44th session - final - progress testprimeacademy.com/progress/pt44-final-g2.pdf · 44th session -...

PRIME/44th PT/FINAL 1

PRIME ACADEMY 44th SESSION - FINAL - PROGRESS TEST

ADVANCED MANAGEMENT ACCOUNTING No. of pages: 4 Total Marks: 75

Time allowed: 2 hrs PART - A (25 Marks)

1. Write a short notes on Absorption costing (2 Marks) 2. What assumptions must hold for applying CVP analysis (1 Mark) 3. Calculate BEP for product A and B. Find out total sales required for BEP

Particulars A B

Units Sold 60 40

Selling Price 200 100

VC 120 70

Total Fixed Costs are `6,000 (3 Marks)

4. Marry plans to sell Software, a home office software package at a computer convention in Delhi. Marry can purchase this software from a computer software wholesaler at `120 per package. Marry incurs a variable cost of ` 10 for preparing documents for each customer who buys software. The package will be sold for ` 200 each. She has already paid `2,000 to computer convention. (2 Marks) Find out Operating income if Mary sells 40 packages to 15 customers Find out BEP (Assumptions can be made) (3 Marks)

5. XYZ a travel agency specializes in fights between New Delhi and Chennai. It books passengers on ABC

airlines at `900 per round trip ticket. Untill last month, ABC airlines paid XYZ a commission of 10% of the ticket price paid by each passenger. This commission was XYZ only source of revenues. XYZ fixed costs are `14,000 per month and its variable costs are ` 20 per ticket purchased for passenger. ABC has announced a revised schedule for travel agents. It will pay travel agents 10% commission per ticket up to maximum of ` 50. Any ticket costing more than `500 generates only `50 commission regardless of the ticket price. Required Under 10% Commission structure - How many round trip tickets must XYZ sell each month to (a) break even and (b) to earn operating income of ` 7000? How does the revised payment schedule affect your answers to (a) and (b) in requirements (5 Marks)

6. Classify the following expenses into Fixed, variable and Semi-Variable.

a. Depreciation of plant and machinery b. Salary of managing director c. Telephone Expenses d. Repairs to plant and machinery e. Wages of machine operators f. Power used in production g. Wages of permanent maintenance crew h. Factory rent. (4 Marks)

7. Outline Features of penetration pricing (5 Marks)

PRIME A

CADEMY


PART B (50 Marks)

1. The following figures are available. Find out the missing figures, giving appropriate formulae

Amount in `

Budgeted Profit 15000

Less Adverse Variances

Contribution Price Variance 10600

Direct Material Variances 1000

Fixed Overhead Variance 600 -12200

2800

Add Favorable Variances

Contribution quantity Variance 1800

Direct wages variance 600

Variable overhead variance 1800 4200

Actual Profit 7000

There is no inventory Production units = sales units for actual and budgeted

Standard Selling Price `18/unit

Standard Variable cost `15/unit

Standard Contribution ` 3/unit

Actual Selling Price ` 17/unit

Budgeted Sales 10,000 Units

Standard Material cost p.u. = ` 1(which is 5Kg @ ` 20 Paise/kg) Material Usage Variance = 400(Adv.) Actual labour hours @ Actual rate = ` 63,000 Actual labour hours @ Standard rate = ` 61,950 Variable overhead standard rate = ` 2 Standard hours of production = 4 per unit Variable overhead at standard rate = 84,800 Variable overhead expenditure variance = 400(A) Budgeted Fixed overhead= `15,000 Find out the following

1. Actual sales units 2. Actual Sales rupees 3. Actual quantity of raw materials used 4. Labour efficiency Variance 5. Actual Variable overhead in Rupees 6. Variable overhead efficiency variance 7. Actual Fixed overheads 8. Operating profit variance (12 Marks)

PRIME A

CADEMY


2. The particulars of XYZ Company is as follows

Particulars X ` Y ` Z `

Direct Material (`/Unit) Excluding material X for Y & Z 8 22 40

Direct Labour (`/Unit) 4 6 8

Variable OH (`/Unit) 2 2 2

Selling Price to Outside Customers (`/Unit) 25 65 90

Existing Capacity (no. of units) 6000 3000 3000

Maximum External market (no. of units) 5000 5500 5000

Additional Fixed cost that would be incurred to install additional Capacity (`) 45000 9000 23100

Maximum additional units that can be produced by additional Capacity 6000 2000 2250

Y and Z need material X as their input. Material X is available in themarket at ` 23 per unit. Defectives can be returned to suppliers at their cost. Division X supplies the material free from defects and hence is able to sell at `25 per unit. Each unit of Y and Z require one unit of X as input with slight modification. If Y purchases from outside at Rs 23 per unit, it has to incur ` 3 per unit as modification and inspection cost. If Y purchased from Division X, it has to incur in addition to transfer price ` 2 per unit to modify it. If Z gets the material from Division X, it can use it after incurring a modification cost, of `1 per unit. If Z buys material X from outside, it has to either inspect and modify it at its own shop floor at ` 5 per unit or use idle labour from Division X at ` 3 per unit. Division X will lend its idle labour as per Z's requirement even if Z purchases the material from outside. The transfer prices are at discretion of the Divisional Managers and will remain confidential. Assume no restrictions on quantities of inter-division transfer purchases. Discuss with relevant figures the best strategy for each of division and for the Company as a whole.

(12 Marks) 3. XYZ Ltd manufactures cellular modems. It manufactures its own cellular modem circuit boards (CMCB),

an important part of cellular modem. It reports the following information

Particulars Current Costs in 2009 `

Current Costs in 2010 `

Variable Manufacturing costs :

Direct Material cost per CMCB 180 170

Direct Manufacturing Labour cost per CMCB 50 45

Variable manufacturing cost per batch for set ups, material handling and quality control 1,600 1,500

Fixed Manufacturing costs :

- Fixed Manufacturing costs that can be avoided if CMCBs are not made 320,000 320,000

- Fixed Manufacturing costs that can't be avoided if CMCBs are not made 800,000 800,000

PRIME A

CADEMY


XYZ Ltd manufactures 8000 CMCBs in 2009 in 40 batches of `200 each. In 2010, it anticipates the needing 10,000 CMCBs. The CMCBs would be needed in 80 batches of 125 each. ABC Ltd has approached XYZ about supplying CMCBs to XYZ in 2010 at `300 per CMCB on whatever delivery schedule XYZ wants. CMCB on whatever delivery schedule XYZ wants.

i) Calculate the total expected manufacturing cost per unit of making CMCBs in 2010 (4 Marks) ii) Suppose the capacity currently used to make CMCBs will become idle if XYZ purchases CMCBs

from ABC. On the basis of financial considerations alone, should XYZ make CMCBs or buy them from ABC? Show your calculations. (4 Marks)

iii) Suppose that if XYZ purchases CMCBs from ABC, its best alternative use of the capacity currently used for CMCBs is to make and sell special circuit boards(CB3s)to the Essex Corporation, XYZ estimates the following incremental revenues and costs from CB3s:

a. Total expected incremental future revenues ` 20,00,000 b. Total expected incremental future costs ` 21,50,000

On the Basis of financial considerations alone, should XYZ make CMCBs or buy them from ABC. (4 Marks)

4. Discuss the any characteristics of Zero based budgeting (4 Marks)

5. A Company Manufactures two products X and Y. Product X requires 8 hours to produce while Y

requires 12 hours. In April, 2004, of 22 effective working days of 8 hours a day, 1,200 units of X and 800 units of Y were produced. The company employs 100 workers in production department to produce X and Y. The budgeted hours are 1,86,000 for the year. Calculate Capacity, Activity and Efficiency ratio and establish relationship (5 Marks)

