Residential Status Questions and Answers

Residential Status Questions and Answers

SECTION – A

Question 1.
State the basic condition u/s 6(1) of Income Tax Act, 1961.
Answer:
The basic condition is:

  • One should be in India during the relevant previous year for a period of 182 days or more.
  • One should be in India for a period of 60 days or more during the relevant previous year and 365 days or more during 4 years immediately preceeding the previous year.

Question 2.
State the additional condition u/s 6(6) of Income Tax Act, 1961.
Answer:
The additional is:

  • A person should be a resident in India for atleast 2 years out of 10 years preceeding the relevant previous year.
  • He should have stayed in India for a period of 730 days or more during 7 years immediately preceeding the relevant previous year.

Question 3.
When does an individual becomes a resident, but NOR?
Answer:
If an individual satisfied any one of the basic conditions mentioned U/ s 6(1) and fails to satisfy any one or none of the additional conditions mentioned U/s 6(6) he is send to be a resident, but NOR.

Question 4.
Who is a not ordinary resident?
Answer:
An individual is called a not ordinary resident if he satisfies atleast one of the basic conditions and one or none of the additional conditions.

Question 5.
Who is a non resident individual?
Answer:
An individual is called a non resident if he satisfies none of the basic conditions and additional conditions being irrelevant.

Question 6.
Explain the conditions that an individual must satisfy to become a not ordinarily resident.
Answer:
An individual who satisfies any of the basic conditions and fails to satisfies any of the additional conditions shall be a not ordinarily resident.

  • Indian income received or deemed to be received in India
  • Income accruing or arising or deemed to accrue or arise in India
  • For resident but not ordinarily resident, foreign income is taxable only if business controlled or profession set up in India.

Question 7.
In order to prove himself as a resident and ordinary resident, what are additional conditions which need to be fulfilled?
Answer:
In order’to prove himself to be a resident and ordinary resident he should further fulfill both the additional conditions which are follows:

  • that he was resident of India for two or more previous years out of 10 previous years preceding the relevant previous year and
  • he was in India for a period of not less than 730 days in 7 previous years preceding the relevant previous year.

Question 8.
What do you mean by incidence of tax?
Answer:
The scope of total income varies according to the residential status of an assessee i.e. the incidence of tax is highest on resident, a little lower on NOR and lowest on NR assessee.

SECTION – B 

Question 1.
What are the exceptions to the rule of residential status?
Answer:
Exception to the rule is that the period of 60 days mentioned in basic condition (b) U/S 6(1) shall be extended to 182 days in the following situations:

  • An Indian citizen who (eaves India during the previous year for the purpose of employment outside India.
  • An Indian citizen who leaves India during the previous year as a member of crew of an Indian ship.
  • An Indian citizen or a person of Indian origin who comes to India on a visit during the previous year.

Question 2.
Explain the scope of total income based on residential status (Sec.5).
Answer:

Resident and ordinarily Resident Resident but not Ordinarily Resident Non-Resident
(i) Indian Income is always taxable in India not ordinarily of the residential status of the taxpayer. (i) Indian Income received or deemed to be received in India (i) Indian Income received or deemed to be received in India.
(ii) Income accruing or arising or deemed to accrue or arise in India. (ii) Income accruing or arising or deemed to accrue or arise in India (ii) Income accruing or arising or deemed to accrue or arise in India.
(iii) Foreign Income is taxable in the hands of resident (in case of a firm, an association of persons, a joint stock company and every other person) or resident and ordinarily resident (in case of an individual and a Hindu undivided family) in India. (iii) For resident but not ordinarily resident, foreign income is taxable only if business controlled or profession set up in India. (iii) Foreign income: Not taxable in India.

Practical Problems

Question 1.
Mr. P an Indian citizen left India on 28th October 2012 for the first time to U.K. for the purpose of employment. He visits India every year and stays here from 15th April to 10th September since 2015-16. What will be his residential status for the A.Y. 2020-21.
Solution:
The stay in India during the PY 2019-20.
April 16
May 31
June 30
July 31
Aug 31
Sept 10
149 days
As Mr. P is going abroad for the purpose of employment, the basic condition u/s 6(i)(b) is not applicable. His stay in India is less than 182 days (i.e. 149 days), therefore he is a non resident.

Question 2.
Mr. Satish an employee of PQR Co. Ltd. Mysore, has left India for the first time on 16th July 2019 for higher training in U.K. Calculate his residential status for the assessment year 2020-2021.

Question 3.
Mr. Naik who was born and bought up in India, went for further studies to USA on 1st March 2017 and came back to India on 1st October 2017 early in the morning. What is his residential status for the assessment year 2020-21?
Solution:
A.Y = 1.4.2019 to 31.3.2021
P.Y. = 1.4.2019 to 31.3.2020
Previous year stay = 18-19 October, 31 + November 30 + December 31 + January 31 + February 29 + March 31 = 183 days
Therefore he fulfils first basic condition
He fulfils additional condition 2 years out of 10 years and he fulfils 730 days in 7 PPY’s.
Therefore he is ordinarily resident.

Question 4.
Mr. Rama went to England for studies on 5th Aug. 2019 and came back to India on 25 Feb. 2019. He had never been out of India before.
What is Residential Status for the A.Y 2020-2021.
Solution:
He has been in India during the 4 years immediately preceeding the P.Y. more than 365 days and he was in India for at least 60 days in the P.Y. Therefore he is a Resident. Since he satisfies both the additional condition.
During the P.Y. 2019-20, Mr. Rama was in India for 162 days. He has never been out ot India before. Therefore he satisfies the basic condition U/s 6(1)(ii) i.e. U/s 6(6), he is a Resident and Ordinary Resident.

Question 5.
Mr. Pratham, a foreign cricketer comes to India for 100 days every year since the financial year 2019-20.
Find out his residential status for the assessment year 2020-21.
Answer:
Mr. Pratham, is treated as Resident but not ordinarily resident for the current previous year 2019-20. Because he has satisfied one of the basic conditions as per Sec. 6(1) and not both of the additional conditions as per Sec. 6(6).
2018- 19, 2017-18, 2016-17 and 2015-16 total number of days 400 (365 days or more during. 4 years preceding CPY and 100 days during CPY (60 days or more during (PY 2018-19) …2nd basic condition satisfied.
But he was not a resident for at least 2 previous year out of 10 PY preceding CPY as per additional condition.

Question 6.
Mr. Ramesh, a citizen of America, comes to India for the first time on 20.03.2020.
Answer:
On 01.09.2019 he leaves India for Nepal on a business trip. He comes back on 26.02.2020. Determine his residential status for the AY 2020-21.
Solution:
The stay in India during the year

2017 – 2018 Nil
2018 – 2019 (20.3.2019 to 31.3.2019) 12 days
2019 – 2020 (31.3.2019 to 01.09.2019) 153 days
and (26.2.2020 to 31.3.2020) 35 days
200 days

As Mr. Ramesh satisfies the 1st basic condition U/s 6(1) and does not satisfy both the additional conditions U/s 6(6), he is resident but not ordinery resident.

Question 7.
Mr. Veeresh a citizen of England came to India for the first time on 1.5.2013.
He stayed here without any break for 3 years and left for Singapur on 1.5.2016. He returned to India on 1.4.2017 and went back to England on 1.12.2017. He was pointed back to India on 20.1.2019.
Determine his residential status for the A.Y. 2020-21.
Solution:
Determination of residential status for the assessment year 2020-21

Previous year Stay in India Status
2013-14 336 days Resident
2014-15 365 days Resident
2015-16 365 days Resident
2016-17 31 days Non-resident
2017-18 246 days Resident
2018-19 Nil Non-resident
2019-20 71 days Resident

Mr. Veeresh will be Resident and Ordinarily Resident in India for the A.Y. 2020¬21 because: He satisfies one basic condition and both the additional condition.

Question 8.
Mr. Rishab a citizen of U.K. Came to India for the first time on 1.5.2013.
He stayed here without any break for 3 years and left for Bangladesh on 1.5.2016. He returned to India on 1.4.2018 and went back to U.K. on 1.12.2017. He was posted back to India on 20.1.2020.
Determine his residential status for the A.Y. 2020-21.

Question 9.
Mr. Frank, a citizen of West Indies, was appointed as sales manager in India on 1st April 2014 at Mumbai.
On 25th January, 2017 he went to Uganda on deputation for a period of 3 years, but left his wife and children in India. On 1st May, 2018 he came to India and took with him his family to Uganda on 30th June, 2019. He
returned to India and joined his original job on 24th January, 2020.
Determine the residential status of Mr. Frank for the assessment year 2020-21.
Solution:
Mr. Frank, is a resident and ordinary resident of India assessment year 2020-21 because he satisfied second basic conditions u/s 6(1) [i.e. he was in India for than 60 days (67 days) in the previous year 2019-20 and more than 365 days in 4 years preceding the previous years] and both additional conditions u/s 6(6) [i.e. he was a resident for more than 1 year out of 10 years preceding the previous years he was in India for than 730 days in 7 years preceding the previous years (1089 days).

Question 10.
Mr. Clinton an American came to India for the first time on 1st January 2015.
He stayed here continuously for 2 years. He went back to Newyork on 1-1-2018. Again he came to India on 1-2-2019 on a two years job assignment with a multinational company in India. Determine his residential status for the Assessment Years 2020-21.
Solution:
(a) For Assessment Year 2020-2021
Previous year = 2019-2020 i.e. from 1-4-2019 to 31-3-2020
His stay in India in the previous year is calculated as follows:
Feb 2019 – 28 days
Mar 2019 – 31 days
= 60 days
He doesnot fulfill even one of the basic condition u/s 6(1), therefore he is a non resident for AY 2020-21.
Now since he has stayed in India for 2 years i.e. from 1.1.16 to 1.1.18, he fulfil both the additional condition u/s 6(6). Therefore he is a resident and ordinary resident.

Question 11.
Mr. Kishore went to England for studies on 5th August 2019 and came back to India on 25th February 2020. He had never been out of India before. What is his residential status for the Assessment Year 2020-21?

Question 12.
Following are the incomes of Mr. Rajan for the financial year 2019-20
(i) Interest on SB Deposit in SBM. Delhi. – 1,200
(ii) Income from agriculture in Africa invested in ‘Nepal. – 10,000
(iii) Dividends received in UK from an American company, out of which 2000 were remitted to India. – 10,000
(iv) Salary drawn for 3 months for working in Indian Embassy’s office in Australia and salary received there. – 72,000
(v) Income from House property situated in Pakistan. – 15,000
(vi) Pension received in Belgium for services rendered in India with a Ltd. Company. – 20,000
You are required to compute his gross total income for the A.Y. 2020-21, if he is
(a) A resident
(b) Not ordinary resident and
(c) Non- Resident

Question 13.
Following are the particulars of Mr. George relevant to the previous year 2019-20. Compute his Total Income based on different residential status.
(i) Income from agriculture in Indonesia, one-half of the income is received in Bangalore and the balance is received in Pakistan, 30,000.
(ii) Income from agriculture in Punjab, the whole amount is received in London and used for children education there, 25,000.
(iii) Profit from a business in Chennai, the business is controlled and managed from Colombo, 50% of the profits are received in Colombo, 50,000.
(iv) Profit from a business in Paris, the business is managed from Mumbai, one- half of the profits are received in Bangalore and the balance is remitted to India, 60,000.
(v) Dividend from Microsoft Corporation Ltd., 20,000.
(vi) Share of profit from a partnership firm in Mumbai, 22,000.
(vii) Interest on fixed deposits in State Bank of India, 10,000.
(viii) Interest on SB account in Post Office, 2,000.

