final - 42ndsession progress test financial reporting · 2016. 4. 13. · upto 2013-14, the company...

PRIME/42nd PT/FINAL 1

PRIME ACADEMY FINAL - 42ndSESSION PROGRESS TEST

FINANCIAL REPORTING No. of pages: 4 Total Marks: 75 Time allowed: 2 hrs

PART A 1. Vijaya Ltd had to pay delayed cotton clearing charges over and above the negotiated price for taking

delayed delivery of cotton from the supplier’s godown. Upto 2013-14, the company has regularly included such charges in the valuation of closing stock. This charge, being in the nature of interest, the company has decided to exclude it from closing stock valuation. This would result in decrease of profit by ` 8.60 lakhs. What is the treatment in the Final statement of Accounts for the year ended 31.3.2015? Also, draft a suitable note for disclosure. (4 Marks)

2. Grant Medicare Limited acquired 5 units of Brain Scan equipment for US$ 5,00,000 in April 2011 incurring ` 20,00,000 on sea freight and US$ 12,000 per unit towards transit Insurance, bank charges etc. The purchase was partly funded out of the company’s internal accruals and from Government grant of ` 94 lakhs. The prevailing exchange rate to the US$ was ` 50. The company estimated the useful life of the equipment at 4 years with an estimated salvage value of 13%(approx). The grant was considered as deferred income up to 2013-14 and in April 2014 the company had to return the entire grant received due to non-fulfilment of certain conditions. You are required to show the depreciation and the grant that is to be recognized in the Profit & Loss Accounts for the period commencing 2011-12 onwards and also draw up the entry that is passed in April 2014 for the return of the grant. The company follows written down value method for depreciating its assets. (4 Marks)

3. Blow Glass Limited manufactures glass bottles of various sizes and shapes at its 3 manufacturing facilities in UP, Haryana and MP. The company follows the WDV method of depreciation for all assets at these units and at its corporate office. In May 2014, it acquired a new unit making plastic containers in Gujarat. The method of depreciation followed in the newly acquired unit was the SLM method for all its assets, till the unit was acquired by Blow Glass Limited. The Chief Accountant of Blow Glass is of the view that since the company has adopted the WDV method at all its existing assets it is mandatory to follow the WDV method in respect of the new unit also, especially since the same class of assets exist at the existing units and new unit. You are requested to comment on the stand of the Chief Accountant. (4 Marks)

4. JVR Limited has made investments of ` 97.84 crores in equity shares of QSR Limited in pursuance of joint venture agreement in 2001-02. The investment has been made at par. QSR Limited has been in continuous losses for the last 2 years. JVR Limited is willing to reassess the carrying amount of its investment in QSR Limited and wish to provide for diminution in value of investments. However, QSR Limited has a futuristic and profitable business plans and projection for the coming years. Discuss whether the contention of JVR Limited to bring down the carrying amount of investment in QSR Limited is in accordance with Accounting Standard. (4 Marks)

5. A company desires to make provision in respect of its non-moving or slow moving items of stock. The following information is available

Particulars Current year (` In lacs)

Previous year (` In lacs)

Value of closing stock 169 105

Provision based on no. of issues during the year

4.50 4.00

Provision based on products technicality 5.50 4.25

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The company has been making provisions based on number of issues. However, from this year, the management has decided to make provision based on technical evaluation. Explain whether such change will amount to change in accounting policy. Also draw a suitable note, if in your view the proposed change requires the same to be given in the financial statement of the current year. (4 Marks)

6. A company sells the goods with right to return. The following pattern has been observed:

Timeframe of return from date of purchase % of cumulative sales

Within 10 days 5%

Between 11 days and 20 days 7%



Company has made sale of ` 30 lacs in the month of February 2015 and of ` 36 lacs in the month of March 2015. The total sales for the financial year have been ` 450 lacs and the cost of sales was ` 360 lacs. Determine the amount of provision to be made and revenue to be recognised in accordance with AS 9. A year may be considered of 360 days. (5 Marks)

PART B 1. The Balance sheet of the Greatness Group of Companies as at 31st March 2014 is given below:

Capital & Liabilities Greatest Ltd. ` Big Ltd.` Small Ltd.`

Share capital: Ordinary shares of ` 10 General reserve Profit & Loss Account Creditors

5,00,000 1,00,000 2,00,000 3,00,000

2,00,000

50,000 1,00,000 2,00,000

1,00,000

30,000 50,000

1,00,000

Total 11,00,000 5,50,000 2,80,000

Assets: Fixed assets Investments: 16,000 Shares in Big Ltd. 6,000 Shares in Small Ltd. Others (non-current) Current assets

7,75,000

2,00,000

- 25,000

1,00,000

4,10,000

-

90,000 -

50,000

2,35,000

- -

15,000 30,000

Total 11,00,000 5,50,000 2,80,000

Notes: a. The investment in Big Ltd. was made on 1st April, 2007 and that in Small Ltd. was made on 1st April,

2009. b. The Balances in Reserves and P&L account on relevant dates are as under:

Big Ltd. 1st April 2007 ` 1st April 2009 `

Reserves P & L Account

20,000 60,000

22,000 68,000

Small Ltd. 1st April 2007 ` 1st April 2009 `

Reserves P & L Account

8,000 17,000

10,000 20,000

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c. Current assets of Small Ltd. include inventories of `10,800 acquired at a mark-up of 20% from

Greatest Ltd. You are required to prepare the Consolidated Balance Sheet of the group as on 31st March, 2014.

(16 Marks)

2. HIM Limited is a company carrying on the business of beauty products and is having a subsidiary SIM Limited. Their Balance sheets as on 31st March, 2014 were as under:

HIM Limited` SIM Limited`

Equity and Liabilities Shareholders’ funds Share capital Reserves and Surplus General Reserves Profit and Loss Account Current liabilities Trade payable Bills payable

25,00,000

2,00,000 3,12,500

4,55,000

28,000

5,80,000

1,20,000 2,05,000

2,35,500

83,000

Total Liabilities 34,95,500 12,23,500

Assets Fixed assets Non-current assets Investments 4060 shares in SIM Limited Current assets Inventories Trade receivable Bills Receivable Cash and bank balances

21,70,000

5,10,000

4,80,000 1,80,000

68,000 87,500

6,25,000

-

3,19,200 1,64,000 1,00,000

15,300

34,95,500 12,23,500

HIM Limited has also given the following information: i. HIM Limited has acquired the shares in SIM Limited in two lots on two different dates. The relevant

information at the time of acquisition of shares was as under:

No. of shares acquired Balance in General reserves`

Balance in Profit and Loss Account`

First acquisition 80,000 25,000

Second acquisition 85,000 1,02,000

ii. Bill receivable of HIM Limited includes `15,000/- being acceptance from SIM Limited iii. Both the companies have declared dividends of 10% for the year ended on 31st March, 2014 but it

has not been provided in the books of accounts. iv. SIM Limited’s inventory includes stock of `1,45,000/- purchased from HIM Limited. HIM Limited sells

goods at mark up of 25% on its cost. Prepare Consolidated Balance Sheet of HIM Limited along with ‘Notes to accounts’. (20 Marks)

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3. a. PRZ & Sons Ltd. are heavy engineering contractors specializing in construction of dams. From the

records of the company, the following data is available pertaining to year ended 31st March 2015. Using this data and applying the relevant Accounting Standard you are required to i. Compute the amount of profit/loss for the year ended 31st March, 2015.

ii. Arrive at the contract work in progress at the end of the financial year 2014-15. iii. Determine the amount of revenue to be recognized out of the total contract value. iv. Work out the amount due from/to customers as at year end v. List down relevant disclosures with figures as per relevant Accounting Standard

(` Crore)

Total contract price Work certified Work pending certification Estimated further cost to completion Stage wise payments received Progress payments in pipeline

2,400 1,250

250 1,750 1,100

300

(6 Marks) b. Comptech Ltd. having office at Chennai, acquired a sophisticated three dimensional (3D) computer

printer havingall-inclusive MRP (Maximum Retail Price) of ` 50 lakhs from a supplier located at New Delhi. The terms of the purchase were as under: i. The supplier would buy back the existing unit with Comptech that has carrying amount of

` 10.20 lakhs. Prevailing CST rate is 2% ii. The supplier would give a special discount of 10% on MRP to Comptech considering their long

standing relationship. iii. A cash payment of ` 38.25 lakhs would be made by Comptech Ltd. to the supplier. iv. Accessories required operating the machine costing `7.60 lakhs (inclusive of all taxes) will be

purchased by Comptech. v. The supplier will deliver free of cost certain heavy duty cables etc. Having MRP of `5.75 lakhs

that are required to run the machine. vi. Transit insurance cost will be borne by Comptech @ 2% of MRP.

vii. Freight and other incidentals amounting to ` 2.30 lakhs is borne by Comptech. You are required to arrive at the cost of the new asset and show the profit/loss incurred by Comptech on the buyback arrangement and also draft the journal entries to record the above transaction. (8 Marks) PRIM

E ACADEMY


PRIME ACADEMY 42ND SESSION – FINAL - PROGRESS TEST – FINANCIAL REPORTING

SUGGESTED ANSWERS PART - A

1. AS 5 (Revised) ‘Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies” states that a change in an accounting policy should be made only if a. it is required by statute, or b. for compliance with an accounting standard, or c. if it is considered that the change would result in a more appropriate presentation of the financial

statements of an enterprise. The change in the method of stock valuation is justified in view of the fact that the change is in line with the recommendations of AS 2 (Revised) ‘Valuation of Inventories’ and would result in more appropriate preparation of the financial statements. Accordingly, cost formula used for inventory valuation will exclude the delayed cotton clearing charges being in the nature of interest. Due to change in the cost formula, the value of inventory and resulting profit will decrease by ` 8.60 lakhs. Disclosure: As per AS 2, the accounting policy adopted for valuation of inventories including the cost formula used should be disclosed in the financial statements by way of a note. Also, appropriate disclosure of the change and the amount by which any item in the financial statements is affected by such change, is necessary as per AS 1, AS 2 and AS 5. Therefore, the under mentioned note should be given in the annual accounts. "In compliance with the Accounting Standards issued by the ICAl, delayed cotton clearing charges which are in the nature of interest have been excluded from the valuation of closing stock unlike preceding yea` Had the company continued the accounting practice followed earlier, the value of closing stock as well as profit before tax for the year would have been higher by R` 8.60 lakhs."