6. Annual production requirement for ABC Limited is 10,000 Units

Alternative A - Cost of Purchase of 1,000 Units is ` 16/unit and Alternative B - Cost of purchase of 10,000 units is 15.84/ unit. Cost of Purchase order is ` 100. Annual Interest rate is 8% (Assuming the cost of inventory just before the next purchase delivered is zero. Which alternative is more preferable for ABC Limited (5 Marks)

PRIME A

CADEMY


PRIME ACADEMY 44th SESSION - FINAL – PROGRESS TEST – ADVANCED MANAGEMENT ACCOUNTING

SUGGESTED ANSWERS PART - A

1. Absorption Costing Absorption costing method for the valuation of finished goods inventory: When absorption costing method is used, production fixed overheads are charged to products and are included in product costs. Consequently, the closing stocks are valued on total cost (including fixed overheads) basis. The net effect is that the charge of fixed overheads to P/L account gets reduced, if the closing stock is greater than the opening stock. This situation has the effect of inflating the profit for the period. Where stock levels are likely to fluctuate significantly, profits may be distorted if calculated on absorption costing basis. If marginal costing is used, since the fixed costs are charged off to P/L account as period cost, such a situation will not arise.

2. Assumptions for CVP Analysis - CVP analysis requires costs are either fixed or variable with respect

to the number of outputs (units produced and sold) and the relationship between the total revenues and costs are linear.

3. Break-even point

= Total Fixed costs / Weighted average Contribution per Unit = 4500/60=75 units BEP for product A = 75*3/(3+2)= 45 units and BEP for B = 75*2/(3+2)= 30 Units. Weighted average contribution =

(Contribution of A*No. of Units of A) + (Contribution of B*No. of Units of B)

(No. of units of A+ No. of Units of B)

(80*60)+(30*40)

60+40

4. Operating Income = Revenues - (Cost of each software package *No. of Packages) - (Cost of preparing documents for each customer*No. of Customers) - Fixed costs = (`200 per package*40 packages) - (`120 per package*40 per package) - (`10 per customer*15 Customers) – 2,000 = ` 1,050/- BEP Units 26 packages and 8 Customers or 27 packages and 16 customers. The packages and customers should satisfy the equation 80pacakages-10Customers=2000

5. XYZ receives 10% Commission -10% *900=90

SP = `90 per Unit VC= ` 20 per Unit Fixed Cost= `14000 BEP=Fixed Cost/VC per Unit = 14000/70 = 200 tickets per month BEP @ `7000 profit = 14000+7000/70=300 tickets per month

Under New System SP=50 per ticket VC= 20 per ticket Fixed Cost = `14000 BEP= 14000/30=467 tickets per month BEP= 21000/30=700 tickets per month The ` 50 cap on the commission paid per ticket causes the break-even point to more than double (from 200 to 467 tickets).

PRIME A

CADEMY


6. a. Semi-variable b. Fixed c. Semi-variable d. Semi-variable e. Variable f. Variable g. Fixed h. Fixed

7. Features of penetration pricing

1. Penetration Policy- It is a policy of using a low price as the principal instrument for penetrating mass markets only.

2. This method is used for pricing a new product and to popularize it initially 3. Profits may not be earned in the initial stages. However, the prices may be increased as and

when the product is established and its demand picks up 4. The low price policy is introduced for the sake of long term survival and profitability and hence

it has to be received careful consideration before implementation. It needs an analysis of the scope for the market expansion and hence considerable amount of research and forecasting are necessary before determining the price.

5. The circumstances in which penetration pricing can be adopted are a. Elastic demand: The demand of the product is high when the price is low. Hence, lower

prices means large volumes and hence more profits. b. Mass production: When there are substantial savings in the large scale production,

increase in demand is sustained by the adoption of low pricing policy. c. Frighten off competition: The prices are fixed at low level acts as an entry barrier to the

prospective customers. The use of this policy by existing concerns will discourage the new concerns to enter the market. This pricing policy is also known as “stay out pricing”.

PART - B

1. AQ=Actual quantity, SQ= Standard Quantity

AQ*(Actual Contribution) AQ*(Standard Contribution) SQ*(Standard Contribution)

AQ*(AP-AC) AQ*(SP-SC) SQ*(SP-SC)

AQ*(18-15) 10000*(18-15)

AQ*3-10000*3=1800, AQ*3=30000+1800 AQ=31800/3=10,600 Actual Sales Rupees = 10600*17= 1,08,200 Standard Quantity = 10600*5 = 53000 Actual Quantity (AQ) = 53000+400/.2= 55000

SQ*SP AQ*SP AQ*AP

53000*0.2 AQ* 0.2

Labour Efficency Variance

SH*SR AH*SR AH*AR

61950 63600

= `61,950-63,600 = `1,650/- Actual Variable overhead in Rupees

SH*SR AH*SR AH*AR

84800

83000

84800-AH*AR=1800 = `83,000/- Variable overhead efficiency variance= AH*SR-83,000 = -400 = AH*SR= 82,600

PRIME A

CADEMY


Other presentation `

Budgeted Contribution = Budget Profit +Budgeted FC(15000+15000) 30,000

Plus Contribution quantity Variance 1,800

Total Standard Contribution 31,800

Standard Contribution per unit 3

Actual Sales Volume 10,600 Units

Actual Sales Volume 10600*17 1,80,200

Actual quantity of Raw materials Used - Standard Consumption 10600*5 53,000 Kgs

Add Material Usage Variance 400/(0.5) 2,000 Kgs

Actual Consumption 55,000 Kgs

Labour efficiency variance Standard Labour cost for Standard hours

(63000+600) 63,600

Standard Labour cost for actual hours 61,950

Labour efficiency Variance 1,650 F

Actual Variable Overhead Variable OH at Standard rate - Variable OH

Variance (84800-1800) 83,000

Variable Overhead efficiency variance Actual Hours(AH) 61950/1.5 41,300

Standard Hours(SH) 10600*4 42,400

Standard rate per hour (SR) 63600/10600*4 1.5

Efficiency Variance SR(SH-AH)=2(42400-41300) 2200F

Actual Fixed overheads (15000-600(A)) 15,600

Operating profit Variance If budgeted profit is considered 8,000 Adverse

If standard profit is considered 9,800 adverse

PRIME A

CADEMY


2. Amount in `

Particulars

Division X Division Y Division Z

Sale to Internal transfer to

Purchase from Outside

Transfer from X Transfer from X

Y Z

Selling Price 25 65 65 90

Transfer Price 24 25

Direct Material (Excluding Material X) 8 8 8 22 22 40

Direct Labour 4 4 4 6 6 8

Variable OH 2 2 2 2 2 2

Purchase price X 23

Transfer price X 24 25

Modification cost 3 2 1

Contribution 11 11 11 9 9 14

Division Y will not pay Division X anything more than `24, because at 24, it will incur additional cost of ` 2 per unit to modify it, ` 23+` 3=`26 , the outside cost To Purchase material X from outside is Costly for Division Z as after modification at own shoop floor, cost of the same comes to division Z is ` 28(23+5) If Division X goes to utilise full capacity in the case labour would not be available for modification to Department Z. Accordingly Division Z may purchase material X at ` 25 from Division X i.e., market price to outsiders Statement showing Internal Transfer Decision (units)