Question 14.
Following are the incomes of Mr. Vishnu for the previous year 2019-2020.
(a) Received 20,000 in India, which accrued in England.
(b) 10,000 earned in India but received in England.
(c) 5,000 were earned and received in Africa but brought to India.
(d) 10,000 were earned and received in japan from a business which was controlled and managed in Japan.
(e) 16,000 was untaxed foreign income of some earlier year, which was controlled and managed in Japan.
(f) Interest on Fixed Deposit in State Bank of Mysore, Bangalore 1,200.
(g) Income from agriculture in Africa 10,000
(h) Dividends received in U.K. from an American Company 10,000
(i) Salary income fro three months for working in Indian Embassy’s office in Australia and salary received there 72,000
(j) Income from house property in Mumbai 1,00,000
(k) Interest received on POSB A/c 1,000
(l) Pension income from Belgaum for services rendered in India with a limited company 20,000
(m) Gift from relatives 80,000
Which of the above incomes are taxable if Mr. Vishnu is –
(a) Resident and ordinarily resident
(b) Resident but not ordinarily resident
(c) Non-resident Nov 2015

Question 15.
Mr. Krishna furnishes the following particulars of his income earned during the previous year 2019-20
(a) Profit from business in Chennai 50,000
(b) Income from agriculture in Srilanka 1,90,000
(c) Income from property in Mexico received there 2,00,000
(d) Interest on Singapur Development Bonds 1,50,000 (1/3 received in India.
(e) Income from business in Kuwait controlled from Mumbai 85,000 (35,000 received in India)
(f) Dividend from domestic company 1,000
(g) Profit on sale of building in Bangalore received in Nepal 50,000
(h) Income from agriculture in Punjab 1,00,000
(i) Profit on sale of plant at London 50,000 (50% is received in India)
(j) Rent from house property in Nepal received there 20,000
(k) Profit from business in Mysore received in Mandya 25,000
(l) Dividends from U.K. based company received in U.K. 27,000
Compute his gross total income for the assessment year 2020-21.
If he is
(a) Ordinary resident
(b) Not ordinary resident
(c) Non resident

Question 16.
From the following particulars of Mr. Naveen compute his Gross Total Income for the AY 2020-21.
If he is:
(i) Ordinary Resident
(ii) Not ordinarily Resident and
(iii) Non-Resident
(a) Profit from business in England, received in India 24,000
(b) Income from house property in Pakistan received there 20,000
(c) Profit from business in Iran received in India 10,000
(d) Income from house property in Bangladesh deposited in a bank there 10,000
(e) Profit from business in Indonesia deposited in a bank there, this business is controlled from India 30,000
(f) Profit from software business in Bangalore controlled from USA 30,000
(g) Income from Agriculture in Punjab 20,000
(h) Profit from sale of building in India received in Sri Lanka 25,000
(i) Income accrued in Chennai but received in Singapore 32,000
(j) Dividend received from Domestic Company 10,000

Question 17.
Mr. Darshan-earns the following incomes during the financial year 2019-20.
(i) Profits earned from business in Paris 1,60,000 which is controlled from India, half of the profits being received in India.
(ii) Pension from former employer in India, received in U.S.A. – 32,000
(iii) Income from Agriculture in Pakistan and brought to India – 40,000
(iv) Income from property in U.K. and received there – 32,000
(v) Past untaxed foreign income brought into India during the previous year 40,000
(vi) Gift in foreign currency from a relative received in India – 80,000
Determine the Gross Total Income of Mr. Darshan for the A.Y. 2020-2021 if he is
A) Resident
B) Not Ordinarily Resident
C) Non Resident.

Question 18.
Sri Suresh has the following incomes for the financial year.
2019 – 20.
(a) Income from house property situated in U.K. 10,000.
(b) Income from salary received in India for services rendered in USA 58,000
(c) Profits from business in Pakistan controlled from India 1,10,000.
(d) Profit from Delhi business 1,20,000
(e) Agricultural income in India 12,000.
(f) Income earned in Australia and received there but brought to India 80,000.
Compute the income of Sri Suresh for the A.Y 2020-21 if he is
(i) Resident
(ii) Not ordinarily Resident
(iii) Non Resident.

Question 19.
Mr. Akshay furnished the following particulars of his income for the previous year 2019-20.
Determine his taxable income for the A.Y, 2020-21. If his residential status is:
(a) Ordinary resident
(b) Not ordinary resident
(c) Non-resident
(i) Income from business in Hubli 1,00,000
(ii) Profit from business in UK controlled from India 60,000
(iii) Income from House Property in Japan received there 50,000
(iv) Income from business in India received in Pakistan 30,000
(v) Salary received in India for service rendered in USA 70,000
(vi) Interest on deposits With SBI in Mysore 20,000
(vii) Profit from business in Singapore controlled from India (1/3rd received in India) 30,000
(viii) Past untaxed foreign income brought into India 8,000
(ix) Dividend received from a domestic company 5,000
(x) Agricultural income earned in nepal 25,000
(xi) Commission received in India for service given in Japan 10,000
(xii) Income from profession in India but received in France 10,000

Question 20.
Sri Ram submits the following particulars of his income for the year 2019-20.
(a) Income from house property in Hasana received in Paris – 6,50,000
(b) Salary income from an Indian employer received in Newyork for two months – 75,000 p.m.
(c) Income from business in Mumbai received in Bangalore (40% remitted to Nepal) – 12,50,000
(d) Dividend from foreign company received in Chennai – 1,80,000
(e) Income from business in Hongkong and the business is controlled from Tumkur (25% received in Tumkur) – 1,5,00,000
(f) Interest on post office S.B. A/c in Bangalore (account is held in joint names) – 17,500
(g) Income from agricultural land in Sri Lanka (50% received in India) 2,05,000
(h) Share from H.U.F. – 60,000
(i) Royalty received in India for the services rendered in Japan – 6,00,000
(j) Interest earned on U.S. Government Bonds received in London – 1,75,000
(k) Interest on SBI deposits received in Bhutan – 7,080
(l) Past untaxed foreign income brought to India – 6,10,000
(m) Interest on housing loan given to Mr. X for for construction of house in Bangladesh received in Bangalore – 65,020

Question 21.
Mr. Krishan Murthy furnishes the following particulars Of his income for the PY 2019-20:
(a) Interest on German Development Bonds 60,000 (2/5th is received in India).
(b) Income from agriculture in Bangladesh (received there but later on 50.0 remitted to India) 1,80,000
(c) Income from property in Sri Lanka received there (80,000 is used in Sri Lanka and the balance remitted to India) 1,20,000
(d) Income from business in Kenya which is controlled from Bengalure 18.0 received in Bengaluru) 78,000
(e) Dividend paid by an Indian Company received in Canada 56,000
(f) Past untaxed profit 1,05,000 brought to India during 2018-19.
(g) Profit from business in Mysore but controlled from London 72,000
(h) Profit on sale of building in Mangalore but received in Dubai 1,48,000
(i) Pension from Indian Company received in London 36,000
(j) Gift in cash from a relative received in India 60,000
Find out Mr. Krishna Murthy’s Gross Total Income for the AY 2020-21 if he is:
(a) Resident and ordinarily resident
(b) Resident but not ordinarily resident and
(c) Non-resident.

Question 22.
Sri Anantha Krishna is an Indian Citizen, went out of India on 28th August 2019 for a service in a company in Japan and came back to India on 1st April, 2019 to meet his family. During the financial year 2019-20 he received the following incomes:
(i) Income from salary in Japan 1,70,000
(ii) Interest on bonds of central government of India 28,000
(iii) Taxable income from house property in Rajasthan 26,500
(iv) Dividend on shares from foreign company 7,500, received in Japan
(v) Income from agricultural land situated in Punja 10,000
(vi) Interest received from a firm in UK remitted to India 9,200
(vii) Payment from public provident fund 20,000
(viii) Commission received in India for the services given in nepal 10,000
(ix) Profit from business in Srilanka 40,000 (business controlled from Chennai) of which 15,000 was received in India.
(x) Profit of the business situated in nepal brought to India 50,000
(xi) Amount brought to India out of past untaxed profit earned in Japan 8,000
(xii) Share of income from HUF 12,000
Calculate the gross total income of Sri Anantha Krishna after ascertaining his residential status for the assessment year 2020- 21.
Solution:
Sri Anantha Krishna is a non-resident individual for the A.Y. 2020 – 21 because he has not satisfied the basic condition u/s 6(1) as he was not in India for a minimum period of 182 days in the previous 2019 – 20. He should be in India in the previous year 2019-20 for a period of 182 days or more, when he left India in the previous year for employment purposes, to call him as resident of India.

Question 23.
From the following particulars of Mr. Thushar compute his gross total income. For the assessment year 2020-21 if he is:
(a) Resident
(b) Not-ordinarily resident
(c) Non resident
(A) Income from business in Hubli 1,00,000
(B) Profit from business in U.K. controlled from India 60,000
(C) Income from house property in Japan not received in India 50,000
(D) Income from business in India but received in Pakistan 30,000
(E) Salary received in India for services rendered in USA 70,000
(F) Interest on deposit with State Bank in Bangalore 20,000
(G) Profit from Business in Singapar controlled from India (1/3 profit received in India) 30,000
(H) Past untaxed foreign income brought into India 8,000
(I) Dividend received from domestic company 5,000
(J) Interest on post office savings bank a/c 1,000
(K) Agricultural income earned in Nepal 25,000
(I) Commission received in India for the services given in Nepal 10,000

Question 24.
From the following particulars of Mr. Manjunath compute his Gross Total Income for the A.Y. 2020-21.
(a) Resident
(b) Not-ordinarily resident
(c) Non-resident
(a) Income from business in Chennai, business managed from Srilanka 25,000
(b) Income from House Property in Mysore 1,00,000
(c) Income from Salary in Japan 1,60,000
(d) Income from business in Kuwait, business being controlled from Mumbai (25,000 is received in India) 65,000
(e) Income from agriculture in Punjab, received in Mumbai 30,000
(f) Income from agriculture in Bangladesh remitted to India 10,000
(g) Profit from sale of building in India 2,50,000
(h) Profit from business in Indonesia; this business controlled from Delhi 40,000
(i) Income from Indian partnership firm 5,000
(j) Interest on Savings Bank deposits in State Bank of India 1,000
(k) Dividend from foreign company received in England 10,000
(l) Interest on German Development Bonds (1/3 received in India) 51,000

Question 25.
Mr. Avipash furnishes the following information of income for the AY 2020- 21. Find out his total income if his Residential status is:
(a) Ordinary Resident
(b) Not-ordinary resident
(c) Non- Resident Indian.
(i) Income from business from Mumbai – 1,00,000
(ii) Profit from business in USA controlled from India – 50,000
(iii) Income from House property in Japan received there – 50,000.
(iv) Income from business in India, but received in London – 30,000
(v) Salary received in India for services rendered in USA – 70,000
(vi) Profits from business in Malaysia controlled from India (1/3 received in India) – 30,000.
(vii) Past untaxed income brought into India – 8,000.
(viii) Dividend received from a domestic company – 5,000
(ix) Agricultural income earned in Nepal – 25,000
(x) Interest earned on Post Office Savings Bank A/c – 3,000
(xi) Interest received on Private Company Securities – 25,000
(xii) Gift in cash from father – 30,000

B.Com 5th Sem Goods and Services Tax (GST) Questions and Answers

B.Com 5th Sem Goods and Services Tax (GST) Questions and Answers

Unit 1 Introduction to Goods and Services Tax (GST)

Unit 2 GST Acts: CGST Act, SGST Act, IGST Act

Unit 3 Procedure and Levy Under GST

Unit 4 Assessment and Returns

Unit 5 GST and Technology

B.Com 5th Sem Goods and Services Tax (GST) Notes

B.Com 5th Sem Goods and Services Tax (GST) Syllabus

Unit 1: INTRODUCTION TO GOODS AND SERVICES TAX (GST) (08 Hrs)
Objectives and basic scheme of GST, Meaning – Salient features of GST – Subsuming of taxes – Benefits of implementing GST – Constitutional amendments
– Structure of GST (Dual Model) – Central GST – State / Union Territory GST
– Integrated GST – GST Council: Structure, Powers and Functions. Provisions for amendments.

Unit 2: GST ACTS: CGST Act, SGST Act (Karnataka State), IGST Act (08 Hrs)
Salient features of CGST Act, SGST Act (Karnataka State), IGST Act –
Meaning and Definition: Aggregate turnover, Adjudicating authority, Agent, Business, Capital goods, Casual taxable person, Composite supply, Mixed supply, Exempt supply, Outward supply, Principal supply, Place of supply, Supplier, Goods, Input service distributor, Job work, Manufacture, Input tax, Input tax credit, Person, Place of business, Reverse charge, Works contract, Casual taxable person, Non-resident person. Export of goods / services, Import of goods / services, Intermediary, Location of supplier of service, Location of recipient of service.

Unit 3: PROCEDURE AND LEVY UNDER GST (24 Hrs)
Registration under GST: Procedure for registration, Persons liable for registration, Persons not liable for registration, Compulsory registration, Deemed registration, Special provisions for Casual taxable persons and Non-resident taxable persons. Exempted goods and services – Rates of GST.
Procedure relating to Levy: (CGST & SGST): Scope of supply, Tax liability on Mixed and Composite supply, Time of supply of goods and services, Value of taxable supply. Computation of taxable value and tax liability.
Procedure relating to Levy: (IGST); Inter-state supply, intra-state supply, Zero rates supply, Value of taxable supply – Computation of taxable value and tax liability.
Input tax Credit: Eligibility, Apportionment, Inputs on capital goods, Distribution of credit by Input Service Distributor (ISD) – Transfer of Input tax credit – Simple Problems on utilization of input tax credit.

Unit 4: ASSESSMENT AND RETURNS (10 Hrs)
Furnishing details of outward supplies and inward supplies, First return, Claim of input tax credit, Matching reversal and reclaim of input tax credit, Annual return and Final return. Problems on Assessment of tax and tax liability.

Unit 5: GST AND TECHNOLOGY (06 Hrs)
GST Network: Structure, Vision and Mission, Powers and Functions. Goods and Service Tax Suvidha Providers (GSP): Concept, Framework and Guidelines and architecture to integrate with GST system. GSP Eco system. (Theory only).

Exempted Incomes Questions and Answers

Exempted Incomes Questions and Answers

SECTION – A

Question 1.
What is exempted incomes?
Answer:
Income fully exempt from income tax do not form part of the total income of the assessee. Further, if the assessee wishes to claim any exemption under the act, the burden of proving that the income is exempt from tax rests with assessee and not with the income tax authorities.