2. Statement showing annual depreciation and amount of grant to be recognized in P & L A/c

Period Opening Value ` (in lakhs) (Refer WN #1)

Depreciation ` (in lakhs) @ 40% (Refer WN #2)

Closing value ` (in lakhs)

Deferred income recognized in proportion to depreciation for the year ` (in lakhs)

2011-12 300.00 120.00 180.00 43.20

2012-13 180.00 72.00 108.00 25.92

2013-14 108.00 43.20 64.80 15.55

2014-15 64.80 25.92 38.88 9.33

261.12 94.00

Journal entry for the return of grant in April 2014 is as under:

Particulars Debit ` Credit `

Deferred Grant A/c Dr. Profit & Loss A/c (Grant recognized till 2013-14) Dr. (43.2+25.92+15.55) (Being return of grant recorded as per AS 12 due to non-fulfillment of conditions)

9.33 84.67

94.00

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Working note: WN #1: Value of the asset = US$5,00,000 X 50 +20,00,000 + (12,000 X 5 X 50) = 2,50,00,000 +20,00,000 + 30,00,000 = `3,00,00,000 i.e. 300 lakhs WN #2:

WDV rate of depreciation = 1 − 𝑛√𝑅𝑒𝑠𝑖𝑑𝑢𝑎𝑙 𝑣𝑎𝑙𝑢𝑒

𝐶𝑜𝑠𝑡 𝑜𝑓 𝑎𝑠𝑠𝑒𝑡 𝑋 100

= i.e . 1 − 4√39

300 𝑋 100 = 40%

3. Depreciation is recognized based on the pattern of consumption of benefits from asset. This pattern can

vary from asset to asset. Hence, it is permissible to follow different methods of depreciation for different types of assets provided the methods are constituently applied from year to year. Also, the Guidance Note on Depreciation issued by ICAI specifies that different methods can be followed for assets located at different locations. Thus, the stand of the Chief Accountant is not correct and the company can adopt Straight Line Method of depreciation for its new unit.

4. As per AS – 13, Accounting for investments, long term investments are usually carried at cost. However, when there is a decline, other than temporary, in the value of a long-term investment, the carrying amount is reduced to recognize the decline. Indicators of the value of an investment are obtained by reference to its market value, the investee’s results and the assets and the expected cash flows from the investment. In the given case, QSR Limited has been in continuous losses for the past 2 years, yet it has a futuristic and profitable business plans and projections for the coming yea` Here, one of the indicators i.e. losses incurred to the company may lead to diminution in the value of shares while the other indicator that the company has positive expected cash flows from its business plans does not lead to decline in the value of shares. Hence, considering both the facts, the long-term investment should be carried at cost and the contention of the company to bring down the carrying amount of the investment in QSR Ltd. is not in line with the provisions of AS – 13.

5. The proposed change to make provision based on the technicality is a change in the method of estimating the provision. The method of estimating the provision can be changed based on new developments and additional information and if the change results in a more prudent estimation. Thus, the change is in the method of making accounting estimate and does not amount to change in accounting policy. If the result of such change has a material impact, then the same has to be disclosed in the financial statements by way of a note. Based on the limited information available, the change seems to be immaterial and hence does not require any disclosure in the financial statements.

6. Provision to be created on the Balance Sheet date for sales returns at the best estimate of the loss expected along with any estimated incremental cost that would be necessary to resell the goods.

Feb 2015 Mar 2015

Revenue to be recognized ` 30 lakhs ` 36 lakhs

% of Sales returns relevant on Balance Sheet date 9% -8% = 1%

9%

Expected amount of sales returns `30,000 ` 3,24,000

Cost of above sales return ` 24,000 `2,59,200

Provision for loss of sales returns `6,000 `64,800

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CADEMY


PART - B 1. Consolidated Balance Sheet of Greatest Ltd. with its subsidiaries

Big Ltd. and Small Ltd. as on 1st April, 2014

Particulars Note `

I. EQUITY AND LIABILITIES

1. Shareholders’ funds

a. Share capital 1 5,00,000

b. Reserves and surplus 2 3,86,600

2. Minority interest (W.N.3) 1,51,600

3. Current Liabilities

Trade payables 3 6,00,000

Total 16,38,200

II. ASSETS

1. Non-current assets

(i) Fixed assets

Tangible assets 4 14,20,000

(ii) Other non current assets 5 40,000

2. Current assets 6 1,78,200

16,38,200

Notes to the financial statements

Particulars ̀ 1 Share capital

Authorised, Issued, subscribed and fully paid up

50,000 shares of ` 10 each 5,00,000

2 Reserves and surplus

General Reserve (WN 5) 1,33,600

Capital Reserve (WN 4) 8,400

Profit & loss A/c (WN 5) 2,44,600 3,86,600

3 Trade payables

Greatest Ltd. 3,00,000

Big Ltd. 2,00,000

Small Ltd. 1,00,000 6,00,000

4 Tangible assets


Big Ltd. 4,10,000

Small Ltd. 2,35,000 14,20,000

5 Other non current assets

Greatest Ltd. 25,000

Small Ltd. 15,000 40,000

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6 Current assets


Big Ltd. 50,000

Small Ltd. 30,000

Less: Unrealized profit on downstreamtransaction (1,800) 1,78,200

Working Notes: 1. Apportionment of reserve & profits of ‘Small’ Ltd.

Particulars Pre-acquisition Post acquisition

Capital Profit Reserve P&L

` ` `

Profit and loss A/c 20,000 - 30,000 General Reserve 10,000 20,000 -

Total 30,000 20,000 30,000

Big Ltd.’s share (60%) 18,000 12,000 18,000

Minority interest (40%) 12,000 8,000 12,000

2. Apportionment of reserve & profits of Big Ltd. (Indirect Method)

Particulars Pre-acquisition Post acquisition

Capital Profit Reserve P&L

` ` `

Share from Small Ltd. 18,000 12,000 18,000

Profit and Loss A/c 60,000 40,000 Reserves 20,000 30,000

Total 98,000 42,000 58,000

Greatest Ltd. share (80%) 78,400 33,600 46,400

Minority interest (20%) 19,600 8,400 11,600

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3. Calculation of Minority interest

Big Ltd. Small Ltd.

Particulars (20%) (40%)

` `

Equity share capital 40,000 40,000

Capital profit 19,600 12,000

Revenue Profit 11,600 12,000

Revenue Reserve 8,400 8,000

Total 79,600 72,000

Total minority interest

1,51,600

4.

Calculation of Cost of control

Greatest Ltd. in Big Ltd. in

Particulars Big Ltd. Small Ltd.

(80%) (60%)

Cost of investment: 2,00,000 90,000 Less: Share of net assets as on the date of

acquisition:

Share capital (1,60,000) (60,000) Capital profit (78,400) -

Goodwill/(Capital reserve) (38,400) 30,000

Capital reserve for Consolidated Balance Sheet 8,400

5. Consolidated Reserves & P/L (Post acquisition)

Particulars

Reserves Profit and Loss A/c

`

`

Greatest Ltd.’ Balances as per its balance sheet 1,00,000 2,00,000

Add: Share of post-acquisition Reserves /P&L of Big Ltd. 33,600 46,400

Less: Unrealized profit on downstream transaction (1,800)

Reserves for consolidated balance sheet 1,33,600 2,44,600

2.

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Consolidated Balance Sheet of Him Ltd. and its subsidiary Sim Ltd. as on 31st March, 2014

Particulars Note No. `

I. Equity and Liabilities

(1) Shareholder's Funds

Share Capital 1 25,00,000

Reserves and Surplus 2 3,79,300

(2) Minority Interest (W.N.2) 2,54,100

(3) Current Liabilities

Trade payables 3 6,90,500

Other current liabilities 4 96,000

Short term Provisions 5 2,67,400

Total 41,87,300

II. Assets

(1) Fixed Assets

Tangible assets 6 27,95,000

Intangible assets 7 22,300

(2)

Current assets

Inventories 8 7,70,200

Trade Receivables 9 3,44,000

Other current assets 10 1,53,000

Cash and Cash equivalents 11 1,02,800

Total 41,87,300

Notes to Accounts

` `

1. Share Capital Authorised, Issued, Subscribed and Paid up

25,000 Equity shares of ` 100 each

25,00,000

2. Reserves and Surplus General Reserve (W.N.4) Profit & Loss Account (W.N.4)

2,27,500 1,51,800

3,79,300

3. Trade payables Him Ltd. Sim Ltd.

4,55,000 2,35,500

6,90,500

4. Other current liabilities Bills payable Him Ltd. Sim Ltd. 83,000 Less: Mutual owings (15,000)

28,000

68,000

96,000

5. Short term provisions

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Proposed dividend Him Ltd. Minority interest

2,50,000

17,400

2,67,400

6. Tangible assets Him Ltd. Sim Ltd.

21,70,000

6,25,000

27,95,000

7. Intangible assets Goodwill (W.N. 3)

22,300

8. Inventories Him Ltd. Sim Ltd. Less: Un realized profit

4,80,000 3,19,200 (29,000)

7,70,200

9. Trade Receivables Him Ltd. Sim Ltd.

1,80,000 1,64,000

3,44,000

10. Other current assets Bills Receivable Him Ltd. 68,000 Less: Mutual owings (15,000) Sim Ltd.

53,000 1,00,000

1,53,000

11.

