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Fraud and Responsibilities of the Auditor in this Regard – CA Inter Audit MCQ

Students should practice these Fraud and Responsibilities of the Auditor in this Regard – CA Inter Audit MCQ based on the latest syllabus.

Fraud and Responsibilities of the Auditor in this Regard – CA Inter Audit MCQ

Question 1.
When credit purchases of ₹ 5100 is recorded on credit side and credit sales of ₹ 5100 is recorded on debit side, this kind of error is called
(a) Error of omission
(b) Compensating error
(c) Error of principle
(d) Error of commission
Answer:
(b) Compensating error

Question 2.
If, as a result of a misstatement resulting from fraud, the auditor encounters exceptional circumstances that bring into question his ability to continue performing the audit, he shall _____
(a) Withdraw from the engagement immediately
(b) Report to Audit team regarding withdrawal
(c) Determine the professional and legal responsibilities applicable in the circumstances
(d) Ask the management for his withdrawal
Answer:
(c) Determine the professional and legal responsibilities applicable in the circumstances

Question 3.
Which of the following is an example of inflating cash payments?
(a) Making payments against purchase vouchers
(b) Teeming and lading
(c) Not accounting for cash sales fully
(d) Making payments against inflated vouchers
Answer:
(d) Making payments against inflated vouchers

Question 4.
The type of errors, the existence of which becomes apparent in the process of compilation of accounts is known as _____
(a) Self-revealing errors
(b) Intentional errors
(c) Concealed errors
(d) Unconcealed errors
Answer:
(a) Self-revealing errors

Fraud and Responsibilities of the Auditor in this Regard – CA Inter Audit MCQ

Question 5.
Misappropriation of assets may occur because there is _____
(a) Adequate record keeping with respect to assets
(b) Known history of violations of securities laws
(c) Lack of complete and timely reconciliations of assets
(d) Dispute between shareholders in a closely held entity
Answer:
(c) Lack of complete and timely reconciliations of assets

Question 6.
SA 240 define fraud as ‘an intentional act by one or more individuals among management, those charged with governance, _____ , involving the use of deception to obtain an unjust or illegal advantage
(a) employees or third parties
(b) employees, vendors or third parties
(c) employees or others
(d) employees or vendors
Answer:
(a) employees or third parties

Question 7.
A situation where someone believes they have a favourable or promising combination of circumstances to commit an undetectable fraud is the description of:
(a) perceived pressure
(b) rationalisation
(c) management fraud
(d) perceived opportunity
Answer:
(d) perceived opportunity

Question 8.
Which of the following considerations of fraud and error by the auditor is not required by SA 240?
(a) the auditor should communicate to management any material weaknesses in internal control related to the prevention or detection of fraud and error
(b) based on the risk assessment the auditor should design audit procedures to obtain reasonable as-surance that material misstatements arising from fraud and error are detected
(c) when the auditor encounters circumstances that may indicate that there is a material misstatement in the financial statements resulting from fraud or error, the auditor should inform regulatory bodies
(d) the auditor should be satisfied that those charged with governance have been informed of any material weaknesses in internal control related to the prevention and detection of fraud
Answer:
(c) when the auditor encounters circumstances that may indicate that there is a material misstatement in the financial statements resulting from fraud or error, the auditor should inform regulatory bodies

Question 9.
Concerning fraud, the auditor’s current position is that:
(a) the auditor is responsible for obtaining reasonable assurance that the financial statements are free from material statement, whether caused by fraud or error
(b) when fraud is discovered by the auditor, they must report it in their audit opinion
(c) fraud detection is the objective of an audit
(d) the auditor can take no responsibility for fraud
Answer:
(a) the auditor is responsible for obtaining reasonable assurance that the financial statements are free from material statement, whether caused by fraud or error

Question 10.
Fraudulent financial reporting involves
(a) Management override of controls that otherwise may appear to be operating effectively
(b) Causing an entity to pay for goods and services not received
(c) Stealing physical assets or intellectual property
(d) Using an entity’s assets for personal use
Answer:
(a) Management override of controls that otherwise may appear to be operating effectively

Fraud and Responsibilities of the Auditor in this Regard – CA Inter Audit MCQ

Question 11.
Misappropriation of assets involves the theft of an entity’s assets and is often perpetrated by employees in relatively small and immaterial amounts. Misappropriation of assets can be accomplished in a variety of ways. Which of the following is not an example of misappropriation of assets?
(a) Misappropriating collections on accounts receivable or diverting receipts in respect of written-off accounts to personal bank accounts
(b) Inappropriately adjusting assumptions and changing judgments used to estimate account balances
(c) Stealing inventory for personal use or for sale, stealing scrap for resale, colluding with a competitor by disclosing technological data in return for payment
(d) Payments to fictitious vendors, kickbacks paid by vendors to the entity’s purchasing agents in return for inflating prices, payments to fictitious employees
Answer:
(b) Inappropriately adjusting assumptions and changing judgments used to estimate account balances

Question 12.
If, as a result of a misstatement resulting from fraud or suspected fraud, the auditor encounters exceptional circumstances that bring into question the auditor’s ability to continue performing the audit, the auditor shall:
(a) consider the nature of modifications to be made in the audit report
(b) consider whether it is appropriate to withdraw from the engagement, where withdrawal from the engagement is legally permitted
(c) communicate his inability to continue the audit to Central Government
(d) none of the above
Answer:
(b) consider whether it is appropriate to withdraw from the engagement, where withdrawal from the engagement is legally permitted

Question 13.
Cloud Ltd. appointed an auditor for the financial year 2018-19. While going through the audit procedure, the auditor observed that the management has entered into certain transactions which are irregular in nature and the management is personally benefited from such transactions
(a) Auditor should consider the requirements of SA 240 and recognize the possibility that a material misstatement due to fraud could exist
(b) Auditor should consider the requirements of Section 143(12) of Companies Act, 2013 as to reporting of fraud to the Central Government
(c) Auditor should consider the requirements of Para 3(x) of CARO, 2016 as to reporting of fraud
(d) All of the above
Answer:
(d) All of the above

Question 14.
While conducting statutory Audit of ABC Ltd., you come across “I Owe You” amounting to ₹ 2 crores as against a cash balance shown in books of ₹ 2.10 crores. You also observe that despite similar high balances throughout the year, small amounts of ₹ 50,000 are withdrawn from the bank to meet day-to-day expenses
(a) Auditor should consider the requirements of SA 240 and recognize the possibility that a material misstatement due to fraud could exist
(b) Auditor should carry out surprise verification of cash more frequently to ascertain whether it agrees as per the requirements of Guidance Note on Audit of Cash and Bank balances
(c) Both (a) and (b)
(d) Either (a) or (b)
Answer:
(c) Both (a) and (b)

Question 15.
M/s Honest Limited has entered into a transaction on 5th March, 2018, near year-end, whereby it has agreed to pay ₹ 5 lakhs p.m. to Mr. Y as annual retainer-ship fee for “engineering consultation”. No amount was actually paid, but ₹ 60 lakhs is provided in books of account as on March 31, 2018. Your inquiry elicits a response that need-based consultation was obtained round the year, but there is no documentary or other evidence of receipt of the service. As the auditor of M/s Honest Limited, what would be your approach?
(a) Auditor should consider the requirements of SA 240 and recognize the possibility that a material misstatement due to fraud could exist
(b) Auditor should consider the requirements of Section 143(12) of Companies Act, 2013 as to reporting of fraud to the Central Government
(c) Auditor should consider the requirements of Para 3(x) of CARO, 2016 as to reporting of fraud
(d) All of the above
Answer:
(d) All of the above

Question 16.
As per Sec. 143(12) of Companies Act, 2013, if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed. The amount prescribed for this purpose is
(a) Individually ₹ 1 Cr. or above
(b) Individually above ₹ 1 Cr.
(c) ₹ 1 Cr. or above in aggregate
(d) above ₹ 1 Cr. in aggregate
Answer:
(a) Individually ₹ 1 Cr. or above

Question 17.
Reporting of fraud to Central Government re quired under Section 143(12) of Companies Act, 2013 read with Rule 13 of Companies (Audit & Auditor’s) Rules, 2014 shall be in the form of a statement as specified in and sent to
(a) Form ADT-3; Secretary, Institute of Chartered Accountants of India
(b) Form ADT-4; Secretary, Ministry of Corporate Affairs
(c) Form ADT-4; Secretary, Ministry of Law and Justice
(d) Form ADT-3; Secretary, Indian Institute of Corporate Affairs
Answer:
(b) Form ADT-4; Secretary, Ministry of Corporate Affairs

Fraud and Responsibilities of the Auditor in this Regard – CA Inter Audit MCQ

Question 18.
As per Sec. 143(15) of Companies Act, 2013, if any auditor, cost accountant or company secretary in practice do not comply with the provisions of Sec. 143(12), he shall be punishable with fine which shall not be less than but which may extend to
(a) ₹ 1 lac; ₹ 25 Lacs
(b) ₹ 5 lacs; ₹ 25 Lacs
(c) ₹ 1 lac; ₹ 5 Lacs
(d) ₹ 1 lac; ₹ 10 Lacs
Answer:
(a) ₹ 1 lac; ₹ 25 Lacs

Question 19.
Report u/s 143(12) with respect to fraud shall be sent to
(a) Registrar of Companies
(b) Company Law Board
(c) Secretary, Ministry of Home affairs
(d) None of the above
Answer:
(d) None of the above

Question 20.
As per Sec. 143(12) of Companies Act, 2013, if an auditor of a company in the course of the perfor-mance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or j amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed. The amount so prescribed is
(a) ₹ 1 Cr. or above, individually as per Rule 13 of Companies (Audit and Auditor’s) Rules, 2014
(b) ₹ 1 Cr. or above, in aggregate as per Rule 13 of Companies (Audit and Auditor’s) Rules, 2014
(c) ₹ 1 Cr. or above, individually as per Rule 13 of Companies (Accounts) Rules, 2014
(d) ₹ 1 Cr. or above, in aggregate as per Rule 13 of Companies (Accounts) Rules, 2014
Answer:
(a) ₹ 1 Cr. or above, individually as per Rule 13 of Companies (Audit and Auditor’s) Rules, 2014

Question 21.
Which of the following is an example of inflating cash payments?
(a) Making payments against purchase vouchers.
(b) Teeming and lading.
(c) Not accounting for cash sales fully.
(d) Making payments against inflated vouchers.
Answer:
(d) Making payments against inflated vouchers.

Question 22.
The type of errors, existence of which becomes apparent in the process of compilation of accounts is known as
(a) Self-revealing errors.
(b) Intentional errors.
(c) Concealed errors.
(d) Unconcealed errors.
Answer:
(a) Self-revealing errors.

Question 23.
The standard that requires auditors to analyse journal entries in an audit is?
(a) SA 260
(b) SA 230
(c) SA 315
(d) SA 240
Answer:
(d) SA 240

Fraud and Responsibilities of the Auditor in this Regard – CA Inter Audit MCQ

Question 24.
If, as a result of a misstatement resulting from fraud, the auditor encounters exceptional circumstances that bring into question his ability to continue performing the audit, he shall-
(a) Withdraw from the engagement immediately.
(b) Report to Audit team regarding withdrawal.
(c) Determine the professional and legal responsibilities applicable in the circumstances.
(d) Ask the management for his withdrawal.
Answer:
(c) Determine the professional and legal responsibilities applicable in the circumstances.

Risk Assessment and Internal Control – CA Inter Audit MCQ

Students should practice these Risk Assessment and Internal Control – CA Inter Audit MCQ based on the latest syllabus.

Risk Assessment and Internal Control – CA Inter Audit MCQ

Question 1.
The risk that a misstatement that could occur in an assertion about a class of transaction, account balance or disclosure and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity’s internal control is known as:
(a) Inherent Risk
(b) Control Risk
(c) Risk of Material Misstatement
(d) Detection Risk
Answer:
(b) Control Risk

Question 2.
Risk arises to inherent limitations of control is known as:
(a) Inherent Risk
(b) Control Risk
(c) Risk of Material Misstatements
(d) Detection Risk
Answer:
(b) Control Risk

Question 3.
Risks of material misstatement at the overall financial statement level refer to risks of material misstatement
(a) that relate pervasively to the financial statements as a whole and potentially affect many assertions
(b) are assessed in order to determine the NTE of fur-ther audit procedures necessary to obtain sufficient appropriate audit evidence
(c) that material misstatement will not be prevented or detected and corrected on a timely basis by the internal control system
(d) both (a) and (b)
Answer:
(a) that relate pervasively to the financial statements as a whole and potentially affect many assertions

Risk Assessment and Internal Control – CA Inter Audit MCQ

Question 4.
When inherent and control risks are high, acceptable detection risk needs to be
(a) low to reduce audit risk to an acceptably high level
(b) high to reduce audit risk to an acceptably high level
(c) low to reduce audit risk to an acceptably low level
(d) high to reduce audit risk to an acceptably low level
Answer:
(c) low to reduce audit risk to an acceptably low level

Question 5.
Which of the following statement is correct?
(a) SA 315 has a purpose to establish standards to form procedures to be followed to have an understanding of the entity and its environment
(b) Risk of material misstatement may be defined as the risk that the financial statements are materially misstated subsequent to audit.
(c) Internal control can provide absolute assurance
(d) Inherent and Control Risk, and detection risk have same meaning
Answer:
(a) SA 315 has a purpose to establish standards to form procedures to be followed to have an understanding of the entity and its environment

Question 6.
Which of the following is not a component of Risk Assessment Procedures?
(a) Inquiries of management, and of others within the entity
(b) Analytical procedures
(c) Observation and inspection
(d) Reperformance
Answer:
(d) Reperformance

Question 7.
Risk arises on account of judgment on part of auditor, test nature of audit and nature of audit evidences collected:
(a) Inherent Risk
(b) Control Risk
(c) Risk of Material Misstatements
(d) Detection Risk
Answer:
(d) Detection Risk

Question 8.
Procedures performed to obtain an understanding of the entity and its environment, including the entity’s internal control, to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and assertion levels are known as:
(a) Risk Assessment procedures
(b) Compliance procedures
(c) Substantive procedure
(d) Substantive Analytical procedures
Answer:
(a) Risk Assessment procedures

Risk Assessment and Internal Control – CA Inter Audit MCQ

Question 9.
Components of risk of material misstatement at the assertion level are:
(a) Inherent risk and detection risk
(b) inherent risk and control risk
(c) Control risk and detection risk
(d) Inherent risk, control risk and detection risk
Answer:
(b) inherent risk and control risk

Question 10.
Audit risk is a function of the
(a) Risks of material misstatement and detection risk.
(b) Audit risk and detection risk.
(c) Control risk and detection risk.
(d) Inherent risk and detection risk
Answer:
(a) Risks of material misstatement and detection risk.

Question 11.
Risk of material misstatement may be defined as the risk that the financial statements are materially misstated _________
(a) after audit,
(b) during audit.
(c) prior to audit.
(d) All of the above
Answer:
(c) prior to audit.

Question 12.
The assessment of risks is a matter
(a) capable of precise measurement rather than matter of professional judgment,
(b) of professional judgment, rather than a matter capable of precise measurement.
(c) of professional judgment as well as capable of precise measurement sometimes.
(d) none of the above
Answer:
(b) of professional judgment, rather than a matter capable of precise measurement.

Question 13.
Which of the following is not an assertion about presentation and disclosure?
(a) Occurrence and rights and obligations
(b) Completeness
(c) Classification and understandability
(d) Existence
Answer:
(d) Existence

Question 14.
Which of the following Assertion is not related to assertion about presentation and disclosure:
(a) Occurrence and rights and obligations
(b) Completeness
(c) Classification and understandability
(d) Valuation and allocation
Answer:
(d) Valuation and allocation

Question 15.
Assertions used by the auditor to consider the different types of potential misstatements in relation to transactions occurred during the year include:
(a) Occurrence, completeness, accuracy and cut-off
(b) Existence, completeness, valuation and allocation
(c) Occurrence, completeness, understandability and classification
(d) Valuation, measurement, rights and obligations.
Answer:
(a) Occurrence, completeness, accuracy and cut-off

Question 16.
AH of the following are components of internal control except:
(a) Management Reports
(b) Risk Assessment Process
(c) Monitoring
(d) The Information System
Answer:
(a) Management Reports

Risk Assessment and Internal Control – CA Inter Audit MCQ

Question 17.
Implementation of a control means that the control exists and that:
(a) all necessary personnel are trained to operate the control
(b) the entity is using it
(c) the control was properly designed
(d) the control is documented
Answer:
(b) the entity is using it

Question 18.
Process to assess the effectiveness of internal control performance over time is known as:
(a) Entity risk assessment process
(b) Risk assessment process of statutory auditor
(c) Control activities relevant to audit
(d) Monitoring of controls
Answer:
(d) Monitoring of controls

Question 19.
Policies and procedures that help ensure that management directives are carried out are known as:
(a) Control Environment
(b) Entity risk assessment process
(c) Information System
(d) Control activities relevant to audit
Answer:
(d) Control activities relevant to audit

Question 20.
Which of the following is not a component of internal control system?
(a) Control Environment
(b) Risk assessment process of statutory auditor
(c) Information System
(d) Control activities relevant to audit
Answer:
(b) Risk assessment process of statutory auditor

Question 21.
A graphic presentation of internal controls in the organisation and is normally drawn up to show the controls in each section or sub-section is known as:
(a) Narrative Records
(b) Check List
(c) Internal Control Questionnaire
(d) Flowchart
Answer:
(d) Flowchart

Question 22.
A series of instructions and/or questions which a member of the auditing staff must follow and/or answer, is known as:
(a) Narrative Records
(b) Check List
(c) Internal Control Questionnaire
(d) Flowchart
Answer:
(b) Check List

Question 23.
The auditor’s primary consideration is whether, and how, a specific control prevents, or detects and corrects, material misstatements:
(a) in classes of transactions
(b) in account balances
(c) in disclosures
(d) in classes of transactions, account balances or disclosures
Answer:
(d) in classes of transactions, account balances or disclosures

Question 24.
All of the following are sub-systems (contents) of an entity’s information system except:
(a) Computer systems software
(b) Production system
(c) Personnel information
(d) Customer and vendor records
Answer:
(c) Personnel information

Question 25.
Key components to assess and evaluate the control environment includes:
(a) Enterprise Risk management
(b) SegregationofjobresponsibilitiesandjobRotation in Sensitive Areas
(c) IT Based Controls
(d) All of the above
Answer:
(d) All of the above

Question 26.
Which of the following makes for an effective control environment with regards to commitment to competence?
(a) assure independence from management
(b) increase interaction between senior management and operating management
(c) reduce pressure to meet unrealistic performance targets
(d) its culture is one in which quality and competence are openly valued
Answer:
(d) its culture is one in which quality and competence are openly valued

Risk Assessment and Internal Control – CA Inter Audit MCQ

Question 27.
New life Hospital is a multi-specialty hospital which has been facing a lot of pilferage and troubles regardingtheir inventory maintenance and control.
On investigation into the matter it was found that the person in charge of inventory inflow and outflow from the store house is also responsible for purchases and maintaining inventory records. According to you, which basic system control has been violated
(a) Internal Audit
(b) Internal Check
(c) Monitoring
(d) Risk assessment
Answer:
(b) Internal Check

Question 28.
Because the assessment of the risk of material misstatement takes account of internal control,
(a) The extent of substantive procedures may need to be increased irrespective of the results from tests of controls.
(b) The extent of substantive procedures may need to be increased when the results from tests of controls are satisfactory.
(c) The extent of substantive procedures may need to be decreased when the results from tests of controls are unsatisfactory.
(d) The extent of substantive procedures may need to be increased when the results from tests of controls are unsatisfactory
Answer:
(d) The extent of substantive procedures may need to be increased when the results from tests of controls are unsatisfactory

Question 29.
When deviations from controls upon which the auditor intends to rely are detected,
(a) The auditor shall not make any inquiries to understand these matters and their potential consequences
(b) The auditor shall make specific inquiries to understand these matters and their potential consequences
(c) The auditor shall make general inquiries to understand these matters and their potential consequences
(d) The auditor shall make both general as well as specific inquiries to understand these matters and their potential consequences
Answer:
(b) The auditor shall make specific inquiries to understand these matters and their potential consequences

Question 30.
When more persuasive audit evidence is needed regarding the effectiveness of a control,
(a) It may be appropriate to increase the extent of testing of the control and reduce the extent of the degree of reliance on controls
(b) It may be appropriate to decrease the extent of testing of the control as well as the degree of reliance on controls
(c) It may be appropriate to decrease the extent of testing of the control and increase the extent of the degree of reliance on controls
(d) It may be appropriate to increase the extent of testing of the control as well as the degree of reliance on controls
Answer:
(d) It may be appropriate to increase the extent of testing of the control as well as the degree of reliance on controls

Question 31.
An independent management function, which involves a continuous and critical appraisal of the functioning of an entity with a view to suggest improvements thereto and add value to and strengthen the overall governance mechanism of the entity is known as:
(a) Internal Control
(b) Internal Audit
(c) Internal Check
(d) Risk assessment process
Answer:
(b) Internal Audit

Question 32.
Which of the below mentioned standard prescribes the auditors requirements while using the work of internal auditors:
(a) SA 299
(b) SA 600
(c) SA 610
(d) SA 620
Answer:
(c) SA 610

Question 33.
Internal Auditor shall be
(a) a practicing chartered accountant
(b) a practicing cost accountant.
(c) an employee of the company
(d) either be a chartered accountant (whether in Practice or not) or a cost accountant, or such other professional as may be decided by the Board
Answer:
(d) either be a chartered accountant (whether in Practice or not) or a cost accountant, or such other professional as may be decided by the Board

Question 34.
Which of the following company is required to have internal audit system as per Sec. 138 of Companies Act, 2013:
(a) Unlisted public company having paid up equity share capital of 50 crore rupees or more during the preceding financial year.
(b) Unlisted public company having paid up equity share capital of 50 crore rupees or more during the current financial year.
(c) Unlisted public company having paid up share capital of 50 crore rupees or more during the preceding financial year.
(d) Unlisted public company having paid up share capital of 50 crore rupees or more during the current financial year.
Answer:
(c) Unlisted public company having paid up share capital of 50 crore rupees or more during the preceding financial year.

