Ratio = 28,00,000 ÷ (163/370) = 28,00,000 × 370/163 = **₹63,55,828** (approx.).

**Capacity Utilisation at BEP** = 63,55,828 ÷ 1,50,00,000 × 100 = **42.37%**.

**(ii) Profitability at 80% Capacity Utilisation**

Sales at 80% = 80% × 1,50,00,000 = ₹1,20,00,000.
Contribution = 1,20,00,000 × 163/370 = ₹52,86,486.
Less: Fixed Cost = ₹28,00,000.
**Profit = ₹24,86,486.**

**(iii) Turnover Required to Earn Profit of ₹60,00,000**

Required Turnover = (Fixed Cost + Desired Profit) ÷ P/V Ratio = (28,00,000 + 60,00,000) ÷ (163/370) = 88,00,000 × 370/163 = **₹1,99,75,461** (approx.).

Note: This turnover exceeds the merged plant's full capacity of ₹1,50,00,000 (implying ~133% capacity), indicating the profit target of ₹60,00,000 cannot be achieved within existing capacity. The answer is a theoretical computation as required by the question.

**(iv) Percentage Increase in Selling Price to Sustain 5% Increase in Fixed Overheads*…

Question 11

MNO Ltd has provided the following details: Opening work in progress is 10,000 units at ₹ 50,000 (Material 100%, Labour and overheads 70% complete). Input of materials is 55,000 units at ₹ 2,20,000. Amount spent on Labour and Overheads is ₹ 26,500 and ₹ 61,500 respectively. 9,300 units were scraped, degree of completion for material 100% and for labour & overheads 60%. Closing work in progress is 12,000 units, degree of completion for material 100% and for labour & overheads 90%. Finished units transferred to next process are 43,500 units. Normal loss is 5% of total input including opening work in progress. Scraped units would fetch ₹ 8.50 per unit. You are required to prepare using FIFO method: (i) Statement of Equivalent production (ii) Abnormal Loss Account

Accepted Answer

**Process Costing — FIFO Method**

**Preliminary Workings:**

Total Input = Opening WIP + New Input = 10,000 + 55,000 = **65,000 units**

Normal Loss = 5% × 65,000 = **3,250 units** (scrap value = 3,250 × ₹8.50 = ₹27,625)

Total Scrapped = 9,300 units → **Abnormal Loss = 9,300 − 3,250 = 6,050 units**

Started & Completed (current period) = Finished − Opening WIP = 43,500 − 10,000 = **33,500 units**

*(Note: The given data produces a 200-unit reconciliation gap — 65,000 input vs 64,800 total output — likely a typographic error in the question. Calculations proceed with the given figures.)*

---

**(i) Statement of Equivalent Production (FIFO Method)**

Under FIFO, equivalent units reflect only **current period work done**.

| Output Category | Units | Material % | EU–M | Labour % | EU–L | OH % | EU–OH |
|---|---:|---:|---:|---:|---:|---:|---:|
| Opening WIP — Completion | 10,000 | 0% | — | 30% | 3,000 | 30% | 3,000 |
| Started & Completed | 33,500 | 100% | 33,500 | 100% | 33,500 | 100% | 33,500 |
| Abnormal Loss | 6,050 | 100% | 6,050 | 60% | 3,630 | 60% | 3,630 |
| Closing WIP | 12,000 | 100% | 12,000 | 90% | 10,800 | 90% | 10,800 |
| Normal Loss | 3,250 | — | — | — | — | — | — |
| **Total Equivalent Units** | **64,800** | | **51,550** | | **50,930** | | **50,930** |

*(Opening WIP material is already 100% complete → 0% additional material needed this period; labour/OH were 70% done → 30% added this period.)*

**Statement of Cost per Equivalent Unit:**

Normal loss scrap valu…

Question 12

GHI Ltd. manufactures 'Stent' that is used by hospitals in heart surgery. As per the estimates provided by Pharmaceutical Industry Bureau, there will be a demand of 40 Million 'Stents' in the coming year. GHI Ltd. is expected to have a market share of 2.5% of the total market demand of the Stents in the coming year. It is estimated that it costs ₹ 1.50 as inventory holding cost per stent per month and that the set up cost per run of stent manufacture is ₹ 225.

Accepted Answer

**Part (i): Optimum Run Size (Economic Order Quantity)**

The annual demand for GHI Ltd. is calculated as 2.5% of 40 Million stents = **10,00,000 stents per annum**.

The holding cost is ₹1.50 per stent per month = ₹18 per stent per annum. The setup cost per run = ₹225.

Using the **EOQ formula**: EOQ = √(2 × D × S / H)

EOQ = √(2 × 10,00,000 × 225 / 18) = √(4,50,00,000 / 18) = √2,50,00,000 = **5,000 stents per run**

The **optimum run size is 5,000 stents**.

---

**Part (ii): Minimum Inventory Holding Cost**

At the optimum run size, **average inventory = 5,000 / 2 = 2,500 stents**.

Minimum inventory holding cost = 2,500 × ₹18 = **₹45,000 per annum**.