Cash and Cash equivalents Him Ltd. Sim Ltd.

87,500 15,300

1,02,800

Working Notes:

1. Analysis of Profits

Pre- Post-acquisition acquisition

Profits

General Profit & Loss

Reserve Account

` ` `

General Reserve 80,000 40,000

Profit & Loss Account 25,000 1,80,000

For Lot 1 (A) 1,05,000 40,000 1,80,000

Pre-acquisition for Lot 2

General Reserve (85,000 – 80,000) 5,000

Profit & Loss Account (1,02,000-25,000) 77,000

Post-acquisition for Lot 2 35,000 1,03,000

Him Ltd. (70%) of (A) 73,500 28,000 1,26,000

Adjustment of pre-acquisition General Reserve 500 (500)

for Lot 2 (10%)

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Adjustment of pre-acquisition Profit &Loss Account for Lot 2 (10%) 7,700 (7,700)

Him Ltd. 81,700 27,500 1,18,300

Minority Interest (30%) of (A) 31,500 12,000 54,000

2. Minority Interest

`

Share capital (30%) Add: Share of pre-acquisition profits of Sim Ltd. Share of post-acquisition General reserve Share of post-acquisition Profit & Loss Account

1,74,000 31,500 12,000 54,000

Less: Share of proposed dividend

2,71,500 (17,400)

2,54,100

3. Cost of Control/Goodwill

`

Cost of investments 5,10,000

Less: Share capital (70%) (4,06,000)

Share of pre-acquisition profit (81,700)

Goodwill 22,300

4. Consolidated General Reserve & Profit and Loss Account

General Reserve Profit and Loss

` `

Him Ltd. 2,00,000 3,12,500

Less:Dividend declared by Him Ltd. (2,50,000)

Less:Unrealized profit (29,000)

2,00,000 33,500

Add:Share in post-acquisition item of Sim Ltd. 27,500 1,18,300

2,27,500 1,51,800

Note:Proposed dividend relating to Minority Interest viz `17,400 shown above as part of ‘Short term provisions’ can also be shown as part of ‘Minority interest’. In that case, the amounts shown in the Consolidated Balance Sheet under ‘Minority Interest’ (`2,54,100) and ‘Short term provision’ (`2,67,400) would be changed to ` 2,71,500 and `2,50,000 respectively.

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3. a.

(i) Calculation of profit/ loss for the year ended 31stMarch, 2015 (` in crores)

Total estimated cost of construction (1,250 + 250 + 1,750) 3,250

Less: Total contract price (2,400)

Total foreseeable loss to be recognized as expense 850

According to para 35 of AS 7 (Revised 2002) “Construction Contracts”, when it is probable that total contract costs will exceed total contract revenue, the expected loss should be recognized as an expense immediately.

(ii) Contract work-in-progress i.e. cost incurred to date (` in crores)

Work certified 1,250

Work not certified 250

1,500

(iii) Proportion of total contract value recognized as revenue

Percentage of completion of contract to total estimated cost of construction = (1,500 / 3,250) 100 = 46.15% Revenue to be recognized till date = 46.15% of `2,400 crores = ` 1,107.60 crores.

(iv) Amount due from / to customers = Contract costs + Recognized profits – Recognized losses –

(Progress payments received + Progress payments to be received) = [1,500 + Nil – 850 – (1100 + 300)] crores

= ` [1,500 – 850 – 1,400] crores Amount due to customers (shown as liability) = ` 750 crores.

(v) The relevant disclosures under AS 7 (Revised) are given below:

` in crores

Contract revenue till 31st March, 2012 1,107.60

Contract expenses till 31st March, 2012 1,500.00

Recognized losses for the year 31st March, 2012 (850)

Progress billings ` (1,100 + 300) 1,400

Retentions (billed but not received from contractee) 300

Gross amount due to customers 750

b. As per para 22 of AS 10 ‘Accounting for Fixed Assets’, when a fixed asset is acquired in part exchange for another asset, the cost of the asset acquired should be recorded either at fair market value or at the net book value of the asset given up, adjusted for any balancing payment. In the given question the FMV of the new machine is its MRP net of special concession given to the buyer.

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1. Calculation of Cost of New Asset

` In lakhs

MRP of Printer Less: Special discount 10% of MRP Add: Accessories Add: Transit insurance cost (2% of 50 lakhs) Add: Freight and other incidental amount

50 (5) 7.6

1 2.3

55.9

(Being the expenses incurred for purchase of 3D computer – cash payment 38.25 + accessory 7.6 + insurance 1 and freight 2.3)

2. 3D Computer Printer A/c Dr. 6.75

Loss on buy back of old machine A/c Dr. 3.45

To Old Machine A/c 10.20 (Being the transfer of FMV of ` 6.75 lakhs of old machine to new printer under buy-back scheme and recognition of loss on buy back) Note: It is assumed that the cash payment of ` 38.25 lakhs is the full and final payment to the supplier for the printer.

2. Calculation of Profit /Loss incurred on buy-back arrangement

` in lakhs

Discounted price of new machine 45.00

Less: Cash portion thereof 38.25

FMV of old machine 6.75*

Less: Book Value thereof 10.20

Loss on Buy back 3.45

*This includes CST of 2%. Thus the CST will be 6.75 x 2/102 =

0.13 lakh

3. Journal Entries

1. 3D Computer Printer A/c Dr. 49.15

To Cash A/c 49.15

PRIME A

CADEMY


PRIME ACADEMY FINAL – 42ND SESSION PROGRESS TEST STRATEGIC FINANCIAL MANAGEMENT

No.of Pages: 4 Total Marks: 75 Time Allowed: 2Hrs

PART- A (Questions 1 to 10 carry 2 Marks each)

1. The home currency of ACB Co is the dollar ($) and it trades with a company in a foreign country whose home currency is the Dinar. The following information is available: Spot rate 20·00 Dinar per $

Home country Foreign country

Interest rate 3% per year 7% per year

What is the six-month forward exchange rate? a. 20·39 Dinar per $ b. 20·30 Dinar per $ c. 20·59 Dinar per $ d. 20·78 Dinar per $

2. TKQ Co has just paid a dividend of ` 21 per share and its share price is ` 350 per share. One year ago its share price was ` 310 per share.

a. 17·4% b. 18·2% c. 18·9% d. 19·7%

3. SKV Co has paid the following dividends per share in recent years: Year 2015 2014 2013 2012 Dividend (` per share) 36·0 33·8 32·8 31·1

The dividend for 2015 has just been paid and SKV Co has a cost of equity of 12%.What is the market price of SKV Co shares on an ex dividend basis?

a. ` 467 b. ` 514 c. ` 514 d. ` 697

4. A company whose home currency is the dollar ($) expects to receive 500,000 pesos in six months’ time from a customer in a foreign country. The following interest rates and exchange rates are available to the company: Spot rate 15·00 peso per $ Six-month forward rate 15·30 peso per $ Home country Foreign country Borrowing interest rate 4% per year 8% per year Deposit interest rate 3% per year 6% per year Working to the nearest $100, what is the six-month dollar value of the expected receipt using a money-market hedge?

a. $32,500 b. $33,700 c. $31,800 d. $31,900

5. Unlevered beta and effective tax rate of SURYA LTD. is 0.8 and 35 percent respectively. The company is financed 60% by debt . Assuming risk free rate of 7.5 percent and market premium of 8 percent, calculate cost of equity (rounded up to two decimal points).

a. 13.90% b. 20.14% c. 16.40% d. None of the above

PRIME A

CADEMY


6. Stock—A has a beta of 1.3 and an expected return of 20%. Stock—B has a beta of 0.8 and an expected return of 14%. Assume these stocks are correctly priced. Based on CAPM what is the expected return on the market?

a. 15.10% b. 16.40% c. 17.50% d. None of the above.

7. The following various currency quotes are available from a leading Indian Bank: `/£ = 75.31/75.33 £/$ = 0.6391/0.6398 $/¥ =0.01048/0.01052 The rate at which yen (¥) can be purchased with rupees will be

a. Re. 0.5070 b. ` 1.5030 c. ` 1.7230 d. None of the above.

8. Consider the following of Target Ltd. Standard deviation of share : 4% The correlation co–efficient for the share with the market : 0.8 Market standard deviation : 2.5% The Beta Co–efficient of the company's share is equal to

a. 1.50 b. 1.28 c. 1.00 d. 0.50

9. The spot and 6 months forward rates of £ in relation to the rupee (Re/£): are ` 78.1255 and ` 78.9650 respectively. What will be the annualised forward premium /discount of Rupee?

a. 2.13% premium b. 2.13% discount c. 2.15% premium d. 2.15% discount

10. Mr. X, a valued customer engaged in import business, is in spot need to remit US $ 10,00,000 to his US Exporter. What rate you, as a banker, will quote to Mr. X when interbank spot rate is US $ 1 = ` 46.95/10 and bank margin is 0.20%?

a. ` 47.0439 b. ` 47.1190 c. ` 47.0058 d. ` 47.1942

Questions 11 to 15 carry one Mark each

11. The slope of the security market line (SML) denotes a. Market volatility b. Beta of the security c. The influence of unsystematic risk d. The risk premium required.