Risk Assessment and Internal Control – CA Inter Audit MCQ

Question 35.
The objectives and scope of internal audit functions typically include designed to evaluate and improve the effectiveness of the entity’s governance processes, risk management and internal control
(a) assurance activities only
(b) consulting activities only
(c) assurance and consulting activities
(d) risk management activities
Answer:
(c) assurance and consulting activities

Question 36.
Scope of Internal Audit is:
(a) restricted to financial statements
(b) not restricted to financial statements, but also extends to the task review of all operations of the enterprise
(c) not restricted to financial statements, but also ex-tends to take upon the function of the operational manager
(d) not restricted to financial statements, but also ex-tends to statutory reporting under Section 143(3) of Companies Act, 2013
Answer:
(b) not restricted to financial statements, but also extends to the task review of all operations of the enterprise

Question 37.
Which ofthe following public unlisted companies, required to appoint an internal auditor?
(a) Companies having paid up equity capital and re-serves of ₹ 50 cr. or above during the preceding financial year
(b) Companies having turnover of ₹ 200 cr. or more during the current financial year
(c) Companies having outstandingloans or borrowings from banks, financial institutions and directors exceeding ? 100 Cr. or more at any point of time during the preceding financial year
(d) None of the above
Answer:
(d) None of the above

Question 38.
Which of the following private companies, required to appoint an internal auditor?
(a) Companies having paid up capital ₹ 50 cr. or above during the preceding financial year
(b) Companies having turnover of ₹ 200 cr. or more during the preceding financial year
(c) Companies having outstanding loans or borrowings from banks, financial institutions and directors exceeding ₹ 100 Cr. or more at any point of time during the preceding financial year
(d) Both (b) and (c)
Answer:
(b) Companies having turnover of ₹ 200 cr. or more during the preceding financial year

Question 39.
Which ofthe following companies is notrequired to appoint an internal auditor?
(a) Public companies having its securities listed on Main Board of Stock Exchange
(b) Public companies having its securities listed on ITP
(c) Unlisted Public companies having paid up share capital of ₹ 50 crores or above during the preceding financial year
(d) Private companies having paid up share capital of ₹ 50 crores or above during the preceding financial year
Answer:
(d) Private companies having paid up share capital of ₹ 50 crores or above during the preceding financial year

Question 40.
Which of the following companies is required to appoint an internal auditor?
(a) Private companies having paid up share capital of ₹ 40 crores during the preceding financial year
(b) Private companies having turnover of ₹ 120 cr. during the preceding financial year
(c) Private companies having outstanding loans or borrowings from banks or financial institutions was ₹ 105 Cr. attheend of preceding financial year.
(d) None of the above
Answer:
(c) Private companies having outstanding loans or borrowings from banks or financial institutions was ₹ 105 Cr. attheend of preceding financial year.

Question 41.
When more persuasive audit evidence is needed regarding the effectiveness of a control,
(a) it may be appropriate to increase the extent of testing of the control and reduce the extent of the degree of reliance on controls.
(b) it maybe appropriate to decrease the extent of testing of the control as well as the degree of reliance on controls.
(c) it may be appropriate to decrease the extent of testing of the control and increase the extent of the degree of reliance on controls.
(d) it may be appropriate to increase the extent of testing of the control as well as the degree of reliance on controls.
Answer:
(d) it may be appropriate to increase the extent of testing of the control as well as the degree of reliance on controls.

Question 42.
When deviations from controls upon which the auditor intends to rely are detected,
(a) the auditor shall not make any inquiries to under-stand these matters and their potential consequences
(b) the auditor shall make specific inquiries to under-stand these matters and their potential consequences
(c) the auditor shall make general inquiries to under-stand these matters and their potential consequences
(d) the auditor shall make both general as well as specific inquiries to understand these matters and their potential consequences
Answer:
(b) the auditor shall make specific inquiries to under-stand these matters and their potential consequences

Risk Assessment and Internal Control – CA Inter Audit MCQ

Question 43.
Risk of material misstatement may be defined as the risk
(a) that the financial statements are materially mis-stated after audit.
(b) that the financial statements are materially mis-stated during audit.
(c) that the financial statements are materially mis-stated prior to audit.
(d) All of the above
Answer:
(c) that the financial statements are materially mis-stated prior to audit.

Question 44.
The assessment of the risks of material misstatement may be expressed in
(a) quantitative terms, such as in percentages, or in non-quantitative terms.
(b) quantitative terms, such as in percentages,
(c) non-quantitative terms.
(d) none of the above
Answer:
(a) quantitative terms, such as in percentages, or in non-quantitative terms.

Question 45.
SA 315 establishes requirements and provides guidance on identifying and assessing the risks of material misstatement
(a) at the financial statement levels only.
(b) at the assertion levels only.
(c) at the financial statement and assertion levels.
(d) at the financial statement or assertion levels.
Answer:
(c) at the financial statement and assertion levels.

Question 46.
SA 315 establishes requirements and provides guidance on identifying and assessing the risks of material misstatement
(a) at the financial statement levels only.
(b) at the assertion levels only.
(c) at the financial statement and assertion levels.
(d) at the financial statement or assertion levels.
Answer:
(c) at the financial statement and assertion levels.

Question 47.
The risks of material misstatement at the assertion level consist of two components:
(a) Inherent risk and detection risk
(b) Control risk and detection risk
(c) Audit risk and detection risk
(d) Inherent risk and control risk
Answer:
(d) Inherent risk and control risk

Question 48.
The Guidance Note on Audit of Internal Financial Controls over Financial Reporting has been issued by?
(a) ICAI
(b) SEBI
(c) MCA
(d) RBI
Answer:
(a) ICAI

Question 49.
Audit risk is a function of the
(a) risks of material misstatement and detection risk.
(b) audit risk and detection risk.
(c) control risk and detection risk.
(d) inherent risk and detection risk.
Answer:
(a) risks of material misstatement and detection risk.

Risk Assessment and Internal Control – CA Inter Audit MCQ

Question 50.
Risk of material misstatement may be defined as the risk
(a) that the financial statements are materially mis-stated after audit.
(b) that the financial statements are materially mis-stated during audit.
(c) that the financial statements are materially mis-stated prior to audit.
(d) All of the above
Answer:
(c) that the financial statements are materially mis-stated prior to audit.

Jharkhand Gramin Bank Personal Loan @ 9.99% | Different Types of Personal Loan, How To Apply and Verification Process

Jharkhand Gramin Bank Personal Loan @ 9.99% | Different Types of Personal Loan, How To Apply and Verification Process

Jharkhand Gramin Bank Personal Loan: Jharkhand Rajya Gramin Bank is a Regional Rural Bank established on 1st April 2019 with the amalgamation of the erstwhile Vananchal Gramin Bank and former Jharkhand Gramin Bank under the Act 1976.

It is under the courtship of the Ministry of Finance, Government of India. This Bank is sponsored by the State Bank of India & is owned jointly by the Government of India, Government of Jharkhand, and State Bank of India.

The Bank operates in all 24 districts of Jharkhand State, with its Head Office at Ranchi (sub-capital of Jharkhand State). This specific article focuses on Jharkhand Gramin Bank loan interest, Gramin Bank Personal Loan rate, and also sheds light on Gramin Bank’s steps for Mudra loan.

Curious to check other banks’ offered Personal loan features, eligibility, interest rates, tax benefits, and a repayment plan. Go with our one-stop Personal Loan Page & swipe out your doubts within no time.

Jharkhand Gramin Bank

Different Personal Loan offered by Jharkhand Gramin Bank

Different Personal Loan offered by Jharkhand Gramin Bank are:

  • Doctor Loan: Jharkhand Gramin Bank offers particular personal loans to any doctor. Doctors can always avail of a personal loan starting at the age of 25 years instead of 28 years for other self-employed professionals, and the business stability for doctors should be only for three years.
  • Doctors may avail of this loan as a way out of their financial problems or emergencies.
  • Marriage Loan: Jharkhand Gramin Bank offers Personal Loans for Marriages to people who require to pay for wedding-related expenses. This personal loan for marriage can be utilised for anything and assists you in funding a wedding without burdening your financial condition. The loan, can be dispensed on the same day.
  • Loan for Government Employees: Jharkhand Gramin Bank Personal Loan for all kinds of Government Employees is beneficial for people working in government agencies and is offered at low-interest rates, starting at just 9.99% per annum.

You can avail any of these said loans with other special offers and also followed by a quick disbursal. The Bank does not at all charge any processing fees if the Defence Personnel benefits from a loan. This loan can be also applied for online through the Dialabank or in person by visiting the nearest bank branch.

Loan for Pensioners

The Jharkhand Gramin Bank, Personal Loan for Pensioners, can be availed of by retired Central Government, State Government, and Defence Forces employees. The Bank offers a plethora of attractive features when it comes to any Personal Loan for Pensioners like:

  • Minimum Pension Amount of Rs. 25000
  • 50% of extra income (Fixed Deposit interest rental income, and much more) can be counted as an Actual Income Low-interest rate
  • Tenure starting from twelve months

Personal Loan Balance Transfer

Personal Loan Balance Transfer refers to a specified process where one’s shifts the entire outstanding personal loan amount from one specified lending institution to another.

You can employ of this option if the repayment in the recent personal loan terms is burdensome for you and the other lender is charging you lower interest rates and offering some additional features. To transfer your loan balance, you will have to pay the fore-closure fee to the lender and the processing fees to the new lender.

This process of balance transfer with Jharkhand Gramin Bank is straightforward.

Loan Top Up

You can avail of the personal loan top-up facility from Jharkhand Gramin Bank to borrow an additional loan amount after the tenure ends. You can easily apply the top-up facility if you are regular in your EMI Payment.

Jharkhand Gramin Bank You can also avail of a personal loan top-up with a quick disbursal and no charges for collateral requirement for the maximum amount equating to the original loan’s amount.

Types of Jharkhand Gramin Bank Personal Loan

Home renovation loan

The Jharkhand Gramin Bank offers a separate home redesign credit for people who want to get their homes repaired. This individual credit can assist necessary fixes or aid the candidates in getting new fittings, installations, and other furniture for their home.

Some vital highlights of the Jharkhand Gramin Bank Home Renovation Loan are as follow:

  • The financing cost for Home Renovation Loan in Jharkhand Gramin Bank begins at as low as about 11.25%.
  • People might be qualified for any advance sum up to Rs. 20 Lakh to get their home remodelled.
  • The advance sum usually gets credited into the record within just 72 hours after the Bank favors the user’s application.

Holiday Loan

The Holiday Loan of the Jharkhand Gramin Bank can assist you in designing your fantasy get-away with any minor issue.

This individual advance from the Jharkhand Gramin Bank can support a scope of excursion-related amounts, inclusive of flight ticket booking, homestay facilities, guided visits, and such others. Key highlights of the Holiday Loan of Jharkhand Gramin Bank are:

  • Financing costs for the Holiday Loans start at just 11.25% per year.
  • You can do profit a measure of up to Rs 20 Lakhs without much of a stretch so that you won’t spoil your fantasy excursion due to a monetary crunch.
  • Streamlined and Minimal documentation promises that financing the chosen get-away is basic and straightforward.
  • Brisk preparation and disbursal of advance, which is attributed efficiently to your record.

Fresher Funding

A crucial part of unstable individual credits is concentrated on people with customary pay anyway. Jharkhand Gramin Bank’s Fresher Funding is extraordinary.

Some vital highlights of the Jharkhand Gramin Bank Fresher Funding individual credit are the following:

  • Credit sums up to Rs 1.5 lakhs.
  • The candidate by all means should be 21 years of age.
  • The pace of interest for Fresher Funding depends upon the profile of the candidate, their financial record, age, and the area of the candidate.

NRI Personal Loan

Understanding these necessities and dreams of NRIs, Jharkhand Gramin Bank offers any individual advance explicitly for NRIs.

The essential advanced candidates must be an Indian inhabitant, and the

co-candidate NRI must be a nearby or blood-related family member. Particular Loan for NRIs incorporate the accompanying highlights as stated below:

  • NRIs individual advances up to Rs. 10 lakhs with an adaptable end-use.
  • The financing costs and additional charges for NRI Personal Loan starts at 15.49% er year.
  • The credit includes a residence of as long as three years.

The Personal Loan Verification Process

The following are essential strides of the individual credit check after online convenience of one’s advance application with the Bank.

  • Step 1: This will advance your advance application to your picked Bank, and within 48 hours, you will get a call from the moneylender’s agent.
  • Step 2: The imminent loan specialist schedules a pickup of your KYC, pay, and henceforth reports or gives a choice to transfer them on the web. We will utilize these reports to confirm your application.
  • Step 3: When the moneylender’s check is finished and advance is recommended, you will get another call to verify the credit offer and request your disbursal.
  • Step 4: After credit endorsement and fruitful check, the advance is generally dispensed within 48 hours.

Note: The turnaround time for personal loan verification or disbursal may vary based on the lender’s internal demands and other criteria.

How to apply for a Personal Loan?

You can avail of a personal loan in simple three easy steps:

  1. Visit the website of Dialabank.
  2. Fill in the simple form online, and our representative will call you back.
  3. Share your documents and get fast approval.
Business Meetings – CA Foundation BCR Notes

Business Meetings – CA Foundation BCR Notes

Browsing through Business Meetings – CA Foundation BCR Notes Pdf help students to revise the complete subject quickly.

Business Meetings – BCR Notes CA Foundation

A business meeting is a formal gathering of business people for discussing and deciding some business matters. In business organisations many important decisions are taken in meetings. Business meetings take place at all levels of management. At the top level, Board of Directors hold meetings from time to time for taking crucial decisions regarding the company’s business.

At the middle level meetings of heads of departments deliberate upon inter-departmental issues. At the supervisory level, meetings of works committee are held to discuss and decide day to day problems of the factory and so on.

The main steps involved in conducting business meetings are as follows :

  • Sending notice of the meeting
  • Attaching agenda with the notice
  • Ascertaining the quorum for the meeting
  • Moving motions in the meetings
  • Voting, poll and proxy
  • Passing resolutions
  • Recording minutes of the meeting.

Types of Meetings:
In a public limited company the following types of meetings are held:
1. Meeting of Board of Directors : Board of Directors is the highest organ of management. Meetings of the Board are held from time to time to take important decisions about the company’s affairs. New issues of shares and debentures, acquisition of some other firms, approval and adoption of half yearly accounts, declaration of dividend are some examples of issues which are decided in such meetings.

2. Statutory Meeting: This is the first meeting of’the members after the in-cooperation of the company. Its purpose is to acquaint the members with the company’s affairs. A statutory report is sent along with the notice of the statutory meeting. At this meeting, the members can discuss matters relating to the formation of the company.

3. Annual General Meeting : Every company is required to hold every year a general meeting of its members. This provides them an opportunity to discuss the working and affairs of the company.

4. Extraordinary General Meeting : It is a meeting held between two annual general meetings. An extraordinary general meeting is called to consider an urgent and important matter, the consideration of which cannot be postponed to the next annual general meeting. For example, the management of the company may convene an extraordinary general meeting for obtaining the approval of members for sub-division of the company’s share of ₹ 10 each into 5 shares of ₹ 2 each.

5. Class Meetings: Meetings of preference shareholders or of debenture-holders may be held to transact some business concerning them.

Command Meeting Committee Meeting
Meeting between Managers and subordinates. Is a group appointed by parent organisation comprising of experts for decisions making.
Manager alone is responsible for decision making- Autocratic. Systematic and logical steps which involves all members in the decision making process – participative.
Main objective of the manager is to share information, state, policies or give directions. Objectives could vary advisory/problem solving/ decision making etc.

Business Meetings – CA Foundation BCR Notes

Notice:
A proper notice of the forthcoming meeting must be sent to every person entitled to attend and vote at the meeting. It is a statutory requirement to issue a notice. A meeting is not properly convened unless notice of the meeting is sent. The notice must be in writing and it must be given sufficiently in advance. In case of company meetings, the notice must be sent 21 days before the date of the meeting.

The notice of a meeting must specify :

  • The date, time and place of the meeting
  • The name of the company
  • The nature, purpose and type of meeting
  • The authority by which notice is issued
  • The name and signature of the person issuing the notice
  • The matters to be discussed at the meeting, in serial order (unless separate agenda is sent)
  • In the case of special business an explanatory statement
  • The exact wording of any proposed resolutions
  • The date of issue of the notice
  • Any enclosures required to be sent with the notice.

A notice is a piece of formal communication. It should be simple, brief and clear.
1. Notice of Board Meeting: A notice of every meeting of the Board of Directors must be given in writing to every director at his/her usual address. The notice is prepared by the company secretary in consultation with the chairman.
Example 1 : Notice of a Board Meeting

ABC LIMITED
21, Bhikaji Cama Place,
New Delhi – 110 056
Notice

A meeting of the Board of Directors of the company will be held on May 10,2007 at 4 p.m. at the Registered office of the company at 21, Bhikaji Cain a Place, New Delhi to consider, approve and to take on record the unaudited quarterly financial results for the period ended June 30,2007. Kindly make it convenient to attend.
For and on behalf of the Board of Directors.
B.P. Sharma
Company Secretary
New Delhi
19th April, 2007

2. Notice of annual general meeting: A notice of at least 21 days must be given for the annual general meeting. The notice must state the date, time and place of the meeting. It must specify that a member entitled to attend and vote at the meeting can appoint a proxy. Copies of Annual Accounts, Directors’ Report and Auditors’ Report are sent along with the notice.

Example 2 : A Notice of Annual General Meeting

ABC Limited
21, Bhikaji Cama Place
New Delhi – 110 056
Notice

Notice is hereby given that the Twenty first Annual General Meeting of the company will be held on September 11,2007 at 11 a.m. at Air Force Auditorium, Subroto Park, New Delhi. Copy of the agenda and proxy form is attached herewith.
By order of the Board.
B.P. Sharma
Company Secretary
August 10, 2007
Notes:
→ A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote in his place. A proxy need not be a member of the company. The instrument appointing a proxy should however be deposited at the registered office of the company not less than forty eight hours before the commencement of the meeting.

→ The transfer Books and Register of Members will be closed from August 12, 2007 to September 11, 2007.

→ The dividend when declared and sanctioned for payment will be payable on and from lo those share-holders whose names are on the Register of Members on 11th August, 2007.
Notice is hereby given that the 10th Annual General Meeting of the Members of XYZ Ltd. will be held on _______, at the Registered Office of the Company at Plot Nos. 16-18, Bandra Kurla Complex, Mumbai at ___________ a.m. to transact the following business.

Ordinary Business:
→ To receive, consider and adopt the Audited Balance Sheet of the company as on _______ and the Profit & Loss Account for the year ended on that date and Auditor’s and Director’s Reports thereon.

→ To declare dividend for the year ending _______.

→ To appoint a director in place of Mr _______ who retires by rotation and being eligible, offers himself for re-appointment.

→ To appoint Statutory Auditors of the company; and fix their remuneration. ”
Regd. Office:                                                                                    For and on behalf of Board of Directors
Plot No. 16-18,
Bandra Kurla Complex
Mumbai                                                                                           Chairman of the Meeting

Notes:

  • A member entitled to attend and vote is entitled to appoint a proxy to attend and vote instead of himself and the proxy need not be a member of the company.
  • Explanatory statement relating to special business is annexed to this Notice as required under section 173 of the Companies Act, 1956.
  • The Register of members and the Share Transfer Books of the Company will remain closed from ___________ both days inclusive.
  • Members are requested to notify immediately change of address, if any, to company’s Registered Office. While communicating to the company, please quote the folio number.

Shareholders desirous of obtaining any information concerning the accounts and operations of the company are requested to address their questions to the company’s Head office, so as to reach at least 5 days before the date of the meeting so that the information may be made available at the meeting to the best extent possible.

3. Notice of extraordinary general meeting: Notice for an extraordinary general meeting must be given 21 days before the date of the meeting. The notice must specify the date, time and place of the meeting. The purpose of the meeting is also stated in the notice.

Business Meetings – CA Foundation BCR Notes

Example 3 : A Notice of Extraordinary General Meeting

ABC Limited
21, Bhikaji Cama Place
New Delhi – 110 056
Notice

Notice is hereby given that extraordinary general meeting of the company will be held on 10th July 2007 at 10 a.m. at FICCI Auditorium, Tansen Marg. New Delhi to consider and if thought fit to pass the following resolution which will he proposed as a special resolution.
“Resolved that every equity share of ₹ 10 each fully paid-up be sub-divided into five shares of ₹ 2 each.”
By order of the Board
B.R. Sharma
Company Secretary
18th June, 2007

Agenda:
Agenda means a document that outlines the various matters to be discussed at a forthcoming meeting. It consists of a list of ‘things to be done’ at a meeting. It is in the form of a statement specifying the order in which the various matters are to be dealt with. Generally, the routine business is placed prior to the special business. Agenda is prepared and sent for all types of meetings. The Secretary is in change of the agenda. He prepares the agenda in consultation with the Chairman of the company. The agenda is sent along with the notice of the meeting.

The main features of agenda are as follows :

  • It outlines all matters to be discussed in the meeting in a serial order
  • It is fixed before hand
  • It is usually sent along with the notice of the meeting
  • It is customary to mention “any other matter with the permission of the chair” as the last item in the agenda
  • Its main purpose is to set the tone and direction of the meeting.

Five Tips for Efficient Meetings:

  • Don’t meet if the same information could be covered in an e-mail or a brief report.
  • Begin the meeting on time even if a few participants are missing.
  • Be absolutely clear on what the agenda is and follow it.
  • Make it interactive. Don’t dominate the discussion.
  • Bring the meeting to a clear, constructive close.

What goes into an agenda?

  • The purpose and the desired outcome of the meeting.
  • Who the participants are.
  • The date, time and place.
  • The length of the meeting.
  • A list of the topics to be covered.
  • A list starting who will address each topic and for how long.
  • Any background information participants will need to know.