(Note: At EOQ, total setup cost also equals ₹45,000, confirming optimality — Total Cost = ₹90,000)

---

**Part (iii): Extra Cost at Company Policy of 4,000 Stents per Run**

At a run size of 4,000 stents:
- Number of runs = 10,00,000 / 4,000 = 250 runs
- Setup cost = 250 × ₹225 = ₹56,250
- Average inventory = 4,000 / 2 = 2,000 stents
- Holding cost = 2,000 × ₹18 = ₹36,000
- **Total cost at 4,000 per run = ₹92,250**

Total cost at optimum (5,000 per run) = ₹90,000

**Extra cost incurred = ₹92,250 − ₹90,000 = ₹2,250 per annum**

Question 13

During the previous year 2019-20, following transactions took place in respect of Mr. Raghav who is 50 years old.

(i) Mr. Raghav owned two house properties in Mumbai. The details in respect of these properties are as under:

| | House 1 (Self-occupied) | House 2 (Let-out) |
|---|---|---|
| Rent received per month | Not applicable | ₹4,000 |
| Municipal taxes paid | ₹7,500 | Nil |
| Interest on loan (taken for purchase of property) | ₹3,50,000 | ₹3,00,000 |
| Principal repayment of loan (taken after Bank) | ₹2,00,000 | ₹3,00,000 |

(ii) Mr. Raghav had a house in Delhi. During financial year 2010-11, he had transferred the house to Ms. Vannika, daughter of his sister. He transferred at the will of Ms. Vannika. The transfer was made with a condition that 10% of rental income from such house …

Accepted Answer

**Answer: ₹10,84,100**

**INCOME FROM HOUSE PROPERTY**

**House 1 (Self-occupied, Mumbai):**
Gross rent = Nil (self-occupied). Less: Municipal taxes ₹7,500 and Interest on loan ₹3,50,000 (limited to ₹2,00,000 under Section 24(2) from 1.4.2019). Less: Standard Deduction = 30% of Nil = Nil. Net Loss = -₹2,07,500

**House 2 (Let-out, Mumbai):**
Gross rent = ₹4,000 × 12 = ₹48,000. Less: Standard Deduction ₹14,400 (30% of ₹48,000). Less: Interest on loan ₹3,00,000 (no limit for let-out property). Less: Municipal taxes Nil. Net Loss = -₹2,66,400

**House 3 (Delhi, Transferred):**
Property was transferred to Ms. Vannika in FY 2010-11 with condition that 10% of rental income is paid to Mrs. Raghav. Under **Section 64(1)(vi)**, income payable to spouse of transferor is in the transferor's hands. Income included = 10% of ₹3,30,000 = ₹33,000

**Total from House Property:** -₹2,07,500 - ₹2,66,400 + ₹33,000 = **-₹4,40,900**

**INCOME FROM OTHER SOURCES**

**From M/s M Pvt. Ltd.:**
Interest on Debentures = ₹7,50,000. Salary = ₹3,75,000 (entire amount taxable as no standard rate provided for unqualified employees). Subtotal = ₹11,25,000

**From Partnership Firm:**
Firm income = Interest on fixed deposit ₹4,00,000. Mr. Raghav's share (50%) = ₹2,00,000

**From M/s K Pvt. Ltd.:**
Dividend ₹1,30,000 diverted to Ms. Geetanshi. Although covered under **Section 64(1)(v)** (transfer of income without transfer of source), dividend from domestic company is **not included in gross total income under S…

Question 14

(b) Discuss the taxability of the following transactions giving reasons, in the light of relevant provisions, for your conclusion. Attempt any two out of the following three parts:

(i) Mr. Rajpal took a land rent from Ms. Shilpa on monthly rent of ₹10,000. He sub-let the land to Mr. Manish for a monthly rent of ₹11,500. Manish uses the land for growing of cattle required for agricultural activities. Mr. Rajpal wants to claim deduction of ₹10,000 (being rent paid by him to Ms. Shilpa) from the rental income received by it from Mr. Manish.

Accepted Answer

**Taxability of Sub-let Income in the hands of Mr. Rajpal**

**Head of Income:** Mr. Rajpal is not the owner of the land; he is merely a lessee who has sub-let the property. Income from **House Property** under Section 22 of the Income Tax Act, 1961 is chargeable only in the hands of the **owner** of the property. Since Rajpal does not own the land, the sub-let rental income of ₹11,500 per month **cannot be assessed under the head 'Income from House Property'**. Such sub-let income is therefore taxable under the head **'Income from Other Sources'** as per Section 56(2) of the Income Tax Act, 1961.

**Whether the income qualifies as Agricultural Income (exempt u/s 10(1)):** As per Section 2(1A) of the Income Tax Act, 1961, 'agricultural income' means any rent or revenue derived from land situated in India and **used for agricultural purposes**. The term 'agriculture' necessarily involves basic agricultural operations such as tilling the land, sowing seeds, planting, and similar operations. **Mere use of land for growing or rearing cattle does not constitute agriculture**, even if the cattle are used in agricultural activities. The income in the hands of Rajpal does not arise from his own agricultural operations; it is rental income from sub-letting. Accordingly, Rajpal's sub-let income is **not exempt as agricultural income**.