12. Security A is said to dominate Security B if A has

a. Higher Risk for same return b. Lower risk for same return c. Higher risk and higher return d. Same risk and lower return

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13. Diversification: a. Reduces return b. Maximises return c. Reduces Risk d. Both b and c

14. If swap ask is greater than swap bid a. Product is depreciating b. Product is appreciating c. Price is appreciating d. Price is depreciating

15. Which of these dividend model do not offer a market price for the share: a. Walter’s model b. Gordon’s model c. Graham and Dodd model d. Lintner’s model

PART - B (50 Marks)

(All questions carry 10 Marks each) 1. XYZ Ltd, a Company based in India, manufactures very high quality Modern Furniture and sells to a

small number of Retail Outlets in India and Nepal. It is facing tough competition. Recent studies on marketability of products have clearly indicated that the Customer is now more interested in variety and choice rather than exclusivity and exceptional quality. Since the cost of quality wood in India is very high, the Company is reviewing the proposal for import of woods in bulk from Nepalese Supplier. The estimate of Net Indian ` and Nepalese Currency (NC) Cash Flows in for this proposal is shown below: (in Millions)

Year 0 1 2 3

NC –25.000 2.600 3.800 4.100

Indian Re 0 2.869 4.200 4.600

The following information is relevant: (i) XYZ Ltd evaluates all Investments by using a Discount Rate of 9% p.a.Both cash flows and

discount rates are adjusted for inflation. All Nepalese Customers are invoiced in NC. NC Cash Flows are converted to Indian (`) at the Forward Rate and discounted at the Indian Rate.

(ii) Inflation Rates in Nepal and India are expected to be 9% and 8% p.a. respectively. Current Exchange Rate is Re 1 = NC 1.6. Assuming that you are the Finance Manager of XYZ Ltd, calculate the Net Present Value (NPV) . You may use following values with respect to Discount Factor for Re.1 @ 9%. Present Value Year : 0.917 Year 2 : 0.842 Year 3 :0.772 and Future value for years 1:1.09 year2: 1.188

2. An investor has decided to invest ` 1,00,000 in the shares of two companies, namely, ABC and XYZ.

The projections of returns from the shares of the two companies along with their probabilities are as follows :

Probability ABC(%) XYZ(%)

0.2 12 16

0.25 14 10

0.25 –7 28

0.3 28 –2

You are required to: (i) Comment on return and risk of investment in individual shares. (ii) Compare the risk and return of these two shares with a Portfolio of these shares in equal

proportions. (iii) Find out the proportion of each of the above shares to formulate a minimum risk portfolio.

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3. ABC Ltd, a US Firm, will need £ 5,00,000 in 180 days. In this connection, the following information is available: Spot Rate 1 £ = $ 2.00 180 days Forward Rate of £ as of today is $ 1.96 Interest Rates are as follows: US UK 180 days Deposit Rate 5.0% 4.5% 180 days Borrowing Rate 5.5% 5.0% A Call Option on £ that expires in 180 days has an Exercise Price of $ 1.97 and a Premium of $ 0.04. ABC Ltd has forecasted the Spot Rates for 180 days as below:

Future rate $ 1.91 $ 1.95 $ 2.05

Probability 30% 50% 20%

Which of the following strategies would be cheaper to ABC Ltd? (i) Forward Contract (ii) A Money Market Hedge (iii) A Call Option Contract and (iv) No Hedging Option.

4. MR. ANAND an analyst at REVAMP SECURITIES LTD. has made risk and return projections for the securities of G LTD and A LTD which are as follows:

Scenario Probability Return on G Ltd. (%)

Return on A Ltd. (%)

Market Return (%)

2% GDP growth 0.03 – 5 21 – 20

4% GDP growth 0.1 4 15 – 5

6% GDP growth 0.27 10 0 10

8% GDP growth 0.2 18 – 1 20

9% GDP growth 0.4 25 – 4 30

5.60% on the 91 day T–bill is a good approximation of the risk free rate. Assuming that CAPM holds good in the market answer the following:

(i) Calculate betas for both the companies. (ii) Calculate alpha for both the companies. (iii) State whether the stocks of G Ltd and A Ltd are underpriced or overpriced.

5. Zumo & Co is a watch manufacturing company and is all equity financed and has paid up capital

` 10,00,000 (` 10 per share) The Other data related to the company is as follows:

Year EPS(Rs) Net Dividend per share (`) Share Price (`)

2004 4.20 1.70 25.20

2005 4.60 1.80 18.40

2006 5.10 2.00 25.50

2007 5.50 2.20 27.50

2008 6.20 2.50 37.20

Zumo & Co has hired one management consultant, Vidal Consultants to analyse the future earnings and other related item for the forthcoming years. As per Vidal Consultant’s report

i. The earnings and dividend will grow at 25% for the next two years ii. Earnings are likely at rate of 10% from 3rd year and onwards

iii. Further if there is reduction in earnings growth occurs dividend payout ratio will increase to 50%

Assuming the tax rate as 33% (not expected to change in the foreseeable future) calculate the estimated share price and P/E Ratio which analysts now expect for Zumo & CO using the dividend valuation model. You may further assume that post tax cost of capital is 18%

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PRIME ACADEMY 42nd SESSION - FINAL - PROGRESS TEST

STRATEGIC FINANCIAL MANAGEMENT - SUGGESTED ANSWERS

PART - A

1 2 3 4 5 6 7 8 9 10

a d c (540) a b b a b b d

11 12 13 14 15 d b c b d

PART - B

1. Money cash flows and money discount rate are given. Hence we need not convert to arrive

Year Indian CF

Nepalese CF

Total CF PVF @ 9% DCF NC

Forward Rate NC/INR

Converted INR

0 0

(25.000) 1.6

(15.6250)

(15.6250) 1

(15.6250)

1 2.869 2.600 1.6148

1.6101

4.4791 0.9174 4.1093

2 4.200 3.800 1.6298

2.3316

6.5316 0.8417 5.4975

3 4.600 4.100 1.6449

2.4926

7.0926 0.7722 5.4768

NPV

(0.5414)

Using Interest Rate Parity theory we can forecast the forward rate for 3 years as follows:

1 + 𝑅ℎ

1 + 𝑅𝑓=𝐹𝑜𝑟𝑤𝑎𝑟𝑑

𝑆𝑝𝑜𝑡

Spot Rate is NC 1.6/INR Rh = 9% Rf = 8%

Year 1 Year 2 Year 3

1.6 X 1.09 1.6148 X 1.09 1.6298 X 1.09

1.08 1.08 1.08

1.6148 1.6298 1.6449

2.

Probability ABC(%) XYZ(%) p*ABC% p*XYZ%

0.2 12 16 2.4 3.2

0.25 14 10 3.5 2.5

0.25 -7 28 -1.75 7

0.3 28 -2 8.4 -0.6

Expected Return

12.55

12.1

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Probability Dx Dy pdx2 pdy2 p*dx*dy

0.2 -0.55 3.9 0.06 3.04 -0.43

0.25 1.45 -2.1 0.53 1.10 -0.76

0.25 -19.55 15.9 95.55 63.20 -77.71

0.3 15.45 -14.1 71.61 59.64 -65.35

Total 167.75 126.99 -144.26

Risk = standard deviation σABC=√167.75=12.95% σXYZ = √126.99 =11.27% Covariance (ABC, XYX) = -144.25 Risk and return of these two shares with a Portfolio of these shares in equal proportions: Expected return = 0.5(12.55) + 0.5(12.1) =12.325% Risk =using formula =√(0.5*12.95)2 + (0.5*11.27)2+2(-144.26 *0.5*0.5)=√1.56 = 1.25% The proportion of each of the shares to formulate a minimum risk portfolio using formula we will get weight of ABC =46% and XYZ =54%.

3. Option (i) Forward Contract The 180 days forward Ask ( USD/GBP) is relevant. Hence the amount payable GBP 500,000 X Ask( USD/GBP) GBP 500,000 X 1.96 USD/GBP =9,80,000USD Option (ii) Money Market Hedge Step 1 : Create a GBP Asset of 500,000

Deposit GBP 500,000/1.0225=4,88,997.56 GBP Step 2 : Borrow the equivalent in USD

GBP 488,997.56 X 2 USD/GBP = 9,77,995.11 USD Step 3 : Repay the borrowing with interest USD 977,995.11 X 1.0275= 10,04,889.98USD Step 4 : Realize the GBP Asset and repay the GBP Liability

The amount paid is USD 10,04,889.98 Option (iii) Call Option Contract The premium is payable upfront of USD 0.04 . Hence the total premium is 0.04 X 500,000 GBP = 20,000 USD

The estimated spot rate:

Future Rate Prob Product

1.91 0.3 0.573

1.95 0.5 0.975

2.05 0.2 0.41

1.958

Since the exercise price is 1.97 USD/GBP the amount paid would be 500,000 GBP X 1.97 USD/GBP = 9,85,000.00 GBP Total Outflow including premium (ignoring TVM) is 985,000 USD + 20,000 USD = 10,05,000 USD

Option (iv) No hedging Option If the company does not engage in hedging , then it should settle the liability at the expected spot rate after 180 days Hence outflow will be 500,000 GBP X 1.958 USD/GBP= 9,79,000USD Decision: The strategy of not hedging results in the cheapest outflow of USD 979,000.