Existing Capacity 6000 3000 3000

Maximum Capacity that can be added 6000 2000 2250

Total Maximum that can be produced 12000 5000 5250

Maximum External Demand 5000 5000 5000

Balance 7000 Nil 250

Internal transfer to other divisions 5000 Units to Z*

2000 units to Y NA NA

Internal transfer from other divisions NA

2000 Units transfer from X (material X)

5000 Units transfer from X (material X)

Division X will Supply its production to Division Z first9 after meeting its external requirement) as contribution from product Z is high

PRIME A

CADEMY


Statement showing Decision whether to Expand or not


Additional Fixed Cost on Expansion 45000 9000 23100

Contribution that can be earned by expansion

64000 (4000Units*`11

+2000units*`10)

18000 (2000

units*`9)

28000 (2000

units*`9)

Net benefit from expansion 19000 9000 4900

Decision Expansion Expansion Expansion

Particulars X ` Y ` Z ` Total

Contribution - External Sales

55,000 (5000*`11)

45,000 (5000*`9)

70,000 (5000*`14) 170,000

Contribution - Internal Sales

75000 (2000 Units*`10+

5000 Units*`11) 75,000

Additional Fixed Cost 45,000 9,000

23,100

77,100

Net Revenue Addition

1,67,900

Strategy for Company & Divisions

Division X will transfer maximum possible material to division Z as Division Z is offering maximum transfer price to Division X. At the same time Division Z is fetching maximum contribution for the organization so it is beneficial for both the Divisions as well as organization as a whole.

As shown above all the three divisions are getting net benefit when they are taking decision to expand, hence all the three Divisions should expand their activity by incurring additional fixed cost on expansion.

3. a) The Expected Manufacturing Cost per unit of CMCBs in 2010 is as follows (Amount in `)

Particulars Total Manufacturing costs of CMCBs `

Total Manufacturing costs per Unit

Direct Materials (`170*10,000) 1,700,000 170

Direct Manufacturing labour(`45*10,000) 450,000 45

Variable batch manufacturing costs (`1500*8) 120,000 12

Fixed Manufacturing costs 0

- Avoidable fixed manufacturing costs 320,000 32

- Unavoidable fixed manufacturing costs 800,000 80

Total Manufacturing Costs 3,390,000 339

PRIME A

CADEMY


b)

Particulars

Total Per Unit

Incremental costs Incremental costs

Make ` Buy ` Make ` Buy `

Cost of Purchasing CMCBs from ABC

3,000,000 3000

Direct Materials

1,700,000 170

Direct Manufacturing labour

450,000 45

Variable Manufacturing Costs

120,000 12

Avoidable fixed manufacturing costs

320,000 32

Total Incremental costs

2,590,000

3,000,000

259

3,000

Difference in favour making = `4,10,000 The Opportunity cost of using Capacity to make CMCBs is zero XYZ would keep this capacity idle if it purchases CMCBs from ABC XYZ should continue to manufacture the CMCBs internally since the incremental costs to manufacture are `259per unit as compared to ` 300 per unit.

c) XYZ should continue to make CMCBs. Expected incremental future revenues from CMB3s, is ` 20,00,000 are less than expected incremental future costs, `2,15,000. If XYZ keeps idle Capacity idle, we know from requirement 2 that it should make CMCBs rather than buy them. An important point to note is that, because XYZ foregoes no contribution by not being able to make and sell CB3s, the opportunity cost of using its facilities to make CMCBs is zero. It is, therefore not forgoing any profits by using the capacity to manufacture CMCBs. If it does not manufacture CMCBs, rather than lose money on CB3s, XYZ will keep capacity idle. A longer and more detailed approach is to the total alternatives or opportunity cost analyses is as follows Total alternatives approach to make or buy decisions

Amount in `

Relevant Items

Choices for XYZ

Make CMCBs and donot Make CB3s `

Buy CMCBs and Make CB3s, if Profitable `

Incremental costs of making/buying CMCBs 2,590,000 3,000,000

Because of incemental future costs exceed incremental future revenues from CB3s, XYZ will make zero CB3s even if it buys CMCBs from ABC - -

Total relevant costs 2,590,000 3,000,000

PRIME A

CADEMY


Opportunity Cost approach to make or buy decisions

Relevant Items

Choices for XYZ

Make CMCBs and do not Make CB3s `

Buy CMCBs and Make CB3s, if Profitable `

Incremental costs of making/buying CMCBs 2,590,000 3,000,000

Opportunity Cost : Profit Contribution foregone because capacity will not be used to make CB3s 0* 0

Total relevant costs 2,590,000 3,000,000

*Opportunity Cost is 0 because XYZ does not give up anything by not making CB3s. XYZ is best off leaving the capacity idle (rather than manufacturing and selling CB3s).

4. Zero Based Budgeting (ZBB) is defined as method of budgeting which requires each cost element to be specifically justified, as though activities to which the budget relates were being undertaken for the first time. ZBB is prepared and justified from the scratch (Zero). Without approval, the budget allowance is zero. Characteristics of ZBB (i) Manager of a decision unit has to completely justify why there should be any budget allotment for his decision unit. (ii) Activities are identified in decision packages. (iii) Decision packages are ranked in order of priority (iv) Packages are evaluated by systematic analysis. (v) Decision packages are linked with corporate objectives, which are clearly laid down. (vi) Available resources are directed towards alternatives in order to prioritize to ensure optimal results.

5. Standard Hours Product X = 1200*8=9600 units Product Y = 8000*12=9600 units Total standard hours = 19200 Actual Hours worked = 100 workers*8 hours* 22 days = 17600 hours Budgeted hours = 186000/12= 17,600 Capacity Ratio = Actual Hours /Budgeted hours *100 =17600/15500=113.55% Efficiency Ratio = Standard Hours produced /Actual hours *100 =19200/17600=109.09% Activity Ratio = Standard Hours produced /Budgeted hours *100 =19200/15500=123.87% Relation Ship - Activity Ratio = Efficiency Ratio * Capacity Ratio

6. Amount in `

Particulars Alternative A ` Alternative B `

Annual purch. order costs (10 purchase orders*`100/ purch. order)

1,000 100

Annual purchase costs (10,000 units *`16/unit, 10,000 units*`15.84/unit

160,000 158,400

Annual interest income that could be earned if investment in inventory were invested at 8% Opportunity cost(.08*6000,.06*79200) 640 6,336

Relevant Costs 161,460 164,836

Alternative A is more preferable

PRIME A

CADEMY



INFORMATION SYSTEM CONTROL AND AUDIT No. of page: 1 Total Marks: 75

Time allowed: 2 hrs PART - A

All questions are compulsory. Each question carries 1 Mark 1. In White box testing , the focus is on ----- 2. -------- is conducted when the system is just ready for implementation. 3. A good program should have ------, ----. ------. 4. In------------- analysis, there could be a tendency to understate costs and overstate benefits. 5. In the term “CASE tools”, “CASE” stands for ---------- 6. The decision to acquire the software should flow from ------------- 7. The security comprises of three universal attributes of --------, ---------- and --------- 8. What do you mean by user security policy? 9. Firewall is an example for -------- control. 10. Name any one internet working devices. 11. Spool is an acronym for------------ 12. What is “Data Diddling”? 13. What is a “trap door”? 14. What is the control measure to combat “Unauthorised Intrusion”? 15. ---------- Controls prescribe how jobs are to be scheduled on a hardware/ software platforms. 16. What is a File library? 17. What is a transcription error? 18. What is meant by “hash Totals”? 19. What is “Error Detection”? 20. What do you mean by SPAM? 21. Who are crackers? 22. All the phases of Software development is followed in ------- model. 23. What is “System Analysis”? 24. What is the major deliverable in “Systems Requirement Analysis”? 25. What is a “Parallel test” in System testing? (25 X 1 = 25 Marks)