**Deductibility of rent paid to Ms. Shilpa:** Mr. Rajpal wants to claim a deduction of ₹10,000 per month (rent paid to Ms. Shilpa) from the sub-let inc…

Question 15

Mayum Chemicals Ltd buys a particular raw material at ₹ 8 per litre. At the end of the processing in Department-1, this raw material splits off into products X, Y and Z. Product X is sold at the split-off point, with no further processing. Products Y and Z require further processing before they can be sold. Product Y is processed in Department-2, and Product Z is processed in Department-3. Following is a summary of the costs and other related data for the year 2019-2020:

Cost of Raw Material: ₹ 4,80,000 (Dept 1)
Direct Labour: ₹ 70,000 (Dept 1), ₹ 4,50,000 (Dept 2), ₹ 6,50,000 (Dept 3)
Manufacturing Overhead: ₹ 48,000 (Dept 1), ₹ 2,10,000 (Dept 2), ₹ 4,50,000 (Dept 3)

Products - Sales (litres): X=10,000, Y=15,000, Z=22,500
Closing inventory (litres): X=5,000, Y=-, Z=7,500
Sale price per …

Accepted Answer

**Joint Product Costing — Mayum Chemicals Ltd. (Year 2019-2020)**

**Step 1: Determine Production Quantities**

Total raw material = ₹4,80,000 ÷ ₹8 per litre = **60,000 litres** processed in Dept-1.

Production quantities (Sales + Closing Inventory):
- Product X: 10,000 + 5,000 = **15,000 litres**
- Product Y: 15,000 + 0 = **15,000 litres**
- Product Z: 22,500 + 7,500 = **30,000 litres**
- Total = 60,000 litres ✓

**Step 2: Joint Cost (Dept-1)**

Raw Material ₹4,80,000 + Direct Labour ₹70,000 + Manufacturing OH ₹48,000 = **₹5,98,000**

**Step 3: Allocation of Joint Costs using Net Realisable Value (NRV) Method**

Since Products Y and Z require further processing, NRV method is applied. NRV is computed on total production quantities.

| Product | Final Sales Value | Less: Further Processing Cost | NRV |
|---------|-------------------|-------------------------------|-----|
| X | 15,000 × ₹30 = ₹4,50,000 | Nil (sold at split-off) | ₹4,50,000 |
| Y | 15,000 × ₹64 = ₹9,60,000 | Dept-2: ₹4,50,000 + ₹2,10,000 = ₹6,60,000 | ₹3,00,000 |
| Z | 30,000 × ₹50 = ₹15,00,000 | Dept-3: ₹6,50,000 + ₹4,50,000 = ₹11,00,000 | ₹4,00,000 |
| **Total** | | | **₹11,50,000** |

Allocation of Joint Cost ₹5,98,000 in ratio 4,50,000 : 3,00,000 : 4,00,000 (i.e., 9:6:8):
- Product X: 9/23 × ₹5,98,000 = **₹2,34,000**
- Product Y: 6/23 × ₹5,98,000 = **₹1,56,000**
- Product Z: 8/23 × ₹5,98,000 = **₹2,08,000**

**Step 4: Total Cost and Cost per Litre**

| Product | Joint Cost | Further Processing Cost | Total …

Question 16

During the financial year 2018-19, he has also set up a warehousing facility in a district of Tamil Nadu for storage of agricultural products. It fulfils all the conditions of section 35AD. Capital expenditure in respect of warehouse amounted to ₹ 93 lakhs (including cost of land ₹ 13 lakhs). The warehouse became operational with effect from 1st April, 2019 and the expenditure of ₹ 63 lakhs was capitalized in the books on that date. Compute the deduction relevant for the financial year 2019-20 based on the following data: Profit from operation of warehousing facility before claiming deduction under section 35AD: ₹ 1,10,00,000; Net Profit of SEZ (Mobile Phone) Unit: ₹ 50,00,000; Export sales of SEZ (Mobile Phone) Unit: ₹ 90,00,000; Domestic Sales of SEZ (Mobile Phone) Unit: ₹ 60,00,000; Com…

Accepted Answer

**Section 35AD Deduction — Warehousing Facility (Agricultural Produce), FY 2019-20**

Under **Section 35AD of the Income Tax Act, 1961**, 100% deduction is allowed on capital expenditure (excluding cost of land, goodwill, and financial instruments) for specified businesses, including warehousing facilities for storage of agricultural produce (operations commencing on or after 01.04.2012). Since the capital expenditure was incurred after 01.04.2017, the deduction rate is **100%** (enhanced 150% deduction was withdrawn by Finance Act 2016).

All pre-commencement expenditure (incurred in FY 2018-19, before warehouse became operational on 01.04.2019) is deductible in the **previous year in which operations commence**, i.e., FY 2019-20.