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4. (i) G Ltd:

p X Y Dx dy p * dx *dy

dy2 *p

0.03 -5 -20 -21.55 -37.60 24.31 12.00

0.10 4 -5 -12.55 -22.60 28.36 2.50

0.27 10 10 -6.55 -7.60 13.44 27.00

0.20 18 20 1.45 2.40 0.70 80.00

0.40 25 30 8.45 12.40 41.91 360.00

X = 16.55 Ȳ =17.6 ∑=108.72 481.50

Beta = 𝑐𝑜𝑣(𝑥,𝑦)

𝑉𝑎𝑟(𝑦) =08.72/481.50 = 0.23

CAPM return = 5.6 +0.23(17.6-5.6) = 8.36% Alpha = Expected return – CAPM return = 16.55 -8.36 = 8.19 Since Alpha is positive , the stock of GLtd is underpriced.

(ii) A Ltd

p X Y dx dy p * dx *dy dy2 *p

0.03 21 -20 20.67 -37.60 -23.32 12.00

0.10 15 -5 14.67 -22.60 -33.15 2.50

0.27 0 10 -0.33 -7.60 0.68 27.00

0.20 -1 20 -1.33 2.40 -0.64 80.00

0.40 -4 30 -4.33 12.40 -21.48 360.00

X = .33 Ȳ =17.6

∑=-77.91 481.50

Beta = 𝑐𝑜𝑣(𝑥,𝑦)

𝑉𝑎𝑟(𝑦) =-77.91/481.50= -0.16

CAPM return = 5.6 +(-0.16)(17.6-5.6) =3.68% Alpha = Expected return – CAPM return = 0.33 -3.68 = -3.35 Since Alpha is negative, the stock of ALtd is overpriced

5.

P0 = 𝑫𝟎(𝟏+𝒈)

𝒌𝒆−𝒈

Projections for dividends:

Year EPS DPS PVF @18% Discounted DPS

2009 7.75 3.13 0.8475 2.65 6.2+25% 2.5+25% 2010 9.688 3.91 0.7182 2.81 2011 12.109 5.33# 0.6086 3.24

8.70

Dividends = EPS x 50% Dividends for the year 2012: D2012 = 5.33 x 1.10 x 50% = ` 5.863 So, P2012 = 5.863/(0.18-0.10) = ` 73.29 P0 = Pv of dividends for years 1-3 + PV of Price at end of year 3 = 8.70 + (73.29 x 0.6086) = 8.70 + 44.63 = ` 53.34

PE Ratio = 53.34/6.20 = 8.60

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Prime/42nd PT/FINAL 1

PRIME ACADEMY FINAL - 42nd SESSION PROGRESS TEST

ADVANCED AUDITING AND PROFESSIONAL ETHICS No. of page: 2 Total Marks: 75

Time Allowed: 2 Hrs PART - A

1) Write short notes on the following

a) Restrictions on investments of funds of a central co-operative society. b) Propriety Audit c) The special points that may be covered in the audit of equipment leasing finance company. d) Special Report by Auditor of Co-operative Societies (4 X 4 = 16 Marks)

2) Match the following

S. No. Standard No Standard Name

1. SA 610 Audit Evidence

2. SA 230 Using the work of Another Auditor

3. SA 600 Using the work of Auditor’s Experts

4. SA 500 Audit Documentation

5. SA 620 Using the work of Internal Auditor

(5 Marks) 3) Enumerate the verification procedures in relation to audit of a Hire-Purchase Finance Company

(4 Marks) PART - B

1) (a) M/s Sureshchandra& Co. has been appointed as an auditor of SC Ltd. for the financial year 2014-

15. CA Suresh, one of the partners of M/s Sureshchandra& Co., completed entire routine audit work by 29th May, 2015. Unfortunately, on the very next morning, while roving towards office of SC Ltd. to sign final audit report, he met with a road accident and died. CA Chandra, another partner of M/s Sureshchandra& Co., therefore, signed the accounts of SC Ltd., without reviewing the work performed by CA Suresh. State with reasons whether CA Chandra is right in expressing an opinion on financial statements the audit of which is performed by another auditor.

(b) Ferry Ltd. is a leading employee friendly company operating in India. The company outsourced the most critical function of its HR Department i.e. the actuarial services to Ms.Preeti, a renowned practicing actuary, for ascertaining its employee cost, gratuity and leave encashment liabilities. As the auditor of Ferry Ltd., you would like to use the report submitted by the actuary as an audit evidence. How would you evaluate the work of the actuary?

(c) CA Amboj, a practicing chartered accountant has been appointed as an internal auditor of Textile

Ltd. He conducted the physical verification of the inventory at the year-end and handed over the report of such verification to CA Kishor, the statutory auditor of the Company, for his view and reporting. Can CA Kishor rely on such report?

(d) ABG & Co., a Chartered Accountant firm has been appointed by C & AG for performance audit of a

Sugar Industry. What factors should be considered by ABG & Co., while planning a performance audit of Sugar Industry? (4 X 5 = 20 Marks)

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2) (a) Ramar& Co, a firm of Chartered Accountants have not revised the terms of engagements and

obtained confirmation from the clients, for last 5 years despite changes in business and professional environment. Please elucidate the circumstances that may warrant the revision in terms of engagement (5 Marks)

(b) Overall objective of Auditor in conducting an audit of financial statements (5 Marks)

3) (a) You are the auditor of IJK Ltd., a NBFC registered with RBI. How would you proceed to ensure the

Compliance of Prudential Norms directions by it. (4 Marks)

(b) M/s LNK’s group gratuity scheme’s valuation by actuary shows wide variation compared to the previous year’s figures. As a Statutory Auditor, how would you deal in this situation? (6 Marks)

4)

(a) “There should be sufficient liaison between a principal auditor and other auditors”. Discuss the above statement and state in this context the reporting considerations, when the auditor uses the work performed by other auditor. (6 Marks)

(b) Nature and purpose of audit documentation as per SA 230 (4 Marks)

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PRIME ACADEMY 42nd SESSION - FINAL - PROGRESS TEST

ADVANCED AUDITING AND PROFESSIONAL ETHICS SUGGESTED ANSWERS

PART-A 1)

(a) Restrictions on Investment of funds of a Central Cooperative Society. - Provisions of the Central Act put some restrictions on investments of funds of a Central Cooperative Society. According to Section 32 of the Central Act, a Central Cooperative Society may invest its funds only in any one or more of the following: (a) In the Central or State Co-operative Bank. (b) In any of the securities specified in Section 20 of the Indian Trusts Act, 1882. (c) In the shares, securities, bonds or debentures of any other society with limited liability. (d) In any co-operative bank, other than a Central or State co-operative bank, as approved by the

Registrar on specified terms and conditions. (e) In any other moneys permitted by the Central or State Government.

The principal provision relating to the investments of funds of a co -operative society, the Central as well as State Acts does not mention anything about the investment of reserve fund outside the business specifically.

(b) Propriety Audit: Propriety Audit stands for verification of transactions on the tests of public interest

commonly accepted customs and standards of conduct. E.L. Kohler has defined the term propriety as "that which meets the tests of public interest, commonly accepted customs and standards of conduct, and particularly as applied to professional performance, requirements of law, government regulations and professional codes". Instead of too much dependence on documents, vouchers and evidence, it shifts the emphasis to the substance of the transactions and looks into the appropriateness thereof on a consideration of financial prudence, public interest and prevention of wasteful expenditure. Thus propriety audit is concerned with scrutiny of executive actions and decisions bearing on financial and profit and loss situation of the company with special regard to public interest and commonly accepted customs, and standards of conduct. It is also seen whether every offer has exercised the same vigilance in respect of expenditure incurred from public money, as a person of ordinary prudence would exercise in respect of expenditure of his own money under similar circumstances. Propriety requires the transactions, and more particularly expenditure, to conform to certain general principles. These principles are: (i) that the expenditure is not prima facie more than the occasion demands and that every official

exercises the same degree of vigilance in respect of expenditure as a person of ordinary prudence would exercise in respect of his own money;

(ii) that the authority exercises its power of sanctioning expenditure to pass an order which will not directly or indirectly accrue to its own advantage;

(iii) that funds are not utilised for the benefit of a particular person or group of persons and (iv) that, apart from the agreed remuneration or reward, no other avenue is kept open to indirectly

benefit the management personnel, employees and others.

(c) Special Points in the Audit of Equipment Leasing Finance Company: The auditor should-

(i) Ascertain whether the Non Banking Financial Companies (NBFC) has an adequate appraisal system for extending equipment leasing finance.

(ii) Verify whether there is an adequate system in place for ensuring installation of assets and their periodical physical verification. In some major transactions, arrange for physical verification of the leased assets so as to dispel any doubts that equipment leasing finance was not extended without the corresponding assets being created.

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(iii) Ascertain that the NBFC has an adequate system for monitoring whether the assets have been adequately insured against and regular maintenance of the leased asset is being carried out by the lessee.

(iv) Verify the lease agreement entered into with the lessee in respect of the equipment given on lease.

(v) Verify whether the Accounting Standard issued by the Institute of Chartered Accountants of India in respect of “Accounting for Lease” has been compulsorily followed.