Question 2.
What are the incomes which are exempted from tax.
Answer:
The incomes which are exempted from tax are:

  • Agricultural Income.
  • Income from HUF to its members
  • Foreign allowances and perquisites to employee
  • Pension of voluntary awardees
  • Income of residents of Ladakh district
  • Casual income up to 5,000

Question 3.
State any four fully exempted incomes.
Answer:
The incomes which are exempted from tax are:

  • Agricultural Income.
  • Income from HUF to its members
  • Foreign allowances and perquisites to employee
  • Pension of voluntary awaraees
  • Income of residents of Ladakh district
  • Casual income up to 5,000

Question 4.
How do you treat an income as an Indian income or as a foreign income?
Answer:
If the income arise/accrue (deemed to accrue or arise) or received in India (deemed to be received) in the previous year, then such income is Indian income. On the other hand, If the income does not arise/accrue (does not deemed to accrue or arise) and not received in India (not deemed to be received) in the previous year, then such income is Foreign income,

Question 5.
Mention any two special allowances notified u/S 10(14) (i) of IT Act.
Answer:
The allowances notified u/s 10(14)(i) of IT Act. are:

  • Trvelling allowance
  • Conveyance allowance
  • Helper allowance
  • Uniform allowance
  • Daily allowance

SECTION – B

Question 1.
State any ten fully exempted income u/s 10 to individuals.
Answer:
Exempted Income u/s 10 (restricted to individual assessee):

Section Nature of Income Exemption limit, if any
10(2) Share of income from HUF Fully exempt
10(2A) Share of profits from partnership firm Fully exempt
10(4) (a) Interest on securities and bonds notified by the central government prior to June 2002 including premium on redemption. (b) Interest on non resident external account by non-resident. Fully exempt
10(8) Income of an individual serving under co-operative technical assistance program Fully exempt
10(8A) Fees received by a non-resident consultant from an International organisation for rendering services in India. Fully exempt
10(10BB) Payments of Bhopal Gas leak disaster victims: Any payment made to a person under Bhopal Gas leak disaster (processing of claims) Act, 1985 and any scheme framed there under. Fully exempt
10(10BC) Compensation received on account of disaster by an individual or his legal heirs from central or state government. Fully exempt
10(16) Scholarship received by an assessee to meet the cost of his education. Fully exempt
10(17) Daily allowance, constituency allowance Fully exempt
10(17A) Reward or award either in cash or in kind instituted and approved by the government Fully exempt
10(18) Pension or family pension received by the winner of gallantray award or his family members Fully exempt

Question 2.
Explain the tax treatment of encashment of Leave salary.
Answer:
Encashment of leave by surrendering earned leave standing to the employee’s credit is known as “encashment of leave salary”.
Tax Treatment

Leave salary received during the service period Leave salary received at the time of retirement
Government employee i.e. Non-Government employee i.e. Government employee Non-Government employee
(employees of state or central Government) (other employees) Least of the following is exempt from tax: 1. Leave encashment actually received, [service period x Actual earned leave – earned leave used x last drawn salary]

2. Leave salary as per I.T law [1 month or Actual earned leave, w.e.i x service period – earned leave used x average salary]

3. 10 months average salary.

4. Maximum limit of 3,00,000.
Fully taxable Fully taxable Fully tax free

Note:
1. Average salary means the total of basic salary, dearness pay, dearness allowance (if it enters into all retirement benefits), commission (if it is based on a fixed percentage of turnover achieved by the employee), for 10 months immediately preceding the date of retirement, divided by 10.

2. To find out the duration of service period, fraction of the year shall be ignored.

3. If employee receives leave salary from two or more employers in the same year, the maximum limit of 3,00,000 shall be reduced by the amount of leave salary exempted earlier. This provision is applicable for non-government employees receiving leave salary at the time of retirement.

4. Leave salary paid to the legal heirs of the deceased employee is fully exempt from tax.

5. If total earned leave less leave availed is negative, it must be taken as nil.

Question 3.
Explain the tax treatment of encashment of gratuity.

Question 4.
Explain the tax treatment of encashment of penson.
Answer:
Commutation of pension means surrendering right to receive periodic pension against lumpsum consideration.
Tax Treatment

Government employees (i.e. employees of state or central local authority and statutory corporation) Non-Government employees
If employee receives gratuity If employee does not receive gratuity
Fully exempted from tax Least of the following is exempt: 1. Actual commuted pension received
or
2. 1/3rd of full value of commuted pension		 Least of the following is exempt:
1. Actual commuted pension received
or
2. 1/2 of full of value of commuted pension.

Question 5.
Briefly explain the tax treatment of RPF and SPF.
Answer:
Tax treatment of RPF and SPF:

Statutory Provident fund (SPF) Recognised Provident Fund (RPF)
1. Employer’s contribution Tax free In excess of 12% of employees salary is taxable
2. Employee’s contribution Qualifies for deduction U/s 80C Qualifies for deduction U/s 80C
3. Interest on Provident Fund Tax Free In excess of 9.5% is taxable
4. Refund from Provident Fund Tax Free Exempt, if employee has rendered atleast 5 years continous services otherwise, tax treatment applicable for URPF refund will be applicable for RPF refund.

Question 6.
Explain the treatment of Entertainment Allowance for Income-Tax purpose under the head “Income from Salary”.
Solution:
Entertainment Allowance is fully taxable under the Act.
But the assessee can claim certain deductions under Section 16 (ii). This deduction shall be admissible only to Central or State Government employees. The deduction shall be allowed in the following manner. Least of following shall be allowed as deduction.

  • Statutory limit of 5,000 or
  • 1/5 Basic Salary or
  • Actual amount of Entertainment Allowance received.

Question 7.
Explain the tax treatment house rent allowance.
Answer:
HRA is given by the employer to the employees to meet his/her rental expenditure.
Tax Treatment
Least of the following is exempt:

  • Actual HRA received
  • Rent paid Less 10% of salary
  • 40% of salary

Note:
1. Salary for this purpose includes Basic Salary, Dearness pay, Dearness allowance (if it enters into all retirement benefits) and commission (if it is based on a fixed percentage of turnover achieved by the employee.

2. If the house Is situated in Chennai, Delhi, Mumbai, Kolkata, 50% of salary will be considered in the place of 40% of salary.

3. HRA is fully taxable in the following cases:

  • When employee is residing in his own house.
  • When employee is living in a house, for which he is not paying any rent.

Introduction to Income Tax Long Answer Type Questions

Introduction to Income Tax Long Answer Type Questions

Question 1.
What are the types of assessment? Briefly discuss self-assessment?
Answer:
Types of assessment – Various types of assessment are:
1. Self-assessment: The assessee is required to make a self-assessment and pay the tax on the basis of the returns furnished. Any tax paid by the assessee under self-assessment is deemed to have been paid towards regular assessment.

2. Regular assessment: On the basis of the return of income chargeable to tax furnished by the assessee, intimation shall be sent to the assessee informing him about the tax or interest payable or refundable to him.

3. Best judgement assessment: In a best judgement assessment the assessing officer should really base the assessment on his best judgement i.e. he must not act dishonestly or vindictively or capriciously. There are two types of judgement assessment:
(i) Compulsory best judgement assessment made by the assessing officer in cases of non-co-operation on the part of the assessee or when the assessee is in default as regards supplying informations.

(ii) Discretionary best judgement assessment is done even in cases where the assessing officer is not satisfied about the correctness or the completeness of the accounts of the assessee or where no method of accounting has been regularly and consistently employed by the assessee

4. Income escaping assessment or re-assessment: If the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year assess or reassess such income and also nay other income chargeable to tax which has escaped assessment and which comes to his notice in course of the proceedings or any other allowance, as the case may be.

5. Precautionary assessment: Where it is not’ clear as to who has received the income, the assessing officer can commence proceedings against the persons to determine the question as to who is responsible to pay the tax.

Question 2.
List some examples of agricultural income and non-agricultural income.
Answer:
Agricultural Income:

  • Share of profit or salary received by partner from a firm involved in agricultural operation.
  • Rent received for agricultural land from tenant or sub-tenant.
  • Interest received by partner for his capital in a firm which is involved in agricultural operation
  • Income from sale of replanted trees and from growing flowers and creepers.
  • Fees collected for allowing cattle to graze on forest land of spontaneous growth.
  • Compensation received from insurance company due to damage of tea garden from hailstorm.

Not an agricultural income:

  • Income received from dairy or poultry farming
  • Dividend paid by a company out of its agricultural income
  • Income from mining
  • Income from sale of earth for brick making
  • Income from forest trees of spontaneous growth of wood bark, leaves, fruits etc.
  • Income from marketing process, fisheries, etc.
  • Income from supply of water for irrigation purpose
  • Income from stone quarries
  • Income of salt produced by flooding of land with sea water
  • Interest on arrears of rent payable in respect of agricultural land
  • Interest received by a money lender In form of agricultural produce.
  • Transfer of urban agricultural land
  • Rental income from a farm house given for non agricultural purpose is not treated as agricultural income.

Question 3.
What are the rates of tax applicable for the Assessment Year 2020-2021?
Answer:
Tax Rate for any Individuals, HUF, AOP, BOI & Artificial Persons
1. Resident senior citizen, l.e., every individual, being a resident in India, who is of the age of 60 years or more but less than 80 years at any time during the previous year:

Net income range Income-tax rates
Up to – 3,00,000 Nil
3,00,000 –  5,00,000 5%
5,00,000 – 10,00,000 20%
above – 10,00,000 30%

2. Resident super senior citizen, i.e., every individual, being a resident in India, who is of the age of 80 years or more at any time during the previous year:

Net income range Income-tax rates
Up to – 5,00,000 Nil
5,00,000 – 10,00,000 20%
above – 10,00,000 30%

3. Individual (resident or non-resident), who is of the age of less than 60 years on the last day of the relevant previous year:

Net income range Income-tax rates
Up to – 2,50,000 Nil
2,50,000 – 5,00,000 5%
5,00,000 – 10,00,0.00 20%
above – 10,00,000 30%

Plus:
Surcharge: 10% of tax where total income exceeds 50 lakh
15% of tax where total income exceeds 1 crore
25% of tax where total income exceeds 2 crore
37% of tax where total income exceeds 5 crore
Health and Education cess 4%

Rebate U/S 87A: A resident individual is entitled for rebate u/s 87A if his total income does not exceed 5,00,000. The amount of rebate shall be 100% of income- tax or 12,500, whichever is less.

Question 4.
What are the powers of assessing officer?^ OR Briefly explain the powers and functions of Income Tax Officer.
Answer:

Section Powers
38 Determine the proportion of expenses for allowing deduction in respect of premises used partly for the purpose of business or profession.
89 Grant relief U/s 89(1) for arrears of salary received
131 Discovery, production of evidence etc.
132 Search and seizure
132A Requisition books of accounts
132B Apply the assets seized and retained U/s 132 in satisfaction of existing liabilities under the Act.
133 Call for information
133B Collect certain information
134 Inspect register of companies
139A Allot PAN
140A Impose penalty for non-payment of self-assessment tax
142(2A) Direct an assessee to get his accounts audited
143,144 Make assessment
147 Reassess income which escaped assessment
154 Rectify mistakes apparent from the records
194,195,197 Grant certificate to an assessee to receive a payment without deduction of tax at source or deduction of tax at source at a lower rate than prescribed.
221 Impose penalty for default in payment of tax
237,240 Grant refund
241 Withhold refund in certain cases
245 Adjust refund against any demand of tax etc. outstanding against the assessee

Question 5.
Enumerate the powers of Central Board of Direct Taxes under various provisions of the Act.
Answer:

Section Powers
2(17) Declare any institution, association or body to be a company.
2(18) Declare a company having no share capital as company in which public is substantially interest
11(1)(c) Direct that income from house property held under trust will not be included in the Total Income of the person in receipt of such income.
44AA Notify compulsory maintenance of accounts for any profession.
80RRA To prescribe the field in which the person may have specialised knowledge and experience to be called a ‘technician’
80U Make rules and specify the permanent physical disability for deduction U/s 80U
118 Exercise control over Income-tax authorities
119 Issue orders, instructions and directions to subordinate authorities. Exceptions: (i) Order, instruct or direct any income tax authority to make assessment or to dispose a particular case in a particular manner (ii) Interfere with the discretion of the CIT (Appeals) in the exercise of appellate functions.
120 Direct Income tax authorities regarding exercise of their powers and functions.
132 Specify the income tax authorities who are empowered to issue summons for search and seizure
138 Require any authority, body or officer, to disclose information regarding the assessee
246 Transfer or to authorise the CIT to transfer any appeal pending before First Appellate Authority
288 Prescribe educational qualifications of authorised representatives
293B Condone delay in obtaining Board approval, wherever such approval is necessary
295 Make rules for carrying out the purposes of the Act, subject to Central Government control.

Special powers u/s 119(2):

  • Issue orders in certain cases by way of relaxation or otherwise
  • Extend time limit to admit an application or claim
  • Relax any requirement.