**Eligible Capital Expenditure:**
Total capital expenditure = ₹93,00,000
Less: Cost of land (specifically excluded) = ₹13,00,000
**Section 35AD deduction = ₹80,00,000**

---

**Computation of Total Income — AY 2020-21 (Mr. Xavier)**

Profit from warehousing facility (before Section 35AD) = ₹1,10,00,000
Less: Deduction under Section 35AD = ₹80,00,000
Income from specified business = **₹30,00,000**

Net Profit of SEZ (Mobile Phone) Unit = ₹50,00,000
Deduction under **Section 10AA**: Profit × (Export Sales / Total Turnover) = ₹50,00,000 × (₹90,00,000 / ₹1,50,00,000) = **₹30,00,000** (assuming 100% deduction in eligible years)

**Gross Total Income** = ₹30,00,000 + ₹50,00,000 = **₹80,00,000**
Less: Section 10AA deduction = ₹30,00,000
**Total Income = …

Question 17

Star Ltd, a registered supplier in Karnataka has provided the following details for supply of one machine:

| Particulars | Amount in (₹) |
|---|---|
| (1) List price of Machine supplied (Exclusive of items given below from (2) to (4)) | 80,000 |
| (2) Tax levied by Local Authority on sale of such machine | 6,000 |
| (3) Discount of 2% on the list price of machine was provided (recorded in the invoice of Machine) | (To be calculated) |
| (4) Packing expenses for safe transportation charged separately in the invoice | 4,000 |

Accepted Answer

**Computation of Value of Taxable Supply under Section 15 of the CGST Act, 2017**

The value of a taxable supply is the **transaction value**, which includes certain additions and allows certain deductions as specified under Section 15(2) and Section 15(3) of the CGST Act, 2017.

**Treatment of each item:**

**(1) List Price of Machine:** ₹80,000 — This is the base transaction value and is fully includible.

**(2) Tax levied by Local Authority — ₹6,000:** As per **Section 15(2)(a) of the CGST Act, 2017**, any taxes, duties, cesses, fees and charges levied under any other law (other than CGST, SGST, IGST and UTGST) shall be **included** in the value of supply. Hence, local authority tax of ₹6,000 is added.

**(3) Discount of 2% on List Price recorded in the Invoice:** As per **Section 15(3)(a) of the CGST Act, 2017**, discounts given **before or at the time of supply**, if duly recorded in the **invoice**, are **deductible** from the transaction value. Discount = 2% × ₹80,000 = ₹1,600. This is **excluded** from the taxable value.

**(4) Packing Expenses — ₹4,000:** As per **Section 15(2)(c) of the CGST Act, 2017**, incidental expenses including **packing charges** charged by the supplier to the recipient are **included** in the value of supply.

**Value of Taxable Supply = ₹88,400**

Question 18

Required: (i) Calculate the effective increase in earnings of workers in percentage terms under Haley and Rowan scheme. (ii) Calculate the savings to Z Ltd in terms of direct labour cost per unit under both the schemes. (iii) Advise Z Ltd about the selection of the scheme that would fulfil its assurance of incentivising workers and also to adjust with the increase in demand.

Accepted Answer

**Note:** The case data (standard time, actual time, wage rate) appears to be missing from the question as provided. The solution below demonstrates the complete methodology using assumed figures consistent with typical ICAI exam problems. Students must substitute the actual given values.

**Assumed Data for Z Ltd:**
Standard time allowed = 20 hours, Actual time taken = 16 hours, Wage rate = ₹25 per hour.
Time saved = 20 – 16 = 4 hours.

**(i) Effective Increase in Earnings under Halsey and Rowan Scheme**

**Halsey Scheme (50% bonus on time saved):**
Normal wages (for actual time) = 16 × ₹25 = ₹400
Bonus = 50% × 4 hours × ₹25 = ₹50
Total earnings under Halsey = ₹400 + ₹50 = **₹450**
Effective increase = (₹50 ÷ ₹400) × 100 = **12.5%**

**Rowan Scheme (bonus proportional to time saved / standard time):**
Normal wages = 16 × ₹25 = ₹400
Bonus = (Time saved ÷ Standard time) × Actual time × Rate = (4 ÷ 20) × 16 × ₹25 = ₹80
Total earnings under Rowan = ₹400 + ₹80 = **₹480**
Effective increase = (₹80 ÷ ₹400) × 100 = **20%**

**(ii) Savings to Z Ltd in Direct Labour Cost per Unit**

Standard (time-based) labour cost per unit = 20 hours × ₹25 = ₹500

**Saving under Halsey Scheme:**
Direct labour cost per unit = ₹450
Saving = ₹500 – ₹450 = **₹50 per unit** (i.e., 10% saving on standard cost)

**Saving under Rowan Scheme:**
Direct labour cost per unit = ₹480
Saving = ₹500 – ₹480 = **₹20 per unit** (i.e., 4% saving on standard cost)

Thus, **Halsey scheme saves more** for the company (₹50…

Question 19

You are required to prepare a cost sheet for the month of April 2020 showing: (i) Prime Cost (ii) Works Cost (iii) Cost of Production (iv) Cost of Goods sold (v) Cost of Sales and Profit earned.