(d) Special Report to the Registrar: The auditors are required to report on number of matters as

prescribed in various states. In addition to the main report, the auditors are also required to submit by way of schedules/audit memorandum information on the working of the company as well. During the course of audit, if the auditor notices that there are some serious irregularities in the working of the society he may report these special matters to the Registrar, drawing his specific attention to the points. The Registrar on receipt of such a special report may take necessary action against the society. In the following cases, for instance a special report may become necessary: (a) Personal profiteering by members of managing committee in transactions of the society, which

are ultimately detrimental to the interest of the society. (b) Detection of fraud relating to expenses, purchases, property and stores of the society. (c) Specific examples of mis-management. Decisions of management against co-operative

principles. (d) In the case of urban co-operative banks, disproportionate advances to vested interest groups,

such as relatives of management, and deliberate negligence about the recovery thereof. Cases of reckless advancing, where the management is negligent about taking adequate security and proper safeguards for judging the credit worthiness of the party.

2)

S.No. Standard No Standard Name

1. SA 610 Using the work of Internal Auditor

2. SA 230 Audit Documentation

3. SA 600 Using the work of Another Auditor

4. SA 500 Audit Evidence

5. SA 620 Using the work of Auditor’s Experts

3) Verification Procedures in relation to audit of a Hire Purchase Finance company (HPFC):

(i) Ascertain whether the NBFC has an adequate appraisal system for extending hire purchase finance. The system of appraisal is basically concerned with obtaining information regarding the credit worthiness of the hirer, his experience in the field, assets owned, his past track record and future projections of his income.

(ii) Verify that the payment for acquiring an asset should be made directly to the supplier/dealer and that the original invoice has been drawn out in the name of the NBFC.

(iii) In the case of high value hire purchase items relating to machinery/equipment, an auditor should ascertain whether the valuation reports and installation reports are called for. In case of some high value items, he should also physically verify the asset in possession of the hirers, particularly in a situation where he has any doubts as regards the genuineness of the transaction.

(iv) If the hire purchase finance is against vehicles, check whether the registration certificate contains an endorsement in favour of the hire purchase company.

(v) The auditor should verify whether the NBFC has a system in place for verifying the hire purchase assets periodically to ensure that the hirers have not sold the assets or otherwise encumbered them.

(vi) Check whether hire purchase instalments are being received regularly as and when they fall due. Check whether adequate provision has been made for overdue hire purchase instalments as required by the NBFC Prudential Norms directions.

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(vii) Examine the method of accounting followed by the hire purchase finance company for appropriation of finance charges over the period of the hire purchase contract. Ascertain that there is no change in the method of accounting as compared to the immediately preceding previous year.

(viii) Verify that the assets given on hire purchase have been adequately insured against. (ix) In case the goods are repossessed by the hire purchase finance company on account of non -repayment of hire purchase instalments, verify that the repossessed goods have been valued

on a realistic basis by the hire purchase finance company.

PART - B 1)

(a) Relying on Work Performed by Another Auditor: As per SA 220 “Quality Control for an Audit of Financial Statements”, an engagement partner taking over an audit during the engagement may apply the review procedures such as the work has been performed in accordance with professional standards and regulatory and legal requirements; significant matters have been raised for further consideration; appropriate consultations have taken place and the resulting conclusions have been documented and implemented; there is a need to revise the nature, timing and extent of work performed; the work performed supports the conclusions reached and is appropriately documented; the evidence obtained is sufficient and appropriate to support the auditor’s report; and the objectives of the engagement procedures have been achieved. Further, one of the basic principles, which govern the auditor’s professional responsibilities and which should be complied with wherever an audit is carried, is that when the auditor delegates work to assistants or uses work performed by other auditor and experts, he will continue to be responsible for forming and expressing his opinion on the financial information. However, he will be entitled to rely on work performed by others, provided he exercises adequate skill and care and is not aware of any reason to believe that he should not have so relied. This is the fundamental principle which is ethically required as per Code of Ethics. However, the auditor should carefully direct, supervise and review work delegated. He should obtain reasonable assurance that work performed by other auditors/experts and assistants is adequate for his purpose. In the given case, all the auditing procedures before the moment of signing of final report have been performed by CA Suresh. However, the report could not be signed by him due to his unfortunate death. Later on, CA Chandra signed the report relying on the work performed by CA Suresh. Here, CA Chandra is allowed to sign the audit report, though, will be responsible for expressing the opinion. He may rely on the work performed by CA Suresh provided he further exercises adequate skill and due care and review the work performed by him.

(b) Evaluating the Work of Management’s Expert: As per SA 500 “Audit Evidence”, when information to

be used as audit evidence has been prepared using the work of a management’s expert, the auditor shall, to the extent necessary, having regard to the significance of that expert’s work for the auditor’s purposes,-

(i) Evaluate the competence, capabilities and objectivity of that expert; (ii) Obtain an understanding of the work of that expert; and (iii) Evaluate the appropriateness of that expert’s work as audit evidence for the relevant

assertion. The auditor may obtain information regarding the competence, capabilities and objectivity of a management’s expert from a variety of sources, such as personal experience with previous work of that expert; discussions with that expert; discussions with others who are familiar with that expert’s work; knowledge of that expert’s qualifications; published papers or books written by that expert. Aspects of the management’s expert’s field relevant to the auditor’s understanding may include what assumptions and methods are used by the management’s expert, and whether they are generally accepted within that expert’s field and appropriate for financial reporting purposes The auditor may also consider the following while evaluating the appropriateness of the management’s expert’s work as audit evidence for the relevant assertion:

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(i) The relevance and reasonableness of that expert’s findings or conclusions, their consistency with other audit evidence, and whether they have been appropriately reflected in the financial statements;

(ii) If that expert’s work involves use of significant assumptions and methods, the relevance and reasonableness of those assumptions and methods; and

(iii) If that expert’s work involves significant use of source data, the relevance, completeness, and accuracy of that source data.

(c) Using the Work of Internal Auditor: As per SA 610 “Using the Work of Internal Auditors”, while

determining whether the work of the internal auditors is likely to be adequate for the purpose of the audit, the external auditor shall evaluate- (i) The objectivity of the internal audit function; (ii) Technical competence of the internal auditors; (iii) Whether the work of the internal auditors is likely to be carried out with due professional care;

and (iv) Whether there is likely to be effective communication between the internal auditors and the

external auditor. To determine the adequacy of specific work performed by the internal auditors for the external auditor’s purposes, the external auditor shall evaluate whether the internal auditors have adequate technical training and proficiency; work was properly supervised, reviewed and documented; any reports prepared are consistent with the results of the work performed etc. In the instant case, CA Kishor should ascertain the internal auditor’s scope of verification, area of coverage and method of verification. He should review the report on physical verification taking into consideration these factors. If possible he should also test check few items and he can also observe the procedures performed by the internal auditors. If the statutory auditor is satisfied about the appropriateness of the verification, he can rely on the report but if he finds that the verification is not in order, he has to decide otherwise. The final responsibility to express opinion on the financial statement remains with the statutory auditor.

(d) Factors to be considered while planning the Performance Audit: While planning a performance audit

of Sugar Industry, the auditors should take care of certain factors which are listed below: (i) To consider significance and the needs of potential users of the audit report. (ii) To obtain in understanding of the program to be audited (iii) To consider legal and regulatory requirements. (iv) To consider management controls. (v) To identify criteria needed to evaluate matters subject to audit. (vi) To identify significant findings and recommendations from previous audits that could affect the

current audit objectives. Auditors should determine if management has corrected the conditions causing those findings and implemented those recommendations.

(vii) To identify potential sources of data that could be used as audit evidence and consider the validity and reliability of these data, including data collected by the audited entity, data generated by the auditors, or data provided by third parties.

(viii) To consider whether the work of other auditors and experts may be used to satisfy some of the auditors' objectives.

(ix) To provide sufficient staff and other resources to do the audit. (x) To prepare a written audit plan

2)

(a) As per SA 210 on “Agreeing the Terms of Audit Engagements”, the auditor may decide not to send a new audit engagement letter or other written agreement each period. However, the following factors may make it appropriate to revise the terms of the audit engagement or to remind the entity of existing terms:

(i) Any indication that the entity misunderstands the objective and scope of the audit. (ii) Any revised or special terms of the audit engagement.

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(iii) A recent change of senior management. (iv) A significant change in ownership. (v) A significant change in nature or size of the entity’s business. (vi) A change in legal or regulatory requirements. (vii) A change in the financial reporting framework adopted in the preparation of the financial

statements. (viii) A change in other reporting requirements

(b) In conducting an audit of financial statements, the overall objectives of the auditor are:

(i) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework; and

(ii) To report on the financial statements, and communicate as required by the SAs, in accordance with the auditor’s findings. In all cases when reasonable assurance cannot be obtained and a qualified opinion in the auditor’s report is insufficient in the circumstances for purposes of reporting to the intended users of the financial statements, the SAs require that the auditor disclaim an opinion or withdraw from the engagement, where withdrawal is legally permitted.

3)

a) Compliance of Prudential Norms by NBFC (i) The auditor has to verify the compliance of prudential norms relating to (1) income recognition;

(2) Income from investments; (3) Asset classification; (4) Provision for bad and doubtful debts; (5) Capital adequacy norm; (6) Prohibition of granting loans against its own shares; (7) Prohibition on loans and investments for failure to repay public deposits and (8) Norms for concentration of credit etc.

(ii) The auditor shall ensure that Board of the NBFC shall frame a policy for granting demand/call loans and implement the same.