Preparation and despatch of agenda before the meeting is useful in the following ways:

  • It helps the members to come prepared for the meeting
  • It helps the chair person to conduct the meeting in a smooth and efficient manner
  • It ensures that only matters relevant to the meeting are discussed
  • It ensures that every point is properly taken up for discussion
  • It facilitates the preparation of the minutes.

Distinction Between Agenda And Circular:

Basis of Distinction Agenda Circular
1. Purpose To inform about what is to be done in a forth-coming meeting To inform all departments and branches of the organisation
2. Contents A list of items to be taken up in a meeting Information which is of interest and use to all parts of the organisation
3. Target audience The members entitled to attend the meeting Heads of various departments and branches attend the meeting.
4. Time period To be sent usually 21 days before the meeting No specified time period
5. Attachment Usually sent along with notice of the meeting No such attachment

While preparing the agenda, the secretary should keep in mind the following points:

  • The agenda should be precise and clear
  • It should be brief
  • Each item on the agenda should be numbered serially
  • The routine business should be listed before the special business
  • All items of similar nature should be placed in continuous order.

Business Meetings – CA Foundation BCR Notes

Example 4 : Agenda of Board Meeting

ABC Limited
21, Bhikaji Caina Place
New Delhi – 110 056

Agenda of the meeting to be- held on May 10, 2007.

  • To approve and sign the minutes of the last Board Meeting held on….
  • To consider audited Annual Accounts and Directors’.Report to shareholders for the year ended 31st i March, 2007.
  • To recommend dividend.
  • To fix up the dale for concerning the Annual General Meeting and business to be transacted therein.
  • To fix up the period during which Register of Members and the Share Transfer Book will be closed.
  • To consider any other matter with the permission of the chair.
  • To fix date of the next Board Meeting.

By the order of the Board
B.P. Sharma
Company Secretary

Example 5 : Agenda of Statutory Meeting

ABC Limited
21, Bhikaji Cama Place
New Delhi – 110 056

Agenda of the statutory meeting to be held on …………………….

  • To call upon the secretary to read the notice convening the statutory meeting.
  • To draw the attention of the members to the fact that the ‘List of Members’ is open for inspection.
  • To propose that the Statutory Report as circulated be taken as read.
  • To explain to the members that meeting is convened to as per section 165 of the Companies Act, 1956 I so as to afford an opportunity to the members to discuss any matters relating to the formation of the company and arising out of the Statutory Report.
  • The Chairman to refer to matters, if any, relating to formation, progress and financial results and comment upon the financial position as shown in the Statutory Report.
  • Invite discussion and answer the questions.
  • To consider and approve the Statutory Report. By the order of the Board

B.R. Sharma
Company Secretary

Example 6:
Agenda of Annual General Meeting

ABC Limited
21, Bhikaji Cama Place
New Delhi- 110 056

Agenda of the Annual General Meeting to be held at ……………..
On …………… at …………………
1. To read the Annual General Meeting to be held at ………………..

2. The Secretary to read the Auditor’ Report on the Accounts.

3. The Chairman to move that the Directors’ Report and Accounts, as printed and circulated, be taken as read.

4. The Chairman’s speech.

5. The Chairman to propose that the Balance Sheet as at 31 st March, 2007 and the Profit & Loss Account for the year ended on that dale, and the Reports of Directors and Auditors thereon be approved and adopted.

6. The dividend of ₹ 10 per equity share as recommended by the directors be approved and sanctioned for payment.

7. To elect directors in place of those who arc retiring by rotation :

  • To elect a director in place of Shri ………………. who is retiring by rotation and being eligible for re-election offers himself for re-election.
  • To elect a director in place of Shri ………………. who is retiring by rotation and being eligible for re-election offers himself for re-election.

8. To appoint auditors for the next year and fix their remuneration.

9. To lake up any other matter with the permission of the chair. By order of the Board
B.P. Sharma
Company Secretary

Example 7 : Agenda of Extraordinary General Meeting

ABC Limited
21, Bhikaji Carna Place
New Delhi -110 056

Agenda of the Extraordinary General Meeting to be held on …………………
1. The Secretary to read the notice convening the meeting.

2. Splitting up of shares :

  • The Chairman to explain the reason for the proposed splitting up of Equity shares and to move the following resolution as a special resolution – “That the one crore fully paid Equity Shares of ₹ 10 each be, and are hereby split into 5 crore fully paid Equity Shares of ₹ 2 each.”
  • Mr ………………. to second the motion.
  • The Chairman to invite discussion, put the motion to the meeting, take votes if necessary and declare the results.

3. Vote of thanks to the chair. By the order of the Board
B.P. Sharma
Company Secretary

Business Meetings – CA Foundation BCR Notes

Minutes:
Meetings have become an important means of exchanging ideas, discussing problems and issues and arriving at decisions. The decisions and resolutions made at meetings need to be recorded for future reference and actions. A written record of whatever was discussed and decided in a meeting is known as minutes.

Meaning of Minutes:
A minute is defined as ‘a note to preserve the memory’. The term ‘Minutes’ means a permanent written record or brief summary of the proceedings of a committee meeting or assembly. They are an official record of the deliberations of any formal meeting of persons, e.g., Parliament, a Legislative body, a Municipal Council, a Board of Directors or any Committee.

There are several types of meetings where discussions take place and certain decisions are taken. It is often necessary to keep an official record of these meetings. In the case of Parliament or Legislative body, the proceedings are recorded verbatim or in full. But in case of committee meetings only a summary is recorded. The term ‘minutes’ is generally used to refer to a summarised record of committee meetings. Thus, minutes are the official and systematic record of the proceedings of a meeting. They indicate when and where a meeting was held, who chaired the meeting, who were present, what decisions were taken, and so on.

Objectives and Importance of Minutes:
All organisations, whether business or social, consider it necessary to maintain a proper record of the business transacted at their various meetings. Once minutes are approved and signed, they are accepted as an evidence even in the court of law. In case of joint stock companies, it is compulsory to maintain minutes of the proceedings of every meeting of Board of Directors and members.

The main uses of minutes are as follows :

  • Minutes contain a record of the business transacted and decisions taken at a meeting. They serve as a permanent record for future reference.
  • Minutes serve as a reminder of the actions to be taken to implement the decisions arrived at a meeting.
  • In case of joint stock companies, law requires maintenance of minutes. The interested parties are allowed to inspect the minutes.
  • Minutes can be produced as evidence of the proceedings in a Court of Law.
  • Minutes help in the efficient conduct of business. If proper minutes are not kept, the decisions arrived at meetings may be questioned by any member or Auditor and these cannot be proved in a Court of Law.

Distinction Between Minutes and Reports:
Sometimes verbatim (word by word) or summarised reports of the proceedings of meetings are prepared for circulation among members or for sending to the newspapers for publication. It is necessary to distinguish between such reports and minutes, although both record the proceedings of a meeting.

Distinction Between Minutes and Reports:

Basis of Distinction Minutes Reports
1. Starting word A minute begins with the word ‘Resolved’. The word ‘Resolved’ is not written while writing a report.
2. Form Minutes are generally not written in a narrative form. They record date, time and place of the meeting and resolutions passed. Reports are always written in a narrative form giving a historical account of all that was discussed.
3. Details Minutes are summarised record of the proceedings of a meeting. Reports may be verbatim or summarised.
4. Evidence Approved and signed minutes are accepted by the courts as evidence. Reports are not accepted by the courts as evidence.
5. Time of preparation Minutes can be prepared within a reasonable time after the meeting. Reports are prepared just after the meeting.
6. Number Separate minutes have to be prepared for each meeting. A report may include summaries of more than one meeting.
7. Manner of re-cording The exact wording of resolutions adopted at the meeting must be recorded in minutes. A report need not contain exact wording of the decisions arrived at the meeting.

Types of Minutes:
Minutes are of two types –

  • minutes of resolutions
  • minutes of narration.

1. Minutes of Resolutions: In this type of minutes, only the resolutions passed at the meeting are recorded. It always begins with the words “Resolved that” followed by the exact resolution. The discussion which preceded the resolutions is not recorded. Even the movers and seconders of the resolutions are not mentioned. This is the usual form of writing minutes.

2. Minutes of Narration : In this type of minutes, the resolutions passed at the meeting are recorded. In addition, a brief account of the business discussed and transacted and the voting pattern are also recorded. Minutes of narration are somewhat similar to a report.

Minutes of narration generally cover the following :

  • Names of those present at the meeting.
  • Signing of minutes of the previous meeting.
  • Recording of leave of absence.
  • Taking note of reports, plans and financial statements.
  • Tabling of correspondence.
  • Tabling note of notice of interest of directors in contracts.

A minute of narration may also form part of the resolution.

Specimen of A Minute of Resolution:
Resolved that a call of ₹ 5 per share be made upon the Equity Shares (Nos. 1 to 10,00,000) of the company and such call to be payable on 31st July, 2004, to the company’s bankers, State Bank of India, Parliament Street, New Delhi, and that the call letter be issued to the shareholders on 31st May, 2004.

Specimen of A Minute of Narration:

  • The Secretary read the notice convening the meeting.
  • The solicitor to the company, Mr. Maheshwar Dayal, produced the certificate of incorporation No. 12345 dated 7th June, 2004.
  • The consent to act as directors was signed by each of the directors and the secretary was instructed to file the same with the Registrar of Companies.

Specimen of A Minute of Narration Forming Part of Minutes of Resolution:
A letter from Mr. K. Madhavan, the Marketing Manager of the company, dated 11th April, 2004 tendering his resignation was read and it was resolved that the same be accepted as and from 11th April, 2004. Further resolved that the post be advertised in the Times of India and Economic Times. The draft of the advertisement was approved.

Contents of minutes:
Minutes can be written in two ways –

  • tabular form
  • narrative form.

1. Tabular Form: In this type of minutes, only the resolutions passed at the meeting are record¬ed. It always begins with the words “Resolved that” followed by the exact resolution. The discussion which preceded the resolutions is not recorded. Even the movers and seconders of the resolutions are not mentioned. This is the usual form of writing minutes.

2. Narrative Form: In this type of minutes, the resolutions passed at the meeting are recorded. In addition, a brief account of the business discussed and transacted and the voting pattern are also recorded. Minutes of narration are somewhat similar to a report.

Minutes of meetings generally contain the following particulars :

  • The kind of meeting.
  • Date, time and place of the meeting.
  • The name of the person in the chair.
  • Names of directors, secretary and persons in attendance.
  • Reading and confirmation of the minutes of the last meeting and their signing by the Chairman, together with any matters arising from the minutes.
  • Brief subject heading of each minute with the resolutions adopted.
  • Financial statements and reports presented and approved in the meeting. These may be put in the form of Appendix.
  • Appointments made, if any.
  • In the case of special resolution, the number of votes for and against.
  • Names of persons dissenting with any resolution passed at the meeting.
  • Instructions given by the meeting to the Secretary or other officers.
  • Chairman’s signature and date of verification of minutes as correct.

Business Meetings – CA Foundation BCR Notes

Guidelines for Writing Minutes:
Drafting of minutes is largely a matter of skill, judgement and practice. The writer of minutes needs to understand the situation, listen attentively and take notes during the, discussion. Minute is largely standardised and the standard form should be followed as far as possible.

Some hints for writing minutes are given below :
1. Minutes of each meeting should have a heading containing the type of meeting.

2. The date, time and place at which the meeting was held should be mentioned.

3. In the case of the general meetings and board meetings, it is usual to state the number of the meeting.

4. The minutes should contain the names of all those who were present and the capacity in which they were present. But where the attendance is large, the names of persons attending are not stated in the minutes. Only the number of persons who attended the meeting is mentioned. A separate register is kept for signing by each person attending the meeting.

5. Each item in the minutes is numbered and given a brief heading.

6. Each item should be written in the minutes in the same order in which the business was transacted.

7. Minutes should be brief but no important detail should be omitted.

8. Defamatory language, irrelevant points should not be recorded.

9. While writing minutes, no reference should be made to the feelings of the persons present. The tone of the minutes should be impersonal, Le., written in third person.

10. Dates and figures should be clearly and precisely stated in the minutes. If a reference is made to certain letters or reports, their numbers and dates should also be mentioned. This is necessary to. avoid the possibility of ambiguity and misunderstanding.

11. In case of a special resolution passed at the meeting, the number of those in favour and against should be recorded.

12. The secretary should go on taking notes during the meeting. If a clarification is required, it should be immediately sought. The minutes should be written as quickly as possible after the meeting so that no important facts are forgotten.

13. It is advisable for the secretary to show the rough draft of the minutes to the Chairman and get his approval. This will avoid incorrect recording and alternations later on.

14. The language of the minutes should be simple and precise. Simple past tense and passive voice are preferable. Be objective in your recording and use Reported Speech. Be careful while converting Direct Speech to Indirect Speech.

15. Ensure that each item discussed in the meeting has been recorded.

16. Use a separate paragraph for each item.

17. Record full text of motions, if a vote was taken and give exact text of resolutions adopted at the meeting.

Minutes of Statutory Meeting:
A specimen of minutes of statutory meeting is given below:

XYZ Company Limited
Registered Office : 11, Parliament Street, New Delhi

Minutes of the proceedings of the Statutory Meeting of XYZ Company Limited held on …………….. 2004 ………….. at ……………. p.m. at die Registered Office of the Company.
Mr …………….. in the chair
Mr ……………..
Mr ……………..
Mr …………….. directors
Mr …………….. secretary
and …………….. shareholders present as per attendance book.
1. Notice of the meeting: The secretary read the notice convening the meeting.

2. Statutory report: The statutory report dated was taken as read with the consent of the meeting.

3. List of members : The Chairman informed the members that according to the provisions of section 165 of the Companies Act, 1956, the list of members was placed on the table for the inspection of members.

4. Chairman’s address: The chairman then reviewed the activities of the company since formation and referred to the financial position and business prospects. He also invited the members to discuss and ask questions on any matter relating to the formation, financial position and prospects of the company and any other matter arising out the statutory report.

5. Approval of modification of contract: After the questions put by members were satisfactorily answered, a shareholder moved that the modifications in certain contract referred to in the report be approved. Accordingly, it was “Resolved that the modifications in the contracts as stated in the statutory report be, and are hereby, approved”.

6. Adoption of report It was then moved that the statutory report as presented be approved. Accordingly, it was unanimously.
“Resolved that the statutory report be, and is hereby, approved.”

7. Vote of thanks: A vote of thanks to the Chair was proposed and acclaimed by all, the chairman declared the meeting closed.
Place ……………..
Dated ……………..                                    Sd. ……………..                                Sd. ……………..
Secretary                                    Chairman

Minutes of Board Meeting:
A specimen of the minutes of the first meeting of Board of Directors is given below:

XYZ Company Limited
Registered Office : 11, Parliament Street, New Delhi

Minutes of the Board Meeting held at the Company’s Registered Office …………….. on …………….. day of …………….. 2004 …………….. at …………….. A.M./P.M.
Present:
Mr …………….. Chairman
Mr …………….. Managing Director
Mr …………….. Director
Mr …………….. Secretary
In attendance, Mr. …………….., solicitor.
1. Chairman : Upon the directors taking their seats, Mr. …………….. Was requested to take the Chair.

2. Certificate of Incorporation : Mr. …………….. produced the certificate of incorporation of the Company No. …………….. dated …………….. 20 ……………..

3. Chairman : It was unanimously resolved that Mr. …………….. be, and is hereby, elected and appointed Chairman of the Company and of the Board of Directors.

4. Quorum at Board meetings: It was decided that, in accordance with clauses Nos …………….. of the Company’s Articles, the quorum of directors at Board meetings should be three directors.

5. Appointment of Managing Director: It was resolved that Mr. …………….. be, and is, hereby, appointed Managing Director of the Company for a period of five years at a salary of ₹ per month.

6. Appointment of Secretary: It was resolved that Mr …………….. be, and is hereby, appointed secretary of the company at a salary of ₹ per month, the appointment to be determinable upon three months’ notice given by either the Company or the Secretary.

The minutes then record the decisions of the Board and resolutions passed in respect of the following matters:

  • Appointment of bankers, and conferring authority on the person who would sign the cheques.
  • Endorsement of cheques.
  • Signature of bills of exchange.
  • Appointment of auditors.
  • Approval of common seal of the Company and the persons who would hold keys of the locks.
  • Consideration of agreement with vendors.
  • Issue of shares to vendors.
  • Issue of prospectus.
  • Fixation of date of next meeting.

Business Meetings – CA Foundation BCR Notes

Minutes of Annual General Meeting:
A specimen of the minutes of the annual general meeting of a company is given below:

XYZ Company Limited
Registered Office : 11, Parliament Street, New Delhi

Minutes of …………….. Annual General Meeting of the Company held at …………….. on the …………….. day …………….. 20 …………….. at …………….. A.M./P.M.
Present:
Mr. …………….. Chairman
Mr. …………….. Mr. …………….. Secretary
Mr. …………….. Mr. …………….. Auditor
Mr. …………….. Director Mr. …………….. By invitation
and …………….. Shareholders as per attendance book

Subject Proposer and Seconder Details
1. Notice of meeting The secretary read the notice concerning the meeting.
2. Auditor’s report The secretary read the report of the auditors on accounts and balance sheet.
3. Directors’ report and accounts Proposer: Chairman Seconder:
Mr. ……………..(Shareholder)
Directors’ report and accounts previously printed and circulated were taken to be read. Then the chairman addressed the meeting, invited questions and answered them satisfactorily.
Resolved: That the directors’ report and accounts for the year be, and are hereby, approved and adopted.
4. Declaration of dividend Proposer: Chairman Seconder:
Mr. ……………..
(Shareholder)
Resolved that a dividend of ………………. % on Preference Shares and ………………. % on Equity Shares, less income-tax, as recommended by directors be, and is hereby, declared payable to shareholders appearing in Register of Members as on ……………….. 20 ………………
5. Re-election of directors Proposer: Chairman Seconder:
Mr. ……………..(Shareholder)
Resolved that Mr …….., a director, retiring by rotation but eligible for re-election be, and is hereby, re-elected as a director of the company.
6. Appointment of auditors Proposer: Chairman Seconder:
Mr. ……………..
(Shareholder)
Resolved that M/s ………., the retiring auditors be, and are hereby, appointed auditors at a remuneration of ₹ ………………. to hold office until the next annual general meeting.
7. Vote of thanks Proposer: Chairman Seconder:
Mr. ……………..
(Shareholder)
A vote of thanks was unanimously accorded to the Chairman and other directors.
Chairman …………. Dated …………

1. Notice: The secretary read the notice convening the meeting.

2. Chairman’s speech : The Chairman explained to the meeting the need for amending regulation 29(1) of the Company’s Articles of Association. He pointed out the difficulties that are likely to arise to the Company as well as the members if this amendment is not carried out. He moved the following resolution as a special resolution :
“Resolved that clause (1) of regulation 29 of the Company’s Articles of Association be deleted and the following substituted therefor :
(i) …………………………………… .”
After discussion, the motion was put to vote. The requisite number of members having demanded a poll, the Chairman decided to take the poll forthwith. After the report of the scrutineers was received, the Chairman declared the motion passed by the requisite majority.

3. Vote of thanks: There being no other matter, the meeting ended with a hearty vote of thanks to the Chair.
Place …………….. Sd. …………….. Sd ……………..
Date …………….. Secretary …………….. Chairman

Alteration of Minutes:
Ordinarily, the minutes cannot be altered once they are written. However, any minor mistake or clerical error which is detected when the minutes are being read at the next meeting, can be rectified and signed by the chairman. If the mistake is of a serious nature, such as a material misdescription or incomplete description of the proceedings, then that part of the minutes may be sourced out and the correct minutes written up afresh.

The chairman must sign both the cancellation as well as the fresh entry. However, if a serious or material mistake in the terms of any resolution is detected, this should not be rectified by scoring out. Rather a fresh resolution should be adopted at the next meeting to undo the effect of the earlier resolution. The secretary should make some notes against the earlier resolution by giving the reference of the new resolution.

Confirmation of Minutes:
Usually the minutes of a meeting are read at the next meeting before it is signed by the chairman. This is done to provide an opportunity to point out any mis-statement or error which may have crept into the minutes. The reading of minutes of a previous meeting at the next meeting is a mere acknowledgement that the proceedings have been correctly recorded. If during the reading of the minutes some members point out any discrepancy or mis-statement, the same are rectified before the minutes are signed by the chairman. This procedure is known as confirmation or verification of minutes.

Handling Business Meetings (Role of Chairman):
1. Clearly Define the Purpose of the Meeting : It may not at all be necessary to call a meeting. It is quite possible that the purpose may be achieved by circulating a note. If it is necessary to call a meeting, decide its purpose clearly.

2. Select the Participants : The persons who are to attend the meeting, should be selected carefully. They must have knowledge and interest in the issue and be able to spare adequate time for the meeting. The number of participants should be restricted.

3. Give Adequate Notice: The members should be informed well in advance of the meeting. The notice of the meeting should mention clearly the day, date, time and venue of the meeting.

4. Distribute the Agenda : The agenda (list of items to be discussed) of the meeting should be circulated will in advance. This will enable the members to come prepared and participate effectively in the meeting.

5. Provide All the Facts: When the agenda requires the members to know some important facts, provide the necessary facts. For example, if a meeting has been called to discuss decline in sales, the figures concerning sales for the current year/quarter and past year/quarter should be communicated to the members.

6. Observe Punctuality : Start the meeting on time. Do not think of those who are absent, think of those who are present. You can end the meeting on time only when you begin on time.

7. Ensure the required quorum: Quorum means the minimum number of persons who must be present before the meeting can begin.

8. Begin with a Positive Note: Chairman’s opening remarks set the tone and direction of the meeting. Give the members the feeling that they have come for a useful purpose and they are going to make their distinct contribution towards the accomplishment of that purpose.

9. Encourage Participation : There is often general reluctance to speak on the part of members. They may be anxious to know what stand others take. One may expect others to give one the lead. The chairman should break the initial silence and encourage participation in the deliberations.