Accepted Answer

**Cost Sheet of Q Ltd for the month of April 2020**

**Working back from given data:**
Since Cost of Sales = ₹4,00,000 and Sales = ₹5,00,000, **Profit = ₹1,00,000**.

From Cost of Sales:
Cost of Goods Sold = Cost of Sales − Selling Expenses − General & Admin Expenses = 4,00,000 − 22,000 − 18,000 = **₹3,60,000**

From Cost of Goods Sold:
Cost of Production = Cost of Goods Sold + Closing FG − Opening FG = 3,60,000 + 60,000 − 50,000 = **₹3,70,000**

Gross Works Cost (before WIP adjustment):
= Cost of Production + Closing WIP − Opening WIP = 3,70,000 + 30,000 − 20,000 = **₹3,80,000**

**Factory Overheads:** Since Direct Labour = 20% of Factory Overheads is internally inconsistent (yields negative prime cost), the operative relationship is Factory Overheads = 20% of Direct Labour = 20% × 1,20,000 = **₹24,000**

**Prime Cost** = Works Cost (Gross) − Factory Overheads = 3,80,000 − 24,000 = **₹3,56,000**

Direct Material Consumed = Prime Cost − Direct Labour = 3,56,000 − 1,20,000 = **₹2,36,000**
(implying Raw Material Purchases = 2,36,000 + 25,000 − 20,000 = ₹2,41,000)

**Summary of Results:**
(i) **Prime Cost = ₹3,56,000**
(ii) **Works Cost (Gross) = ₹3,80,000**
(iii) **Cost of Production = ₹3,70,000**
(iv) **Cost of Goods Sold = ₹3,60,000**
(v) **Cost of Sales = ₹4,00,000; Profit Earned = ₹1,00,000**

Verification: Cost of Sales (₹4,00,000) = given ✓; Sales (₹5,00,000) = given ✓

Question 20

Answer any four of the following:

Accepted Answer

**Treatment of Items in Arriving at Cost of Material Purchased**

The cost of material purchased includes purchase price, duties and taxes (non-refundable), freight inwards, and other directly attributable costs. The treatment of each item is governed by **CAS-6 (Cost Accounting Standard on Material Cost)** issued by the Institute of Cost Accountants of India, and general cost accounting principles.

**(i) Detention Charges/Fines:**
Detention charges or fines are levied when goods or transport vehicles are held beyond the permissible free period. These charges arise due to **inefficiency or negligence** and are **not included** in the cost of material purchased. They are treated as **abnormal costs** and charged directly to the **Costing Profit & Loss Account** as a period cost.

**(ii) Demurrage:**
Demurrage refers to the charge payable for detaining a ship, railway wagon, or other carrier beyond the agreed time for loading/unloading. Like detention charges, demurrage is an **abnormal and avoidable cost** arising from inefficiency. It is **not included** in the cost of material purchased and is written off to the **Costing Profit & Loss Account**. It does not form part of the value of materials.

**(iii) Cost of Returnable Containers:**
Returnable containers are those which are returned to the supplier after the material contained in them is used. Since these containers are **returned to the supplier**, their cost is **not included** in the cost of material purchased. Only a…

Question 21

Agro Services, a registered person provides the following information relating to its activities during the month of February 2020:

| Gross Receipts from | (₹) |
|---|---|
| Services relating to rearing of sheep | 1,00,000 |
| Services by way of artificial insemination of horses | 4,00,000 |
| Processing of Sugarcane into Jaggery | 6,00,000 |
| Milling of paddy into rice | 3,00,000 |
| Services by way of fumigation in a warehouse of Agricultural produce | 1,80,000 |

All the above receipts are exclusive of GST. Compute the value of taxable supplies under GST laws for the month of February, 2020.

Accepted Answer

**Computation of Value of Taxable Supplies — Agro Services (February 2020)**

Under the GST law, services relating to agriculture and rearing of animals are selectively exempt under **Notification No. 12/2017-Central Tax (Rate)** read with **Section 11(1) of the CGST Act, 2017**. The taxability of each service is determined as follows:

**Services relating to rearing of sheep — ₹1,00,000:** Under Entry 54 of Notification 12/2017-CT(Rate), services relating to rearing of all life forms of animals, **except horses**, for food, fibre, fuel or raw material are **exempt**. Since sheep are reared for food and wool, this service is **exempt from GST**.

**Services by way of artificial insemination of horses — ₹4,00,000:** The exemption for animal rearing and related services under Entry 54 **specifically excludes horses**. Artificial insemination of horses is not covered by any agricultural exemption entry. Therefore, this service is **taxable**.

**Processing of sugarcane into jaggery — ₹6,00,000:** Under Entry 55, only services by way of treatment or process that **do not alter the essential characteristics** of agricultural produce are exempt. The processing of sugarcane into jaggery involves physical and chemical transformation (extraction, boiling, solidification), clearly **altering the essential characteristics** of the agricultural produce. This service is therefore **not covered** by the exemption and is **taxable**.

**Milling of paddy into rice — ₹3,00,000:** Milling of p…

Question 22

XYZ Ltd is engaged in the manufacturing of toys. It can produce 4,20,000 toys per annum at 100% capacity on per annum basis. Company is in the process of determining sales price for the financial year 2020-21. It has collected the following information:

Direct Material: ₹ 60 per unit
Direct Labour: ₹ 30 per unit
Indirect Overheads:
  Fixed: ₹ 65,50,000 per annum
  Variable: ₹ 15 per unit
  Semi-variable: ₹ 5,00,000 per annum up to 60% capacity and ₹ 50,000 for every 5% increase in capacity or part thereof up to 80% capacity and thereafter ₹ 75,000 for every 10% increase in capacity or part thereof.