Practical Problems

Question 1.
Natural Company Ltd. sells both tea and rubber which are produced in the company’s own farms.
The profits earned from Tea business is ‘ 9,50,000 and from rubber is’ 8,00,000. What will be their agricultural income for the assessment year 2020-21.
Solution:
65% of income of the Tea company and rubber company should be treated as agricultural income. Therefore,

Agricultural income 5,70,000
Tea – 9,50,000 x 60/100 5,20,000
Rubber – 8,00,000 x 65/100 10,90,000

Question 2.
Sweet Sugar Ltd. grows sugarcane and manufactures sugar out of it.
For growing sugarcane, the cultivation cost including ploughing and manure is 60,000
The sales of sugar during the P.Y is 2,50,000
The manufacturing cost is 1,00,000
If the company would have sold sugarcane in the market without spending on manufacturing, the market value for sugarcane was 85,000.
Find out income from business and income from Agriculture for the

Question 3.
State whether the following constitute agricultural income or not.
(a) Mr. A is a partner a firm having coffee plantation and receives a monthly salary from the firm to its work. He also gets a share in the balance of profits of the firm. His annual salary was 96,000 which he claims to be agricultural income.

(b) Mr. Bharath is the manager of a mechanised agricultural firm and received a salary of 72,000, which he claims to be exempt from tax being agricultural income.

(c) Mr. Sachin is a shareholder of a plantation company and receives dividend of 20,000 from the company which he claims to be agricultural income thus exempt from
tax.
Solution:
(a) Salary of 90,000 received by Mr. A, a partner of the firm having coffee plantation is agricultural income. This is because in case of a partnership firm having agricultural income, any salary or interest received by the partner will also have the same character as the income of the firm, as the salary and interest received by the partners are only appropriations of income.

(b) The salary of 72,000 is not an agricultural income and it is income from salaries. This is because it is recovered for the services rendered as manager and not from agricultural income.

(c) Dividend received by Mr. Sachin, a shareholder of a plantation company is not an agricultural income and it is income from other sources.

Question 4.
A Sugar factory crushed 50,000 tons of sugarcane during the previous year 2019-20 out of which 10,000 tons of sugarcane was produced on its own farm at a cost of ‘ 48,00,000. The remaining sugarcane was purchased from the market at the following rates.
25.0 tons at 800 per ton
10.0 tons at 1,000 per ton
5.0 tons at 1,200 per ton.
During the previous year 2019-20, the factory earned a total profit of 1,00,00,000.
Calculate the agricultural and non agricultural income for AY 2020-21.

Question 5.
Explain the income tax provisions of ‘Agricultural Income’. The provisions of agricultural income are:
(i) Agricultural income should exceed 5,000
(ii) Nonagricultural income should exceed the maximum income excepted from gross total i.e. 1,95,000 in case of resident senior citizen, 1,45,000 in case of resident woman below 65 years and in case of other individual 1,10,000.

Introduction to Income Tax Short Answer Type Questions

Introduction to Income Tax Short Answer Type Questions

Question 1.
Define Income under IT Act 1961. OR What is income u/s 2(24) Of the IT Act 1961?
Answer:
Income includes [Sec. 2(24)]:

  • Profits or gains of business or profession
  • Dividend
  • Voluntary Contributions received by a charitable or religious trust or institution
  • The value of perquisite or profit in lieu of salary taxable u/s 17 and special allowance or benefit specifically granted either to meet personal expenses or for the performance of duties of an office or an employment of profit.
  • Export incentives, like Duty, Drawback, Cash Compensatory Support, Sale of licences etc.
  • Interest, salary, bonus, commission or remuneration earned by a partner of a firm from such firm.
  • Capital Gains chargeable U/s 45.
  • Winnings from lotteries, crossword puzzies, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.
  • Deemed income U/s 41 or 59.
  • Sums received by an assessee from his employees towards welfare fund contributions such as provident fund, superannuation fund etc.
  • Amount received under Keyman Insurance Policy including bonus thereon.
  • Amount received under agreement for
    → not carrying out activity in relation to any business or
    → not sharing any know-how, patent, copyright etc.
  • Benefit or perquisite received from a Company, by a director or a person holding substantial interest or relative of the Director or such person.

Question 2.
What are the Cannons of Taxation? Explain in brief.
Answer:
Cannons of taxation refer to the principles or rules laid down by economists and statesmen for guiding the taxing authority.
They are:

  • Cannon of ability or equity: According to this cannon, the tax imposed on the tax payers must be proportional to the ability to pay tax.
  • Cannon of economy: This cannon implies that the cost of collecting taxes must be minimum, so that the net tax revenue will be higher.
  • Canon of convenience: This canon signifies that the tax payer must be permitted to pay the tax at times convenient to them.
  • Canon of certainty: This canon implies that the tax payer must be certain about the taxes to be paid and also the mode of payment.
  • Cannon of productivity: According to this concept, the taxes imposed must not affect production and distribution of the counting adversely.
  • Canon of elasticity: This cannon means that the taxes must be elastic i.e. slight changes in the rates of tax must lead to more increase in the amount of tax revenues.
  • Canon of flexibility: This- canon signifies that the taxes should be capable of being adjusted according to situation.
  • Canon of diversity: This canon means that the tax structure must be broad based.
  • Canon of simplicity: This canon signifies that the tax rules and procedure must be so simple that the tax payer will be able to understand the details of taxes easily.

Question 3.
State the situations where the income of a previous year is taxed in the same previous year.
Answer:
Previous year is the financial immediately of preceding the assessment year The previous year for the assessment year 2020-2021 is 2019-2020.

Exceptions to the General Rule Previous Year:
Normally all the incomes of the P.Y are assessed to tax in the A.Y. But there are certain exception to this rule. They are:

  • Sec. 172 – Income of non-resident from shipping business
  • Sec. 174 – Income of persons leaving India either permanently or for a long period of times;
  • Sec. 174 (A) – Income of bodies formed for short duration.
  • Sec. 175 – Income of a person trying to transfer his / her assets to avoid the payment of tax; and
  • Sec. 176 – Income of a discontinued business.

Question 4.
Determine the Income-tax status of the following assessee.
Answer:

  • Bangalore Tennis Club
  • Papu Dry Cleaners, Karma is its proprietor.
  • Prakash Book House with Viswa, Eswara, Shiva as partners carrying on business under partnership deed.
  • Mangalore University
  • Baruka Steels Limited
  • Mysore Municipal Corporation
  • MM Hills – Mahadeswara Devasthanam
  • Hoysala Cultural Association.

Solution:

  • Association of person
  • Individual
  • A Firm
  • An artificial juridical person
  • A Company
  • A local authority
  • Artificial juridical person
  • Association of person.

Question 5.
State whether the following incomes are agricultural or non agricultural incomes:

  • Income from growing flowers and creepers.
  • Dividend received from a company engaged in agricultural operations.
  • Interest on loan given to a farmer.
  • Income from agricultural activities in Srilanka.
  • Income from conversion of sugarcane info jaggary by the farmer himself.

Answer:

  • Agricuitural income
  • Agricuitural income
  • Non-agricuttural income
  • Non-agricuitural income
  • Non-agricuitural income

Question 6.
State whether the following incomes are agricultural or non agricultural incomes.

  • Dividend from a company engaged in agriculture
  • Lease rent received from lands given to tenants for agricultural operations.
  • Salary received as a partner from a tea manufacturing firm
  • Sale of plants from nursery
  • Income from self-grown grass and frees.

Answer:

  • Non agricultural income
  • Agricultural income
  • Non agricultural income
  • Agricultural income
  • Non agricultural income

Question 7.
Discuss whether the following are agricultural income:

  • Compensation received for acquisition of agricultural land for military purposes.
  • Income from sale of forest trees of spontaneous growth
  • Income from interest on simple mortgage of land used for agricultural purposes.
  • Income derived from land used as stone quarries
  • Rent from house property situated in a village.

Answer:

  • Agricultual Income
  • Non-agricultural income
  • Non-agricultural income
  • Non-agricultural income
  • Non-agricultural income

Question 8.
Discuss whether the following are agricultural income.

  • Sale of plants from nursery
  • Income derived from land used as stone quarries
  • Income from sale of forest trees of spontaneous growth
  • Dividend from a company engaged in agriculture
  • Income from interest on simple mortgage of land used for agricultural purpose.

Answer:

  • Agricultural income
  • Non-agricultural income
  • Non-agricultural income
  • Non-agricultural income
  • Non-agricultural income

Question 9.
State whether following is agricultural or non agricultural income.

  • Income from interest on arrears of rent payable in respect of land used for agricultural purpose.
  • Income from agricultural land situated in Australia.
  • Income from sale of forest trees of spontaneous growth.
  • Income from lease of land for grazing of cattle required for agricultural pursuits.
  • Income from interest on simple mortgage of land used for agriculture.
  • Rent received from house property situated in a village
  • Remuneration received as manager of an agricultural farm house.
  • Income from dairy farm, poultry farming etc.

Answer:

  • Non-agricultural income
  • Non-agricultural income
  • Non-agricultural income
  • Agricultural income
  • Non-agricultural income
  • Non-agricultural income
  • Non-agricultural income
  • Non-agricultural income

Question 10.
State whether the following are agricultural or non-agricultural Income.

  • Income from agricultural land situated in Australia.
  • Income derived from sale of seeds.
  • Income from sale of forest trees of spontaneous growth.
  • Lease rent received from land given to tenants for agricultural operations.
  • Income derived from land used as stone quarries.
  • Income from sale of plants from nursery.

Answer:

  • Non-agricultural income
  • Agricultural Income
  • Non-agricultural income
  • Agricultural income
  • Non-agricultural income
  • Agricultural income

Question 11.
State whether the following are agricultural or non-agricultural income.

  • Compensation received for acquisition of agricultural land for military purposes.
  • Income from sale of forest trees of spontaneous growth
  • Income from interest on simple mortgage of land used for agricultural purposes.
  • Income derived from land used as stone quarries.
  • Rent from house property situated in a village.
  • Income from agricultural land situated in Africa

Answer:

  • Non-agricultural income
  • Non-agricultural income
  • Non-agricultural income
  • Non-agricultural income
  • Non-agricultural income
  • Non-agricultural income

Question 12.
State whether the following incomes are

  • Sale of plants from nursery
  • Interest on loan given to a farmer
  • Income from agricultural activities in Srilanka
  • Lease rent received from lands given to tenants for agricultural purpose
  • Income from sale of forest trees of spontaneous growth

Answer:

  • Agricultural income
  • Non-agricultural income
  • Non-agricultural income
  • Agricultural income
  • Non-agricultural income

Question 13.
State whether the following are agricultural income or not.

  • Income from sale of flowers and creepers.
  • Income from Agricultural land situated in Punjab.
  • Income from self grown grass.
  • Interest received on loan given to farmer.
  • Income from Dairy Products
  • Dividend received from Company engaged in agricultural activities.

Solution:

  • Income from sale of flowers and creepers – Agricultural Income
  • Income from Agricultural land situated in Punjab. – Agricultural Income
  • Income from self grown grass – Non-Agricultural Income
  • Interest received on loan given to farmer – Non-Agricultural Income
  • Income from Dairy Products – Non-Agricultural Income
  • Dividend received from Company engaged in agricultural activities – Non-Agricultural Income

Question 14.
Distinguish between Capital Receipts and Revenue receipts.
Answer:
The differences between capital receipts and revenue receipts are as follows:

Capital receipts Revenue receipts
1. It is an amount received on account of fixed capital 1. It is an amount received on account of circulating capital
2. It is a receipt in substitution of source of income 2. It is a receipt in substitution of an income.
3. It is an amount received under an agreement as compensation for surrendering certain rights 3. It is an amount received under an agreement as compensation for loss of future profits.
4. It is the sale proceeds of fixed assets. 4. It is the sale proceeds of trading assets.
5. Subsidies or grants received from govt. for specific capital purpose are capital receipts 5. Subsidies or grants received from the the govt. for meeting foreign competition is a revenue receipt.

Question 15.
Distinguish between capital expenditure and revenue expenditure.
Answer:
The differences between capital expenditure and revenue expenditure are as follows:

Capital Expenditure Revenue Expenditure
1. It is the cost of acquisition and installation of fixed asset. 1. It is purchase price of goods bought for resale.
2. It is an expenditure incurred by a person to free himself from the capital liability. 2. It is an expenditure incurred by a person to free himself from the revenue liability.
3. It is an expenditure incurred for acquiring the source of an income. 3. It is in expenditure incurred for earning income.
4. It is an expenditure incurred for increasing earning capacity of a business by improving its fixed assets. 4. It is an expenditure incurred for maintaining fixed assets in good condition.
5. It is an expenditure incurred for issuing shares. 5. It is an expenditure incurred in raising loans by issuing debentures or by other means
6. It is non recurring in nature. 6. It is recurring in nature.

Question 16.
Distinguish between capital loss and Revenue loss.
Answer:
The between capital loss and Revenue loss are:

Capital Loss Revenue Loss
1. It is of capital nature 1. It is of revenue nature
2. It is not incurred in the course of business and may not be incidental 2. It is incurred in the course of  business and incidental to business
3. It is a loss of capital 3. It is a loss of revenue
4. It is a loss of capital assets 4. It is a loss of revenue assets
5. It is the loss on the sale of a capital assets 5. It is the loss on the sale of trading assets

Question 17.
Give examples of capital receipts and revenue receipts.
Answer:
The examples from capital receipts are as follows:

  • Sale proceeds of capital assets
  • Compensation received on the loss of fixed assets
  • Compensation recovered for nationalisation
  • Compensation received for compulsory valuation of a place of business
  • Premium on the issue of shares and debentures received by a company.
  • Premium recovered on the redemption of debentures.
  • Compensation received by a person from the railways for permanent disablement caused by a railway accident.
  • Gifts and corpus donations received
  • Salami or Nararana received for grant of permanent lease.
  • Payment received by an employee in lieu of notice.
  • Damages received for permanent disablement.