10. Be Brief: The chairman’s initial remarks should be brief. Short opening suggests urgency of the issue and keeps members alert.

11. Remain Impartial: The chairman should take no sides and should be neutral. He should give everyone the opportunity to speak and participate in the meeting. Emotional build up, personality flare ups and tension should be controlled through humour.

12. Control the Deliberation: Ensure that one person speaks at a time and members maintain silence. Private discussions need to be avoided as these distract attention Handle the meeting firmly to keep it orderly and on the right track. Do not suppress unfitting views. Clarify contributions of members by frequently summarising the deliberations.

13. Sum Up : Before end of the meeting, point out the decisions meeting arrived at. Along with the decisions, disagreements, if any should also be stated clearly. Indicate how the decisions made are to be implemented, close the meeting in time and do not allow it to drag on unnecessarily. However, abrupt close is not good.

Skills Required By Chairman of Meetings:
In order to perform his role effectively in meeting, the chairman requires the following skills:

  • Know the quorum for the meeting and ensure the quorum before starting the meeting.
  • Call the meeting to order and ask the secretary to read the agenda of the meeting.
  • Clarity the purpose of the meeting in short and vivid manner.
  • Show a positive attitude.
  • Give every member the opportunity to speak and allocate time in equitable and fair way.
  • Ability to check personality clashes and emotional flare-ups.
  • Remain cool and impartial even under provocation.
  • Summarise the discussion at appropriate intervals and at the end of the discussion.
  • Deal with questions directed at him tactfully.
  • Keep liaison with the secretary so that proceedings of the meeting are duly recorded.
  • Encourage and support the discussion through appropriate gestures. Discourage those who interfere with the order in the meeting.

Business Meetings – CA Foundation BCR Notes

Appendix:
How effectively do you manage your meetings?
For each factor, circle a number that most represent your view of your own management of the meeting that you chair.

1. I spend the minimum amount of time in meetings and they are effective and well planned. 12345 I spend far too much time in meetings and mainly they could be more effective.
2. I always plan ahead and clearly define the purpose of my meeting. 12345 I rarely plan my meetings in advance and the purpose is probably unclear.
3. I always establish in my own mind that the meeting is cost-effective. 12345 I very rarely attempt to establish whether my meeting are cost-effective.
4. I always try to keep my meetings to the minimum number of relevant people. 12345 Probably my meetings have too many people and not all those people are necessarily relevant.
5. I spend time thinking carefully about my agenda and I always publish it in advance. 12345 I rarely publish an agenda and, when I do, it is probably weak and sketchy.
6. Normally people are well prepared for my meetings. 12345 I always have the common complaint that people are not well prepared for my meetings.
7. I always publish the finish time and allocate time properly to each agenda item. 12345 I rarely publish a finish time and my time management could probably be improved fairly substantially.
8. I am very conscious of the need for good chairmanship and I actively try to improve my skills. 12345 I am afraid that my chairmanship is haphazard.
9. At the end of each meeting I allocate time to summarising, and ensure that all actions are accountable. 12345 I often end a meeting without ensuring that actions are clearly accountable.
10. I always try to ensure that meetings where I am not chair are properly managed. 12345 Other people’s meetings are their responsibility.

If you selected lower numbers, you have very firmly grasped that meetings need to be effectively managed and you are always conscious of the need to ensure good performance. Higher numbers need attention – your meetings will be low in effectiveness and not particularly productive for you or the participants. A consistent choice of number five means that you are wasting your time and everybody else’s time in your meetings. Almost certainly the output of your meetings is very erratic.

Successful business meetings, they say, are the life blood of any executive’s career. Hence arranging a conference is as important as the meeting itself. Here, we present some of the important things to keep in mind while preparing for such events.

Subject:
Conferences can be of several kinds. The secret behind organising a successful conference is to first understand what it is meant to achieve and then to chart out a proper agenda for it. This may require several internal meetings, followed by meetings with outsiders like tour organisers, hotels and travel agents.

Exhibitions and Trade Shows:
Some conferences may involve exhibitions or trade shows. In such cases, you must ensure that the venue is large enough to hold the exhibition and that there is sufficient space for closed-door or open-forum meetings.

Technology:
Conferences often need extensive tech support for success. Video conferencing plays a vital role in several conferences, while some meetings can make do with audio conferencing facilities only. Whatever the case, proper arrangements must be made in advance. Wi-fi-enabled boardrooms, touch screens, centrally-monitored projectors and screens, lights, laptops, the works, they are all required, and so, should be planned for in advance.

Incentives:
Perhaps one of the easiest ways of incentivizing employees while making them work is to organize a business conference for them in exotic locales; in other words, allowing them to mix pleasure with business. For most of these meetings, one needs to decide whether or not to include executives’ spouses and families. Also, the number of people or the strength of the group needs to be ascertained and a budget worked out. This will determine the possible destinations where the meeting can be held.

Location:
Depending on how much you are willing to invest in your conference, you could look at either having it in your office auditorium (if it has one), at a local conference centre, five-star hotel or take that extra step to arrange for an outstation trip in India or abroad. If you do decide to travel out of station, you must research the destination thoroughly and plan out any conducted tours that may want to offer the delegates; also draw up a list of good eating joints and shopping venues at these places. These are several travel agencies that take charge of all your requirements.

Transportation:
In case you need to add that zing to the usually dull round table conference, you must also ensure that your business partners/executives find it easy to not just get to the venue, but get there on time. The best idea would be to arrange for transport for everyone so that the entire group assembles at one common point, and you can take them to the venue. This way, you could also throw in a surprise element of an undisclosed conference venue!

Once you know the venue, it is of prime importance that your business delegates have a comfortable stay and take home memories of not just hectic business meetings but also of a time well spent. Zeroing in on the right accommodation facilities and venues helps you make the trip memorable. A word of caution: in case you are planning to hold your meeting in some place faraway, pay special attention to the menu, particularly if you have people who want only a particular kind of diet! Not everyone on your team might be game having roasted crocodile for dinner.

Business Meetings – CA Foundation BCR Notes

Conducting And Participating In Meetings:
Meetings involve oral communication. In a meeting you may be either a leader or a participant. As a leader you are required to conduct the meeting. There are certain rules of conducting meetings (called parliamentary procedure). You should know and follow these rules while conducting a meeting. In addition, you should take the following steps:
1. Plan the meeting: A meeting requires thorough preparation. First, develop an agenda (a list of topics to be discussed) to achieve the goals of the meeting. The items in the agenda should be arranged in the most logical order. After preparing the agenda, make it available to all those who are to attend the meeting.

2. Follow the Agenda: Follow the agenda item by item. In most meetings, the discussion tends to stray and new items come up. Keep the discussion on track In case new items arise during the meeting, take them up at the end or postpone them for a future meeting.

3. Move the Discussion Along: Once an item is covered, bring up the next one. Do what is necessary to proceed through the agenda. However, you should not cut off discussion before all important points have been made. The goal should be to permit complete discussion on the one hand and to avoid repetition and useless comments on the other.

4. Control those who talk too much: In most meetings, a few persons tend to dominate the discussion. The leader’s task is to control them. You should step in when they begin to astray or bring in useless matter. You can do so tactfully by asking for other viewpoints or moving on to the next topic.

5. Encourage Everyone to take part: Bring those who talk too little into the discussion. You can do this by asking for their viewpoints and showing respect for their comments.

6. Control Time: When your meeting time is limited, decide in advance how much time will be given to each item. Then at the right time, you should end discussion of each item. You may announce time, goals in the beginning of the meeting and remind the participants time status throughout the meeting.

7. Summarize at Appropriate Times: As a leader, you should summarise comments and conclusions made on each item at appropriate times.

Participating in Meetings:
As a participant in a meeting, you should do the following:
1. Follow the agenda: You should not bring up items not on the agenda. Also avoid commenting on such items brought up by other participants.

2. Participate: Everybody present should meaningfully participate in the discussion. You should talk whenever you have something to contribute.

3. Do not Talk too much: Avoid talking too much and getting carried away. Always respect the rights of others.

4. Cooperate: By its very nature, a meeting requires cooperation from all the participants. Therefore, you should work with others in every possible way.

5. Be Courteous: As a participant you should be courteous to others. You should respect their opinions and permit them to speak

Etiquette In Meetings:
While attending a meeting good manners such as the following need to be followed:

  • Be punctual for the meeting.
  • Seek permission from the chairman before speaking.
  • Stand up before you start speaking.
  • Address your comments to the chairperson.
  • Stick to the issue and do not bring up issues not listed in the agenda.
  • Be brief and to the point.
  • Don’t interrupt others when they are speaking.
  • Be polite or courteous in your language and body movements.
  • In case you want to discuss anything outside the agenda, take up in any other matter at the last with the chairman’s permission.
Bank Reconciliation Statement – CS Foundation Fundamentals of Accounting Notes

Bank Reconciliation Statement – CS Foundation Fundamentals of Accounting Notes

Go through this Bank Reconciliation Statement – CS Foundation Fundamentals of Accounting and Auditing Notes will help students in revising the entire subject quickly.

Bank Reconciliation Statement – CS Foundation Fundamentals of Accounting Notes

Introduction:

  • Bank A/c is a personal A/c.
  • An institution which deals with money is known as Bank.
  • The main business of bank is to accept deposits and lend money.

Services of Banks:

  • Accept deposits
  • Give loans
  • Discounts promissory notes, etc.
  • Make payment of premium, etc. on behalf of client
  • Allow overdrafts
  • Issues letter of credits and many other functions
  • Collects money and make Payment on behalf of clients.

Bank Account is a personal account of the clients.

Types of Personal Accounts:

  • Current Account
  • Savings Account
  • Fixed Deposit Account
  • Recurring Deposit Account

Current Account:

  • These accounts are opened by business concerns.
  • The deposits and withdrawals from the accounts can be done as many number of times as required and can be withdrawn without notice.
  • Generally, they have very low interest rate on deposits.
  • It provides overdraft facilities to its customers.
  • Bank credits Client’s A/c when collection is made and debits when making payment.

Overdraft:
Overdraft is a facility where by a customer is allowed to draw more than the amount deposited in his account.

Saving Account:

  • These accounts are opened by individuals who wish to save their income.
  • It imposes restrictions on the amount and number of withdrawals that can be made.
  • Not for business concern but for Individual or Institution which do not need withdrawals very often.
  • Number of transactions are less as compared to current account.
  • Bank allows a small rate of interest on such deposits.

Fixed Deposit Account:

  • Here the money is to be deposited for a particular period of time before which it cannot be withdrawn.
  • The bank pays the highest interest rate on such deposits.
  • Fixed deposit is evidenced by a receipt called “Fixed Deposit Receipt”’issued by bank in the name of Depositor.

Recurring Deposit Account:

  • Here, a fixed amount of money is deposited every month for a fixed period time.
  • Bank pays interest on such deposits compounded quarterly at a fixed rate.

Bank Pass Book:

  • Pass book is a copy of the clients account in the bank’s ledger.
  • Pass book is issued to the client.
  • It shows all the transactions entered between the client and the bank.
  • The bank balance as per the bank ledger indicated in the bank pass book is called bank balance as per pass book.

Pass Book and Cash Book:

  • Pass book is maintained by bank whereas cash book is maintained by customer.
  • In pass book, transactions are recorded from the point of view of bank whereas in cash book they are recorded from point of view of client.
  • Entries done in the cash book are exactly opposite to that posted in pass book.

Example:

  • Mr. A deposited ₹ 4,000 in bank.
  • Mr. A withdrew ₹ 2,000.

The above transaction will be shown in cash book and pass book as follows:
1. Debit balance of cash book = Credit balance of pass book
2. Credit balance of cash book = Debit balance of pass bookBank Reconciliation Statement – CS Foundation Fundamentals of Accounting Notes 1
Generally, the above is always true but sometimes, there is a difference between them, to trace these differences between balances of pass book and cash book a Bank Reconciliation Statement is prepared.

Bank Reconciliation Statement:

  • A bank reconciliation statement is a statement which is prepared to reconcile the balance as per cash book with the balance as per pass book.
  • It shows the causes of differences between the two.
  • Bank Reconciliation Statement (BRS) is prepared at a particular date.

BRS:

  • BRS is a statement.
  • It is prepared on a particular date to reconcile the bank balance as per cash book with the balance as per pass book by showing the causes of difference between the two.

Causes of difference in Bank Balance of Cash Book and Pass Book:

Reasons Effect on Cash Book / Pass Book
Cash Book Pass Book
1. Cheque issued but not presented for payment lower than PB No effect
2. Cheque Paid / Sent to bank for collection but not collected more than PB No effect
3. Interest & Dividend received by Bank No effect More than CB
4. Direct deposits made by customers No effect More than CB
5. Direct payment made by bank No effect Less than CB
6. Interest credited by bank on account No effect More than CB
7. Interest Debited by bank on overdraft No effect Less than CB
8. Bills collected by bank No effect More than CB
9. Dishonour of bill discounted by bank No effect Less than CB
10. Dishonour of a cheque deposited with bank More than PB No effect
11. Any Error and omission Retrospective effect Retrospective

Significance of BRS:

  • Highlights causes of difference, necessary adjustment can therefore be carried out at early date.
  • Reduce chances of fraud.
  • Act as a moral check.
  • Actual position of bank balance can be found.

Methods for BRS:

  • Bank Reconciliation Statement without adjusting CB
  • Bank Reconciliation Statement after adjusting CB

(i) Proforma of BRS without adjusting Cash Book : BRS (as on../…/….)

Particulars Amount ₹
Balance as per Pass Book / Cash Book (Dr./Cr.)
Add:
(a)
(b)
(c)
(d)
Sub:
(a)
(b)
(c)
(d)
…………………….

Balance as per Cash Book / Pass Book (Cr./Dr.)

(ii) BRS with adjusted Cash Book : under this method we make two things:
1. Adjusted Cash book: In adjusted cash book we record only those transaction which have an impact over cash (i.e. increase or decrease) and are correct. Correctly recorded transaction have no need to be adjusted.

Adjusted Cash book neglect following transactions:

  • Cheque issued but not presented
  • Cheque sent to bank but not collected
  • Any mistake by bank

2. BRS : Items which are not considered in adjusted cash book are considered in BRS.

Preparation of Bank Reconciliation Statement:
Step 1 : Start preparing BRS by taking any one balance (either of cash book or pass book).

Note :
There can be four types of balances :

  • Debit balance of cash book (Favourable)
  • Credit balance of cash book (Unfavourable)
  • Debit balance of pass book (Unfavourable)
  • Credit balance of pass book (Favourable)

Step 2 : Ascertaining and treating the causes of difference
Case – 1 : Starting with favourable balance of cash book (Dr. balance)
(i) Items of differences which have led to decreased cash book balance – Add them
Example : Cheque issued but not presented for payment. This amount would have been deducted from cash book and not from pass book hence it has led to decreased cash book balance. So it will be added.

(ii) Items of differences which have led to increased cash book balance. – Deduct them
Example: Cheques deposited but not collected. When cheque was deposited, entry would have been in cash book but since they are not collected no entry has been made in pass book. This has led to an increased cash book balance so it is deducted, in order to bring it equal to pass book.

Case – 2 : Starting with unfavourable balance or bank overdraft balance of cash book (credit balance)
(i) Items of differences which have led to increased overdraft Cash Book balance – Deduct them.
Example : Cheques issued but not presented for payment – Entry must have been done in cash book and due to this overdraft balance must have been increased. So, it is deducted.

(ii) Items of differences which have led to decreased overdraft cash book balance — Add them.
Example : Cheques deposited but not yet cleared. Entry has been done in cash book but not in pass book. This means credit balance of cash book would have been reduced, so this item is added.

Case – 3 : Starting with favourable balance of pass book (credit balance)
(i) Items of differences that have led to increased pass book balance – Deduct them
Example : Cheques issued but not presented for payment. Entry has been done in cash book so cash book is showing a reduced balance. No entry done in pass book so pass book is showing increased balance. In order to bring pass book balance equal to cash book, deduct this amount.

(ii) Items of differences that have led to reduced pass book balance – Add them
Example : Cheques deposited but not collected by bank. Entry is made in cash book so it shows an increased balance but no entry has been made in pass book, so pass book balance shows a reduced figure. So, add this item to the pass book credit balance.

Case – 4 : When unfavourable balance as per pass book is given (Debit balance)
(i) Items of differences that have led to increased overdraft (unfavourable) pass book balance – deduct them
Example : Interest charged. This entry would have been done by the bank. So, the overdraft balance of the pass book would have been increased but no entry of it has been done in the cash book so deduct this from pass book balance.

(ii) Items of differences that have led to decreased pass book overdraft balance – Add them
Example : Dividend collected by bank. This entry has been done in pass book so it has reduced overdraft balance. But no such entry is in cash book yet, so this item is added to the pass book balance to bring it equal to cash book balance.

Summary of Bank Reconciliation Statement:
1. Preparation of BRS when favourable balance is given:

Transactions if starting with
bal. as per
Pass Book
if starting
with bal. as
per Cash Book
Cheque issued but not presented
Cheque deposited but not yet collected
Cheque received but not deposited
Dishonour of cheques (sent for collection)
Collection of interest, dividend, direct deposits, Bills
Bank charges, interest on overdraft charged
Dishonor of Bill discounted
Balance
Deduct
Add
Add
Add
Deduct
Add
Add
Bank balance
as per Cash
book
Add
Deduct
Deduct
Deduct
Add
Deduct
Deduct
Bank
balance as
per Pass book

Note: In case of overdraft balance the treatment will be reverse.

Bank Reconciliation Statement MCQ Questions

1. A bank reconciliation statement is prepared to :
(a) Establish the causes of the difference between the balance shown by the bank columns of the cash book and that shown by the pass book.
(b) Ascertain the causes for the difference between the cash balance and the pass book balance.
(c) Both (a) and (b)
(d) None of the above.
Answer:
(a) Establish the causes of the difference between the balance shown by the bank columns of the cash book and that shown by the pass book.

2. Difference in bank balance as per pass book and cash book may arise on account of:
(a) Cheque issued and presented
(b) Cheque issued but dishonoured
(c) Cheque deposited but not cleared
(d) Both (b) and (c)
Answer:
(d) Both (b) and (c)

3. Pass book is the statement of the account of the customer maintained by the:
(a) Bank
(b) Debtors
(c) Creditors
(d) Any one of the above.
Answer:
(a) Bank

4. Debit balance in the cash book is :
(a) Debit balance as per pass book
(b) Credit balance as per pass book
(c) Debit balance as per cash book
(d) Credit balance as per cash book.
Answer:
(b) Credit balance as per pass book

5. Bank reconciliation statement is a part of:
(a) Cash book
(b) Ledger
(c) Financial statement
(d) None of the above.
Answer:
(d) None of the above.

6. Started with cash book balance, interest charged on overdraft by bank is :
(a) Added
(b) Subtracted
(c) No effect
(d) Added twice.
Answer:
(b) Subtracted

7. An amount of ₹ 5,000 is debited twice in the bank column of cash book. When credit balance as per pass book is taken as starting point, what will be done?
(a) Add ₹ 5,000 to balance as per pass book
(b) Subtract ₹ 5,000 from balance as per pass book
(c) Add 10,000 to balance as per pass book
(d) Subtract ₹ 10,000 from balance as per pass book.
Answer:
(a) Add ₹ 5,000 to balance as per pass book

8. Overdraft bank balance as shown by the cash book is ₹ 6,000. A cheque for ₹ 10,400 was deposited to bank but omitted in the cash book. In the pass book the amount is wrongly entered in the withdrawal column. Overdraft balance as per pass book:
(a) 16,400
(b) 16,000
(c) 15,900
(d) 13,050.
Answer:
(a) 16,400

9. Unfavourable balance as per pass book means :
(a) Debit balance in pass book
(b) Credit balance in pass book
(c) Bank overdraft
(d) (a) and (c).
Answer:
(d) (a) and (c).

10. Cash at bank as shown by cash book ₹ 75,000. Cheque drawn but not presented ₹ 5,000. Cheque paid into bank but not yet credited, ₹ 1,900. Bank charges not yet entered in cash book ₹ 100 find balance as per pass book.
(a) 82,000
(b) 78,000
(c) 75,000
(d) 72,000
Answer:
(b) 78,000

11. When balance as per pass book is taken, interest allowed by bank is :
(a) Added
(b) Subtracted
(c) No Effect
(d) None.
Answer:
(b) Subtracted

12. Overdraft as per cash book means :
(a) Credit balance in the pass book
(b) Credit balance in the bank column of the cash book
(c) Debit balance as per pass book
(d) Both (b) and (c)
Answer:
(d) Both (b) and (c)

13. The bank statement shows an overdraft balance of ₹ 4,000. A cheque for ₹ 1,000 drawn in favour of a creditor has not yet been presented for payment. When the creditor presents the cheque for payment, the bank balance will be :
(a) ₹ 3,000
(b) ₹ 5,000
(c) ₹ 3,000 (overdraft)
(d) ₹ 5,000 (overdraft)
Answer:
(d) ₹ 5,000 (overdraft)

14. Bank pass book is a :
(a) Copy of customer’s account in bank books
(b) Bank column of cash book
(c) Both (a) and (b)
(d) None of the above.
Answer:
(a) Copy of customer’s account in bank books

15. The bank pass book showed ₹ 5,000 but the cash book shows a different balance. While analysing the cause of difference, it was noticed that total of debit side of cash book was carried forwarded to next page as ₹ 1,901 instead of 190. What would be the balance as per cash book:
(a) r 6,901
(b) ₹ 6,711
(c) ₹ 1,540
(d) ₹ 6,801
Answer:
(b) ₹ 6,711

16. Any wrong entry on debit side of the pass book :
(a) Will differ the balances of pass book and cash book.
(b) Will have no effect in the books
(c) Only cash book will be effected
(d) None of the above.
Answer:
(a) Will differ the balances of pass book and cash book.