Company desires to earn a profit of ₹ 25,00,000 for the year. Company has planned that factory will operate at 50% capacity for first six months of the year and at 75% of capacity for further …

Accepted Answer

**Part (1): Determination of Average Selling Price**

**Step 1 — Planned Production (Units)**

The factory operates at different capacities across the year: 50% for 6 months, 75% for 3 months, and 100% for 3 months. Full capacity = 4,20,000 units p.a.

- First 6 months (50%): 4,20,000 × 50% × 6/12 = **1,05,000 units**
- Next 3 months (75%): 4,20,000 × 75% × 3/12 = **78,750 units**
- Last 3 months (100%): 4,20,000 × 100% × 3/12 = **1,05,000 units**
- **Total planned production = 2,88,750 units**

**Step 2 — Variable Cost**

Variable cost per unit = Direct Material ₹60 + Direct Labour ₹30 + Variable Overhead ₹15 = **₹105 per unit**

Total Variable Cost = 2,88,750 × ₹105 = **₹3,03,18,750**

**Step 3 — Fixed Overhead**

Fixed overhead = **₹65,50,000** (unchanged regardless of capacity)

**Step 4 — Semi-variable Overhead (prorated per period)**

The semi-variable cost structure (annual basis at each capacity level):
- Up to 60% capacity: ₹5,00,000 p.a.
- 60% to 80%: add ₹50,000 per additional 5% (or part) → at 75%: ₹5,00,000 + 3 × ₹50,000 = ₹6,50,000 p.a.
- Beyond 80%: add ₹75,000 per 10% (or part) → at 100%: ₹7,00,000 + 2 × ₹75,000 = ₹8,50,000 p.a.

Prorated for actual operating periods:
- 6 months at 50%: ₹5,00,000 × 6/12 = ₹2,50,000
- 3 months at 75%: ₹6,50,000 × 3/12 = ₹1,62,500
- 3 months at 100%: ₹8,50,000 × 3/12 = ₹2,12,500
- **Total Semi-variable = ₹6,25,000**

**Step 5 — Total Cost and Required Revenue**

Total Cost = ₹3,03,18,750 + ₹65,50,000 + ₹6,25,000 = **₹3,74,93,750…

Question 23

ABC Cinemas, a registered person engaged in making supply of services by way of exhibition to exhibition firms in multiples screens was issuing consolidated tax invoice for supplies at the close of each day in terms of section 31(3)(c) of CGST Rules, 2017. Advise ABC Cinemas for the procedure to be followed in the light of recent notification.

Accepted Answer

**Consolidated Tax Invoice – Procedure under Section 31(3)(c) CGST Rules, 2017**

ABC Cinemas can issue consolidated tax invoices for supplies of exhibition services under Section 31(3)(c) of the CGST Rules, 2017, subject to the following conditions and procedure as per recent notifications:

**Conditions for Consolidated Invoice**

A consolidated invoice may be issued for supplies of services of similar nature when supplies are made to the same or different recipients during a specified period. For exhibition services in multiple screens, daily consolidation is permitted. The consolidated invoice must contain particulars of all individual supplies being consolidated, including recipient details, service descriptions, and tax components.

**Required Procedure**

**Step 1 – Supplementary Invoices at Point of Supply:** At the time of each exhibition/supply of services, ABC Cinemas must issue a supplementary invoice containing details of the supply (screen number, date, time of exhibition, consideration, tax). These supplementary invoices serve as evidence of supply and form the basis for consolidation.

**Step 2 – Consolidated Invoice Issuance:** At the close of each day, ABC Cinemas must issue a consolidated tax invoice consolidating all supplementary invoices issued during that day. The consolidated invoice should contain: (i) serial number and date; (ii) details of all recipients with their GSTIN/registration details; (iii) summary of supplies with HSN/SAC codes; (iv) taxabl…

Question 24

Agri Transport, a supplier wishes to transport cargo by road between two cities situated at a distance of 368 kilometres. Calculate the validity period of the e-way bill as per the provisions in force for transport of the said cargo, if it is over dimensional cargo or otherwise.

Accepted Answer

**E-Way Bill Validity — Rule 138(10) of the CGST Rules, 2017**

As per **Rule 138(10) of the CGST Rules, 2017**, the validity period of an e-way bill depends on the type of cargo and the distance involved.

**Case 1: Over Dimensional Cargo**

For over dimensional cargo, the validity is **1 day for every 20 km or part thereof**. For a distance of 368 km:

368 ÷ 20 = 18.4 → 19 parts (since part thereof is counted as a full unit)

**Validity = 19 days**

**Case 2: Other than Over Dimensional Cargo (Normal Cargo)**

For cargo other than over dimensional cargo transported by road, the validity is **1 day for every 200 km or part thereof**. For a distance of 368 km:

368 ÷ 200 = 1.84 → 2 parts (since part thereof is counted as a full unit)

**Validity = 2 days**

The validity period is computed from the date and time of generation of the e-way bill. Agri Transport must ensure the goods reach the destination and the e-way bill is valid throughout the transit period.

Question 25

The aggregate Turnover of Mr. Prithvi, a registered person for the FY 2018-19 and 2019-20 were 140 lakhs and 170 lakhs respectively. He has not filed the annual return (GSTR-9) under section 44(1) of CGST Act, 2017 before the due date. Discuss the penal provisions, if any, for not filing the returns before the due date.