(iii) The auditor should verify the classification of advances and loans as standard/ Substandard /doubtful /loss and that proper provision has been made in accordance With the directions. (iv) Auditor should ensure that unrealised income from non-performing assets has not Been taken to Statement of Profit and Loss. (v) The auditor should check all NPAs of the previous years to verify whether during the Current year any payments have been received or still they continue to be NPA During the current year also

b) Valuation by Actuary: As per SA 620 “Using the Work of an Auditor’s Expert”, an evaluation of the work of an expert can be done considering the following facts- (i) When the auditor plans to use the expert’s work as audit evidence, he should satisfy himself as

to the expert’s skills and competence by considering the expert’s: (1) professional qualifications, license or membership in an appropriate professional body, and (2) experience and reputation in the field in which the evidence is sought.

(ii) The objectives and scope of the experts’ work. (iii) A general outline as to specific items in the expert’s report. (iv) Confidentiality of the client’s information used by the expert. (v) The source data used. (vi) The assumptions and methods used and, if appropriate, their comparison with the prior period. (vii) The results of the expert’s work in the light of auditor’s overall knowledge of the business and

of the results of his audit procedures. (viii) The auditor should also satisfy himself that the substance of the expert’s findings is properly

reflected in the financial statements.

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(ix) Consider whether the expert has used the appropriate source data, by making inquiries of the expert.

(x) Conducting audit procedures on the data by the client to the expert to obtain reasonable assurance that the data are appropriate.

The auditor has to evaluate the work of an expert, say, actuary, before adopting the same. This becomes more crucial since M/s LNK’s group gratuity scheme’s valuation by actuary shows wide variation compared to previous year figures. There is no doubt that

4)

a) SA 600 on “Using the Work of Another Auditor” lays down the procedure to be applied in situations

where a principal auditor reporting on the financial statement of the entity uses the work of another independent auditor. SA 600 contemplates coordination between auditors and requires that there should be sufficient liaison between the principal auditor and the other auditor. For this purpose, the principal auditor may find it necessary to issue written communication(s) to the other auditor. The other auditor, knowing the context in which his work is to be used by the principal auditor, should co- ordinate with the principal auditor. For example, by bringing to the principal auditor’s immediate attention any significant findings requiring to be dealt with at entity level, adhering to the time-table for audit of the component, etc. He should ensure compliance with the relevant statutory requirements. Similarly, the principal auditor should advise the other auditor of any matters that come to his attention that he thinks may have an important bearing on the other auditor’s work When considered necessary by him, the principal auditor may require the other auditor to answer a detailed questionnaire regarding matters on which the principal auditor requires information for discharging his duties. The other auditor should respond to such questionnaire on a timely basis. When the principal auditor concludes, based on his procedures, that the work of the other auditor cannot be used and the principal auditor has not been able to perform sufficient additional procedures regarding the financial information of the component audited by the other auditor, the principal auditor should express a qualified opinion or disclaimer of opinion because there is a limitation on the scope of audit. In all circumstances, if the other auditor issues, or intends to issue, a modified auditor's report, the principal auditor should consider whether the subject of the modification is of such nature and significance, in relation to the financial information of the entity on which the principal auditor is reporting that it requires a modification of the principal auditor's report.

b) Audit documentation that meets the requirements of this SA and the specific documentation requirements of other relevant SAs provides: (a) Evidence of the auditor’s basis for a conclusion about the achievement of the overall

objectives of the auditor; and (b) Evidence that the audit was planned and performed in accordance with SAs and applicable

legal and regulatory requirements. Audit documentation serves a number of additional purposes, including the following:

Assisting the engagement team to plan and perform the audit.

Assisting members of the engagement team responsible for supervision to direct and supervise the audit work, and to discharge their review responsibilities in accordance with

SA 2203.

Enabling the engagement team to be accountable for its work.

Retaining a record of matters of continuing significance to future audits.

Enabling the conduct of quality control reviews and inspections in accordance with SQC

14.Enabling the conduct of external inspections in accordance with applicable legal, regulatory or other requirements

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PRIME ACADEMY FINAL – 42nd SESSION - PROGRESS TEST

CORPORATE AND ALLIED LAWS No of Pages: 3 Total Marks: 75 Time Allowed: 2 Hrs

PART - A I. state which of the following statements are true or false 1.

a) The books of accounts and other relevant books are to be kept at Registered Office only. Comment b) Director has no rights to inspect books – examine

c) Applicability of rotation of auditors is only to Large Corporate - Comment

d) Director can hold office as a Director in 15 Companies – Comment

e) The resignation of a Director takes effect after the same is accepted by the Board– Comment

(5 x 3 = 15 Marks) 2. Choose the correct answer

a) The first auditors of the company have to be appointed within:

i) 90 days of incorporation by the Board ii) 120 days of incorporation by Members through EGM iii) 30 days of incorporation by the Board or 90 days of incorporation by members in EGM iv) None of the above

b) The Limits on no of audits (not more than 20) shall exclude:

i) One person company and small company ii) Dormant company iii) Private company having a paid up capital less than 100 crores iv) All of the above

c) An independent director shall hold office for:

i) 5 consecutive years and can be appointed for 2 consecutive terms ii) 3 years iii) Retires by rotation as per rules iv) None of the above

d) Every company shall have a

i) Resident Director ii) Independent Director iii) Small shareholders director iv) All of the above

e) Political Contribution cannot exceed

i) 7.5% of the average profits of proceeding 3 years ii) 5 % of the average profits of preceding 3 years iii) No Limits iv) None of the above

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f) Every company shall file a return on appointment of a MD/WTD/Manager within i) 60 days of his appointment ii) 30 days of appointment iii) 90 days of his appointment iv) None of the above

g) The ceiling limit on the sitting fee is

i) ` 100000 per meeting ii) ` 25000 per meeting iii) ` 75000 per meeting iv) None of the above

h) The time limit for depositing the dividend into a separate bank account is

i) Within 7 days of declaration for all companies ii) Within 5 days of declaration for all companies iii) Within 5 days of declaration except for Govt Companies in which entire Share capital is held

by the Govt (CG or SG). iv) None of the above

i) The time limit for appointing a cost auditor is

i) Within 90 days of closure of financial year ii) Within 180 days of commencement of financial year iii) Within 120 days of commencement of financial year iv) None of the above

j) The provisions relating to Retirement by Rotation of Directors will not apply to

i) Private Companies ii) Govt companies in which the entire share capital is held by Govt iii) Section 8 companies which provide for election by Ballot iv) All of the above (10 x 1 = 10 Marks)

PART - B (5 x 10 = 50 Marks)

1) Which class of companies mandatorily need to appoint Independent Directors and what are the conditions for his appointment u/sec 149(6)?- (10 Marks)

2) a) The Board of Directors of WYZ Limited at a Board meeting held on 15.01.2016 resolved to borrow

` 150 crores from a Nationalized Bank, the amount was granted by bank. One of the Directors who opposed this contends that this borrowing is beyond the powers of the Board. The following are the additional data :

Share Capital : 50 crores

Reserves : 50 crores

Loans : 25 crores

Advice and also suitably draft the resolutions applicable. Will your answer be different if the

company is WYZ Private Limited. (7 Marks)

b) A Salary advance of ` 150000/-is given to the wife of the Managing Director who is an employee

of the concern. Examine the applicability of Sec 185 (3 Marks)

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3)

a) An auditor appointed under this Act is prohibited from rendering certain services – Examine with

relevance to Sec 144 (5 Marks)

b) Dividend

A company has a paid up capital of ` 200 lakhs and accumulated reserves of ` 240 lakhs. Losses

for the current year are at ` 30 lakhs. The average rate of dividend in the previous 3 years is 10%.

The company wants to declare a dividend. Kindly advice. (5 Marks)

4)

a) Briefly explain the requirements of Disclosure of Interest by Directors u/sec 184 (4 Marks)

b) A company XYZ Limited wants to give a Loan, discuss this in the following scenarios (ANY 3) with

reference to Sec 185

i) This Loan is giving to the Managing Director Mr. X. ii) XYZ Limited is a company which in the ordinary course of business provides Loans. iii) This is a Loan given to ABC Limited which is its wholly owned subsidiary iv) What will be your views on applicability of Sec 185 in case XYZ Limited is XYZ Private Limited.

(3 x 2 = 6 Marks)

5)

a) What are the transactions covered under 188(1) for Related Party Transactions. (Mention any 3

transactions) (3 Marks)

b) What do you mean by office or place of profit? (2 Marks)

c) What are the approvals for RPT? (4 Marks)

d) A Company is contemplating a transaction of Compromise. Examine applicability of Sec 188-

(1 Mark)

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PRIME/42nd /PT/FINAL 1

PRIME ACADEMY 42nd SESSION – FINAL - PROGRESS TEST- CORPORATE AND ALLIED LAWS

SUGGESTED ANSWERS PART – A

1. a) The books of accounts/other relevant books and papers and financial statements can be kept at any

other place the board may decide Notice to be filed with ROC in form No AOC 5 within 7 days of the resolution giving full address of the place.

b) Any Director can inspect books of accounts maintained in India on any day during business hours either

at the registered office or any other place where the books are kept. As far as books outside India are concerned they can inspect summarized returns. In case a director wants any financial information maintained outside India he has to make a request by himself (not through POA holder or agent or representative) providing the details of the information needed and the period for which it is required. Company has to provide the same within 15 days of receipt of request.

c) Rotation is mandatory for

(i) All listed Companies (ii) Unlisted Public companies having a paid up capital of ` 10 crores or more (iii) All private companies having paid up capital of ` 20 crores or more (iv) Irrespective of capital threshold (b or c above) but having public borrowings from financial

institutions banks or public deposits of ` 50 crores or more. In case of an individual one term of 5 years is allowed he can be reappointed after a cooling period of 5 years. In case of a firm two terms of 5 years – can be reappointed after a cooling period of 5 years.

d) A person can hold directorship in a maximum of 20 companies out of which not more than 10

companies can be Public companies. Alternate directorship will also be counted for the above. Members may however by a special resolution specify a lesser number of companies in which a person may be a director.

e) A person may resign after giving a notice to the company. The company’s Board shall take notice of the

same and intimate the ROC in Form DIR 12 within 30 days. It shall also post the same in its website and place the fact of such resignation in the Directors report in the immediately following general Meeting. The concerned director shall also forward a copy of his resignation along with reasons to the ROC in Form DIR 11. The Resignation shall take effect from the date on which the notice is received by the company or the date specified by the Director in the Notice whichever is later.