The examples of revenue receipts are:

  • Lump sum received for waiver of royalty
  • Sale proceeds of goods
  • Annuities received periodically
  • Reward received by an employee from his employer in appreciation of his goods and services.
  • Subsidies or grants recovered from the Govt, for meeting foreign competition.
  • Interest on income tax refund.
  • Compensation received for loss and profit.
  • Receipt from sale of import entitlements.
  • Amounts received as lumpsum in computation of pension.
  • Insurance money received for the loss of stock in trade.
  • Pension received periodically
  • Sale proceeds of technical know how

Question 18.
Give examples of capital expenditure. State the examples of revenue expenditure.
Answer:
Some of the examples of capital expenditure are:

  • Cost of acquisition of a fixed assets
  • Cost of installation of fixed assets
  • Payment for the acquisition of goodwill of any business.
  • Expenditure incurred to increase the revenue earning capacity of the business.
  • Expenditure incurred on acquiring source of income.
  • Payment made for obtaining a licence.
  • Expenditure incurred for erecting temporary structures.
  • Payment made for the purchase of mining rights
  • Payment made for obtaining monopoly rights
  • Payment for purchase of copy rights.

Some of the examples of revenue expenditure are:

  • Cost of goods bought for resale
  • Expenses connected with purchase of goods
  • Expenditure incurred for maintaining fixed assets used in a business.
  • Expenses incurred for protection of capital assets.
  • Expenditure incurred in earning revenue
  • Amount spent on purchasing of know how relating to an existing line of business.
  • Expenses incurred in finding out customers
  • Expenditure incurred in training apprentices
  • Legal expenses incurred in maintaining the ownership or title to the assets.
  • Amount paid as fees for renewal of trade marks, licences etc.
  • Expenditure incurred by a person to free himself from a revenue liability.

Question 19.
Give any five examples of capital losses. State the examples of Revenue Losses.
Answer:
Some of the examples of capital losses are:

  • Loss sustained by a person by being a surety for another person.
  • Loss on sale of capital assets ( Fixed assets)
  • Loss on sale of investment
  • Loss of a fixed assets by fire etc.
  • Loss of security deposit made by a dealer with a manufacturing company for obtaining an agency of the manufacturing company.

Some of the examples of revenue losses are:

  • Loss suffered by a business on account of embezzlement by employees.
  • Loss of stock in trade by fire, theft, etc
  • Loss on sale of goods of the business.
  • Lose of cash by theft committed by an employee or an outsider during business hours.
  • Cash lost by an employee of the business, carrying it to the bank for deposits into bank a/c of the business.
  • Loss of stock in trade caused by enemy action.

Question 20.
Who are the Income Tax Authorieis under the Income Tax Act?
Answer:
Under Sec. 116 the Income Tax Authorieis are:

  • Central Board of Direct Taxes (CBDT)
  • Director-General of Income Tax (DGIT) or Chief Commissioner of Income Tax (CCIT)
  • Directors of Income Tax (DIT) or Commissioners of Income Tax (CIT) or Commissioner of Income Tax (Appeals)
  • Additional Directors of Income-tax (ADIT) or Additional Commissioners of Income Tax (ACIT)
  • Joint Directors of Income tax (JDIT) or Joint Commissioners of Income- Tax (JCIT)
  • Deputy Directors of Income Tax (DDIT) or Deputy Commissioner of Income Tax (DCIT)
  • Assistant Directors of Income tax (ADIT) or Assistant Commissioners of Income-tax (ACIT)
  • Income-tax Officers (ITO)
  • Inspectors of Income Tax.

Question 21.
What are the powers of Director General/Director of Income Tax?
Answer:

Section Powers
117 Appoint IT authority below the rank of AC/DC.
120 Direct the JC to function and assume powers of A.O.
127 Transfer cases from one or more A.O. subordinate to him to any other A.O. who is subordinate to him.
131(1A) Enquire, if there exists any reasons to suspect concealment of income.
132(1) Authorse any JD/JC/DD/DC/AD/AC/AO to conduct search and seizure.
132A Requisition of books of accounts etc.
133A Power of survey and collect useful and relevant information.
135 Make enquiry.

Question 22.
Briefly explain the powers of Commissioner of Income Tax.
Answer:
The powers of Commissioner of Income Tax are as follows:
(i) Under the direction of the Board, a commissioner may exercise the powers of an Assessing Officer.

(ii) A commissioner has the power to transfer any case from one or more Assessing Officers subordinate to him to any other Assessing Officers or officers also subordinate to him. He can do so only after giving the assessee an opportunity of being heard and after recording the reasons for doing so.

(iii) The Commissioner has been empowered to grant approval for an order issued by the Assessing Officer asking a non-company assessee to get its accounts audited from a Chartered Accountant (Sec 142 (2A))

(iv) The prior approval of the Commissioner is required for reopening of an assessment (Section 147) beyond the time limit of four years.

(v) The Commissioner has the power to revise an order passed by Assessing Officer, if in his opinion it is erroneous or prejudicial to the interests of the revenue. He can do so only after giving the assessee an opportunity of being heard. (Section 263)

(vi) The Commissioner has the power to revise any other order issued by Income Tax Officer and not covered under Section 263, either on his own motion or on application by the assessee for such revision (Section 264)

(vii) The Commissioner may direct the Assessing Officer to appeal to appellate tribunal against the order passed by Commissioner (Appeals) (Section 253 (2).

Question 23.
Discuss the jurisdiction of Income Tax Authorities.
Answer:
(i) Direction by CBDT: Income Tax authorities are required to exercise their power and perform their functions in accordance with directions given by the Board.

(ii) The above directions include direction to authorise any income tax authority to issue instructions to their subordinates.

(iii) Criteria to be adopted for issue of instructions: In issuing instruction or orders, the Board or the Income tax authority may adopt any one or more of the following criteria:

  • Territorial area
  • Person or classes of person
  • Incomes or classes of incomes
  • Cases or classes of cases.

(iv) Other powers of the Board: The Board can authorise any Director General or Director to perform such functions of any other income tax authority as may be assigned to him.

(v) The board can also authorise Director General or Chief Commissioner or Commissioner to issue orders in writing to the effect that the functions conferred or assigned to the Assessing Officer in respect of the above four criteria shall be exercised or performed by Joint Commissioner or Joint Director.

Question 24.
Discuss the powers of the Income Tax Authorities to transfer cases.
Answer:
Transfer to another subordinate officer:
(i) The Director General Chief Commissioner or Commissioner have power to transfer cases with or without concurrent jurisdiction from one or more subordinate Assessing Officer to other Assessing Officers.

(ii) Before transferring the case, the assessee shall be given an opportunity of being heard.

(iii) The above authorities shall record the reasons in writing for doing so.

(iv) Where the Assessing Officer from whom the case is transferred and the transferee Assessing Officer do not fall under the control of the same Director General Chief Commissioner, Commissioner, then both the jurisdiction officers mutually decide and pass necessary order.

(v) If both the jurisdiction Commissioners are not in agreement, then the matter shall be decided by the Board or any authority authorised by the Board.

(vi) Transfer within local area: It is not necessary to give an opportunity to the assessee if the case is transferred between Assessing Officers within the same city, locality or place.

(vii) The transfer of case may be made any stage of the proceedings.

(viii) Any Fresh notice not required: It is not necessary to reissue any notice by the transferee Assessing Officer, which is already issued by the previous Assessing Officers.

Introduction to Income Tax Very Short Answer Type Questions

Introduction to Income Tax Very Short Answer Type Questions

Question 1.
What is Income Tax and which is the supreme authority in framing the Income Tax Rules?
Answer:
Income tax is a direct tax lived by the Central Government. The Central Board of Direct taxes and the Ministry of Finance are the supreme authority in forming the IT rules.

Question 2.
Define tax.
Answer:
It is compulsory levy under certain conditions and it is meant for the general purposes of the state. Taxes are of two types, viz. Direct Tax and Indirect Tax.

Question 3.
What is direct tax?
Answer:
It is a kind of tax where in incidence and impact is on the same person. ‘Incidence’ means liability to pay tax to the Government and ‘Impact’ means burden of paying the tax.
Example – Income Tax, Wealth Tax etc.

Question 4.
What is indirect tax?
Answer:
It is a kind of tax where in ‘incidence’ and ‘impact’ is on two different persons.
Example – Excise Duty, Customs duty, VAT etc.

Question 5.
Distinguish between direct tax and indirect tax.
Answer:
→ In case of direct tax, the impact and incidence will be on the same person.
For example: Income tax

→ In case of indirect tax, the impact and incidence will be on different persons.
For example: customs duty, excise duty, sales tax etc.

Question 6.
Give the meaning of canons taxation.
Answer:
Cannons of taxation refer to the principles or rules laid down by economists and statesmen for guiding the taxing authority.

Question 7.
Mention the four canons of taxation according to Adam Smith.
Answer:
The four canons of taxation are:

  • Cannon of ability or equity
  • Cannon of economy
  • Canon of convenience
  • Canon of certainty

Question 8.
Define the term Assessment.
Answer:
In the Income-tax Act, the term Assessment is related to following combination.

  • Calculation of Total Income
  • Find out Tax liabilities
  • The tax payer including reassessment with procedure of imposing liability.

Question 9.
State the different types of assessement.
Answer:
The assessment are:

  • Self assessment
  • Assessment on the basis of returns
  • Regular Assessment
  • Precautionary Assessment

Question 10.
What do you mean by Re-Assessment?
Answer:
When the Income Tax officer has reasons to believe that an income chargeable to tax in an assessment year has escaped assessment, he may assess or reassers such income Such an assessment is called re-assessment.

Question 11.
What do you mean by Self Assessment?
Answer:
According to Sec. 140A, where any tax is payable on the basis of any return furnished under Sec., 139 or 148, the assessee is required to pay the tax together with interest
payable under any provision of the Act before filing of the return and the return is to be accompanied by the proof of such payment, i.e. chailan.

Question 12.
What is precautionary assessement?
Answer:
Where it is not clear as to who has received the income, the assessing officer can commence proceedings against the persons to determine the question as to who is responsible to pay the tax.

Question 13.
What do you mean by regular assessment?
Answer:
Under Sec. 143 (3) or best judgement assessment under Sec.144 when the assessing officer considers it necessary or expedient to verify the correctness of the return, to ensure that the income has not been under payed, he can serve a notice on day specified, any evidence on which the assessee may reply in support of the return.

Question 14.
What is an assessement year?
Answer:
Sec. 2(9) defines assessment year as the period starting from April 1st and ending on March 31st of the next year. Income of previous year of an assessee is taxed during the next following assessment year at the rate prescribed by the relevant Finance Act. For instance the assessment year 2020-21 which will commence on April 1st, 2019 will end March 31st, 2020. For 2020-21 assessment year, previous year income i.e. 2019-20 will be assessed.

Question 15.
What is previous year?
Answer:
According to Sec. 3, previous year means income earned in a year which is taxable in the next year. The year in which income is earned is known as previous year and the next year in which income is taxable is known as assessment year.

Question 16.
Distinguish between ”Assessment Year” and “Previous Year”.
Answer:

Assessment Year (Sec. 2(9) Previous Year (Sec. 3)
(i) Sec. 2(9) defines assessment year as the period starting from April 1st and ending on March 31st of the next year. For instances, the assessment year 2020-21 which will commence on April 1st, 2020 and will end on March 31st, 2021. (i) Previous year means financial Year immediately preceding the assessment year.
(ii) The year in which tax is paid is called assessment year. (ii) The year in respect of the income on which the tax is levied is called Previous year.

Question 17.
State the exemptions to the general rule that the income of the previous year is charged to income tax in the assessment year.
Answer:
Exceptions are:

  • Income of non resident from shipping business
  • Income of persons leaving India either permanently on for a long period of time
  • Income bodies formed for short duration
  • Income of discontinued business.

Question 18.
who is an assessee?
Answer:
Sec. 2(7) defines an assessee as a person by whom any tax or any other sum of money is payable under this act and includes –

  • Every person who is liable to pay tax under this act.
  • Deemed assessee.
  • Deemed to be an assessee in default.

Question 19.
Who. is an assessee in default?
Answer:
A Person who fails to do the work for which he is responsible under the IT Act is called an assessee in default.

Question 20.
Define the term person for income tax purpose.
Answer:
U/s Section2(31) defines a person as:

  • An individual
  • A hindu undivided family
  • A company
  • A firm
  • A Partnership Firm
  • An association of person or body of individuals whether incorporated or not.
  • A local authority
  • Any artificial or juridical person not falling under above category.

Question 21.
Different heads of income are:
Answer:

  • Income from salary
  • Income from House property
  • Income from Capital gain
  • Profits and gains from Business and Profession
  • Income from other sources.

Question 22.
What are casual income? Give an example.
Answer:
The income which is unexpected and in non recurring in nature is called casual income.
Example: Income from lottery.