Accepted Answer

**Penal Provisions for Non-filing of GSTR-9**

**Mandatory Filing Obligation:**
GSTR-9 is the annual return required to be filed by registered persons under Section 44(1) of the CGST Act, 2017, within the prescribed due date under Rule 61 of the CGST Rules, 2017.

**Applicable Penal Provision:**
Non-filing of GSTR-9 before the due date is a contravention under **Section 122 of the CGST Act, 2017**. The Commissioner may direct any person who fails to furnish any return required under the Act to pay a penalty not exceeding ₹25,000 or the amount of tax payable, whichever is higher.

**Exemption Based on Aggregate Turnover:**
However, a critical exemption applies: **Persons with aggregate turnover not exceeding ₹2 crores during a financial year are not required to file GSTR-9**. Such persons are fully exempted from the annual return filing obligation.

**Application to Mr. Prithvi's Case:**
Analyzing the facts:
- FY 2018-19: Aggregate turnover = ₹140 lakhs (₹1.40 crores)
- FY 2019-20: Aggregate turnover = ₹170 lakhs (₹1.70 crores)

Since Mr. Prithvi's aggregate turnover in both years is substantially below the ₹2 crores threshold, he is **not required to file GSTR-9**.

**Conclusion:**
**No penalty is applicable** to Mr. Prithvi. While Section 122 prescribes penalties for non-filing of GSTR-9, the penalty applies only to those persons who are mandated to file the return but fail to do so. Since Mr. Prithvi was not obligated to file GSTR-9 due to his turnover being below ₹2 crores…

Question 26

Mr. Anirag, a famous Author is engaged in supply of services by the way of charter or permitting the use or enjoyment of a copyright covered under clause (a) of subsection (1) of section 13 of the Copyright Act, 1957 relating to original literary works to a publisher. Explain in brief the conditions under which an Author can choose to pay tax under forward charge.

Accepted Answer

**Forward Charge Option for Authors on Copyright Services under GST**

Normally, services supplied by an author by way of transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original literary works to a publisher are taxable under **Reverse Charge Mechanism (RCM)** as per **Notification No. 13/2017-Central Tax (Rate) dated 28th June 2017**. Under RCM, the recipient (i.e., the publisher) is liable to pay GST.

However, as per **Notification No. 22/2019-Central Tax (Rate) dated 30th September 2019**, an author like Mr. Anirag can **opt to pay GST under forward charge** (i.e., the author himself pays GST instead of the publisher) subject to fulfillment of the following conditions:

**Condition 1 — Registration:** The author must be a **registered person** under the Central Goods and Services Tax Act, 2017. An unregistered author cannot exercise this option.

**Condition 2 — Exercise of Option by Declaration:** The author must **file a declaration** with the jurisdictional officer (Commissioner) stating that he exercises the option to pay GST on such copyright services under forward charge. The option is not automatic and must be affirmatively chosen.

**Condition 3 — Timing of Declaration:** The declaration must be filed **before the commencement of the financial year** in which the author wishes to avail this option. The option cannot be exercised mid-year.

**Condition 4 — V…

Question 27

Under the provision of section 29(1) of CGST Act, 2017 read with rule 21A of CGST Rules, 2017 related to suspension of registration if the registered person has applied for cancellation of registration, what is the period and manner of suspension of registration?

Accepted Answer

**Suspension of Registration upon Application for Cancellation — Section 29(1) r/w Rule 21A of CGST Rules, 2017**

**Background:** When a registered person applies for cancellation of registration under **Section 29(1) of the Central Goods and Services Tax Act, 2017**, his registration does not cease immediately. Instead, the law provides for a period of **suspension** during which the application is being processed by the proper officer.

**Period of Suspension:**

As per **Rule 21A(1) of the CGST Rules, 2017**, where a registered person has applied for cancellation of registration under **Rule 20**, the registration shall be deemed to be **suspended** with effect from:

(i) the **date of submission of application for cancellation**, OR

(ii) the **date from which cancellation of registration is sought by the applicant**,

whichever is **later**.

The suspension shall continue and remain in force **until the application for cancellation is finally disposed of** (i.e., until the proper officer either grants or rejects the cancellation).

**Manner of Suspension — Restrictions during Suspension Period:**

During the period of suspension, the registered person is subject to the following restrictions:

(i) The registered person **shall not make any taxable supply** — this means he cannot supply taxable goods or services for which GST is collected from recipients.

(ii) The registered person **shall not be required to furnish any return** under **Section 39** of the CGST Act, 201…

Question 28

Mr. Pratham, a non-resident in India, received a sum of ₹ 1,14,000 from Mr. Rakesh, a resident and ordinarily resident in India. The amount was paid to Pratham on account of transfer of right to use the manufacturing process developed by Pratham. The manufacturing process was developed by Mr. Pratham in Singapore and Mr. Rakesh uses such process for his business carried out by him in Dubai.

Accepted Answer

**Nature of Receipt — Royalty:** The amount of ₹1,14,000 received by Mr. Pratham (a non-resident) from Mr. Rakesh represents consideration for the transfer of the right to use a manufacturing process. As per **Explanation 2 to Section 9(1)(vi) of the Income Tax Act, 1961**, the term 'royalty' includes consideration for the transfer of all or any rights in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property. Transfer of right to use a **manufacturing process** clearly falls within this definition. Hence, the receipt of ₹1,14,000 is **royalty income** in the hands of Mr. Pratham.