2. a) iii) 30 days of incorporation by the Board or 90 days of incorporation by members in EGM

b) iv) All of the above

c) i) 5 consecutive years and can be appointed for 2 consecutive terms d) i) Resident Director e) i) 7.5% of the average profits of proceeding 3 years f) i) 60 days of his appointment g) i) ` 100000 per meeting h) iii) Within 5 days of declaration except for Govt Companies in which entire Share capital is held by the

Govt (CG or SG). i) ii) Within 180 days of commencement of financial year j) iv) All of the above

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PART – B 1. Every Listed Public company needs to have at least 1/3rd of the total number of directors as Independent

Directors. Every other public company having a paid up capital of Rs 10 crores or more or turnover of 100 crores or more or aggregate of outstanding loans/debentures and deposits in excess of 50 crores shall have at least 2 independent directors. An independent Director shall hold office for a term up to 5 consecutive years, and shall be eligible for reappointment on passing a special resolution. He shall hold office for not more than 2 consecutive terms but can be reappointed after a period of 3 years during which period he shall not be associated with the company either directly or indirectly. An independent director means a director other than MD or WTD or Nominee Director (i) Who in the opinion of the Board is a person of integrity/possesses relevant experience and expertise (ii) Who is or was not the promoter of the company/its holding/subsidiary or associate company nor

who is related to the promoter or directors of the holding/subsidiary or associate company (iii) Who has no pecuniary relationship with holding/subsidiary or Associate Company or their

promoters/directors during the 2 preceding financial years or current year. However transactions at Arm’s length price will be excluded.

(iv) None of whose relatives has or had any pecuniary relationship or transaction with the company or holding/subsidiary or associate company or promoters or directors amounting to 2% or more of Gross turnover/total income or ` 50 lakhs or such higher amount as may be prescribed whichever is lower in the immediately 2 preceding financial years or during current year

(v) Who neither himself nor any of his relatives 1) Holds of has held the position of KMP or is or has been employee of the company

holding/subsidiary or associate company in any of the 3 financial years immediately preceding the financial year in which he was appointed

2) Is or has been the employee or proprietor or partner in any of 3 financial years immediately preceding the year he is proposed to be appointed of firm of auditors or company secretaries or cost auditors of the company or holding/subsidiary or associate company or any legal or consulting firm that has or had any transaction with the company/ holding/subsidiary or associate company

3) Holds together with his relatives 2% or more of the voting power of the company. 4) Is a Chief executive or director by whatever name called of any nonprofit organization that

receives 25% or more of its receipts from the company any of its promoters directors of its holding/subsidiary or associate company or that holds 2% or more of the total voting power of the company or

(vi) Who possess such qualifications as may be prescribed.

2.

a) The share capital + free reserves aggregate ` 100 crores, the present borrowing is ` 150 crores hence

beyond the powers of the Board. However it is within the powers of the company and can be ratified

through a special resolution in a general meeting.

Thus WYZ Limited shall have an EGM and pass a special resolution to ratify the same thus making it a

valid borrowing.

RESOLVED that pursuant to Sec 180(d) and other applicable provisions of the Companies Act the

consent of the company be and is hereby accorded to the Board of the company for borrowing such

sums as they may deem requisite for the purpose of the business notwithstanding the sums so

borrowed will exceed the aggregate of paid up capital & Free Reserves of the company provided such

borrowings do not exceed ` 350 crores outstanding at any time.

Explanatory Statement:

The sanction is sought for a borrowal of excess of capital plus free reserves. This requires consent in a

General Meeting through a special resolution. With the diversification plans it is necessary for such a

sanction and commends passing of the resolution.

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None of the directors are interested in the resolution.

The provisions of Sec 180 shall not apply to a Private Company. (Notification 464(E) dated 05.06.2015).

b) The loans and advances made by the company to its employees other than MD/WTD are not governed

by the requirements of Section 185. This is applicable if such loans /advances to employees are in

accordance with the conditions of service applicable to employees and are also in accordance with the

remuneration policy, in cases where such policy is required to be formulated. But section 186 is

attracted as the loan is given to any person (including employees).

3. a) An auditor appointed under this Act shall provide only such services as approved by the Board or Audit

Committee as the case may be but shall not include any of the following services either directly or indirectly to the company/ its holding/subsidiary. (i) Accounting/Book keeping services (ii) Internal Audit (iii) Design and implementation of any financial information systems (iv) Actuarial services (v) Investment advisory services (vi) Investment banking services (vii) Rendering of outsourced financial services (viii) Management services and (ix) Any other kind of services as may be prescribed

b) The declaration of dividends out of reserves is governed by the following rule:

Condition 1: The rate of dividend shall not exceed the average rate of dividends in the preceding 3:

Condition 2: The maximum quantum that can be drawn from accumulated reserves shall not

exceed 10% of paid up capital + free reserves – (i.e.) ` 44 lakhs

Condition 3: This amount should be first utilized to set off the losses of the current financial year

i.e. ` 30 lakhs should be removed from ` 44 lakhs so balance is ` 14 lakhs – 7%

Condition 4: The balance of reserves after such drawls should be at least 15% of paid up capital

Accumulated Reserves : ` 240 lakhs

Drawn : ` 14 lakhs

Balance : ` 226 lakhs

Which more than 15% is of paid up capital.

Hence a dividend at 7% can be declared.

4.

a) i) Every Director shall disclose his interest in any company/companies or body corporate by giving a

notice in writing in Form MBP-1 ii) This disclosure has to be made at the First Board Meeting where he participates as a Director.

Thereafter a fresh disclosure is to be made in each financial year in the first Board meeting held during that financial year. In case of any change to the disclosure already made, then the same shall be disclosed in the First Board meeting after the change

iii) These notices are to be kept at the Registered office and preserved for a period of 8 years from the end of the financial year to which it relates. The Register showing disclosure of interest shall also be maintained

iv) Every director shall disclose his interest in respect of any contract/arrangement/ Entered with a Body corporate in which he along with other director’s hold more than 2%/is a promoter or manager or CEO of that Body corporate or with a firm or other entity in which such a director is a partner or owner or member.

v) The concerned director shall not participate in such a meeting except in case of Private Limited companies.

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vi) As far as Sec 8 companies are concerned , only if value of transactions exceed ` 1 Lakh clauses d and e will apply

vii) Any contract entered into without disclosure is voidable at the option of the company. b)

i) Sec 185 will not apply to Loans given to MD/WTD provided it is as per part of conditions of service and is extended by the company to all its employees or pursuant to any scheme approved by members thro a special resolution

ii) The provisions of Sec 185 shall not apply to a company which in the ordinary course of business provides loans or gives guarantees or security for due repayment of any loan and charges an interest at not less than bank rates as prescribed by RBI.

iii) Any Loan by a holding company to a wholly owned subsidiary is exempt subject to the condition that such loans are utilized by the subsidiary for its principal business activity.

iv) Sec 185 shall not apply to a private company in whose share capital no other body corporate has invested any money, if the borrowings of such a company from banks/financial institutions /body corporate is less than twice its paid up capital or ` 50 crores whichever is lower /such company does not have any default in repayment of such borrowings at the time of the transaction.

5.

a) (i) Sale/Purchase or supply of goods or materials (ii) Selling or Purchase or disposing or buying property of any kind (iii) Leasing of property of any kind (iv) Availing or rendering of services (v) Appointment of an agent for Purchase/sale of goods/materials services or property (vi) Such related party’s appointment to an office or place of profit in the company or its subsidiary

company or its associate company (vii) Underwriting of any securities or derivatives of the company.

b) Office or place of profit means any office or place

i) Where such office is held by the Director if the Director receives from the company anything by way of remuneration over and above the remuneration to which he is entitled as a Director by way of salary/fee/commission/perquisites/rent free accommodation or otherwise .

ii) Where such a place is held be an individual other than a Director or by a firm/private company or body corporate holding it receives from the company anything by way of remuneration/salary/commission or otherwise.

c) i) Every company needs to seek the approval of the Board irrespective of capital or value of the

transaction. This approval must be got at a meeting of the Board. Interested director shall not be present at the meeting during discussions on the captioned subject matter except in case of private companies whre directors can disclose and participate .

ii) All contracts/arrangements covered under 188(1)(a to e) shall need a prior approval of the company through an ordinary resolution. However no approval is required for transactions between a holding company and wholly owned subsidiary whose accounts are consolidated and placed before the shareholders in a general meeting.

iii) Transactions entered into by the company in its ordinary course of business and undertaken at an arm’s length basis do not need any approval

iv) In the event of an Audit Committee provision for Omnibus approval of Related Party Transactions would suffice.

d) Compromises dealt under specific provisions will not attract provisions of Sec 188 of the Companies

Act 2013.

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final - 42ndsession progress test financial reporting · 2016. 4. 13. · upto 2013-14, the company...

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