17. Bank charges recorded twice in the cash book will be added to the overdraft of in the preparation of the bank reconciliation statement.
(a) Passbook
(b) Cash book
(c) Purchase book
(d) Sales book.
Answer:
(a) Passbook

18. If transaction of different months in the cash book are given, the transactions will appear in BRS.
(a) Common
(b) Uncommon
(c) All
(d) None.
Answer:
(a) Common

19. The cash book showed an overdraft of ₹ 1,500 as cash at bank, but the pass book made up to the same date showed that cheques of ₹ 100, ₹ 50 and ₹ 125 respectively had not been presented for payments; and the cheque of ₹ 400 paid in to account had not been cleared. The balance as per the cash book will be.
(a) ₹ 1,100
(b) ₹ 2,175
(c) ₹ 1,625
(d) ₹ 1,375.
Answer:
(c) ₹ 1,625

20. When drawing up a Bank Reconciliation Statement, if you start with a debit balance as per the Bank Statement, the unpresented cheques should be:
(a) Added;
(b) Deducted;
(c) Not required to be adjusted
(d) None of the above.
Answer:
(a) Added;

21. A debit balance in the depositor’s cash book will be shown as :
(a) A debit balance in the bank statement
(b) A credit balance in the bank statement
(c) An overdraft balance in bank statement
(d) None of the above.
Answer:
(b) A credit balance in the bank statement

22. The difference in the balances of both the cash-book and the pass – book can be because of:
(a) Errors in recording the entries either in the cash-book or pass-book.
(b) Same entry recorded in either of the book earlier and in the other book later.
(c) Debit balance of cash book is the credit balance of pass-book
(d) None of the above.
Answer:
(a) Errors in recording the entries either in the cash-book or pass-book.

23. Payment done by the account holder through issuing a cheque is entered in:
(a) The pass-book at the time of issuing the cheque
(b) The cash-book at the time of presenting the cheque to the bank for payment
(c) The pass-book at the time of presenting the cheque to the bank for payment
(d) The cash-book at the time of issuing the cheque
Answer:
(c) The pass-book at the time of presenting the cheque to the bank for payment

24. Direct payment to third party by the bank on behalf of the account holder is entered in:
(a) The cash – book when the amount is paid by the bank
(b) The cash – book when the entry is posted in the pass – book
(c) The pass – book when the amount is paid by the bank
(d) The pass – book when the entry is posted in the pass – book
(e) (a) and (d)
(f) (b) and (c).
Answer:
(f) (b) and (c).

25. When favourable balance as per cash book is the starting point, wrong debit given by the bank to the firm’s account will be ________.
(a) Added
(b) Deducted
(c) No effect
(d) None of these.
Answer:
(b) Deducted

26. The credit balance of ₹ 1,000 in the bank column of the cash book was carried forward as its debit balance. When overdraft as per pass book is the starting point:-
(a) ₹ 1,000 will be deducted
(b) ₹ 1,000 will be added
(c) ₹ 2,000 will be deducted
(d) ₹ 2,000 will be added.
Answer:
(c) ₹ 2,000 will be deducted

27. When overdraft as per pass book is the starting point, bank charges of ₹ 100 recorded twice in cash book will be:
(a) Added by ₹ 100
(b) Added by ₹ 200
(c) Deducted ₹ 100
(d) Deducted by ₹ 200.
Answer:
(a) Added by ₹ 100

28. When the overdraft as per cash book is the starting point, a cheque of ₹ 500 deposited into bank but not recorded in cash book will be:
(a) Added by ₹ 500
(b) Deducted by ₹ 500
(c) Added by ₹ 1,000
(d) Deducted by ₹ 2,000.
Answer:
(b) Deducted by ₹ 500

29. Debit balance as per cash book is ₹ 2,000, cheques deposited but not cleared amounts to ₹ 100 and cheques issued but not presented of ₹ 150. The bank allowed interest amounting ₹ 50 and collected divided ₹ 50 balance as per pass book should be:
(a) ₹ 2,100
(b) ₹ 1,950
(c) ₹ 2,350
(d) ₹ 2,150.
Answer:
(d) ₹ 2,150.

30. The cash book showed an overdraft of ₹ 2,000 as cash at bank, but the pass book made up the same date showed that cheques of ₹ 150 and ₹ 125 respectively had not been presented for payment; and the cheque of ₹ 400 paid into account had not been cleared. The balance as per pass book will be:
(a) ₹ 1,600
(b) ₹ 2,675
(c) ₹ 2,125
(d) ₹ 1,875.
Answer:
(c) ₹ 2,125

31. The balance shown by bank column of cash book was ₹ 48,000 on 31.1.98. A Cheque issued worth ₹ 24,000 on 16th Jan was not cleared till 31st Jan. Cheque worth ₹ 10,000 received on 20th Jan. and deposited on 21s1 Jan. was cleared on 27-1 -98. The balance as per pass book as on 31st January (assuming opening balance of pass book and cash book are equal) is:
(a) ₹ 14,000
(b) ₹ 24,000
(c) ₹ 72,000
(d) ₹ 82,000.
Answer:
(c) ₹ 72,000

32. On 31st March, 2007 Ram Kumar Gupta’s pass book showed a credit balance of ₹ 10,300. A comparison of the entries with the cash book revealed that he had paid in cheques amounting to ₹ 1,200 on 27th March 2007, which were not credited in his account. He had issued a cheque amounting to ₹ 1,500 before 31s1 March 2007 which were not presented for payment during the month. There was a debit of ₹ 25 in the pass book in respect of bank charges and a credit of ₹ 35 for interest on current account. Prepare bank reconciliation statement (balance as per pass book) as on 31st March, 2007.
(a) ₹ 12,025
(b) ₹ 9,990
(c) ₹ 10,490
(d) ₹ 10,940.
Answer:
(b) ₹ 9,990

33. A bank statement at 31.01.2007 showed a balance of ₹ 1,000 (Dr.) The following did not appear on the statement:
(i) Cheques not presented for payment ₹ 230
(ii) A cheque for ₹ 400 banked on 31.1.2007
(iii) Bank charges of ₹ 200 had not been entered in the cash book What was the original balance in the cash book at 31.1.2007, before it was amended?
(a) ₹ 630 (Cr.)
(b) ₹ 630 (Dr.)
(c) ₹ 970 (Cr.)
(d) ₹ 970 (Dr.)
Answer:
(a) ₹ 630 (Cr.)

34. Your firm’s bank statement on 31.10.2006 shows a balance of ₹ 13,400. You subsequently discover that the bank has dishonoured a customer’s cheque for ₹ 300 and has charged bank charges of ₹ 50, neither of which is recorded in your cash book. There are unpresented cheques totalling ₹ 1,400. You further discover that an automatic receipt from a customer of ₹ 195 has been recorded as credit in your cash book. Your cash book, prior to correcting the errors and omission was:
(a) ₹ 11,455
(b) ₹ 11,960
(c) ₹ 12,000
(d) ₹ 12,155.
Answer:
(b) ₹ 11,960

35. Who said this statement “All the money’s kind of sitting in a bank account”:
(a) Karl Pearson
(b) Alex Tew
(c) Luco Pacoli
(d) Philip Kotler
Answer:
(b) Alex Tew

36. ________ is a tool for such comparison and arriving at the causes and amount of difference between the two, if any.
(a) Fund flow statement
(b) Cash flow statement
(c) Bank reconciliation statement
(d) None of the above
Answer:
(c) Bank reconciliation statement

37. Same pay-in-slips are filled for outstation cheques:
(a) True
(b) False
(c) True, in case of saving account
(d) True, in case of current account
Answer:
(b) False

38. When deposits are made, form is filled ________.
(a) Account opening form
(b) TDS forms
(c) Preparation of draft form
(d) Pay-in-slips
Answer:
(d) Pay-in-slips

39. A Bank Reconciliation statement is:
(a) A part of pass book
(b) A statement prepared by bank
(c) Cash book relating to cash column
(d) A statement prepared by customer
Answer:
(d) A statement prepared by customer

40. Which of these types of errors are not detected during Bank Reconciliation?
(a) Cash embezzlement by cashier
(b) Cheques deposited but not credited by bank
(c) Casting mistakes in bank column of cash book
(d) Interest or commission charged by the bank not accounted in cash book
Answer:
(a) Cash embezzlement by cashier

41. Balance as per cash book is ₹ 5,000. Cheques issued but not presented for payment ₹ 2,000 and cheques sent for collection but not collected ₹ 1,500. The Bank had wrongly debited the account of firm by ₹ 20. Balance as per pass book will be:
(a) ₹ 5,580
(b) ₹ 5,480
(c) ₹ 4,520
(d) ₹ 5,520
Answer:
(b) ₹ 5,480

42. Balance shown by:
Cash Book ₹ 10,000
Cheques issued but not Presented for payment ₹ 4,000
Cheques deposited but not yet collected ₹ 3,000
Balance as per Pass Book will be:
(a) ₹ 9,000
(b) ₹ 10,000
(c) ₹ 11,000
(d) None
Answer:
(c) ₹ 11,000

43. In arriving at adjusted cash balance which of the following is not taken into account?
(a) Amount deposited by our customer directly in our account
(b) Errors in the cash book
(c) Errors in the pass book
(d) All of these
Answer:
(a) Amount deposited by our customer directly in our account

44. If balance as per Pass Book is the starting point, then uncollected cheques are:
(a) Added in BRS
(b) Subtracted in BRS
(c) Ignored while preparing BRS
(d) None of these
Answer:
(a) Added in BRS

45. On 31.03.09, the balance of the cash book is ₹ 7,074 (credit) and Balance as per Bank statement is ₹ 3,159 (debit). On scrutiny, it was found that the difference was due to cheques issued but yet not presented for payment. The Bank Balance as on 31.03.09 to be shown in Balance Sheet is:
(a) As Bank overdraft ₹ 3,159
(b) As Cash at bank ₹ 7,074
(c) As Bank overdraft ₹ 7,074
(d) As Cash at bank ₹ 3,159
Answer:
(c) As Bank overdraft ₹ 7,074

46. A trader issued cheques worth ₹ 7,800 out of which cheques worth ₹ 6,500 only presented into Bank then, on reconciling the Cash Book with the Pass Book, the amount to be added will be:
(a) ₹ 1,300
(b) ₹ 7,800
(c) ₹ 6,500
(d) ₹ 14,300
Answer:
(a) ₹ 1,300

47. When money is withdrawn from bank, the bank:
(a) Credits customer’s a/c
(b) Debits customer’s a/c
(c) Credits and Debits customer’s a/c
(d) None of these
Answer:
(b) Debits customer’s a/c

48. Sunita, a customer of Digvijay deposited ₹ 1,000 directly in his Bank A/c. For this Sunita will debit the a/c of:
(a) Sunita
(b) Digvijay
(c) Cash
(d) None of these
Answer:
(d) None of these

49. The account in which fixed amount is deposited every month is called:
(a) Current Account
(b) Savings Account
(c) Fixed Deposit Account
(d) Recurring Deposit
Answer:
(d) Recurring Deposit

50. The form used for depositing money in bank is called as:
(a) Pay in slip
(b) Deposit form
(c) Credit slip form
(d) Cash deposit papers
Answer:
(a) Pay in slip

51. If the balance as per cash book is ₹ 25,000 and cheques of ₹ 10,000 were issued but were not presented for payment then, the balance as per pass book will be:
(a) ₹ 25,000
(b) ₹ 35,000
(c) ₹ 15,000
(d) ₹ 50,000
Answer:
(b) ₹ 35,000

52. If the cash book shows an overdraft of ₹ 12,000 and cheque of ₹ 2,000 were issued but not presented for payment and a cheque of ₹ 1,000 deposited in bank was not cleared then, the balance as per pass book will be:
(a) ₹ 10,000
(b) ₹ 9,000
(c) ₹ 14,000
(d) ₹ 11,000
Answer:
(d) ₹ 11,000

53. If the overdraft as per cash book is ₹ 2,000 and the bank deducts bank charges of ₹ 100 and also credits ₹ 500 as bank interest, then the balance as per pass book will be:
(a) ₹ 2,600
(b) ₹ 1,400
(c) ₹ 1,900
(d) ₹ 1,600
Answer:
(d) ₹ 1,600

54. Unfavourable bank balance means:
(a) Credit balance in cash book
(b) Credit balance in pass book
(c) Debit balance in cash book
(d) None of the above.
Answer:
(a) Credit balance in cash book

55. Overdraft as per cash book means:
(a) Debit balance in cash book
(b) Credit balance in pass book
(c) Credit balance in cash book
(d) None of the above.
Answer:
(c) Credit balance in cash book

56. Bank Reconciliation Statement is:
(a) Prepared by customers
(b) Prepared by Bank
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer:
(a) Prepared by customers

57. A Bank Reconciliation Statement is prepared to know the causes for difference between:
(a) Balance as per cash column of cash book & pass book
(b) Balance as per bank column of cash book and pass book
(c) Balance as per cash column and bank column of cash book
(d) None of these
Answer:
(b) Balance as per bank column of cash book and pass book

58. Bank Balance shown in Trial Balance is:
(a) Balance as per pass book
(b) Balance as per cash book
(c) Balance as per sales book
(d) Both (a) and (b)
Answer:
(b) Balance as per cash book

59. When money is withdrawn from bank, then the bank will:
(a) Credit customers A/c
(b) Debit customers A/c
(c) Both (a) and (b)
(d) None of the above.
Answer:
(b) Debit customers A/c

60. When the balance as per pass book is the starting point, direct payment made by the bank will be:
(a) Added in bank reconciliation statement
(b) Subtracted in bank reconciliation statement
(c) No adjustment is required
(d) None of the above.
Answer:
(a) Added in bank reconciliation statement

61. When balance as per cash book is the starting point, cheques uncollected by the bank will be:
(a) Added in bank reconciliation statement
(b) Subtracted in bank reconciliation statement
(c) No adjustment will be made
(d) None of these.
Answer:
(b) Subtracted in bank reconciliation statement

62. If the balance as per cash book is ₹ 50,000 and it is undercasted by ₹ 12,000. Also cheques of ₹ 20,000 deposited in bank were dishonoured, then the balance as per pass book will be:
(a) ₹ 32,000
(b) ₹ 58,000
(c) ₹ 82,000
(d) ₹ 42,000
Answer:
(d) ₹ 42,000

63. If the balance as per cash book is 20,000 and cheques of ₹ 3,000 deposited in bank are not yet collected and cheques issued of ₹ 2,000 were not presented for payment then, the balance as per pass book will be:
(a) ₹ 19,000
(b) ₹ 21,000
(c) ₹ 25,000
(d) ₹ 15,000
Answer:
(a) ₹ 19,000

64. Who prepares Bank Reconciliation Statement?
(a) Bank employee
(b) Customer of bank or his representative or his accountant
(c) Both (a) and (b)
(d) None of the above.
Answer:
(b) Customer of bank or his representative or his accountant
Bank Reconciliation Statement is prepared by businessman or customer of bank or his representative or his accountant. Bank Reconciliation Statement is a statement prepared as on a particular date to reconcile. The bank balance as per cash book with balance as per pass book by showing all causes of difference between the two.

65. For the purpose of bank reconciliation statement, only the column of the cash book is to be considered.
(a) Cash
(b) Bank
(c) Cash and Bank
(d) Discount
Answer:
(b) Bank
Bank Reconciliation Statement is a statement prepared as on a particular date to reconcile the bank balance as per cash book with balance as per pass book. Thus, for the purpose of bank reconciliation statement, only the bank column of the cash book is to be considered.

66. Bank balance as per cash book of ABC Enterprises as on 31st March, 2013 is ₹ 1,500. Cheques deposited with bank but not cleared amount to ₹ 100 and cheque issued.but not presented for payment amount to ₹ 150. The bank allowed interest amounting to ₹ 50 and collected dividend ₹ 50 on behalf of ABC Enterprises. Balance as per pass book should be:
(a) ₹ 1,600
(b) ₹ 1,450
(c) ₹ 1,850
(d) ₹ 1,650
Answer:
(d) ₹ 1,650
Bank Reconciliation Statement – CS Foundation Fundamentals of Accounting Notes 2

67. Which of the following is true about bank reconciliation statement ________.
(a) Bank reconciliation statement need not to be prepared where the balance of cash book and pass book matches
(b) Bank reconciliation statement is to be prepared necessarily as per the Income tax Act, 1961
(c) Bank reconciliation statement is prepared on yearly basis
(d) Bank reconciliation statement is to be prepared and supplied by bank.
Answer:
(a) Bank reconciliation statement need not to be prepared where the balance of cash book and pass book matches.
On a particular date when businessman find that bank balance of cash book and bank balance as per pass-book do not tally, he makes efforts for their reconciliation. The reconciliation is prepared and presented in the form of a statement generally known as Bank Reconciliation Statement. Where the balance of cash book and pass book matches, Bank Reconciliation Statement need not to be prepared.

68. Cash book shows Dr. balance ₹ 10,000, cheque issued ₹ 4,000 and cheques presented ₹ 3,000. Calculate the balance as per pass book.
(a) 13,000
(b) 7,000
(c) 6,000
(d) 10,000.
Answer:
(b) 7,000

Balance as per cash book 10,000
Less : Cheque issued (4,000)
Add : Cheque issued but not presented 1,000
Balance as per pass book 7,000

69. If the cheque is not presented for the payment upto the date of the preparation of the Bank Reconciliation Statement then the balance as per pass book will be:
(a) Higher than the balance shown by the cash book by the amount of unpresented cheque.
(b) Same as shown by the cash book
(c) Twice the balance shown by the cash book
(d) Lower than the balance shown by the cash book by the amount of unpresented cheque
Answer:
(a) Higher than the balance shown by the cash book by the amount of unpresented cheque.
When a cheque is drawn or issued in favour of a third party, it is immediately recorded in the cash book by debiting the party and crediting the bank and this has the effect of reducing the bank balance in the cash book. But the bank will not debit client’s account until that cheque is presented for payment and honoured.

So long as it is not presented, the balance shown in the pass book is more than the balance shown by the cash book. So, the option (a) is correct. The balance as per pass book will be higher than the balance shown by the cash book by the amount of unpresented cheque.

70. The pass book shows an overdraft of ₹ 2,000. It was discovered that cheques of ₹ 200, ₹ 40 and ₹ 37 respectively has not been presented for payments and a cheque of ₹ 100 paid into account had not been cleared. The balance as per the cash book will be:
(a) ₹ 2,177 (Cr.)
(b) ₹ 1,977 (Cr.)
(c) ₹ 1,977 (Dr.)
(d) ₹ 2,177 (Dr.)
Answer:
(d) ₹ 2,177 (Dr.)
Bank Reconciliation Statement – CS Foundation Fundamentals of Accounting Notes 3

71. Bank Balance as per cash book of ABC Enterprises as on 31st March, 2013 is ₹ 1,500 cheques deposited with bank but not cleared amount to ₹ 100 and cheques issued but not presented for payment amount to ₹ 150. The bank allowed interest amounting ₹ 50 and collected dividend ₹ 50 on behalf of ABC Enterprises. Balance as per pass book should be:
(a) ₹ 1,600
(b) ₹ 1,850
(c) ₹ 1,450
(d) ₹ 1,650
Answer:
(d) ₹ 1,650

(₹)
Dr. Bal as per cash book 1,500
Cheque deposit but not cleared -100
Cheque issued but not presented +150
interest allowed by bank + 50
Dividend collected by bank + 50
1,650

72. A credit balance in the bank statement indicates:
(a) Cash at bank
(b) Cash in hand
(c) Bank overdraft
(d) Over payment to creditors.
Answer:
(a) Cash at bank
Credit balance in bank statement indicates positive balance which means cash balance in account.

73. If cash book balance (Dr.) is given then dividend collected by bank is:
(a) Added on Dr. side of cash book
(b) Added on Cr. side of cash book
(c) Subtracted in cash book
(d) None of the above
Answer:
(a) Added on Dr. side of cash book
A banker may receive amounts due to the customer by way of dividends, rent, interest etc. directly from the persons concerned on account of standing instruction of the customers to such person. The bank credit the account of customer and same will be added in the Dr. side of cash book.

74. Cash Book (Dr.) Balance is ₹ 54,000. If cheque ₹ 5,000 issue but not presented for payment. What will be the effect in cash book:
(a) Added
(b) Subtracted
(c) Add ₹ 5,000
(d) Subtracted ₹ 5,000
Answer:
(d) Subtracted ₹ 5,000
When a cheque is drawn or issued in favour of a third party, it is immediately recorded in the cash book by debiting the party and crediting the bank and this has effect of reducing the bank balance in the cash book. The cash book balance will be substracted by 5,000.

75. Dr. Balance of cash book ₹ 20,000, cheque issued but not presented for payment ₹ 5,000, cheques collected but not yet credited ₹ 4,000. What is the balance as per pass book:
(a) ₹ 21,000
(b) ₹ 15,000
(c) ₹ 25,000
(d) ₹ 5,000
Answer:
(a) ₹ 21,000

Dr. Balance as per cash book 20,000
(i) Cheque issued but not presented for payment + 5,000
(ii) Cheque collected but not yet presented – 4,000
Cr. Balance as per pass book 21.000

Thus, the option (a) i.e. ₹ 21,000 is the answer.

76. Dr. Balance as per Cash Book ₹ 20,000. Cheque collected of ₹ 5,000 but credited only ₹ 4,000. Balance of pass book:
(a) ₹ 13,000
(b) ₹ 17,000
(c) ₹ 19,000
(d) ₹ 10,000
Answer:

Dr. Balance as per cash book 20,000
Cheque collected of ₹ 5,000 but credited
only ₹ 4,000, Pass book will reduce by -1,000
Cr. Balance as per pass book 19,000

Thus, the option (c) is correct.

77. The differences arising between bank statement and cash book is reconciled by the preparation of:
(a) Bank Reconciliation Statement
(b) Cash Flow Statement
(c) Funds Flow Statement
(d) Working Capital Statement.
Answer:
(a) Bank Reconciliation Statement
The differences arising between bank statement and cash book is reconciled by the preparation of Bank Reconciliation Statement by showing all causes of difference between the two.