PART - B

Answer any Ten Questions. Each Question carries 5 Marks. 1. Discuss categories of controls based on Audit functions. 2. Briefly discuss the key components of Information security policy 3. Discuss major boundary controls in brief. 4. What are “Asynchronous attacks “and discuss their forms in brief. 5. What are the repercussions of Cyber fraud on an enterprise? 6. What is Data Integrity and discuss categories of internal control? 7. Discuss important factors to be considered by Systems Analyst while designing user input/output

forms of a user interface. 8. Discuss about “Prototyping model, it strengths and weaknesses, if any. 9. Discuss about Software acquisition. 10. Discuss about System testing. 11. Enumerate IS auditor’s role in “testing phase” and “Post implementation Review”. 12. Discuss Controls over Data Integrity and Security. (10 x 5 = 50 Marks)

PRIME A

CADEMY


PRIME ACADEMY 44th SESSION - FINAL – PROGRESS TEST

INFORMATION SYSTEM CONTROL AND AUDI SUGGESTED ANSWERS

PART - A 1. Structural correctness. 2. Final acceptance testing 3. Accuracy, Reliability and Robustness 4. Cost Benefit Analysis 5. Computer Aided software Engineering 6. User Department 7. Confidentiality, Integrity and Availability 8. Responsibilities and requirements of all IT system users 9. Preventive 10. Router, Bridges, Gateway 11. Simultaneous Peripherals Operation online 12. Changing data before and after it is entered into the system in order to delete, alter, or add key

system is referred to as Data Diddling. 13. Perperator enters into the system thru the backdoor that bypasses normal system controls 14. And perpetrates frauds. 15. use of disc logs, Pre-printed stationery must be stored safe 16. Scheduling controls 17. recording, issuing, receiving and safeguarding all programs and data files that are maintained in

the library on computer disks. 18. Addition, Truncation, Substitution 19. Sum of actual or arbitrarily assigned numerical values computed as a verification device for

documents or records 20. Spam is electronic junk mail or junk newsgroup postings 21. Hackers with a criminal intent 22. Waterfall 23. System Analysis: Gathering, processing, and interpreting the facts related to existing system,

diagnosing problem to recommend improvement to the system. 24. Feasibility Study 25. In Parallel Tests, the same test data is used in the new and old system and the output results are

then compared.

PART - B 1. Classification of controls:

Preventive Detective Corrective Compensatory

2. Purpose, scope of the intended audience

The security infrastructure Security policy document maintenance and compliance requirements Incident response mechanism and incident reporting Security organisation structure Inventory and classification of assets Description of technologies and computing structure Physical and Environmental security

PRIME A

CADEMY


Identity Management and access control IT operations management IT Communications System development and maintenance Controls Business Continuity Planning Legal Compliances Monitoring and Auditing Requirements

3. The major controls of the boundary system are the access control mechanisms. Access controls mechanism links the authentic users to the authorized resources, they are permitted to access. Cryptography : deals with programs for transformation data into codes that are meaningless to anyone who does not possess the authentication to access the respective system resource of file. A cryptographic technique encrypts data (clear text) into cryptogram (cipher text) and its strengths depends on the time and cost to decipher the cipher text by a cryptanalyst. The three techniques of cryptography are transposition (permute the order of characters within a set of data), substitution (replace text with a key-text) and product cipher (combination of transposition and substitution) Password : User identification by an authentication mechanism with personal characteristics like name, birth date employee code, function, designation or a combination of two or more of these can be used as a password boundary access control. A few best practices followed to avoid failures in this control system are minimum password length, avoid usage of common dictionary words, periodic change of password, encryption of passwords and number of entry attempts. Personal Identification Numbers (PIN) : The personal identification number is similar to a password assigned to a user of by an institution based on the user characteristics and en- crypted using a cryptographic algorithm, or the institute generates a random number stored in its database independent to user identification details, or a customer selected number. Hence a PIN or a digital signature are exposed to vulnerabilities while insurance or delivery validation transmission and storage. Identification Cards : Identification cards are used to store information required in an authentication process. These cards used to identify a users are to be controlled through the application for a card preparation of the card, issue use and card return or card termination phases.

4. Asynchronous attacks are a form of attack that typically targets timing. The objective is to exploit the delay between the time of check (TOC) and the time of use (TOU). These attacks are sometimes called race conditions because the attacker races to make a change to the object after it has been changed but before the system uses it. As an example, if a program creates a date file to hold the amount a customer owes and the attacker can race to replace this value before the program reads it, he can successfully manipulate the program. In reality, it can be difficult to exploit a race condition because a hacker might have to attempt to exploit the race condition many times before succeeding. Data Leakage Subversive threats Wire tapping Piggybacking Denial of service

5. Financial loss Legal repercussions Loss of creditability or competitive advantage Disclosure of Confidential ,Sensitive ,or Embarrassing information Sabotage

PRIME A

CADEMY


6. Data integrity policy provides assurance that the information has not been altered and the system functions as intended. Control environment Risk Assessment Control Activities Information and communication Monitoring Encompasses the goal of asset safeguarding , data integrity, System efficiency and effectiveness. These are personnel , segregation of duty, Authorisation procedures, Record keeping, Access to assets and records, Management Supervision and review, Risks due to concentration of program and data.

7. It involves determining the ways in which users will interact with a System. The points that needs to Be considered while designing the user interface are : Source document to capture raw data Hard copy output reports Screen layouts for dedicated source document input Inquiry screens for database interrogation Graphic and color displays Requirements for special Input/output device.

8. In this approach a small version or prototype of the system is prepared and implemented. ♦ User

while working with prototype make suggestions. ♦ Suggestions are incorporated to make it fully operational system.

Strengths ♦ Improves user participation in system development. ♦ Especially useful for resolving

unclear objectives; developing user requirements; or experimenting various design solutions. ♦

Potential exists for exploiting knowledge gained in an early iteration. ♦ Helps to easily identify

difficult functions and missing functionality. ♦ Encourages innovation and flexible designs. ♦

Provides quick implementation. ♦ Prototyping results in a better definition of the users' needs

and requirements. ♦ Short time period (generally a week) is normally required to develop and

start experimenting with a prototype. ♦ Errors are detected and eliminated early in the developmental process.

Weaknesses ♦ Approval process and control are not strict. ♦ Incomplete or inadequate problem analysis may occur, resulting in current inefficient practices being easily built into the new

system. ♦ Requirements may frequently change significantly. ♦ Designers may prototype too

quickly, without sufficient up-front user needs analysis. ♦ Prototype may not have sufficient

checks incorporated. ♦ Prototyping can only be successful if the system users are willing to

devote significant time in experimenting with prototype. ♦ The system developers are frequently,

tempted to minimize the testing and documentation process. ♦ Prototyping may cause behavioural problems with system users that leads to dissatisfaction.