Question 23.
Name any four examples for casual income.
Answer:
The four examples for casual income are:

  • Winning from lottery.
  • Income from cross word Puzzles and card games,
  • Tips given to taxi drivers,
  • Prize awarded for coin or stamp collection.

Question 24.
What do you mean by Gross total income?
Answer:
Gross total income is the total of the taxable income of ail the heads i.e., income from salary, house property, capital gain, business and Profession & other sources.

Question 25.
Give the meaning of total income.
Answer:
Total income means the amount left after making the deductions U/s 80C to 80U from the gross total income.

Question 26.
What is agricultural income?
Answer:
According to Sec 2 (1A) defines Agricultural Income as:
(a) Any rent or revenue derived from land which is situated in India and is used for agriculture purpose.

(b) Any income derived from such land by agriculture operations including processing of agriculture produce, raised or received as rent-in-kind so as to render it fit for the market or sale of such produce.

(c) Income attributable to a farm house subject to certain conditions.
Section 10(1) exempts agricultural income from income-tax.

Question 27.
What do you mean by capital receipts?
Answer:
A receipt which is not received regularly is known as capital receipt. In other words, a receipt which is non-recurring in anture is called capital receipts. For Example, (1) Issue of shares (2) Share premium received.

Question 28.
Answer:
The examples from capital receipts are as follows:

  • Sale proceeds of capital assets
  • Compensation received on the loss of fixed assets
  • Compensation recovered for nationalisation
  • Compensation received for compulsory valuation of a place of business

Question 29.
What is revenue receipt?
Answer:
The receipt which is recurring or regular in nature is known as revenue receipt. For example rent received, salary received etc.

Question 30.
State any four examples of revenue receipts.
Answer:
The examples of revenue receipts are

  • Lump sum received for waiver of royalty
  • Sale proceeds of goods
  • Annuities received periodically
  • Reward received by an employee from his employer in appreciation of his goods and services.

Question 31.
What is Capital Expenditure?
Answer:
An expenditure which increases the earning capacity of a fixed asset is a capital expenditure.

Question 32.
Give any four examples of capital expenditure.
Answer:
Some of the examples of capital expenditure are:

  • Cost of acquisition of a fixed assets
  • Cost of installation of fixed assets
  • Payment for the acquisition of goodwill of any business
  • Expenditure incurred to increase the revenue earning capacity of the business.

Question 33.
What is revenue expenditure?
Answer:
Any expenditure incurred in the regular course of business transaction of a firm in an accounting year is known as revenue expenditure.

Question 34.
State any four examples of revenue expenditure.
Answer:
Some of the examples of revenue expenditure are:

  • Cost of goods bought for resale
  • Expenses connected with purchase of goods
  • Expenditure incurred for maintaining fixed assets used in a business.
  • Expenses incurred for protection of capital assets.

Question 35.
State any four examples of capital losses.
Answer:
Some of the examples of capital losses are:

  • Loss sustained by a person by being a surety for another person.
  • Loss on sale of capital assets ( Fixed assets)
  • Loss on sale of investment
  • Loss of a fixed assets by fire etc.

Question 36.
State any four examples of revenue losses.
Answer:
Some of the examples of revenue losses are:

  • Loss suffered by a business on account of embezzlement by employees.
  • Loss of stock in trade by fire, theft, etc
  • Loss on sale of goods of the business.
  • Lose of cash by theft committed by an employee or an outsider during business hours.

Question 37.
What are the right of the assessee in the case of change of income tax authority?
Answer:
Sec. 129, in the case of change in income tax authority, the assessee may demand that before the proceeding be continued.

  • The previous proceeding or any part thereof, be reopened again.
  • He may be reheard before passing any order of the new authority.

Question 38.
Who is an inspector of income tax?
Answer:
Commissioner of IT, ITO, Tax Recovery Officer to be a inspector of Income tax.

Question 39.
Expand “CBDT”, “CIT” and “PAN”.
Answer:

  • CBDT: Central Board of Direct Taxes, CIT: Commissioner of Income Taxes
  • PAN : Permanent Account Number

Question 40.
State any four power of CBDT.
Answer:
The four powers of CBDT are:

  • To make rules for carrying out the objectives of IT act.
  • To issue orders and instructions to subordinate authorities for proper administration of IT act.
  • To authorize any IT authority to accept application of claims for any exemption, deduction, refund or any other relief after the expiry of the prescribed period.
  • To declare any institution, association or body to be a company.

Question 41.
What are the duties of assessing officer?
Answer:
If the assessee challenges the jurisdiction of the assessing officer, and the assessing officer is not satisfied with the correctness of the assessee’s claim, then he shall refer the matter to the Director General or Chief Commissioner or Commissioner before the completion of the assessment.

Question 42.
Mr. Kamal joined as an employee of ABC Company on 1.10.2019, determine the period of his previous year.
Answer:
Previous Year = 1.4.2019 to 31.4.2020

Disclosure Standards Short Answer Type Questions

Disclosure Standards Short Answer Type Questions

Question 1.
Evaluate the requirements and disclosure of EPS under Ind. AS 33.
Answer:
Requirement:
An entity whose securities are publicly traded (or that is in process of public issuance) must present, on the face of the statement of comprehensive income, basic and diluted EPS for:
(a) profit or loss from continuing operations attributable to the ordinary equity holders of the parent entity.

(b) profit or loss attributable to the ordinary equity holders of the parent entity for the period for each class of ordinary shares that has a different right to share in profit for the period.
If an entity presents the components of profit or loss in a separate income statement, it presents EPS only in that separate statement.

Disclosure:
If EPS is presented, the following disclosures are required:
(a) the amounts used as the numerators in calculating basic and diluted EPS, and a reconciliation of those amounts to profit or loss attributable to the parent entity for the period

(b) the weighted average number of ordinary shares used as the denominator in calculating basic and diluted EPS, and a reconciliation of these denominators to each other

(c) instruments (including contingently issuable shares) that could potentially dilute basic EPS in the future, but were not included in the calculation of diluted EPS because they are antidilutive for the period(s) presented

(d) a description of those ordinary share transactions or potential ordinary share transactions that occur after the balance sheet date and that would have changed significantly the number of ordinary shares or potential ordinary shares outstanding at the end of the period if those transactions had occurred before the end of the reporting period. Examples include issues and redemptions of ordinary shares issued for cash, warrants and options, conversions, and exercises

Question 2.
Explain the scope of Related Party Disclosures.
Answer:
(i) This Standard shall be applied in:

  • identifying related party relationships and transactions.
  • identifying outstanding balances, including commitments, between an entity and its related parties.
  • identifying the circumstances in which disclosure of the items in (a) and (b) is required.
  • determining the disclosures to be made about those items.

(ii) This Standard requires disclosure of related party relationships, transactions and outstanding balances, including commitments, in the consolidated and separate financial statements of a parent, venturer or investor presented in accordance with Indian Accounting Standard (Ind AS) 27 Consolidated and Separate Financial Statements. This Standard also applies to individual financial statements.

(iii) Related party transactions and outstanding balances with other entities in a group are disclosed in an entity’s financial statements. Intra-group related party transactions and outstanding balances are eliminated in the preparation of consolidated financial statements of the group.
(a) Related party disclosure requirements as laid down in this Standard do not apply in circumstances where providing such disclosures would conflict with the reporting entity’s duties of confidentiality as specifically required in terms of a statute or by any regulator or similar competent authority.

(b) In case a statute or a regulator or a similar competent authority governing an entity prohibit the entity to disclose certain information which is required to be disclosed as per this Standard, disclosure of such information is not warranted. For example, banks are obliged by law to maintain confidentiality in respect of their customers’ transactions and this Standard would not override the obligation to preserve the confidentiality of customers’ dealings.

Question 3.
What are the objectives, scope and disclosure of related party as per Ind. AS 24.
Answer:
Objective and Scope of IAS 24:
The objective of IAS 24 is to ensure that an entity’s financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances with such parties.

Disclosure:
Relationships between parents and subsidiaries. Regardless of whether there have been transactions between a parent and a subsidiary, an entity must disclose the name of its parent and, if different, the ultimate controlling party. If neither the entity’s parent nor the ultimate controlling party produces financial statements available for public use, the name of the next most senior parent that does so must also be disclosed.

Management compensation:
Disclose key management personnel compensation in total and for each of the following categories:

  • short-term employee benefits
  • post-employment benefits
  • other long-term benefits
  • termination benefits
  • share-based payment benefits

Question 4.
Discuss the Purpose of Related Party Disclosures.
Answer:
(i) Related party relationships are a normal feature of commerce and business. For example, entities frequently carry on parts of their activities through subsidiaries, joint ventures and associates. In those circumstances, the entity has the ability to affect the financial and operating policies of the investee through the presence of control, joint control or significant influence.

(ii) A related party relationship could have an effect on the profit or loss and financial position of an entity. Related parties may enter into transactions that unrelated parties would not. For example, an entity that sells goods to its parent at cost might not sell on those terms to another customer. Also, transactions between related parties may not be made at the same amounts as between unrelated parties.

(iii) The profit or loss and financial position of an entity may be affected by a related party relationship even if related party transactions do not occur. The mere existence of the relationship may be sufficient to affect the transactions of the entity with other parties. For example, a subsidiary may terminate relations with a trading partner.on acquisition by the parent of a fellow subsidiary engaged in the same activity as the former trading partner. Alternatively, one party may refrain from acting because of the significant influence of another – for example, a subsidiary may be instructed by its parent not to engage in research and development.

(iv) For these reasons, knowledge of an entity’s transactions, outstanding balances, including commitments, and relationships with related parties may affect assessments of its operations by users of financial statements, including assessments of the risks and opportunities facing the entity.

Question 5.
Explain the relationships between a Parent and Subsidiaries.
Answer:
Relationships between a parent and its subsidiaries shall be disclosed irrespective of whether there have been transactions between them. An entity shall disclose the name of its parent and, if different, the ultimate controlling party. If neither the entity’s parent nor the ultimate controlling party produces consolidated financial statements available for public use, the name of the next most senior parent that does so shall also be disclosed.

Question 6.
Explain the disclosures required on insurance contract.
Answer:

  • Information that helps users understand the amounts in the insurer’s financial statements that arise from insurance contracts.
  • Accounting policies for insurance contracts and related assets, liabilities, income and expense
  • The recognised assets, liabilities, income, expense and cash flows arising from insurance contracts
  • The effect of changes in assumptions
  • Reconciliations of changes in insurance liabilities, reinsurance assets, and, if any, related deferred acquisition costs
  • Risk management objectives and policies
  • Those terms and conditions of insurance contracts that have a material effect on the amount, timing, and uncertainty of the insurer’s future cash flows
  • Actual claims compared with previous estimates.

Question 7.
Explain the content of an interim financial report.
Answer:
Ind AS 1 defines a complete set of financial statements as including the following components:
(a) A balance sheet as at the end of the period (including statement of changes in equity for the period which is presented as a part of the balance sheet).

(b) A statement of profit and loss for the period.

(c) An entity is required to assess goodwill for impairment at the end of each reporting period, to assess investments in equity instruments and in financial assets carried at cost for impairment at the end of each reporting period and, if required, to recognise an impairment loss at that date in accordance with Ind AS 36 and Ind AS 39. However, at the end of a subsequent reporting period, conditions may have so changed that the impairment loss would have been reduced or avoided had the impairment assessment been made only at that date. This appendix provides guidance on whether such impairment losses should ever be reversed.

(d) A statement of cash flows for the period.

(e) Notes, comprising a summary of significant accounting policies and other explanatory information.

(f) A balance sheet as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements.

Question 8.
What is a interim financial report? What are disclosure requirements?
Answer:
Interim Financial report:
According to IAS 39 Interim Financial report means a financial report containing either a complete set of financial statements (as described in Ind AS-1, presentation of financial statements or a set of condensed financial statements (as described in this standard) for an interim period.

Disclosure requirement:

  • The write down of inventories to net realisable value and the reversal of such write down
  • The reversal of any provisions for the costs of restructuring
  • Acquisitions and disposal of items of PPE
  • Litigation settlement
  • Corrections of prior period errors
  • Relate party disclosure
  • Any loan default or breach of a loan agreement that has not been remedied on or before the end of the reporting period.

Question 9.
Narrate the disclosure under insurance contracts as per Ind. AS 104.
Answer:
1. An insurer shall disclose information that identifies and explains the amounts in its financial statements arising from insurance contracts.

2. An insurer shall disclose: its accounting policies for insurance contracts and related assets, liabilities, income and expense.

3. The recognised assets, liabilities, income and expense (and, if it presents its statement of cash flows using the direct method, cash flows) arising from insurance contracts.

4. If the insurer is a cedant, it shall disclose: gains and losses recognised in profit or loss on buying reinsurance; and if the cedant defers and amortises gains and losses arising on buying reinsurance, the amortisation for the period and the amounts remaining unamortised at the beginning and end of the period.

5. The process used to determine the assumptions that have the greatest effect on the measurement of the recognised amounts, When practicable, an insurer shall also give quantified disclosure of those assumptions.

6. The effect of changes in assumptions used to measure insurance assets and insurance liabilities, showing separately the effect of each change that has a material effect on the financial statements.