78. A cash book shows an overdraft of ₹ 2,000 as cash at bank but the pass book made upto the same date shows the cheque of ₹ 200, ₹ 40 and ₹ 37 respectively had not been presented for payment and a cheque of ₹ 100 paid into account had not been cleared. The balance as per the Pass Book will be:
(a) ₹ 1,823 debit
(b) ₹ 1,223 debit
(c) ₹ 1,523 debit
(d) ₹ 1,623 debit
Answer:
(a) ₹ 1,823 debit

Balance as per cash book (Cr.)
Less: Cheque issued but not presented [200+40+37]
Add: Cheque deposited not collected
2,000
277
100
Balance as per Pass book (Dr.) 1,823

79. In which of the following type of accounts, money is generally deposited periodically at a regular interval?
(a) Recurring Deposit Account
(b) Saving Bank Account
(c) Fixed Deposit Account
(d) Current Account
Answer:
(a) Recurring Deposit Account
In the Recurring Deposit Account, A certain fixed sum of money is deposited affixed or regular interval of time in the account.

80. Credit balance as per Cash Book ₹ 10,000, Bank charged Interest of ₹ 150, cheques issued but not presented for payment ₹ 2,500. Overdraft as per Pass Book will be:
(a) ₹ 12,650
(b) ₹ 12,350
(c) ₹ 12,500
(d) ₹ 7,650
Answer:
(d) ₹ 7,650
Bank Reconciliation Statement – CS Foundation Fundamentals of Accounting Notes 4

81. Some of the transaction that is dependent on bank statement are ________.
(a) Collection charges
(b) Dividend received
(c) Rent received
(d) All of above
Answer:
(d) All of above
A Bank Statement or Account Statement is a summary of financial transactions which have occurred over a given period on a bank account held by a person or business with a financial institution. Thus collection charges, dividend received, rent received are all transactions under the bank statement.

82. Bank Reconciliation Statement is prepared by ________.
(a) Accountant of business
(b) Manager of business
(c) Controller of bank
(d) Accountant of the bank.
Answer:
(a) Accountant of business
Bank Reconciliation Statement is generally prepared by the company accountant or the bookkeeper with the purpose to compare the bank’s records with your own company records. It is done on monthly basis whenever bank statement arrives.

This statement is required to find out dmissions and mistakes if any and helps in identifying frauds and embezzlements in company funds. A detailed year-end bank reconciliation statement should be retained so that they are readily accessible when needed during the company annual audit. Thus option A is correct.

83. Balance as per cash book (adjusted) = 1000 unpresented cheques = 2000 uncredited cheques = 500. Compute the balance as per bank statement:
(a) 2,000
(b) Zero
(c) 3,000
(d) 2,500
Answer:
(d) 2,500

Balance as per cash book 1,000
+ Unpresented cheques 2,000
3,000
– Uncredited cheques 500
Balance as per bank statement 2,500

84. Bank Balance as per Cash book of ABC Enterprises as on 31st March, 2016 is ₹ 1500. Cheques deposited with bank but not cleared amount to ₹ 100 and cheques issued but not presented for payment ₹ 150. The Bank allowed interest amounts to ₹ 50 and collect dividend of ₹ 50 on behalf of ABC enterprise Balance as per Pass Book is:
(a) 1850
(b) 1650
(c) 1600
(d) 1450
Answer:
(b) 1650

Bank Balance as per Cash Book 1,500
Add: Cheques issued but not presented 150
Less: Cheques deposited but not cleared (100)
Add: Bank Interest collected 50
Add: Dividend collected 50
Total 1,650

85. If you start with a debit balance as per the Cash Book, cheques that have been issued by a company but have not been shown in pass book are while preparing bank reconciliation statement.
(a) Not to be adjusted
(b) Added twice
(c) Subtracted
(d) Added
Answer:
(d) Added
Cheque issued but not presented are added while preparing Bank Reconciliation statement as per cash book.

86. Bank balance as per cash book at ABC Enterprises as on 31st March, 2013 is ₹ 1,500 Cheques deposited with bank but not cleared amount to ₹ 100 and cheque issued but not presented for payment amount to ₹ 150. The bank allowed interest amounting to ₹ 50 and collected divided ₹ 50 on behalf of ABC Enterprises. Balance as per pass book should be:
(a) ₹ 1.600
(b) ₹ 1,450
(c) ₹ 1,850
(d) ₹ 1,650
Answer:
(d) ₹ 1,650
Bank Reconciliation Statement – CS Foundation Fundamentals of Accounting Notes 5

87. Cheque issued but not presented for payment are in passbook.
(a) Less
(b) Add
(c) Both (a) and (b)
(d) None of the above
Answer:
(d) None of the above
Cheque issued but not presented treatment as per passbook: When a cheque is drawn for third party, it indicates that the bank a/c will be credited in cashbook and debited in passbook. If it is not presented for payment in then it has no effect in passbook and add in cashbook (as such amount is not deducted from bank). Hence, option (d) is correct.

88. Which of the following is true about bank reconciliation statement:
(a) Bank reconciliation statement need to be prepared where the balance of cash book and pass book does not match
(b) Bank reconciliation statement is to be prepared necessarily as per the income-tax Act, 1961
(c) Bank reconciliation Statement is prepared on yearly basis
(d) Bank reconciliation statement is to be prepared and supplied by bank
Answer:
(a) Bank reconciliation statement need to be prepared where the balance of cash book and pass book does not match.
Bank reconciliation statement is a statement which is prepared as on a particular date to reconcile the bank balance as per Cash Book with the balance as per pass book by showing all causes of differences between the two.

Companies Act, 2013 – CA Foundation Law Study Material

Companies Act, 2013 – CA Foundation Law Study Material

This Companies Act, 2013 – CA Foundation Law Study Material is designed strictly as per the latest syllabus and exam pattern.

Companies Act, 2013 – CA Foundation Business Law Study Material

Question 1.
What is meant by the lifting of the corporate veil? What are the instances in which the corporate veil may be lifted?
OR
There are cases where company law disregards the principle of corporate personality or the principle that the company is a legal entity distinct from its shareholders or members. Elucidate.
Answer:
‘Lifting the veil’ means looking behind the company as a legal person ie., disregarding the corporate entity and paying regard instead to the realities behind the legal form. Where the courts ignore the corporate personality and concern themselves directly with the members or directors, the corporate veil may be said to have been lifted.

The following are the cases where company law disregards the principle of corporate personality or the principle that the company is a legal entity distinct and separate from its shareholders or members:

1. To determine the character of the company i.e. to find out whether the company is an enemy or a friend:
The Court may rend the veil for ascertaining whether a company is an enemy company. Unlike a natural person, a company does not have a mind or conscience; therefore, it cannot be a friend or foe. It may, however, be characterized as an enemy company, if its affairs are under the control of the people of an enemy country. For this purpose, the Court may examine the character of the persons who are really at the helm of affairs of the company, which was done in the leading case of Daimler Co. Ltd. vs. Continental Tyre & Rubber Co. Ltd.

2. Company is formed to evade taxes:
Where a corporate entity is used to evade or circumvent tax, the Court can disregard the corporate entity [Juggilal v. Commissioner of Income Tax AIR (SC)].
19.3
Thus where the company is used as a means of evasion of taxes, then for protection of revenue of the Government, the corporate veil may be lifted. [Sir Dinshaw Maneckjee Petit, Re AIR 1927 Bom. 371].

3. Company is formed to avoid a legal obligation/welfare legislation:
Where the sole purpose for the formation of the company was to use it as a device to reduce the amount to be paid by way of bonus to workmen, the Supreme Court upheld the piercing of the veil to look at the real transaction (The Workmen Employed in Associated Rubber Industries Limited, Bhavnagar v. The Associated Rubber Industries Ltd., Bhavnagar and another).

4. Formation of subsidiaries to act as agents:
A company may sometimes be regarded as an agent or trustee of its members, or of another company, and may therefore be deemed to have lost its individuality in favor of its principal & the disqualifications of the principal shall be treated as that of the agent. Here the principal will be held liable for the acts of that company, as was held in the case of Merchandise Transport Limited v. British Transport Commission (1982).

5. Company formed for fraud/improper conduct or to defeat law:
The corporate veil may be lifted if the company is formed to – (a) defeat the law; (b) defraud creditors; (c) avoid legal obligations (arising by way of a contract). Where the device of incorporation is adopted for some illegal or improper purpose, e.g., to defeat or circumvent the law, to defraud creditors, or to avoid legal obligations. [Gilford Motor Co. v. Horne & Jones v. Lipman]

6. To determine the technical competence of the company:
A company is an artificial entity and therefore it cannot be judged for competence and experience. In some cases where the technical compe¬tence of the company is to be ascertained, such as to determine the eligibility of the company for a certain contract, then the experience, qualification, and competence of the members shall be treated as that of the company. Thus corporate veil shall be lifted as was done in the case of New Hori¬zons Ltd. v. UOI (1997).

Companies Act, 2013 – CA Foundation Law Study Material

Question 2.
Define OPC and state the rules regarding its membership. Can it be converted into a non-profit company under section 8 or a private company?
Answer:
One person company
Section 2(62) of the Companies Act, 2013 defines one person company (OPC) as a company that has only one person as a member. The following are the rules regarding membership of OPC:

1. There can be only one person as a member of OPC.
2. The memorandum of OPC shall indicate the name of the other person, who shall, in the event of the subscriber’s death or his incapacity to contract, become a member of the company.
3. The other person whose name is given in the memorandum shall give his prior written consent in the prescribed form and the same shall be hied with the Registrar of companies at the time of incorporation.
4. Such other person may be given the right to withdraw his consent.
5. The member of OPC may at any time change the name of such other person by giving notice to the company and the company shall intimate the same to the Registrar.
6. Any such change in the name of the person shall not be deemed to be an alteration of the memorandum.
7. Only a natural person who is an Indian citizen and resident in India (person who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year)—

  • shall be eligible to incorporate an OPC;
  • shall be a nominee for the sole member of an OPC.

8. No person shall be eligible to incorporate more than one OPC or become a nominee in more than one such company.
9. No minor shall become a member or nominee of the OPC or can hold share with beneficial interest.

OPC cannot be incorporated or converted into a company under section 8 of the Act. However, it may be converted into a private or public company. OPC cannot voluntarily convert itself into any kind of company unless two years have expired from the date of incorporation, except where the paid-up share capital is increased beyond fifty lakh rupees or its average annual turnover during the relevant period exceed two crore rupees.

Question 3.
State the limitations of the Doctrine of Indoor Management under the Companies Act, 2013.
Answer:
The Doctrine of Indoor Management or Turquand Rule has limitations of its own. That is to say, it is inapplicable to the following cases, namely:

a. Actual or constructive knowledge of irregularity
The rule does not protect any person when the person dealing with the company has notice, whether actual or constructive, of the irregularity. [Howard vs. Patent Ivory Manufacturing Co.]

b. Suspicion of Irregularity/Negligence
The doctrine is not applicable in the case of negligent persons. If an officer of the company acts in a manner, which would not ordinarily be within his powers, the person dealing with him must make proper inquiries and satisfy himself as to the officer’s authority. If he fails to make an inquiry, he cannot rely on the rule. Where the transaction is unusual or not in the ordinary course of business, it is the duty of the outsider to make the necessary inquiry. The protection of the ‘‘Turquand Rule” is also not available where the circumstances surrounding the contract are suspicious and therefore invite inquiry. [Anand Bihari Lai vs. Dinshaw & Co.]

c. Forgery
The doctrine of indoor management applies only to irregularities that might otherwise affect a transaction but it cannot apply to forgery which must be regarded as a nullity. Forgery may in circumstances exclude the ‘Turquand Rule’. [Ruben vs. Great Fingall Consolidated]

Companies Act, 2013 – CA Foundation Law Study Material

Question 4.
Explain the meaning of Guarantee Company? State the similarities & dissimilarities, between a Guarantee Company & Company Limited by Share.
Answer:
“Company limited by guarantee” means a company having the liability of its members limited by the memorandum, to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.

These companies may or may not have a share capital In the case of a guarantee company with a share capital, the members are required to purchase shares of a fixed amount and also give a guarantee for a further sum in the event of winding up. Generally, guarantee companies are formed for non-trading purposes. Such as promotion of commerce, art, science, sports, etc., and do not aim for profit. The Chambers of Commerce, charitable institutions, sports clubs, are generally organized as guarantee companies.

The common features between a ‘guarantee company’ and ‘the company having share capital’ are legal personality and limited liability. In the latter case, the member’s liability is limited by the amount remaining unpaid on the share, which each member holds. Both of them have to state in their memorandum that the members’ liability is limited.

POINTS OF DISTINCTION COMPANY LIMITED BY SHARES COMPANY LIMITED BY GUARANTEE
Purpose: Profit/non-profit both. Generally not for profit.
Usefulness: When initial funds are required to be raised to commence business. Only where no working funds are needed or where these funds can be held from other sources like endowment, fees, charges, donations, etc.
Transfer of interest May not be restricted. Restricted & different than that of those limited by shares
Liability of members Limited to amount unpaid on shares. Limited to amount guaranteed.
Amount Called Unpaid amount on shares may be called even before winding up. Amount guaranteed can be called only on winding up. If company has a share capital, unpaid amount on shares can be called before winding up.
Share capital Must have share capital May or may not have share capital
To start Raises initial funds from, members Does not raise initial funds from members, unless it has a share capital.

Question 5.
When a company is registered, it is clothed with a legal personality. Explain.
OR
What is the meaning of “Certificate of Incorporation” under the provisions of the Companies Act, 2013? What are the effects of the registration of a company?
Answer:
A company can be incorporated by complying with the formalities prescribed u/s 7 of the Companies Act, 2013. Application in the prescribed form must be made, along with the documents prescribed for this purpose and fees, to the Registrar within whose jurisdiction, the registered office of the company is proposed to be situated. The Registrar on being duly satisfied as to the compliance of all the requirements, relating to the incorporation of a company, as prescribed under the Companies Act, 2013 and the rules made thereunder, shall register all the documents and information in the register and issue a certificate of incorporation in the prescribed form to the effect that the proposed company is incorporated under this Act. The certificate of incorporation shall also indicate the unique identity number allotted to the company le. the Corporate Identity Number, which shall be a distinct identity for the company.

When a company is registered and a certificate of incorporation is issued by the Registrar, the following important consequences follow:

  1. The company becomes a distinct legal entity. Its life commences from the date mentioned in the certificate of incorporation.
  2. It becomes a body corporate and it acquires a perpetual succession.
  3. It is capable of suing and being sued in its corporate name.
  4. Its property is not the property of the shareholders. The shareholders have a right to share in the profits of the company when realized and divided. Likewise, any liability of the company is not the liability of individual shareholders.

From the date of incorporation mentioned in the certificate, the company becomes a legal person separate from the incorporators; and there comes into existence a binding contract between the company and its members as evidenced by the Memorandum and Articles of Association. It has perpetual existence until it is dissolved by liquidation or struck out of the register.

A legal personality emerges from the moment of registration of a company and from that moment the persons subscribing to the Memorandum of Association and other persons joining as members are regarded as a body corporate or a corporation in aggregate and the legal person begins to function as an entity. A company on registration acquires a separate existence and the law recognizes it as a legal person separate and distinct from its members.

Companies Act, 2013 – CA Foundation Law Study Material

Question 6.
Define a Small Company as defined under the Companies Act, 2013.
Answer:
Small Company: Small company given under section 2(85) of the Companies Act, 2013 which means a company, other than a public company—
1. paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; and

2. turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:
Exceptions: This section shall not apply to:

  • a holding company or a subsidiary company;
  • a company registered under section 8; or
  • a company or body corporate governed by any special Act.

Question 7.
Explain the concept of Dormant company as envisaged in the Companies Act, 2013.
Answer:
Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company.
“Inactive company” means a company that has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years.
“Significant accounting transaction” means any transaction other than

  • payment of fees by a company to the Registrar;
  • payments made by it to full the requirements of this Act or any other law;
  • allotment of shares to full the requirements of this Act; and
  • payments for maintenance of its office and records.

Companies Act, 2013 – CA Foundation Law Study Material

Question 8.
Differentiate between the Memorandum of Association & Articles of Association.
Answer:

MOA AOA
Power is the charter and constitution of the company. The articles are subordinate to the memorandum. If there is a conflict between the two, the memorandum shall prevail.
Ultra vires Acts done by a company beyond the scope of the memorandum are absolutely void (ineffective). They cannot be ratified even by the unanimous vote of all the shareholders. Articles of association govern the internal relationship between the company and its members, Ac Is done the company beyond its Articles can be ratified by the shareholders.
Registration Every company must have its own memorandum. It must be compulsorily filed for registration. It must be in the following forms: Model: A, B, C, D, E of Schedule I Every company must have its own Articles. ¡t must be compulsorily filed for registration. It must be in the following forms:

Model: F, G, H, 1, J of Schedule I

Alteration MOA cannot be altered easily. AOA can be altered if it is desired by the 3/4th majority.
Nature Memorandum of association contains the basic conditions on which the company is incorporated. It provides for the name, situation objects, capital, and liability of the company. Articles of association are the rules governing the internal management of the company. It provides for rules and procedures for the conduct of its business.
Scope It determines the objects, scope, and extent of the activities of the company. It governs the way in which the objects of the company are to be carried out.

Question 9.
State whether a non-profit organization can be registered as a company under the Companies Act, 2013. If so, what procedure does it have to adopt?
Answer:
Formation of companies with charitable objects etc. (Section 8 company)
Section 8 of the Companies Act, 2013 deals with the formation of companies which are formed to

  • Promote the charitable objects of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, etc.
  • Such company intends to apply its profit in promoting its objects and
  • Prohibiting the payment of any dividend to its members.

Examples of section 8 companies are FICCI, ASSOCHAM, National Sports Club of India, CD, etc.

Power of Central Government to issue the license—

  • Section 8 allows the Central Government to register such person or association of persons as a company with limited liability without the addition of words ‘Limited’ or ‘Private Limited’ to its name, by issuing license on such conditions as it deems fit.
  • The Registrar shall on application register such person or association of persons as a company under this section.
  • On registration, the company shall enjoy the same privileges and obligations as of a limited company.

Note: Central Government has delegated the power to grant licenses to the ROC.

Companies Act, 2013 – CA Foundation Law Study Material

Question 10.
Examine with reasons whether the following statements are correct or incorrect with reasons:

  1. A private company must have a minimum of two members while a public company must have a minimum of seven members
  2. Affixing of Common Seal on the company’s documents is compulsory.
  3. A company being an artificial person cannot own property & cannot sue or be sued

Answer:
(1) Correct. According to the provisions of section 3 of the Companies Act, 2013, which deals with the basic provisions for incorporation of a company, in the case of the public company a minimum of 7 persons is required to form a company to carry on the purpose as illustrated in the MOA of the company, by subscribing their name to the MOA. Similarly, a minimum of 2 persons is required to form a private company.

(2) Incorrect. As per the Companies (Amendment) Act, 2015, the common seal has been made optional by omitting the words “and a common seal” from Section 9 of the Act, with a view to providing an alternative authorization for the purpose of creation of contract by a company. This amendment provides that in case a company does not have a common seal, the authentication shall be made by any key managerial personnel or an officer or employee of the company, duly authorized by the Board on this behalf.

(3) Incorrect: A company is an artificial person and has a separate legal entity independent of its members. As a consequence, a company can enter into contracts in its own name, acquire and transfer/sell property in its own name and can also sue and be sued in its own name.

Question 11.
What is meant by Doctrine of Constructive Notice?
Answer:
Section 399 provides that the memorandum and articles when registered with the Registrar of Companies ‘become public documents’ and then they can be inspected by anyone on payment of a nominal fee. Therefore, any person who contemplates entering into a contract with the company has the means of ascertaining the powers of the company and is thus, presumed to have read these documents and understood them in their true perspective. This is known as the “doctrine of constructive notice”.

Even if the party dealing with the company does not have actual notice of the contents of these documents it is presumed that he has an implied (constructive) notice of them. Consequently, if a person enters into a contract which is beyond the powers of the company, as defined in the memorandum, or outside the limit set on the authority of the directors as per the memorandum or articles, he cannot, as a general rule, acquire any rights under the contract against the company.

By constructive notice is meant

  • Whether a person reads the documents or not, he is presumed to have knowledge of the contents of the documents. He is not only presumed to have read the documents but also understood them in their true perspective, and
  • Every person dealing with the company not only has the constructive notice of the memorandum and articles but also of all the other related documents, such as Special Resolutions, etc., which are required to be registered with the Registrar.

Thus, if a person enters into a contract that is beyond the powers of the company as defined in the memorandum, or outside the authority of directors as per memorandum or articles, he cannot acquire any rights under the contract against the company.

Question 12.
Briefly explain the doctrine of ‘ultra vires’ under the Companies Act, 2013. What are the consequences of ultra vires acts of the company?
Answer:
The meaning of the term ultra vires is simply “beyond (their) powers”. The legal phrase “ultra vires” is applicable only to acts done in excess of the legal powers of the doers. This presupposes that the powers in their nature are limited.
It is a fundamental rule of Company Law that the objects of a company as stated in its memorandum can be departed from only to the extent permitted by the Act, thus far and no further. In consequence, any act done or a contract made by the company which travels beyond the powers not only of the directors but also of the company is wholly void and inoperative in law and is therefore not binding on the company.

The impact of the doctrine of ultra vires is that a company can neither be sued on an ultra vires transaction nor can it sue on it. Since the memorandum is a “public document”, it is open to public inspection. Therefore, when one deals with a company one is deemed to know about the powers of the company. If in spite of this if a person enters into a transaction that is ultra vires the company, he cannot enforce it against the company.

Further, an act that is ultra vires the company being void, cannot be ratified by the shareholders of the company. The leading case through which this doctrine was enunciated is that of Ashbury Railway Carriage and Iron Company Limited v. Riche (1875).
The following are the consequences of an ultra vires act of the company:

  • An act ultra vires the company is null and void and thus wholly inopera¬tive. Neither the company can sue nor be sued against on such a contract made for an ultra vires act.
  • An act that is ultra vires the company cannot be ratified even by the unanimous consent of all the shareholders.
  • An act that is ultra vires the company cannot become ultra vires’ by reason of estoppel, acquiescence, the lapse of time, delay, or ratification.
  • The directors shall be held personally liable to the third parties who contracted for an ultra vires transaction on behalf of the company.