9. System Acquisition and Development This phase of the systems development relates to the acquisition of hardware, software and services. Acquisition Standards:- Management should establish acquisition standards that should focus on

- ♦ Ensuring security, reliability, and functionality already built into a product. ♦ Ensuring vendor,

contract, and licensing reviews and compatibility with existing systems. ♦ Including invitations-to-

tender and request-for-proposals. ♦ Establishing acquisition criteria Software

PRIME A

CADEMY


♦ Once user output and input designs are finalized, the nature of the application software requirements can be assessed by the systems analyst. The analyst also determine the degree of

processing that the system need to handle. ♦ At this stage, the system developers must determine whether the application software should be created in-house or acquired from a vendor.

10. System Testing Testing is a process used to identify the correctness, completeness and quality of developed computer software. Testing uncover different classes of errors in a minimum amount of time and effort. However, testing does not show the absence of defect, it only show that software defects are present. Different levels of Testing are as follows :- Unit Testing A unit is the smallest testable part of an a lication which may be an individual program, function, procedure, or module. The goal of unit testing is to isolate each part of the program and show that the individual parts' are correct. There are five categories of tests that a programmer typically performs on a program unit: Functional Tests: Functional Tests check "whether programs do what they are supposed to do or not". The test plan specifies input values and expected results, and as per this plan programmer checks whether the actual result and expected result match. Performance Tests: Performance Tests should be designed to verify the response time, the execution time, the throughput, memory utilization and the traffic rates on data channels. Stress Tests: Stress testing is a form of testing that is used to determine the stability of a given system when operated beyond normal operational capacity. The purpose of a stress test is to determine the limitations of the program. Structural Tests: These are concerned with examining the internal processing logic of a software. Parallel Tests: In Parallel Tests, the same test data is used in the new and old system and the output results are then compared.

11. IS Auditor As a member of the team, IS Auditor ensures that the application development also

focuses on the control perspective. He is involved at the Design Phase and the final Testing Phase.

12. The primary objective of data integrity control techniques is to prevent, detect, and correct errors in a transaction as they flow thru various stages of specific data processing program. Source data control Input validation routines On-line data entry controls Data processing and Storage controls Output controls and Data Transmission Controls. Data Integrity policies: Virus signature updating Software testing Division of Environments Etc

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DIRECT TAX LAWS No. of pages: 2 Total Marks: 75

Time allowed: 2 hrs

PART – A (25 Marks) 1. State whether the following correct or incorrect with reasons:

a. No need to file the income tax return to claim benefit u/s 13(9) by a trust b. Maximum Deduction allowed u/s 80C is 2,00,000 c. 100% of the profit and gains derived from export is exempted u/s 10AA d. The rent received from house property shall be taxable under the head income from house

property by the person who receives the rent irrespective of the ownership of the property e. Mr. A borrowed ` 20 lakhs from his friend for construction of house and paid interest of

`160,000 during the previous year 2015-16 by cheque. He is eligible to claim deduction u/s 24(b) for the interest paid

f. Maximum deduction allowable u/s 80DD in respect of medical treatment of dependent who is a person with disability is ` 150,000 for sever disability and ` 100,000 for other disability (6 x 3 = 18 Marks)

2. Hundi (charitable box) super scribing “contribution in this hundi form part of corpus of Trust fund kept at Lord Venkateshwara Temple, Tirumal, was opened on 30.02.2017. Cash of ` 100 crores and Valuable articles worth ` 250 lacs were found to have been contributed by the devotees. Whether this amount would be treated as corpus fund or total income of the trust? (4 Marks)

3. Mr.Raja let out his property to Mr.Salim. Mr.Salim sublets the property. Whether the Subletting amount has to be taxed under the head income from house property? If not under which head it has to be taxed? (3 Marks)

PART – B (50 Marks)

1. (i) Return of loss of Mr. X for the assessment year 2013-14 was filed in December, 2013, in which

he has claimed carry forward of current year non-speculation business loss of ` 1,00,000 and unabsorbed depreciation of ` 50,000 (relating to the assessment year 2009-10). What are the tax consequences with regard to carry forward of current year non-speculation business loss and brought forward unabsorbed depreciation?

(ii) Mr. Y filed return of loss of ` 5,00,000 representing loss from a business for the assessment year 2012-13 in July, 2012. He filed a revised return enhancing the business loss to ` 8,00,000 in April, 2013. Mr. Y is not subject to tax audit. What is the quantum of loss which is eligible for carry forward and set off against business income of subsequent years?

(2 x 4 = 8 Marks) 2. Mr. Vikram acquired a residential house in Delhi at a cost of `42,00,000 on 01.04.2015, in respect

of which he took a housing loan of `24,00,000 from Canara Bank @12% p.a on the same date. There has been no principal repayment up to 31.03.2017.The house is having two identical units. First unit (area 1200 sq. Ft) of the house is self-occupied by Mr. Vikram and another unit (area 400 sq.ft) is rented for ` 6,000 p.m. from 1st April, 2016. The rented unit was vacant for four months during the year. The particulars of the house for the previous year 2016-17 are as under:

Standard Rent ` 2,30,000 p.a. Municipal Valuation ` 2,67,000 p.a. Fair Rent ` 2,48,000 p.a. Municipal tax paid by Mr. Vikram 12% of the Municipal Valuation Light and water charges ` 8,000 p.a. Insurance charges ` 7,500 p.a. Painting expenses ` 50,000 p.a.

Compute income from house property of Mr. Vikram for the A.Y.2017-18. (12 Marks)

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3. During the previous year 2016-17, Mr. Kannan received ` 532,000 towards interest on enhanced

compensation from state government in respect of compulsory acquisition of his land effected during the financial year 2011-12. The above amount of interest include interest relating to the following years:

FY 2013-14 – ` 158,000 FY 2014-15 – ` 178,000 FY 2015-16 – ` 196,000

He incurred `75,000 by way of legal expenses in the FY 2016-17 to receive the interest on such enhanced compensation. Determine how much of interest on enhanced compensation would be chargeable to tax for the AY 2017-18? Can he claim deduction the legal expenses from the amount of interest on enhanced compensation chargeable to tax. (8 Marks)

4. Compute the gross total income of Mr.Akash and his wife Mrs.Sudha from the following information:

S.No Particulars `

1 Salary income computed of Mrs.Sudha 325,000

2 Income from business of Mr.Akash 415,000

3 Income of minor son karthick from fixed deposit 25,000

4 Income of minor daughter gayathri from music concerts given by her

28,000

5 Interest from bank received by gayathri on deposits made out of income derived from music concerts

7,000

6 Gift received by gayathri on 4.10.2016 from friend of Mrs. Joyce 5,500

(10 Marks)

5. State with proper reason whether the following statement are true or false: a) M`Leela widow of Mr.Sathya (who was employee of M/s.XYZ ltd) received `9 lakhs on

11.12.2016. being amount standing to the credit of Mr.Sathya in his NPS Account, in respect of which deduction has been allowed u/s 80CCD to Mr.Sathya in the earlier previous years. Such amount received by her as nominee on closure of the account is deemed to be her income for the AY 2017-18

b) Mr.Babu, a businessman, whose total income (before allowing u/s 80GG) for the AY 2017-18 is 3,80,000, paid house rent of `8,000 per month in respect of the residential accommodation occupied by him in Chennai. He is eligible to claim flat deduction of `60,000 under section 80GG for AY 2017-18.

c) Mr.Arun purchased a residential house property for self occupation at cost of `40 lakhs on 1.7.2016, in respect of which he took a housing loan of `32 lakhs from Indian Bank @ 11p.a on the same day. He does not own any other house property. He is eligible to claim deduction of `2 lakhs u/s 24(b) out of the total interest paid by him during the previous year 2016-17. He is not eligible for deduction of interest paid by him under any other provisions of the Income Tax Act, 1961. (3 x 4 = 12 Marks)

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CADEMY


PRIME ACADEMY 44th SESSION - FINAL – PROGRESS TEST – DIRECT TAX LAWS


1. a) Incorrect, to claim benefit u/s 13(9) by a trust or an institution it has to file the income tax return

within the due date. b) Incorrect, maximum deduction u/s 80C is 2,00,000 c) Incorrect, only for first five consecutive years 100% of profit is exempted and for further 5 years

50% of profit is exempted d) Incorrect: One of the conditions to tax the income under the head house property is that the

assessee should be the owner of the property. e) Incorrect: Interest paid to the nationalized bank only allowed as deduction under section 24(b) f) Incorrect: maximum deduction allowable u/s 80DD in respect of medical treatment of dependent

who is a person with disability is ` 100,000 for sever disability and ` 50,000 for other disability.