Question 10.
Mention the disclosure requirements of operating segments under Ind. AS-108.
Answer:
The Ind AS 108 ‘Operating Segments’ replaces the prevailing accounting standard on segment reporting AS 17 and aligns with requirements of IFRS 8. It states that, the enterprise should prepare its segment report on the basis of operating segments which have determined by its key decision makers (i.e. the managerial approach). The main change from the current standard is the introduction of management approach.

In the time of issuing IFRS 8, IASB has recognized one of the benefits with this new approach is that, information through the eye of management will allow users to better judge the entity’s operations. As this new approach has been prescribed in new standard (i.e. Ind AS 108) which has already been issued and scheduled to be implemented, so some questions may arises whether this standard should bring any change in reporting practices in India or what extent it is different from existing standard AS 17 and really is it in the line of IFRS 8 or not.

In this backdrop, the present article makes an endeavor to evaluate the newness of the standard in compare to the existing standard AS 17 and also examine the degree of similarity with the IFRS 8. Finally prospective impact on reporting should also be investigated to judge the potentiality to meet the modern needs of the stakeholders.

To address the core objective of the study, the paper has been divided into eight sections. The first section has established theme of the study along with its core objective. A brief account of Ind AS 108 has been discussed in the second section. The third section has highlighted the unique features of it. Section four has made a comparison between AS 17 and Ind AS 108. Section five has identified the distinction between Ind AS 108 and IFRS 8. Sixth section of this paper has explored the prospective impact of it on segment reporting practices in India. Section seven has attempted to evaluate it critically. Finally a logistic conclusion has been offered in the last section.

This standard only shall applicable to that companies which has been notified in the Companies Indian Accounting Standards Rule 2015. If any company prepared its segment report without complying this standard, the information reported in this report should not be treated as segment information even though the company is not bound to follow the standard so far the above rule is concern. If any financial report contained both standalone and consolidated financial statements of the parent, segment information need to be presented only in the consolidated financial statements.

Reportable segment is that operating segment which meets any of the following Qualitative thresholds:
Its revenue, from both external customers and inter-segment transfers is 10% or more of the combined revenue, internal and external of all operating segments.
The absolute amount of its profit or loss is 10% or more of the greater, in absolute amount of

  • The combined reported profit of all operating segments.
  • The combined reported loss of all operating segments.

Its assets are 10% or more of the combined assets of all operating segments.
Two or more reportable segments can be aggregated, if they meet each of the following aggregation criteria:

  • Aggregation is consistent with the core principle
  • The segments have similar economic characteristics
  • The segments are similar in each of the following respect
  • Nature of the product and services they offer
  • Nature of the production process
  • Types or classes of the customers
  • Methods of distribution
  • Nature of regulatory environment, if applicable.

If the total external revenue reported by operating segments constitutes less than 75% of the entity’s revenue, additional operating segments must be identified as a reportable segment even if they do not meet the quantitative thresholds.

All other operating segments those are falling to meet either the quantitative thresholds or the aggregation criteria, shall be combined and reported as ‘All Others Segments’. For improving the usefulness of the segment report manager by his/her own discretion can report an operating segment additionally even if it does not meet the quantitative thresholds, if they think so.

To improve the comparability, if any reported operating segment In the current period was not meet the quantitative threshold in the last period that require to be restated and if the reported operating segments in the last period fails to meet the quantitative threshold in current period, that can also be reported if management think significant.

Although this standard not specified any maximum number for reported operating segments; but it asked to judge whether the number of reported segments exceeds the practical limit, only when the number reported operating segment more than ten.

Disclosures:
An entity should disclose information about its operating segments to enable users of financial report to evaluate the nature and financial effects of the business activities and the economic environment in which it operates. The disclosure requirement of Ind AS 108 is given bellow:

Information about profit or loss, assets and liabilities:

  • Revenue from external customers.
  • Revenue from inter segment transfer.
  • Interest revenue and expenses.
  • Depredation, depletion and amortization expenses.
  • Income tax expenses and benefit.
  • Material items of income and expenses.
  • The entities interest in the profit or loss of associates and joint ventures accounted for by the equity method.

Unique Features of Ind AS 108:
This standard requires reporting financial and descriptive information about its reportable segments. Reportable segments would be operating segments or aggregations of operating segments that meet specified criteria. Generally, financial information would require to be reported on the basis that is used internally for evaluating operating segments performance and allocating resources to operating segments. It extends the scope of segment reporting by including entities whose equities or debt securities are publicly traded and entities that are in process of issuing the securities in public securities markets.

It requires the information about the components of the entity that management used to make decisions about operating matters and assesses its performance. The reconciliation of total reportable segment revenue, total profit or loss, total assets and other amounts disclosed for reportable segments to corresponding amounts in the entities financial statements have to disclose.

An explanation of how segment profit or loss and segment assets are measure is to be mention in the financial statements for each reportabie segment. The entity have to report information about its .majpr customers and about the countries in which it earns revenue and holds assets, regardless of whether that information is used by management in operating decision making. Finally, it also requires the descriptive information about the way by which operating segments where determined.

Disclosure Standards Very Short Answer Type Questions

Disclosure Standards Very Short Answer Type Questions

Question 1.
Who are the related parties?
Answer:
A related party is a person or entity that is related to the entity that is preparing its financial statements (in this Standard referred to as the ‘reporting entity’).
(a) A person or a close member of that person’s family is related to a reporting entity if that person:

  • Has control or joint control over the reporting entity.
  • Has significant influence over the reporting entity.

Question 2.
What are the relater party transactions?
Answer:
A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged. Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity and include:

  • that person’s children and spouse or domestic partner.
  • children of that person’s spouse or domestic partner.
  • dependants of that person or that person’s spouse or domestic partner.

Question 3.
What is EPS as per IAS 33?
Answer:
Earnings per share sets out how to calculate both basic earnings per share and diluted EPS. The calculation of basic EPS is based on the weighted average number of ordinary shares outstanding during the period, whereas diluted EPS also includes dilutive potential ordinary shares if they meet certain criteria.

Question 4.
What is Antidilution?
Answer:
Antidilution is an increase in earnings per share or a reduction in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.

Question 5.
Give the meaning of contingent share agreement.
Answer:
A contingent share agreement is an agreement to issue shares that is dependent on the satisfaction of specified conditions. Contingently issuable ordinary shares are ordinary shares issuabie for little or no cash or other consideration upon the satisfaction of specified conditions in a contingent share agreement.

Question 6.
What do you mean by dilution.
Answer:
Dilution is a reduction in earnings per share or an increase in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.

Question 7.
What is options?
Answer:
Options, warrants and their equivalents are financial instruments that give the holder the right to purchase ordinary shares.

Question 8.
What do you mean by ordinary share?
Answer:
An ordinary share is an equity instrument that is subordinate to all other classes of equity instruments.

Question 9.
What is potential ordinary share?
Answer:
A potential ordinary share is a financial instrument or other contract that may entitle its holder to ordinary shares.

Question 10.
What is Interim financial report?
Answer:
Interim financial report means a financial report containing either a complete set of financial statements (as described in Ind AS 1 Presentation of Financial Statements or a set of condensed financial statements (as described in this Standard) for an interim period.

Question 11.
What is insurance contract?
Answer:
An insurance contract is a “contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.”

Question 12.
What is operating segment?
Answer:
An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity) whose operating results are. reviewed regularly by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available.

Question 13.
Give the meaning of events after the reporting period.
Answer:
Events after the reporting period and those events favourable and unfavourable that occur between the end of the reporting period and the date what the financial statements are authorised for issue.

B.Com 5th Sem Entrepreneurship Development Questions and Answers

B.Com 5th Sem Entrepreneurship Development Questions and Answers

Unit 1 Entrepreneurship

Unit 2 Small Scale Industries

Unit 3 Formation of Small Scale Industry

Unit 4 Preparing The Business Plan

Unit 5 Project Assistance

B.Com 5th Sem Entrepreneurship Development Syllabus

Unit 1: ENTREPRENEURSHIP (10 Hrs)
Introduction. Meaning & Definition of Entrepreneurship, Entrepreneur & Enterprise.Functions of Entrepreneur – Factors influencing Entrepreneurship – Pros and Cons of Being an Entrepreneur. Qualities of an Entrepreneur. Types of Entrepreneur.

Unit 2: SMALL SCALE INDUSTRIES (12 Hrs)
Meaning &Definition. Product Range – Capital Investment – Ownership Patterns. Meaning and importance of Tiny Industries, Ancillary Industries, Cottage Industries. Role played by SSI in the development of Indian Economy. Problems faced by SSIs and the steps taken to solve the problems – Policies Governing SSIs.

Unit 3: FORMATION OF SMALL SCALE INDUSTRY (14 Hrs)
Business opportunity, scanning the environment for opportunities, evaluation of alternatives and selection based on personal competencies. Steps involved in the formation of a small business venture: location, clearances and permits required, formalities, licensing and registration procedure. Assessment of the market for the proposed project. Financial, Technical, Market and Social feasibility study.

Unit 4: PREPARING THE BUSINESS PLAN (BP) (10 Hrs)
Meaning, importance, preparation.BP format: Financial aspects of the BP, Marketing aspects of the BP, Human Resource aspects of the BP, Technical aspects of the BP, Social aspects of the BP. Common pitfalls to be avoided in preparation of a BP.

Unit 5 PROJECT ASSISTANCE (10 Hrs)
Financial assistance through SFC.s, SIDBI, Commercial Banks, IFCI – Non-financial assistance from DIC, SISI, AWAKE, KVIC – Financial incentives for SSIs and Tax Concessions – Assistance for obtaining Raw Material, Machinery, Land and Building and Technical Assistance – Industrial Estates: Role and Types.

Accounts of Groups Short Answer Type Questions

Accounts of Groups Short Answer Type Questions

Question 1.
Explain the Scope of consolidated financial statements.
Answer:
Consolidated financial statements shall include all subsidiaries of the parent. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity unless, in exceptional circumstances, it can be clearly demonstrated that such ownership does not constitute control. Control also exists when the parent owns half or less of the voting power of an entity when there is:
→ Power over more than half of the voting rights by virtue of an agreement with other investors.

→ Power to govern the financial and operating policies of the entity under a statute or an agreement.

→ Power to appoint or remove the majority of the members of the board of directors or equivalent governing body and control of the entity is by that board or body.

→ Power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body.

Question 2.
Explain the need for consolidated financial statements.
Answer:
The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parents and its subsidiaries are presented as those of a single economic entity.
1. Exemption from preparing group accounts:
A parent need not present consolidated financial statements if and only if all of the following hold.
(a) The parent is itself a wholly-owned subsidiary or it is a partially owned subsidiary of another entity and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements.

(b) Its securities are not publicly traded.

(c) It is not in the process of issuing securities markets.

(d) The ultimate or intermediate parent publishes consolidated financial statements that comply

2. Potential voting rights: An entity may own share warrants, share call options, or other similar instruments that are convertible into ordinary shares in another entity. If these are exercised or converted they may give the entity voting power or reduce another party’s voting power over the financial and operatating policies of the other entity. The existence and effect of potential voting rights held by another entity, should be considered when assessing whether an entity has control over another entity.

3. Exclusion of a subsidiary from consolidation: The rules on exclusion of subsidiaries from consolidation are necessarily strict, because this is a common method used entities to manipulate their results, if a subsidiary which carries a large amount of debt can be excluded, then the gearing of the group as a whole will be improved. In other words, this is way of taking debt out of the consolidated statement financial position.

4. Different reporting dates: In most cases, ail group companies will prepare accounts to the same reporting date. One or more Subsidiaries may, however, prepare accounts to a different reporting date from the parent from the parent and the bulk of other Subsidiaries in the group.

In such case Subsidiary may prepare additional statements to the reporting date of the rest of the group, for consolidation purposes. If this is not possible, the Subsidiary’s accounts may still be used for the consolidation, provided that the gap between the reporting dates is three months or less.

5. Uniform accounting policies: Consolidated financial statements should be prepared using uniform accounting policies for like transaction and other events in similar circumstances. Adjustments must be made where members of a group use different accounting policies, so that their financial statements are suitable for consolidation.

Question 3.
Explain the Procedure for the preparation of consolidated financial position statement.
Answer:
In preparing consolidated financial statements, an entity combines the financial statements of the parent and its subsidiaries line by line by adding together like items of assets, liabilities, equity, income and expenses. In order that the consolidated financial statements present financial information about the group as that of a single economic entity, the following steps are then taken:
(a) The carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiary are eliminated (see IFRS 3, which describes the treatment of any resultant goodwill).

(b) Non-controlling interests in the profit or loss of consolidated subsidiaries for the reporting period are identified.

(c) Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the parent’s ownership interests in them. Non-controlling interests in the net assets consist of:

  • The amount of those non-controlling interests at the date of the original combination calculated in accordance with IFRS 3.
  • The non-controlling interests’ share of changes in equity since the date of the combination.

Question 4.
Explain the disclosures to be made in consolidated financial statements.
Answer:
(a) The nature of the relationship between the parent and a subsidiary when the parent does not own, directly or indirectly through subsidiaries, more than half of the voting power.

(b) The reasons why the ownership, directly or indirectly through subsidiaries, of more than half of the voting or potential voting power of an investee does not constitute control.