**Taxability in India — General Rule under Section 9(1)(vi):** As per Section 9(1)(vi), income by way of royalty payable by a **person who is a resident** (Mr. Rakesh) is deemed to accrue or arise in India and is therefore ordinarily taxable in India, irrespective of where the payer or payee is located.

**Exception — Business Carried on Outside India:** However, Section 9(1)(vi) provides a crucial exception. The royalty income shall **NOT** be deemed to accrue or arise in India if the royalty is payable in respect of any right, property or information **used for the purposes of a business or profession carried on by such person (the payer) outside India**, or for the purposes of making or earning any income from any source outside India.

In the present case, Mr. Rakesh (the payer, who is a resident) uses the manufacturing process **exclusively f…

Question 29

Mr. Netram grows paddy on land. He then employs mechanical operations on grain to make it fit for sale in the market, like removing hay and chaff from the grain, Illessing the grain and finally packing the rice in gunny bags. He claims that entire income earned by him from sale of rice is agricultural income not liable to income-tax since paddy as grown on land is not fit for sale in original form.

Accepted Answer

**Assessment of Mr. Netram's Claim under Section 2(1A) of the Income Tax Act, 1961**

**Definition of Agricultural Income:** Under **Section 2(1A)(b)(ii)** of the Income Tax Act, 1961, agricultural income includes income derived from any process **ordinarily employed by a cultivator or receiver of rent-in-kind** to render the produce fit to be taken to market. The critical phrase is "ordinarily employed by a cultivator" — the process must not go beyond what a cultivator would ordinarily do to make the produce marketable.

**Analysis of Operations Performed by Mr. Netram:**

Mr. Netram performs the following operations after harvesting paddy:
1. **Removing hay and chaff (threshing/winnowing)** — This is a basic post-harvest operation universally and ordinarily employed by every cultivator. It does not change the nature of the produce. This qualifies as part of agricultural operations.

2. **Illessing/Dressing the grain (milling paddy into rice)** — This involves **mechanical operations** that go beyond the ordinary processes employed by a cultivator. The conversion of paddy into rice through mechanical milling transforms the produce from one commodity (paddy) into a different commercial commodity (rice). This is essentially a **manufacturing/processing operation** and cannot be regarded as an operation ordinarily employed by a cultivator.

3. **Packing in gunny bags** — Packing as a standalone step done for commercial sale purposes is a **trade/business activity** and not an o…

Question 30

Budgeted direct labour hour rate was ₹ 4 per hour and the production overheads, shown in table below, were absorbed by products using direct labour hour rate. Company followed Absorption Costing Method. However, the company is now considering adopting Activity Based Costing Method. Budgeted Overheads: Material Procurement - ₹ 50,000 (Cost Driver: No. of Orders, 25 orders per product); Set-up - ₹ 40,000 (Cost Driver: No. of Production Runs, production runs of 48 units); Quality Control - ₹ 28,240 (Cost Driver: No. of Inspections, one per production run); Maintenance - ₹ 1,28,000 (Cost Driver: Maintenance Hours, 6,400 total hours allocated in ratio 1:1:2 between X, Y and Z).

Accepted Answer

**Activity Based Costing (ABC) vs Absorption Costing**

**Current Method - Absorption Costing:**
The company currently allocates all production overheads using a single cost driver (direct labour hour rate of ₹4 per hour). This method assumes all products consume overhead resources proportionally to direct labour hours, which is often inaccurate for diverse product portfolios.

**Proposed Method - Activity Based Costing:**
ABC recognizes that overhead costs are driven by different activities and allocates costs based on **multiple cost drivers** that reflect actual resource consumption. Each overhead category is grouped into a cost pool with an appropriate cost driver.

**ABC Cost Driver Analysis for Given Scenario:**

**1. Material Procurement Activity**
Budgeted Overhead: ₹50,000
Cost Driver: Number of Orders (25 orders per product; assuming 3 products = 75 total orders)
**Cost Rate = ₹50,000 ÷ 75 orders = ₹666.67 per order**
Products with higher order frequencies bear proportionally higher procurement costs.

**2. Set-up Activity**
Budgeted Overhead: ₹40,000
Cost Driver: Number of Production Runs (production runs of 48 units)
**Cost Rate = ₹40,000 ÷ Total production runs**
Products requiring more frequent set-ups will incur higher set-up costs.

**3. Quality Control Activity**
Budgeted Overhead: ₹28,240
Cost Driver: Number of Inspections (one per production run)
**Cost Rate = ₹28,240 ÷ Total production runs**
This directly links quality control costs to production frequenc…

CA Inter Cost & Mgmt

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

Particulars	₹
Wages (6 operators, paid hours)	85,500
Production Bonus @ 10% on wages	8,550
Power consumed	40,250
Supervision & Indirect Labour	16,500
Lighting & Electricity	6,000
Insurance (half-year)	1,80,000
Sundry Work Expenses (half-year)	25,000
Management Expenses (half-year)	2,50,000
Depreciation (half-year)	16,000
Repairs & Maintenance (half-year)	8,000
Total Cost (6 months)	6,35,800