2. As per section 11(1) (d), income in the form of voluntary contribution made with specific direction that they shall not form part of the corpus of the trust or institution shall not be included in the total income of the recipient. In the given case, there is a specific declaration by the temple authorities that the contribution being put in hundi (charity box) would form part of the corpus of the trust fund. Therefore it is possible to take those who put the contribution in the hundi give a tacit declaration that the contribution would form part of the corpus. Hence the fund shall not be included in the total income of the recipient trust.

3. Subletting amount shall not be taxed under the head income from house property? If not under

Subletting receipts has to be taxed under the head income from other sources or profit and gains of business or profession.

PART – B

1. (i) As per the provisions of section 139(3), any person who has sustained loss, inter alia, under the

head ‘Profit and gains of business or profession’ is allowed to carry forward such a loss under section 72(1), only if he has filed the return of loss within the time allowed under section 139(1). Also, the provisions of section 80 specify that a loss which has not been determined as per the return filed under section 139(3) shall not be al owed to be carried forward and set-off under, inter alia, section 72(1). However, there is no such condition for carry forward of unabsorbed depreciation under section 32(2). In the given case, assessee has filed its return of loss in December, 2013, which is a belated return filed under section 139(4) and therefore, the benefit of carry forward of business loss under section 72(1) shall not be available. However, the assessee shall be entitled to carry forward the unabsorbed depreciation as per the provisions of section 32(2).

(ii) Mr. Y had filed its original return under section 139(3) before the time allowed under section 139(1) i.e. on or before 31st July, 2012. He has also filed his revised return within the time al owed under section 139(5). As per section 139(3), if the return is filed under this section, all the provisions of the Act shall apply as if such return has been filed under section 139(1). In other words, a return filed under section 139(3) is deemed to be a return filed under section 139(1). Therefore, a loss return filed under section 139(3) can be revised by filing a revised return under section 139(5) within the time allowed therein. Return filed under section 139(5) substitutes the return original y filed under section 139(1). Therefore, the loss as per the revised return can be carried forward, even though section 80 does not specifically provide for carry-forward of loss which has been determined in pursuance of return filed under section 139(5).

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Therefore, Mr. Y can carry forward business loss of ` 8,00,000 to set off against business income of subsequent years.

2.

Computation of Income from house property of Mr. Vikram for A.Y. 2017-18 Particulars ` ` (A) Rented unit (25% of total area) Step I - Computation of Expected Rent Municipal valuation (`2,67,000 x ¼) 66,750 Fair rent (`2,48,000 x ¼) 62,000 Standard rent (` 2,30,000 x ¼) 57,500 Expected Rent is higher of municipal valuation and fair rent, but restricted to standard rent 57,500 Step II - Actual Rent Rent receivable for the whole year (`6,000 x 12) 72,000 Step III – Computation of Gross Annual Value Actual rent received owing to vacancy 48,000 (` 72,000 – ` 24,000) Since, owing to vacancy, the actual rent received is lower than the Expected Rent, the actual rent received is the Gross Annual value Gross Annual Value (GAV) 48,000 Less: Municipal taxes [(12% of ` 66,750)] 8,010 Net Annual Value (NAV) 39,990 Less : Deductions under section 24 (a) 30% of NAV 11,997 (b) Interest on borrowed capital

(` 2,88,000 x ¼), 72,000 83,997

Taxable income from let out portion (44,007)

(B) Self occupied unit (75% of total area) Annual value Nil Less : Deduction under section 24: - Interest on borrowed capital (` 2,88,000 x ¾), `2,16,000 restricted to `2,00,000 2,00,000

(2,00,000) Income from house property (2,44,007) Notes: 1. No deduction will be allowed separately for light and water charges, insurance charges and

painting expenses. 2. Mr. Vikram is eligible for a maximum deduction of ` 2,00,000 under section 24 in respect of

interest on housing loan taken in respect of a self-occupied property, for which he is claiming benefit of “Nil” annual value. Therefore, deduction in respect of the interest of ` 2,16,000 relating to self-occupied portion would be restricted to ` 2,00,000, which would represent his loss from self-occupied portion.

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3. Computation of income from other sources:

Particulars `

Taxable interest on enhanced compensation 532,000

Less: 50% of deduction u/s 57(iv) 266,000

Taxable interest on enhanced compensation 266,000

Section 145A provides that interest received by the assessee on enhanced compensation shall be deemed to be the income of the assessee of the year in which it is received, irrespective of the method of accounting followed by the assessee and irrespective of the financial year to which it relates. Section 56(2)(viii) states that such income shall be taxable as income from other sources. 50% of such income shall be allowed as deduction u/s 57(iv) and no other deduction shall be permissible from such income. Therefore he cannot claim deduction in respect of legal expenses incurred to receive the interest on enhanced compensation from such income.

4. Computation of gross total income of Mr.Akash:

Particulars `

Income from business of Mr.Akash 415,000

Income of minor son karthick from fixed deposit 25,000

Less: Exemption u/s 10(32) 1,500 23,500

Income of minor daughter gayathri

From music concerts (From special talent not to be clubbed)

Nil

Interest from bank 7,000

Gift received from non-relative which is less than 50,000/-

Nil

Less: Exemption u/s 10(32) 1,500 5,500

Gross Total Income 4,44,000

As per the provisions of section 64(1A) of the Income Tax Act, 1961 all the income of the minor child has to be clubbed in the hands of parents whose total income (excluding minor income) is greater. Therefore in the above problem the minor income is clubbed with Mr.Akash since he has more total income than his wife Mrs. Sudha.