(c) The end of the reporting period of the financial statements of a subsidiary when such financial statements are used to prepare consolidated financial statements and are as of a date or for a period that is different from that of the parent’s financial statements, and the reason for using a different date or period.

(d) The nature and extent of any significant restrictions (example – resulting from borrowing arrangements or regulatory requirements) on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances.

(e) A schedule that shows the effects of any changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control on the equity attributable to owners of the parent; and

(f) If control of a subsidiary is lost, the parent shall disclose the gain or loss.

  • The portion of that gain or loss attributable to recognising any investment retained in the former subsidiary at its fair value at the date when control is lost.
  • The line item(s) in the statement of comprehensive income in which the gain or loss is recognised (if not presented separately in the statement of comprehensive income).

Practical Problems

Question 1.
From the following Trial balance of Reddy prepare statement of financial position of the company as on 31.3.2016.

Debit Credit
Cash at Bank 1,50,000 Equity shares capital 2,50,000
Non current assets 1,00,000 Reserves and surplus 50,000
Non current investments 50,000 Non-current liabilities 4,00,000
Land and Building 4,00,000 Current liabilities 1,00,000
Furniture 1,00,000 Staff provident Fund 1,00,000
Office equipment 50,000 Deposits from public 1,00,000
Goodwill 1,00,000 Preference capital 2,50,000
Stock 2,00,000
Trade receivables 1,00,000
12,50,000 12,50,000

Question 2.
Consolidated statement of financial position as at 31st March 2017.

Question 3.
The statements of financial position of Mohan Co. and of its subsidiary Sunil Co. have been made up to 30th June. Mohan Co. has owned ail the ordinary shares and 40% of the loan stock of Sunil Co. since its incorporation.

Question 4.
Shakir Co. acquired the ordinary shares of Mohsin Co. on 31 March when the draft statements of financial position of each company were as follows.

Question 5.
From the following prepare a statement of financial position on 31.3.2019 under companies Act, 2013.

Question 6.
H Ltd. acquired 60% shares of S Ltd. on 1.7.2018. The following information is available as on 31.3.2019 in respect of S Ltd.
(a) Share capital: 1,00,000 equity shares of 10 each
(b) General Reserve as on 1.4.2018 – 80,000
(c) P&L A/c balance (Cr.) on 1.4.2018 – 60,000
(d) Net profit for the year ended 31.3.2019 – 1,00,000
Calculate non-controlling interest. Dec 2019

Question 7.
H Company Ltd. acquired 4,000 equity shares of S company Ltd. as on 1st April 2017. the following are the Balance Sheet of the two companies as on 31.3.2018.
Calculate Non Controlling Interest and Goodwill / Capital Reserves.

Question 8.
Partho acquired 75% of the shares in Sonu on 1st January 2017 when Sonu had retained earnings of’ 15,000.
The market price of Sonu’s shares just before the date of acquisition was 1.60.
Partho values non-controiiing interest at fair value.
Goodwill is not impaired.
The statement of financial position of Partho and Sonu December 2016 were as follows:

Question 9.
Harsha Ltd., acquires 70% of the equity shares of Meena Ltd., on 1st January 2012.
On that date, paid up capital of Meena Ltd., was 10,000 equity shares of 10 each; accumulated reserve balance was 1,00,000.
Harsha Ltd., paid 1,60,000 to acquires 70% interest in the Meena Ltd., Assets of Meena Ltd., were revalued on 1.1.2012 and a revaluation loss of 20,000 was ascertained.
Calculate the value of goodwill. Nov 2018

Question 10.
H Ltd. acquired 75% of the shares of S Ltd. on 31.7.2015
And earned a profit of 67,500 for the year ending 31.3.2016.
The face value of shares of S Ltd. is 10 per share
The S Ltd. had a balance of 82,500 in P/L A/c as on 31.3.2016 and 1,05,000 in General Reserve.
Calculate the non controlling interest.
Solution:
Calculation of Non-controlling interest
a. Assetainment of ratio of holdings
No. of shares held by H Ltd. In S Ltd : No. of share held by Non-Controlled Shareholders
75% : 25%
Ratio of holding = 3:1

b. Ascertainment of share of capital profits of NC shareholders

General Reserve balance 1,05,000
Balance of P/L A/c on 1.1.15 (82,500-67,500) 15,000
Share of Profit earned from
1.4.15 to 31.7.15 22,500
Total capital profit 1,42,500
Share of NC shareholders (1,42,500 x 1/4) 35,625

C. Ascertainment of Revenue Profits of NC shareholders
Profit earned from 1.8.15 to 31.3.16 (67,500×8/12) 45,000
Share of .NC shareholders of R.P. (45,000×1/4) 11,250

D. Calculation of NC Interest

NC shareholders share of capital profit 35,625
NC shareholders share of Revenue profit 11,250
Amount of share capital holding by
Non-Controlling interest 96,875

Question 11.
Sri Rama Ltd. acquired 60% of Equity Shares in Laxman Ltd. on 1.10.2016. The following balances are extracted from the Balance Sheet of Laxman Ltd. as on 31.3.2017.
(i) Share capital: 40000 Equity shares of
(ii) General Reserve on 1.4.2016 80,000
(iii) Profit and Loss a/c (Credit) on 1.4.2016 30,000
(iv) Net profit for the year ended 31.3.2017 60,000
Calculate cost of control.

Question 12.
Calculate the Non-controlling interest from the following:
Geetha Ltd. acquired 75% of equity shares in Seetha Ltd. on 1.7.2015. The following balances are extracted from the financial position of Seetha Ltd. as on 31.3.2016.
1) Share capital
20000 Equity shares of 10 each

2) Balances as on 1.4.2015
General Reserve 70,000
Profit and Loss A/c 55,000

3) Net profit for the year
ending 31.3.2016 45,000
Solution:
Calculation of Non-Controlling interest
a. Ratio of holding
No. of shares held by Geetha 75%
No. of shares held by Non-Controlling shareholders in Seeth Ltd. 25%
Ratio of holding = 3 : 1s

b. Capital profits of Non-controlling shareholders

General reserve on 1.4.2015 70,000
P/L on 1.4.2015 55,00
Net profit during the year (95,000×3/12) 11,250
Total 1,36,250
Non-Controlling shareholders hsares (1,36,250 x 1/4) 34,062

C. Revenue Profit of Non-Controlling Shareholders

Net profit during the year (95,000 x 3/4) 33,750
NCSH shares (33,750 x 1/4) 8,937
Non-controlling interest share capital profit 50,000
Add: Capital profit 34,062
Add: Revenue profit 8,437
Non-Controlling Interest 92,499

Question 13.
Calculate the borrowing cost in the case of Indraprastha Co. Ltd.
(1) 30 crores arranged by 12% p.a. Debentures payable after 10 years, 10 crores by 12 years loan from SBI and 10 crores from Indian Bank. The SBI interest rate is 14% p.a. and Indian Bank interest rate is 16% p.a.
(2) Debentures repayable at 10% premium.
(3) the cost.of issue of Debentures is 22 lakhs
(4) The service charges for SBI loan 8%.

Question 14.
The cost of a machine is 3,00,000, which has 5 years of useful life. Depreciation is on straight line method at 10% p.a. Machine is expected to generate ‘ 30,000 p.a. net cashflow for 5 years.
The net realisable value of the machine on current date is 1,40,000.
The required rate of return is 10% p.a.
Calculate:
(i) Carrying amount of the machine.
(ii) Impairment loss
(iii) Revised carrying amount.
(The present value of an annuity at 10% p.a. for 5 years is 3.79).
Solution:
(i) Carrying cost of machinery:
Cost of machinery 3,00,000
Less: Depreciation at 10% 3,00,000 (for 5 years 30,000×5) 1,50,000
Carrying amount 1,50,000
Value in use 30,000 x 3.79 = 1,13,700

(ii) Impairment Loss
Carrying amount – Net realisable value 1,40,000 or value in use
(1,13,700 w.e.f (1,50,000 – 1,40,000)) 10,000

(iii) Revised carrying amount
(Carrying value – impairment loss)
(1,50,000 – 10,000) 1,40,000

Question 15.
Ashok Ltd. took a loan of Euros 5000 on 1st April 2015 for the purpose of setting up a new subsidiary.
The company took a loan at an interest rate of 5% p.a. payable annually. On 1 April 2015 the exchange rate was determined at 60 per Euro. The exchange rate on 31.3.2016 stood at 65 per Euro. The amount corresponding could have also been borrowed at 12% p.a. in the local currency on 1.4.2015.
Calculate:
(a) Borrowing cost
(b) Increase in the liability towards the principal amount
(c) Exchange rate difference accounted.
Solution:
(a) Calculation of borrowing cost:
a. Calculation of interest for the period Euros
5,000 x 65 x 5/100 = 16,250

b. Increase in the liability towards principal amount Euros
5,000 x (65 – 60) = 25,000

c. Interest if loan was borrowed in home currency
5000 x 60 x 12/100 = 36,000

d. Difference between loan current and foreign currency
36,000 – 16,250 = 19,750
Borrowing cost

Total interest for the period 16,250
Add: Increase in the liability towards the principal amount 15,000
Total borrowing cost 41,250

Exchange rate difference is not to be accounted in this problem as the difference between the borrowings in the local and the foreign currency is greater than the total increase in the liability.

Question 16.
The draft statement of financial position of Ananya Co. and Manan Co. on 31st March 20_8 were as follows.
Statement of financial position as at 31st March 20_8

Question 17.
From the following particulars of M/s Ravinandan Ltd., prepare a statement of P/L fro the year ended 31 March, 2017 as per Schedule III of Companies Act, 2013:

Revenue from operations 1,00,000
Printing and Stationery 2,000
Advertisement 4,000
Salaries and allowances 6,000
Interest on long term loans 4,500
Goodwill written off 1,500
Material consumed 35,000
Discount allowed 1,000
Interest on investment received 1,500
Depreciation on fixed assets 2,000

Question 18.
The particulars are given from Sachidananda Ltd. for the year ending 31.12.2016:

Goods acquired 6,00,000
Stock of goods on 1.1.2016 80,000
Stock of good son 31.12.2016 90,000
Sales 10,00,000
Depreciation on fixed assets 10,000
Preliminary expenses written off 8,000
Salaries to the employees 19,000
Rent of showroom 12,000
Interest on loan 10,000
Discount received from suppliers 5,000
Office expenses 2,000
Printing and Stationeries 1,800
Carriage outwards 1,200
Advertisement 800

Income tax at 40%
From the above particulars, prepare a Statement of Profit or Loss as per Schedule III of Companies Act. 2013. Nov 2017

Question 19.
The Trial Balance of Mysore Ltd. on 31.3.2017 was given as under:
Prepare a statement of financial position of Mysore Ltd. as on 31.3.2017 as per Schedule III of Companies Act. 2013. Nov 2017.

Question 20.
The statement of financial of keerthi Ltd. and Murthy Ltd. as on 31.3.2017:
Keerthi Ltd. acquired the shares in Murthy Ltd. on 1.8.2016. From the above details calculate non-controiiing interest.

Question 21.
The statement of financial position of X Ltd. and Y Ltd. as on 31.3.2019. were as follows:
X Ltd. purchased the shares of Y ltd. on 1.7.2018. Calculate the non-controlling interest.

Question 22.
The following are the Balance Sheets of P Ltd. and Q Ltd. as on 31.3.2019.

Accounts of Groups Very Short Answer Type Questions

Accounts of Groups Very Short Answer Type Questions

Question 1.
What is group?
Answer:
Group is summary of accounts based on criteria that effects when master recorder are created.

Question 2.
What is business combination as per AS-103.
Answer:
A business combination is a transaction or event in which acquires obtains control over a business. For ex: Acquisition of a shares or net assets, legal mergers etc.

Question 3.
What are Consolidated Financial Statements as per IFRS 10?
Answer:
Consolidated Financial Statements outlines the requirements for the preparation and presentation of consolidated financial statements, requiring entities to consolidate entities it controls. Control requires exposure or rights to variable returns and the ability to affect those returns through power over an investee.

Question 4.
State the objectives of IFRS 10.
Answer:
The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.

Question 5.
What is Control?
Answer:
An investor controls and investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through power over the investee.

Question 6.
Give the meaning of Power.
Answer:
Existing rights that give the current ability to direct the relevant activities of the investee.

Question 7.
What do you mean by Subsidiary?
Answer:
An entity that is controlled by another entity.

Question 8.
What is Parent?
Answer:
An entity that controls one of more subsidiaries.

Question 9.
What is Associate?
Answer:
An entity over which an investor has significant influence and which is neither a subsidiary nor and interest in a joint venture.

Question 10.
How do you treat pre-acquisition profit or loss?
Answer:
Pre-acquisition reserves are retained profits and other reserves that exist in a subsidiary’s statement of financial position at the date of acquisition. Pre-acquisition reserves are capitalised at the date of acquisition by including in the goodwill calculation.

Question 11.
What do you mean by unrealised profits?
Answer:
An “unrealized profit” occurs when an asset is purchased and then rises in value, but hasn’t been sold.

Question 12.
What are accounting policies?
Answer:
Accounting policies are the specific principles bases, connections rules, practices applied by an entity in preparing and presenting financial statements.