Companies Act, 2013 – CA Foundation Law Study Material

Question 13.
What is meant by the entrenchment of provisions in the Articles of Association?
Answer:
The articles may contain provisions for entrenchment (to protect something) to the effect that specified provisions of the articles may be altered only if conditions or procedures that are more restrictive than those applicable in the case of a special resolution, are met or complied with.

The provisions for entrenchment shall only be made either on the formation of a company or by an amendment in the articles agreed to by all the members of the company in the case of a private company and by a special resolution in the case of a public company.

Where the articles contain provisions for entrenchment, whether made on the formation or by amendment, the company shall give notice to the Registrar of such provisions in such form and manner as may be prescribed.

Question 14.
What do you mean by ‘Companies with charitable purpose’ (Section 8) under the Companies Act, 2013? Mention the conditions of the issue & revocation of the license of such company by the Government.
Answer:
“Companies with Charitable Objects” (Section 8) refers to the companies incorporated for a purpose other than earning profits. Such companies which carry on activities other than those of a commercial nature can be incorporated after obtaining a license u/s 8.
The Central Government issues a license for incorporation of a company under section 8 if it is duly satisfied that

  • the proposed company is being incorporated to promote the charitable objects of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, etc.
  • such a company intends to apply its profits in promoting its objects only &
  • company prohibits the payment of any dividend to its members.

The Central Government may by order revoke the license of the company:

  • where the company contravenes any of the requirements of the conditions of section 8, subject to which the license is issued or
  • where the affairs of the company are conducted fraudulently, or
  • where the affairs of the company are conducted in a manner that is violative of the objects, or
  • in a manner prejudicial to the public interest.

Before such revocation, the Central Government must give notice of its intention to revoke the license to the company and must also award the company, a reasonable opportunity of being heard.

Question 15.
The Articles of Association of XYZ Ltd. provides that the Board of Directors has the authority to issue bonds provided such issue is authorized by the shareholders by a necessary resolution in the general meeting of the company. The company was in dire need of funds & therefore it issued the bonds to Mr. X without passing any such resolution in the general meeting. Can Mr. X recover the money from the company? Decide, referring to the relevant provisions of the Companies Act, 2013. (C.A. Foundation RTP May 2018)
Answer:
As per the provisions of The Doctrine of Indoor Management, if an act is authorized by the AOA/MOA, then the outsider dealing with the company, is entitled to assume that all the formalities concerned with the act in question, have been complied with by the company in a regular manner, provided he has knowledge of the formalities mentioned in the MOA/AO A. Thus if the outsider has knowledge of the contents of these public documents and has understood them in their true perspective, then doctrine offers protection to the outsider and allows him to enforce the said contract against the company.

The facts of the case are similar to the leading case, of The Royal British Bank v. Turquand, where the directors of RRB Ltd. issued a bond to Turquand. The AOA empowered the directors to issue such bonds under the authority of a proper resolution. In fact, no such resolution was passed. Notwithstanding that, it was held that T could sue on the presumption of Doctrine of Indoor Management. Thus it can be concluded applying the above provisions and the ruling of the leading case, that Mr. X can recover the money from the company, assuming that all the required formalities for passing the resolution have duly complied.

Companies Act, 2013 – CA Foundation Law Study Material

Question 16.
Krishna, an assessee, was a wealthy man earning huge income by way of dividends and interest. He formed three private companies and agreed with each to hold a block of investment as an agent for them. The dividend and interest income received by the companies was handed back to Krishna as a pretended loan. This way Krishna divided his income into three parts in a bid to reduce his tax liability. Decide for what purpose the three companies were established? Whether the legal personality of the three companies may be disregarded?
Answer:
A company on being incorporated acquires a separate legal existence. Its existence is distinct and separate from its members. This principle of a separate legal entity may be referred to as the veil of incorporation. Generally, the law does not disregard this ‘corporate veil’ and does not concern itself directly with the members of the directors of the company. However, in certain exceptional cases, the law shall disregard the corporate entity and pay regard to the realities behind the legal facade, in order to render justice. One of the circumstances where the corporate veil is lifted is for the protection of revenue of the Government. Thus where the corporate entity is being used as a means of evasion of taxes there the corporate veil shall be lifted.

In the given case, Krishna an assessee earning huge dividend and interest income, formed three private companies and agreed to hold the investments as an agent, and received back the dividend & interest income as a pretended loan, with the intention to reduce his taxation liability.
Thus it is evident that the three private companies have been incorporated to merely serve as a means for evading taxes by Krishna & the corporate veil shall be lifted and the separate entity shall be disregarded. The dividend and interest income shall be deemed to be that of Krishna and he shall be liable to pay tax on the same, as was held in the leading case of Sir Dinshaw Maneckjee Petit.

Question 17.
Ravi Private Limited has borrowed t 5 crores from Mudra Finance Ltd. This debt is ultra vires to the company. Examine whether the company is liable to pay this debt? State the remedy if any available to Mudra Finance Ltd.
Answer:
A company cannot depart from the provisions contained in its M.O.A., however imperative may be the departure. It cannot enter into a contract that is beyond the power confessed on it by the M.O.A. If it does so, the contract shall be regarded as ultra vires and therefore void ab initio. The impact of an ultra vires transaction is that neither the company nor the third party has a right to sue on it. Since the memorandum is a public document by virtue of its being filed with the R.O.C., the parties who come to contract with the company, are deemed to have a knowledge of the contents of the M.O.A. If in spite of this the person enters into an ultra vires transaction, he cannot enforce the same against the company. Further money has been advanced to a company, in an ultra vires transaction, generally, it cannot be recovered by the lender. However, if the company has not yet expended the money then the company can be stopped from parting with the same by means of a suit for injunction and the lender shall be entitled to take back the same in species.

In the given case Ravi Private Limited has borrowed ₹ 5 crores from Mudra Finance Ltd. which is ultra vires, which implies that Ravi Pvt. Ltd. has borrowed the amount beyond the limit prescribed in the M.O.A. of the company. Applying the above-stated effect of the doctrine of ultra vires, it can be concluded that since the act of Ravi Pvt. Ltd. is ultra vires the company, the transaction shall be treated as void ab initio. However the lender i.e., Mudra Finance Ltd. shall be entitled to stop Ravi Pvt. Ltd. from parting with the money lent and take back the property in species.

Question 18.
ABC Pvt. Ltd., is a Private Company having five members only. All the members of the company were going by car to Mumbai in relation to some business. An accident took place and all of them died. Answer with reasons, under the Companies Act, 2013 whether the existence of the company has also come to the end?
Answer:
The company on its incorporation enjoys perpetual succession on account of its separate legal entity. The members may come and go but the company shall continue to be in existence forever until the company is legally wound up. Further, since the shares are transferable, in the event of the death of the members, the shares shall be transmitted to their legal representatives. Thus the company, ABC Pvt. Ltd. shall continue to be in existence, in spite of the death of its members in the given case.

Companies Act, 2013 – CA Foundation Law Study Material

Question 19.
The paid-up Share Capital of AVS Private Limited is ₹ 1 crore, consisting of 8 lacs Equity Shares of ₹ 10 each, fully paid-up and 2 lacs Cumulative Preference Shares of ₹ 10 each, fully paid-up. XYZ Private Limited and BCL Private Limited are holding 3 lacs Equity Shares and 1,50,000 Equity Shares respectively in AVS Private Limited. XYZ Private Limited and BCL Private Limited are the subsidiaries of TSR Private Limited. With reference to the provisions of the Companies Act, 2013, examine whether AVS Private Limited is a subsidiary of TSR Private Limited? Would your answer be different if TSR Private Limited has 8 out of a total of 10 directors on the Board of Directors of AVS Private Limited?
Answer:
Section 2(87) defines “subsidiary company” in relation to any other company (that is to say the holding company), means a company in which the holding company:

  • controls the composition of the Board of Directors; or
  • exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies:

For the purposes of this section:

  • a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (z) or sub-clause
  • is of another subsidiary company of the holding company;
  • the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;

Further the term “Total Share Capital”, means the aggregate of the:

  • Paid-up equity share capital; and
  • Convertible preference share capital. Thus applying the above-stated provisions, in both the above cases, AVS Pvt. Ltd. will be the subsidiary of TSR Pvt. Ltd. Total share capital of AVS Pvt. Ltd. is 8,00,000 shares out of which TSR Pvt. Ltd. is holding 4,50,000 shares through its subsidiaries.

Question 20.
The Articles of a company required that all deeds etc. should be signed by the M.D., the Secretary, and an Executive Director on behalf of the company. A deed of mortgage was signed by the Managing Director on behalf of the company in favor of Z. Can it be a valid deed?
Answer:
Hint: Doctrine of constructive Notice; The Articles require the deed to be signed by 3 persons. Z should have consulted the Articles of Association of the company to ascertain the authority of signing the deed. Even if, the M.D. has signed it in good faith, the deed is still not valid. Z can’t claim on the basis of the deed. The concept is that since the Articles is a public document, on being filed with the ROC, Z is presumed to have known its provisions. This principle was laid in Kotla Venkateswami v. Ramamurthy AIR 1934 Mad 579.

Question 21.
The Object Clause of Memorandum of Association of ABC Pvt. Ltd. Authorized the company to carry on the business of trading in Fruits and Vegetables. The Directors of the company in recently concluded Board Meeting decided and accordingly, the company ordered for fish for the purpose of trading. FSH Limited supplied fish to ABC Pvt. Ltd. Worth ₹ 36 lakhs. The members of the company convened an extraordinary general meeting and negated the proposal of the Board of Directors on the ground of ultra vires acts. FSH Limited being aggrieved of the said decision of ABC Pvt. Ltd. seeks your advice. Advise them.
Answer:
Hint:- Doctrine of ultra vires’, Company being an artificial person can enter into those contracts as are warranted by terms of the object clause of its MOA. A company can depart from the objects stated in MOA only to the extent permitted by the Act, thus far and no further. Thus any act done or any contract made by the company which travels beyond the powers not only of the directors but also of the company is wholly void inoperative and is therefore not binding on the company.

In the given case the object clause of MOA of ABC Pvt. Ltd. authorizes to carry on the business of trading in fruits & vegetables only, whereas the company enters into a contract with FSH Ltd. for the purchase of fish worth ₹ 36 lakhs. Thus the contract is ultra vires the company and shall not be binding on the company. Further ratification of ultra vires transactions cannot be done even by the whole body of shareholders. Thus FSH Ltd. has no remedy against the company. It can hold the directors of ABC Pvt. Ltd. personally liable.

Question 22.
FAREB Limited was incorporated by the acquisition of Fareb & Co., a partnership firm, which was earlier involved in many illegal activities. The promoters furnished some false information and also suppressed some material facts at the time of incorporation of the company. Some members of the public (not being directors or promoters of the company) approached the National Company Law Tribunal (NCLT) against the incorporation status of FAREB Limited. NCLT is about to pass the order by directing that the liability of the members of the company shall be unlimited.
Given the above, advise on whether the above order will be legal and mention the precaution to be taken by NCLT before passing the order in respect of the above as per the provisions of the Companies Act, 2013.
Answer:
Hint According to the provisions of Section 7(7) of the Companies Act, 2013, where a company has been got incorporated by furnishing false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company or by any fraudulent action, the Tribunal may, on an application made to it, on being satisfied that the situation so warrants,

  • pass such orders, as it may think fit, for regulation of the management of the company including changes, if any, in its memorandum and articles, in public interest or in the interest of the company and its members and creditors; or
  • direct that liability of the members shall be unlimited; or
  • direct removal of the name of the company from the register of companies; or
  • pass an order for the winding-up of the company; or
  • pass such other orders as it may deem fit.

Provided that before making any order:

  • the company shall be given a reasonable opportunity of being heard in the matter; and
  • the Tribunal shall take into consideration the transactions entered into by the company, including the obligations, if any, contracted or payment of any liability.

Further where it is proved that a company has been incorporated as aforesaid, then the promoters, the persons named as the first directors, and the persons making a declaration at the time of incorporation of the company shall each be .liable for action for fraud under section 447.
In the given case, the decision of NCLT to direct that the liability of the members of FAREB Ltd. shall be unlimited is legally valid as per the above-stated provisions. However, before passing any such direction, NCLT shall grant FAREB Ltd., the opportunity of being heard and shall take into consideration the transactions entered into by company, including the obligations if any contracted or payment of any liability.

Question 23.
A company registered under Section 8 of the Companies Act, 2013, earned huge profits during the financial year ended on 31st March 2018 due to some favorable policies declared by the Government of India and implemented by the company. Considering the development, some members of the company wanted the company to distribute dividends to the members of the company. They approached you to advise them about the maximum amount of dividend that can be declared by the company as per the provisions of the Companies Act, 2013. Examine the relevant provisions of the Companies Act, 2013, and advise the members accordingly.
Answer:
According to provisions of section 8 of the Companies Act, 2013, a company can be incorporated for not-for-profit purposes under a license from Central Government provided the following conditions have complied

  • The company is formed to promote the charitable objects of commerce, art, science, sports, education, research, social welfare, religion, charity protection of the environment, etc.
  • Such a company intends to apply its profits/surplus in the promotion of its objects and
  • The payment of dividends to its members is prohibited.

In the given case the member of a Section 8 company is desirous that the company should distribute dividends out of the huge profits earned by the company, among its members.

Thus applying the above-stated provisions it is evident that distribution of dividends is prohibited and therefore the claim of the members is not tenable.

Question 24.
Mr. X had purchased some goods from M/s. ABC Limited on credit. A credit period of one month was allowed to Mr. X. Before the due date Mr. X went to the company and wanted to repay the amount due from him. He found only Mr. Z there, who was the factory supervisor of the company, Mr. Z told Mr. X that the accountant and the cashier were on leave, he is in¬charge of receiving money and he may pay the amount to him. Mr. Z issued a money receipt under his signature.

After two months M/s. ABC Limited issued a notice to Mr. X for non-payment of the dues within the stipulated period. Mr. X informed the company that he had already cleared the dues and he is no more responsible for the same. He also contended that Mr. Z is an employee of the company to whom he had made the payment and being an outsider, he trusted the words of Mr. Z as duty distribution is a job of the internal management of the company. Analyze the situation and decide whether Mr. X is free from his liability.
Answer:
The Doctrine of Indoor Management is an exception to the Doctrine of Constructive Notice. An outsider who has read the public documents (MOA & AOA) containing the powers of the company and the extent to which they have been delegated to its officers and understood them in their true perspective, can assume that the internal operations and management of the company have been performed regularly, in respect of the contract that he is desirous of entering into with the company. However, there are certain limitations to this doctrine.

One of the exceptions to the Doctrine of Indoor management is knowledge/ suspicion of irregularity. The protection under the doctrine does not extend to those persons who have behaved negligently. Thus when the circumstances are such which invite inquiry & for example when an officer of the company is purporting to act in a matter, which is apparently outside the usual scope of his authority, then the outsides are under a duty to make the necessary inquiry. If the outsider fails to make an inquiry as such then he cannot seek protection under the Doctrine of Indoor Management and the company shall not be bound by the transaction. This was also held in the case of Anand Behari Lai v. Dinshaw & Co.

In the given case Mr. X makes the payment to Mr. Z the factory supervisor. The act of receiving money on behalf of the company falls beyond the apparent authority of a factory supervisor. The nature of the transaction was such which required Mr. X to enquire as to Mr. Z’s authority.

Thus applying the above-stated provisions it can be concluded that Mr. X is not free from his liability towards the company as he failed to enquire about Mr. Z’s authority despite the suspicious circumstances. members in the company as noted below:

  • Directors and their relatives                                                                     190
  • Employees                                                                                                15
  • Ex-Employees (Shares were allotted when they were employees)           10
  • 5 couples holding shares jointly in the name of husband and wife (5*2) 10
  • Others                                                                                                        5

The board of Directors of the company proposes to convert it into a private company. Also, advise whether the reduction in the number of members is necessary.
Answer:
Hint: Provisions of section 2(68) of Companies Act, 2013. Definition of a private company. In Computing the number of members joint shareholders are treated as a single member. Further, the number of present employees & past employees who continue to be members even after termination of employment shall not be included in the number of members.

In the given case Flora Fauna Limited can be converted into a private company provided the restrictions of a private company are incorporated in the area of the company and due procedure for conversion, under the Act is duly complied with. Further Flora Fauna Ltd. would be required to have its number of members Limited to 200.

Presently the total number of members are:

  • Directors & their relatives                                       =190
  • 5coup]es[joint shareholders counted as a  single] =5
  • Other                                                                       = 5
    Total                                                                              200 [excluding present & ex-employees]

Therefore since the number of members does not exceed 200, no reduction in the number of members is required for conversion.

Companies Act, 2013 – CA Foundation Law Study Material

Question 26.
Sound Syndicate Ltd. a public company, its articles of association empower the managing agents to borrow both short and long-term loans on behalf of the company. Mr. Liddle the director of the company, approached Easy finance Ltd., a non-banking finance company for a loan of Rs. 25,00,000 in name of the company. The lender agreed and provided the said loan. Later on, Sound Syndicate Ltd. refused to repay the money borrowed on the pretext that no resolution authorizing such loan have been actually passed by the company and the lender should have enquired about the same prior to providing such loan. Hence the company is not liable to pay such a loan. Analyze the above situation in terms of the provisions of Doctrine of Indoor Management under the Companies Act, 2013 and examine whether the contention of Sound Syndicate Ltd. is correct or not?
Answer:
According to the provisions of Doctrine of Indoor Management, an outsider while entering into contracts with a company is entitled to assume, due & regular compliance of all the formalities & internal proceedings required on the part of the company for the purpose of the contract, provided the outside has the knowledge, of the scope of authority of the company as contained in the MoA and also of the extent to which the authority has been delegated to the officials of the company. Thus an outsider can plead protection against the internal irregularities in the operations of the company & hold the company liable under the contract, only if he has the knowledge of MoA as well as the AoA and has understood their terms in their true perspective. In case the third party (outsider) has no knowledge of MoA & AoA then it cannot seek remedy under Doctrine of Indoor Management.

In the given case sound Syndicate Ltd. contracts with Easy Finance Ltd. to borrow a loan of Rs. 25,00,000. The AoA of sound Syndicate Ltd. empowers its managing agents (i.e. directors) to borrow loans on its behalf. Thus applying the above-stated provisions to the given case it can be concluded that if Easy Finance Ltd. had the knowledge of the AoA of Sound Syndicate Ltd. & was aware of the power of its directors to borrow loans on behalf of the company, then the fact, that no resolution authorizing the directors was actually passed, shall be of no consequence & Easy Finance Ltd. can hold the company liable for the loan. The passing of resolution authorizing the loan is a matter of internal management of the company which will be presumed to have been regularly performed, provided Easy Finance Ltd. has the knowledge of the AoA of Sound Syndicate Ltd. Thus the contention of Sound Syndicate Ltd. is not correct.

Question 27.
The Memorandum and Articles of Association of a company were delivered to the Registrar of Companies for registration on January 6, 2018. On January 8th, 2018, the Registrar issued the certificate of incorporation but dated it January 6th, 2018. On that very day (January 6th, 2018) the company made an allotment of its shares. The allotment was challenged that it was made before the actual issue of the certificate of incorporation. How would you decide and why?
Answer:
Hint: According to the provisions of The Companies Act, 2013, a company comes into existence the moment it is incorporated and a certificate of incorporation is issued. The company acquires a separate legal entity, from the date mentioned in the certificate and becomes competent to enter into a contract in its own name, purchase assets, incur liabilities in its own name and sue and be sued in its own name. Thus in the given case, the company has acquired a separate legal entity from the date of its incorporation as appearing in the certificate, i.e. 6th January 2018. Therefore the contract for allotment of shares made by the company is valid.

Companies Act, 2013 – CA Foundation Law Study Material

Question 28.
Popular Products Ltd. is a company incorporated in India, having a total Share Capital of Rs. 20 Crores. The Share capital comprises 12 Lakhs equity shares of Rs. 100 each and 8 Lakhs Preference Shares of Rs. 100 each. Delight Products Ltd. and Happy products Ltd. hold 2,50,000 and 3,50,000 shares respectively in Popular Products Ltd. Another company Cheerful products Ltd. holds 2,50,000 shares in Popular Products Ltd. Jovial Ltd., is the holding company for all the above three companies namely Delight Products Ltd.; Happy products Ltd; Cheerful products Ltd. Can Jovial Ltd., be termed as a subsidiary company of Popular Products Ltd., if it Controls the composition of directors of Popular Products Ltd. State the related provision in the favour of your answer.
Answer:
According to the provisions of section 2(46) of the Companies Act, 2013, a company is a holding company in relation to one or more other companies, which means a company of which such companies are subsidiary companies. Further section 2(87) defines the subsidiary company in relation to any other company (holding company), which means a company in which the holding company –

  • controls the composition of the Board of Directors; or
  • exercises or controls more than one-half of the total share capital either on its own or together with one or more of its subsidiary companies.

A company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clauses (z) & (it) is of another subsidiary company of the holding company.

In the given case subsidiaries of Jovial Ltd. – Delight Products Ltd.; Happy Products Ltd. & Cheerful Products Ltd. hold 2,50,000; 3,50,000 & 2,50,000 shares respectively in Popular Ltd. The total shareholding of these subsidiaries amounts to 8,50,000 shares which is more than half of the total share capital of Popular Ltd. of 12,00,000 No. of shares. Thus Jovial Ltd. is controlling more than half of the share capital of Popular Ltd. through its subsidiaries.

Further, if Jovial Ltd. is in a position to exercise control over the composition of the Board of Directors of Popular Ltd. then also Jovial Ltd. shall be regarded as the holding company of Popular Ltd. Thus it can be concluded that Jovial Ltd. is not the subsidiary, but is rather the holding company of Popular Ltd.

Payment of Tax – CA Inter Tax Study Material

Payment of Tax – CA Inter Taxation Study Material is designed strictly as per the latest syllabus and exam pattern.