5. a) False: A proviso has been inserted in section 80CCD to provide that the amount received by

nominee, on closure of NPS account on death of the assessee shall not be deemed to be income of the nominee.

b) False: As per section 80GG, least of actual rent paid or `60,000 or 25% of the total income is allowed as deduction. In the given case the least amount is actual rent paid of ` 58,000 is allowed as deduction.

c) False: Mr. Arun has to pay ` 264,000 as interest for the period of 9 months during the previous year 2016-17 (32,00,000 x 11%x 9/12 ) He would be eligible to claim deduction of `2 lakhs u/s 24(b) out of the total interest paid by him during the previous year 2016-17. In addition he can claim deduction of ` 50,000/- u/s 80EE from gross total income, in respect of the balance amount of ` 64,000/- (264,000-200,000)

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CADEMY



INDIRECT TAX LAWS No. of pages: 4 Total Marks: 75

Time allowed: 2 hrs PART - A Answer all the Questions:

I. Match the Following:

1. One person company has to pay service tax 1. monthly & Quarterly

2. Society has to pay service tax 2. Quarterly

3. LLP has to pay service tax 3. Monthly

4. HUF to pay service tax 4. Quarterly

5. One person company can pay service tax

upto `50 lac value in a year if preceding year 5. on Invoice basis

Did not exceed `50 lac value

6. Companies Registered under Companies Act 6. on Receipt basis

To pay service tax

7. Composite rate for Air travel Agent

–Domestic bookings 7. 1.4%

8. Composite rate for Air Travel Agent

– International Bookings 8. 0.7%

9. Composite rate for Lottery ticket Agent with

>80% pay out 9. `12800

10. Composite rate for Lottery Ticket Distributor

<80% pay out 10. ` 8200

(10 X ½ = 5 Marks) II. Choose the right answer: 1. An exempted service is- a) Non taxable service b) Taxable but exempted wholly c) Taxable but exempted wholly or partly d) None of the above 2. A small service provider- a) to Register optionally b) to Register Compulsorily c) to Register on crossing service income of `9 lac in a year d) on crossing service income of `6 lac in a year 3. Service relating to Education is- a) Under Negative List b) Exempted from payment of service tax c) Taxable d) Partly taxable 4. ‘Brand Ambassador’ for the purpose of exemption Notification under service tax means: a) An Ambassador of a foreign country b) A Film actor c) Brand of a Motor Car d) A person promotes brand of goods or service or event (4X ½ = 2 Marks)

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III. Say ‘True’ or ‘False’ 1. Service provided to a vessel that developed technical snag on its way from Sydney Harbor to Chennai Harbor at 180NM from baseline of Chennai port is non taxable. 2. Service tax levy is under Entry No.92-C of List I of the Constitution of India. 3. Principles of mutuality cannot prevent service tax levy. 4. Services specified in Section: 66-D of Finance Act, 1994 means those services are exempted

from payment of service tax. 5. All composite contracts are divisible to levy service tax. 6. Negative List of services do not cover ‘declared services’. 7. Classification of services can alter the tax liability. 8. Declared services are not taxable prior to introduction of Section: 66E of Finance Act, 1994

effective from 01.07.2012. 9. Section: 66-E(i) covers only Restaurant service. 10. ‘Value’ for the purpose of service tax levy is amount received from customer/client. 11. Classification of service will not change valuation 12. Construction service is to be valued under Rule:2A of Service tax Valuation Rules. 13. Where one foreign currency converted in another Foreign Currency Composition scheme is not

available. 14. Outdoor caterers are entitled for abatement of 60%. 15. In the case of construction service, service tax is leviable on 25% of total amount. 16. Every ‘non-assessee online recipient’ has to pay service tax under reverse charge mechanism.

(16 X ½ = 8 Marks) IV. Fill in the Blanks: 1. The term ‘money’ includes…………………………(all legal Tender/all legal tender except numismatic

value currencies) 2. Government means those entity who are not required to maintain accounts under

Article……….(150/105) of the constitution) 3. The term ‘foreman’ under Finance Act, 1994 is as defined in…………(Factories Act, 1948/Chit

Funds Act, 1982) 4. Where service is capable of differential treatment……………..(specific/General) description has to

be preferred. 5. Bundled service means……………….(an element of service combined with an element of another

service / provision of many services to a customer or client) 6. Where consideration is not in the form of money, value is determinable u/r;….(3/4) of STVR,

2006. (Service Tax Valuation Rules) 7. Service value is covered by Section…….(67/68) of Finance Act, 1994. 8. 8..Works contract service providers not engaged in original work have to pay service tax

on…..(60%/70%/40%) of total amount. 9. Total amount ………………(includes VAT / does not include VAT) under Rule: 2A of STVR,

2006(Service Tax Valuation Rules) 10. An A/c Restaurant has to pay service tax on a value of ……..(60%/40%) of Total amount.

(10 X 1 = 10 Marks)

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PART - B I. Determine the Point of Taxation in the following cases: a. Delight LLP., provided Auditing service to ZZZ Pvt Ltd. The audit commenced on 1 April 2016

and the reports were signed on 28th June 2016. A Bill was issued on 1 July, 2016 for `1.5 lacs that was settled on 1November, 2016 by the Client. Delight LLP had aggregate taxable income of `51 lacs in the year 2015-16.

b. Mr.Right is a management consultant who provided service on 30 June 2016 and billed the Client on 30 July 2016 for `70000/-. Mr. Right had taxable service income of `50 lac in the preceding year 2015-16.

c. M/.s Escape P Ltd., promotes a residential complex of 12 units. The terms of payment are as follows: On booking : `10000 Within 30 days from the date of booking: 5% of Flat cost By 30 September 20% of Flat cost By 30 November 30% of flat cost By 31 December 40% of Flat cost Balance on handing over All the Flats were Booked on 1 January 2016 All the Flats were delivered on 31 March 2016

d. T Pvt Ltd holds 26% of paid up capital of S. Inc., USA. The company imported Technology from USA and agreed to pay $ 500000. As per the agreement the amount was payable on 25 April 2015. The payment was made on 01 May 2015, but S. Inc a/c was debited on 30 April 2015.

e. Vex ltd.,Mumbai is a 100% subsidiary of Rex Ltd., Chennai. Rex Ltd., provided consulting Engineer service to Vex ltd., and billed for `70 lacs on 7 July 2016 though the provision of service was completed on 31 March 2016. The Bill was not settled by VEX ltd., but a credit Note was issued on 30 September 2016. (5 X 2 = 10 Marks)

II. Define the following terms:

a) Vocational Training courses b) Continuous supply of service c) Aggregator d) ‘Non assessee online recipient’ e) Governmental authority (5 X 1 = 5 Marks)

III. Answer the following Questions:

a) What is the due date for filing service tax returns? b) What is the composition rate for payment of service tax to a Life insurance service provider

with investment portion? c) Within how many days, a service tax return could be revised? d) How many registrations for a Chartered Accountant who has office at 9 cities in India and has

centralized Billing at Mumbai and New Delhi? e) What is composition rate for Authorized foreign exchange dealer? (5 X 1 = 5 Marks)

IV. Distinguish between:

i. ‘Service’ and ‘Declared service’ ii. ‘Metered cab’ and ‘Radio Taxi’ iii. ‘Forward charge’ and ‘Joint charge’ iv. ‘Penalty’ and ‘Fine’ v. ‘Man power supply’ and ‘Works contract’ (5 X2 = 10 Marks)

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V. Determine the service tax payable using the following data of FOREX Pvt Ltd., under various options, if the Dealer takes a commission of 0.6% on value of currency converted:

a. US $ sold to Mr XX - 70000 b. € sold to Mrs.XX - 45000 c. ₤ purchased from Ms.PP - 28000 d. ₤ sold to Mr. RR - 24000 e. ¥ sold to POSCO ltd - 25 millions Exchange Rates (Actual): $ = 68.00; € =74.00; ₤ = 87.00; ¥ = 0.66 RBI Reference Rate: $ = 68.10; € = 73.95; ₤ = 87.05; ¥ = 0.67 Note: There is no difference between ‘buy rate’ and ‘sell rate’. (5 Marks) V. TVH Ltd., offers a Flat at the rate of `7999/-Sqft at OMR Road, Chennai. 40% of the rate is Land cost. The super built up area of the Flat is 1299 sq.ft and Carpet area is `999/ sq.ft. Service tax and VAT extra. TN VAT Act levies VAT @14.5% on 70 % of the Total amount charged. The complex has 4 Towers, 12 Floors and 6 Dwelling units on each Floor. Determine the taxable value and service tax payable under different options. (5 Marks)

VI. Are the following services under Negative List? 1. Advertisement on websites and mobile phones. 2. Contract Carriage 3. Radio Taxi 4. CA Coaching by ICAI 5. Lottery Ticket Distribution 6. Renting of House or Flat for Residential use 7. Processing of alcoholic Liquor for human consumption 8. Admission to Theme Park and amusement parks and entry to Movie Theaters. 9. Stage Carriage 10. Transport of goods by Aircraft or Ship from foreign port/Air port to Port/Airport in India

(10 X 1 = 10 Marks)

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PRIME ACADEMY 44th SESSION - FINAL – PROGRESS TEST – INDIRECT TAX LAWS


I.

1. One person company has to pay service tax 1. monthly & Quarterly

2. Society has to pay service tax 2. Monthly

3. LLP has to pay service tax 3. Quarterly

4. HUF to pay service tax 4. Quarterly

5. One person company can pay service tax

upto `50 lac value in a year if preceding year 5. on Receipt basis

Did not exceed `50 lac value

6. Companies Registered under Companies Act 6. on Invoice basis

To pay service tax

7. Composite rate for Air travel Agent

–Domestic bookings 7. 0.7%

8. Composite rate for Air Travel Agent

– International Bookings 8. 1.4%

9. Composite rate for Lottery ticket Agent with

>80% pay out 9. `8200

10. Composite rate for Lottery Ticket Distributor

<80% pay out 10. ` 12800

II.

1. c) Taxable but exempted wholly or partly 2. c) to Register on crossing service income of `9 lac in a year 3. Service relating to Education is-

a) Under Negative List b) Exempted from payment of service tax c) Taxable d) Partly taxable

4. d) A person promotes brand of goods or service or event

III. 1. False 2. False 3. True 4. False 5. False 6. False 7. True 8. False 9. False 10. False 11. False 12. False 13. True 14. False 15. False 16. False

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IV. 1. The term ‘money’ includes………………………… (all legal Tender/all legal tender except numismatic value currencies) 2. Government means those entity who are not required to maintain accounts under Article……….(150/105) of the constitution) 3. The term ‘foreman’ under Finance Act, 1994 is as defined in…………(Factories Act, 1948/Chit Funds Act, 1982) 4. Where service is capable of differential treatment……………..(specific/General) description has to be preferred. 5. Bundled service means……………….(an element of service combined with an element of another service / provision of many services to a customer or client) 6. Where consideration is not in the form of money, value is determinable u/r;….(3) of STVR, 2006. (Service Tax Valuation Rules) Rule:3 7. Service value is covered by Section…….(67/68) of Finance Act, 1994. 8..Works contract service providers not engaged in original work have to pay service tax on…..(60%/70%/40%) of total amount. 9. Total amount ………………(includes VAT / does not include VAT) under Rule: 2A of STVR, 2006(Service Tax Valuation Rules) 10. An A/c Restaurant has to pay service tax on a value of ……..(60%/40%) of Total amount. PART B

I. Determine the Point of Taxation in the following cases a) 1 July 2016 under Rule: 3 of POT Rules, since Auditing service was completed on 28th June and the

Invoice was issued within 30 days from the date of provision of service. The option to pay service tax on receipt basis not available as the assessee had taxable income exceeding `50 lac in the preceding financial year.

b) The date of receipt of the income is the date of service tax liability arises by applying Rule: 6 of STR, 1994.

c) POT: 01/01; 30/01; 30/09; 30/11; 31/12 of 2016 and 31/03/2017 d) Since the importer and exporter are Associated Enterprises the POT is 30/04/2015. e) 31 March 2016 by applying General Rule:3 of POT Rules, 2011.

II.

a) Vocational Training courses i) "Vocational education course" means, -

a course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training or State Council for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961 (or)

ii) a Modular Employable Skill Course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Training, Ministry of Skill Development and Entrepreneurship;

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b) Continuous supply of service continuous supply of service” means any service which is provided, or to be provided continuously or on recurrent basis, under a contract, for a period exceeding three months with the obligation for payment periodically or from time to time, or where the Central Government, by a notification in the Official Gazette, prescribes provision of a particular service to be a continuous supply of service, whether or not subject to any condition;

c) Aggregator “aggregator” means a person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator

d) ‘Non assessee online recipient’ “non-assesse online recipient” means Government, a local authority, a governmental authority or an individual receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory

e) Governmental authority “governmental authority” means an authority or a board or any other body : (i) set up by an Act of Parliament or a State legislature; or (ii) established by Government, with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243Wof the Constitution;

III.

a) 25th April and 25 th October unless any other notified by CBEC. b) 3% for I year and 1.5% for 2nd year onwards. c) 90 days from the date of filing original return. d) Two. e)

i. 0.14 per cent of the gross amount of currency exchanged for an amount upto rupees 100,000, subject to the minimum amount of rupees 35 ; and

ii. rupees140 and 0.07 per cent. of the gross amount of currency exchanged for an amount of rupees exceeding rupees 100,000 and upto rupees 10,00,000; and

iii. rupees 770 and 0.014 per cent of the gross amount of currency exchanged for an amount of rupees exceeding 10,00,000, subject to maximum amount of rupees 7,000 :

IV. i. ‘Service’ and ‘Declared service’

Service is defined under Section:66D of Finance Act whereas Declared services are covered by Section:66-E of Finance Act. ‘Service’ includes ‘Declared service’ and not vice versa. Declared service are either deemed service any activity that involves supply of goods and service whereas a ‘service’ is purely an activity.

ii. ‘Metered cab’ and ‘Radio Taxi’

A metered cab has RTO approved Meter whereas Radio Taxi ahs no such meter. Metered Taxi is under Negative List whereas Radio taxi is a taxable service.

iii. ‘Forward charge’ and ‘Joint charge’ Where service provider liable to pay service tax, it is Forward charge. If both service provider and Receiver liable to pay tax it is joint charge.

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CADEMY


iv. ‘Penalty’ and ‘Fine’ ‘Penalty’ is levied based on amount involved in an offence. ‘Fine’ is exemplary and not levied based on amount involved in the offence. ‘Penalty’ may extend to an amount whereas ‘fine’ is fixed amount.

v. ‘Man power supply’ and ‘Works contract’ “supply of manpower” means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control. “works contract” means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property.

V.

$ Euro Pound Yens T0tal ST

70000 45000 28000 2500000

24000

68 74 87 0.66

68.1 73.95 87.05 0.67

-0.01 0.05 -0.05 -0.01

0.1 0.05 0.05 0.01

7000 2250 1400 25000 35650 5347.5

4760000 3330000 2436000 1650000

2088000

770 770 770 770 3080

3760000 2330000 1436000 650000

526.4 326.2 201.04 91 1144.64

4224.64

ST:Option-I

5348

ST Option: II

4225+ SWB Cess and KK Cess as applicable.

PRIME A

CADEMY


Determine the taxable value and service tax payable under different options. Particulars No.of Flats

Rate 7999 4

land cost 3199.6 12

Rate Less Land cost 4799.4 6

Super Built up area 1299 Sq.ft 288

Total (`)

WCT Taxable value @40% 1919.76

ST @15% 287.964

TOTAL ST 107730788

Con.ser @30% 2399.7

ST@15% 359.955

Total ST 134663485

VI. 1. No 2. No 3. No 4. No 5. No 6. Yes 7. No 8. No 9. No 10. No

PRIME A

CADEMY

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