Payment of Tax – CA Inter Taxation Study Material

Question 1.
Mr. Nimit, a supplier of goods, pays GST under regular scheme. He is not eligible for any threshold exemption. He has made the following outward taxable supplies in the month of August, 2020

Amount (₹)
Intra-state supplies of goods 6,00,000
Inter-state supplies of goods 2,00,000

He has also furnished following information in respect of purchases made by him from registered dealers during August, 2020

Amount (₹)
Intra-state purchase of goods 4,00,000
Inter-state purchase of goods 50,000

Balance of ITC available at the beginning of the August 2020 :

CGST 15,000
SGST 35,000
IGST 20,000

Note:

  1. Rate of CGST, SGST and IGST to be 9%, 9% and 18% respectively, on both inward and outward supplies.
  2. Both inward and outward supplies given above are exclusive of taxes, wherever applicable.
  3. All the conditions necessary for availing the ITC have been fulfilled. Compute the Net GST payable by Mr. Nimit for the month of August, 2020. [May 2018 Old Course, 6 Marks]

Answer:
Computation of GST payable on Outward supply

Particulars IGST CGST SGST
(1) Inter-state supply of goods (18% of ₹ 2,00,000) 36,000 —–
(2) Intra-state supply of goods
CGST @ 9% of ₹ 6,00,000 54,000
SGST @ 9% of ₹ 6,00,000 54,000
Total Tax Liability 36,000 54,000 54,000

Payment of Tax – CA Inter Tax Study Material

Computation of Total ITC Available

Particulars IGST CGST SGST
Opening brought forward ITC 20,000 15,000 35,000
Add: IGST in respect of Inter-state purchase of goods 9,000
Add: Intra-state inward supply of repair services 36,000 36,000
Total ITC available on 31st August, 2020 29,000 51,000 71,000

Computation of Net GST Payable

Particulars IGST CGST SGST
GST payable on Outward supplies (as computed above) 36,000 54,000 54,000
Less: Adjustment of ITC on account of IGST as per section 49(5)(a) read with section 49A: [Towards IGST] (29,000)
Balance 7,000 54,000 54,000
Less: Adjustment of ITC on account of CGST/ SGST as per section 49(5)(b)/(c)
(a) Adj. of ITC of CGST towards CGST (51,000)
(b) Adj. of ITC of SGST towards SGST (54,000)
Less: Adjustment of balance ITC of SGST towards IGST as per section 49(5)(c) (7,000)
Net GST Payable through Cash Ledger Nil 3,000 Nil
Balance available in Electronic Credit ledger after aforesaid adjustment Nil Nil 10,000

Notes:

(a) Supply of detergent and bucket together with a single price of ₹ 400 is a mixed supply. Being a mixed supply comprising of two supplies, it shall be treated as supply of that particular supply that attracts highest rate of tax (28%).

(b) Supply of online educational journal is exempt only when the same is provided to an educational institution which provides a qualification recognised by law. Since, the private coaching centre does not provide any recognised qualification, the supply of online educational journals to the same will be taxable.

(c) ITC can be taken only on the basis of a valid tax paying document. Thus, ITC will not be available on goods for which the invoice is miss-ing.

(d) ITC on motor vehicles for transportation of persons with seating capacity > 13 persons (including the driver) used for any purpose is allowed. Further, ITC is allowed on repair and maintenance services relating to motor vehicles, ITC on which is allowed.

Tutorial Note:

Under the amended position of law, the IGS T credit, after being set off against IGST liability, can be utilised against CGST and SGST liability in any order and in any proportion. Thus, there can be other answer abo, but the total GST payable after adjustment of ITC should not be more than ₹ 15,000, as calculated above.

Question 2.
M/s. Pradyumn Corporation Pvt. Ltd., a registered dealer of Mumbai furnishes you following information for the month of October, 2020.

Particulars Amount (₹)
(i) Intra-state sale of Taxable goods (out of above ₹ 50,000 was received as advance in September, 2020) 2,00,000
(ii) Goods purchased from unregistered dealer (purchased on 20th October, 2020) (10,000 in case of Inter-state & Balance Intra-state) 50,000
(iii) Received for services by way of labour contracts for repairing a single residential unit otherwise than as a part of residential complex (it is Intra-state transaction) 50,000
(iv) Professional fees paid to Ms. Udadhi located in a non-taxable territory (it amounts to Inter-state transaction) 50,000

Compute GST liability (CGST, SGST or IGST, as the case may be) of M/s. Pradyumn Corporation Pvt. Ltd. for the month of October, 2020. Assume the rates of GST as under:
CGST 9%
SGST 9%
IGST 18%
Note: Turnover of M/s. Pradyumn Corporation Pvt. Ltd. was ₹ 2 crores in the Previous Financial Year.
[May 2018 Old Course Modified, 5 Marks]
Answer:
Computation of GST payable on Outward supply

Particulars IGST CGST SGST
(1) Intra-state supply of taxable goods (9% of ₹ 2,00,000) 18,000 18,000
(2) Goods purchased from unregistered dealer Nil Nil
(3) services of labour contracts for repairing (9% of ₹ 50,000) 4,500 4,500
(4) Professional fees [IGST @ 18% of ₹ 50,000] 9,000
Total Tax Liability 9,000 22,500 22,500

Note:

(1) By virtue of Notification No. 66/2017, the date of advance is not con-sidered in case of forward supply of goods while determining the time of supply under section 12(2). It implies that the GST liability would not have arisen on advance of ₹ 50,000 received in September, 2020 in that month. Therefore, the same has been included in the GST liability of the company for the month of October, 2020.

(2) All intra-State and inter-State procurements made by a registered person from unregistered person have been exempted from reverse charge liability, without any upper limit for daily procurements.

(3) Services by way of pure labour contracts of construction, erection, commissioning, or installation of original works pertains to a single residential unit otherwise than as a part of a residential complex are exempt. Labour contracts for repairing are thus, taxable.

(4) In case of service supplied by a person located in a non-taxable territory to a person other than non-taxable online recipient, GST is payable under reverse charge by such recipient.

Payment of Tax – CA Inter Tax Study Material

Question 3.
With reference to GST Laws, when interest is payable? [May 2018 Old Course, 1 Marks]
Answer:
Interest is payable in the following cases in terms of section 50 of CGST Act, 2017:
(a) Delay/failure to pay tax, in full or in part within the prescribed period
(b) undue or excess claim of input tax credit
(c) undue or excess reduction in output tax liability.

Question 4.
M/s. J & Co. Chartered Accountants a partnership firm having its registered and head office in Mumbai and Registered under the GST Act in the State of Maharashtra only. It does not have any branches in other state. The Gross Receipts of the firm in the Financial Year 2017-18 was ₹ 60 Lakhs. Firm has submitted following information for the month of August, 2018 :

Particulars Amount (₹)
(Excluding GST)
Professional Services Provided and Bills Raised during the month for Providing of Services of ITR Filing and Income Tax Consultancy 1,00,000
Internal Audit of X Pvt. Ltd. at their office in Mumbai (Registered in the state of Maharashtra) 50,000
Statutory Audit Services provided to M/s. Tirupati Trading Pvt. Ltd. at Ahmedabad (Registered in the State of Gujarat) 70,000

Firm has also furnished following information in respect of input services availed from registered dealers for providing of output services during the month August, 2018:

Particulars Amount (₹) (Excluding GST) CGST SGST IGST
Services availed from Courier Agency 5,000 450 450 Nil
Railway Travelling Expenses from Mumbai to Ahmedabad and Return Ticket for conducting of Audit of M/s. Tirupati Trading Pvt. Ltd. for 3 Tier AC 12,000 Nil Nil 600
Service Availed from Another Professional Firm at Mumbai amount is paid without TOS U/s 194J of Income Tax Act 20,000 3,600 Nil Nil

Notes :

  1. Rate of CGST, SGST and IGST to be 9%, 9% & 18% respectively, on outward supplies.
  2. All the conditions necessary for availing the ITC have been fulfilled.
  3. Opening Balance of available input tax credit is Nil for CGST, SGST and IGST.

Compute the Net GST Payable by M/s. J & Co., for the month August, 2018 after adjusting the GST Credit. Brief reasoning should form part of your answer. [Nov. 2018 Old Course, 4 Marks]
Answer:
Computation of GST payable on Outward supply

Particulars IGST CGST SGST
(1) Intra-state supply [Professional services of ITR, Tax consultancy] (9% of ₹ 1,00,000) 54,000 54,000
(2) Intra-state supply [Internal Audit] (9% of ₹ 50,000)                 ‘ 4,500 4,500
(3) Inter-state supply [Statutory Audit Services provided to M/s. Tirupati Trading Pvt.] 12,600
Total Tax Liability 12,600 13,500 13,500

Computation of Total ITC Available

Particulars IGST CGST SGST
Opening brought forward ITC Nil Nil Nil
Add: Services from Courier Agency 450 45
Add: Railway Travelling from Mumbai to Ahmedabad 600
Add: Service from Another Professional Firm at Mumbai 1,800 1,800
Total ITC available on 31st August, 2018 600 2,250 2,250

Payment of Tax – CA Inter Tax Study Material

Computation of Net GST Payable

Particulars IGST CGST SGST
GST payable on Outward supplies (as computed above) 12,600 13,500 13,500
Less: Adjustment of ITC on account of IGST as per section 49(5)(a) read with section 49A: [Towards IGST] (600)
Balance 12,000 13,500 13,500
Less: Adjustment of ITC on account of CGST/SGST as per section 49(5)(b)/(c)
(a) Adj. of ITC of CGST towards CGST (2,250)
(b) Adj. of ITC of SGST towards SGST (2,250)
Net GST Payable through Cash Ledger 12,000 11,250 11,250

Question 5.
M/s. Maheshwari Corporation Pvt. Ltd. is a supplier of goods and services at Bangalore, registered in the State of Karnataka having Turnover of ₹ 200 lakhs in the last financial year. It has furnished the following information for the month of June, 2018.

Sr. No. Particulars Amount in ₹ Excluding GST
(1) Services provided by way of Labour Contract for repairing a single residential unit otherwise than as a part of residential complex (It is an intra-state transaction.) 1,30,000
(2) Intra-state Sale of Taxable Goods including ₹ 50,000 received as advance in April, 2018. The invoice for the entire sale value is issued on 15th June, 2018 2,50,000
(3) Goods Transport Services received from GTA, GTA is paying tax @ 12% (It is an inter-state transaction.) 1,80,000
(4) Goods Purchased from unregistered dealer on 20th June, 2018 (Inter-state purchases are worth ₹ 45,000 and balance purchases was intra-state). 80,000

Compute Net GST Liability (CGST, SGST, IGST as the case may be) of M/s. Maheshwari Corporation Pvt. Ltd. for the month of June, 2018 assume the rates of GST, unless otherwise specified, as under:
CGST – 9%, SGST – 9%, IGST – 18% [Nov. 2018 Old Course, 5 Marks]
Answer:
Computation of GST payable on Outward supply

Particulars Note CGST SGST
(1) Services provided by way of Labour Contract for repairing a single residential unit otherwise than as a part of residential complex (1) 11,700 11,700
(2) Intra-State Sale of Taxable Goods (2) 22,500 22,500
(3) Goods Purchased from unregistered dealer on 20th June, 2018 (3) Nil Nil
Total Tax Liability 34,200 34,200
Less: ITC of GST paid on GTA services received (4) 10,800 10,800
Net GST Liability 23,400 23,400

Notes:

  1. Services by way of pure labour contracts of construction, erection, commissioning, or installation of original works pertains to a single residential unit otherwise than as a part of a residential complex are exempt. Labour contracts for repairing are thus taxable.
  2. Time of supply of goods is the time of issue of invoice. So, advance received in April, 2018 will also be taxed in June, 2018.
  3. All intra-State and inter-State procurements made by a registered person from unregistered person have been exempted from reverse charge liability.
  4. Since GTA is paying tax @ 12%, tax is payable under forward charge. Further, ITC of IGST (12% of ₹ 1,80,000 i.e. ₹ 21,600) paid on the same is available.
  5. The ITC of IGST has been used to pay CGST and SGST equally as there is no IGST liability.

Payment of Tax – CA Inter Tax Study Material

Question 6.
Insight Ltd. is operating in West Bengal. The Tax liability for the month of August, 2017 is as follows:

S. No. Tax Liability Amount (₹)
(1) Output CGST Payable 24,000
(2) Output SGST Payable 9,000
(3) Output IGST Payable 3,000
(4) input 7,000
(5) Input SGST 14,000
(6) Input IGST 12,000

Calculate Tax payable and carry forward for the month of August, 2017 [Nov. 2018 OId Course, 4 Marks]
Answer:
Computation of Net GST Payable

Particulars IGST CGST SGST
GST payable on Outward supplies 3,000 24,000 9,000
Less: Adjustment of ITC on account of IGST as per section 49(5)(a) read with section 49A:
(a) Towards IGST (3,000)
(b) Towards CGST (9,000)
Balance Nil 15,000 9,000
Less: Adjustment of ITC on account of CGST/SGST as per section 49(5)(b)/(c)
(a) Adj. of ITC of CGST towards CGST (7,000)
(b) Adj. of ITC of SGST towards SGST (9,000)
Net GST Payable through Cash Ledger Nil 8,000 Nil
Balance available in Electronic Credit ledger after aforesaid adjustment Nil Nil 5,000

Question 7.
M/s. Software Limited, reduced the amount of ₹ 2,00,000 from the output tax liability in contravention of provisions of section 42(10) of the CGST Act, 2017 in the month of December 2017, which is ineligible credit. A show cause notice was issued by the Tax Department to pay Tax along with interest. M/s. Software Limited paid the tax and interest on 31st March, 2018. Calculate Interest liability (Ignore Penalty). [Nov. 2018 Old Course, 4 Marks]
Answer:
A taxable person who makes an undue or excess claim of input tax credit shall pay interest @ 24% p.a. on such undue or excess claim. The period of interest will be from the date following the due date of payment ; to the actual date of payment of tax.
Due date of payment is 20th January, 2018.
Period for which interest is due = 21st January, 2018 to 31st March, 2018 = 70 days
Thus, interest liability = ₹ 2,00,000 × 24% × 70/365 = ₹ 9,205.

Question 8.
Mr. Uttam Kumar a registered supplier of service in Kolkata, has provided following information for the month of

Amount in ₹
1 Intra-State taxable supply of service. 6,40,000
2 Amount received from Kapola Pvt. Ltd., for service provided to company. (He is a director in Kapola P. Ltd.), being Intra­State transaction. 5,00,000
3 Paid legal fee to senior advocate for one legal matter within State, being Intra-State transaction. 50,000
4 Amount received for service provided by him as a commentator to a local recognized sports body, being Intra-State transaction 1,20,000
5 Amount received for acting as a coach in recreational activities relating to sports, from one local charitable entity registered under section 12AA of the Income Tax Act, 1961, being Intra­State transaction. 30,000

Compute the net GST liability (CGST, SGST or IGST) of Mr. Uttam Kumar for the month of October, 2018.

Rate of CGST, SGST and IGST are 9%, 9% and 18% respectively. All the amounts given are exclusive of CGST, SGST and IGST. [May 2019 Old Course, 8 Marks]
Answer:
Computation of Liability under RCM on Inward supply

Particulars CGST SGST
Legal fee paid to senior advocate for one legal matter (Intra-state)
CGST @ 9% of ₹ 50,000 4,500
SGST @ 9% of ₹ 50,000 4,500
GST Liability under RCM (A) 4,500 4,500

Computation of Liability under FORWARD on Outward Supply

Particulars CGST SGST
(1) Intra-state taxable supply of services
CGST @ 9% of ₹ 6,40,000 57,600
SGST @ 9% of ₹ 6,40,000 57,600
(2) Services supplied by director (Payable under RCM)
(3) Service provided as a commentator to a local recognized sports body [Intra state]
CGST @ 9% of ₹ 1,20,000 10,800
SGST @ 9% of ₹ 1,20,000 10,800
(4) Services provided as a coach (Exempt)
Total Tax Liability 68,400 68,400
Less: ITC of GST paid on legal fees paid to senior advocate (4,500) (4,500)
Output tax liability after set-off of ITC (B) 63,900 63,900

Payment of Tax – CA Inter Tax Study Material

Determination of Total Liability for October, 2018

Particulars CGST SGST
(1) GST Liability under Reverse Charge (As per ‘A’) 4,500 4,500
(2) GST Liability under Forward Charge (As per ‘B’) 63,900 63,900
Total GST Liability Payable in cash 68,400 68,400

Notes:

  1. Services supplied by a director of a company to the said company are taxable under reverse charge and thus, the tax leviable thereon will be paid by the company.
  2. Services provided by a senior advocate by way of legal services are taxable under reverse charge and thus, the tax leviable thereon will he paid by Mr. Uttam Kurnar.
  3. Services provided to a recognized sports body by an individual as a player, referee, umpire, coach or team manager for participation in a sporting event organized by a recognized sports body is exempt from GST vide exemption notification. However, services provided as a commentator to a local recognized sports body is taxable.
  4. Services by way of coaching in recreational activities relating to sports by charitable entities registered under section 12M of the Income-tax Act arc exempt from GST vide exemption notification.
  5. The amount available in the electronic credit ledger may be used for making payment towards output tax. However, tax payable under reverse charge is not an output tax. Therefore, tax payable under reverse charge cannot be set-off against the input tax credit and thus, will have to be paid in cash.

Question 9.
What are the E-ledgers? State the entries to be debited to electronic liability register, under the CGST Act, 2017 and the CGST Rules, 2017. [May 2019 Old Course, 5 Marks]
Answer:
Electronic Ledgers or E-Ledgers, i.e., Electronic Cash Ledger and Electronic Credit Ledger, are statements of cash and input tax credit in respect of each registered taxpayer. In addition, each taxpayer shall also have an electronic tax liability register.

The entries to he debited to electronic liability register under the CGST Act, 2017 and the CGST Rules, 2017 are as follows: –

  1. all amounts payable towards tax, interest, late ice and any other amount as per return filed;
  2. all amounts pay able towards tax, interest, penalty and any other amount determined in a proceeding by an assessing authority or as ascertained by the taxable person;
  3. the amount of tax and interest pay able due to mismatch;
  4. any amount of interest that may accrue from time to time.

Payment of Tax – CA Inter Tax Study Material

Question 10.
Mr. Ajay, a registered supplier of goods, pays GST under regular scheme and provides the following information for the month of August 2017 :

Particulars (₹)
(i) Inter-state taxable supply of goods 10,00,000
(ii) Intra-state taxable supply of goods 2,00,000
(iii) Intra-state purchase of taxable goods 5,00,000

He has the following Input tax credit at the beginning of August 2017 :

Nature ITC Amount in (₹)
CGST 20,000
SGST 30,000
IGST 25,000

Rate of CGST, SGST and IGST are 9%, 9% and 18% respectively. Both inward and outward supplies are exclusive of taxes wherever applicable. All the conditions necessary for availing the ITC have been fulfilled. Compute the net GST payable by Mr. Ajay for the month of August 2017. [May 2018, 6 Marks]
Answer:
Computation of GST payable on outward supply

Particulars IGST CGST SGST
(1) Inter-state supply of goods (18% of ₹ 10,00,000) 1,80,000
(2) Intra-state supply of goods (9% of ₹ 2,00,000) 18,000 18,000
Tax on Outward Supply 1,80,000 18,000 18,000

Computation of Total ITC Available

Particulars IGST CGST SGST
Opening balance brought forward 25,000 20,000 30,000
Add: ITC in respect of inward supply during August 2018 @ 9% of ₹ 5,00,000 ——— 45,000 45,000
Total ITC 25,000 65,000 75,000

Payment of Tax – CA Inter Tax Study Material

Computation of GST payable through cash ledger

Particulars IGST CGST SGST
GST payable on outward supplies 1,80,000 18,000 18,000
Less: Adjustment of ITC on account of IGST as per section 49(5)(a) read with section 49A:
(a) Towards IGST (25,000)
Balance 1,55,000 18,000 18,000
Less: Adjustment of ITC on account of CGST/ SGST as per section 49(5)(b)/(c)
(a) Adj. of ITC of CGST towards CGST (18,000)
(b) Adj. of ITC of SGST towards SGST (18,000)
Balance 1,55,000 Nil Nil
Less: Adjustment of ITC on account of CGST as per section 49(5)(b) towards IGST (47,000)
Less: Adjustment of ITC on account of SGST as per section 49(5)(c) towards IGST (57,000)
Net GST Payable through Cash Ledger 51,000 Nil Nil

Note: Since section 49A is an overriding section to section 49, the ITC on account of IGST shall be utilized fully towards IGST, then CGST and balance for SGST/UTGST, is available.

Question 11.
In terms of provision of CGST Act, 2017, When interest shall be payable by a registered person and what is the maximum rate of interest chargeable for the same? [May 2018, 5 Marks]
Answer:
Interest is payable in the following cases:-

  • failure to pay tax, in full or in part within the prescribed period,
  • undue or excess claim of input tax credit,
  • undue or excess reduction in output tax liability.

The maximum rate of interest chargeable for the same is as under-

(a) 18% p.a. in case of failure to pay full/part tax within the prescribed period
(b) 24% p.a. in case of undue or excess claim of input tax credit or undue I or excess reduction in output tax liability

Question 12.
Mr. Thiraj, a registered supplier of service in Bangalore (Karnataka State) has provided the following information for the month of February 2018:

Particulars Amount in (₹)
(i) Intra-state taxable supply of service 5,20,000
(ii) Legal fee paid to a Lawyer located within the state 20,000
(iii) Rent paid to the State Govt, for his office building 30,000
(iv) Received for services towards conduct of exams to Love all University, Pune (Recognized by law), being an inter­state transaction. 16,000

Compute the net GST liability (CGST, SGST or IGST) of Mr. Thiraj for the month of February 2018.
Rate of CGST, SGST and IGST are 9%, 9% and 18% respectively.
All the amounts given above are exclusive of taxes.[Nov. 2018, 6 Marks]
Answer:
Computation of Liability under RCM on Inward supply

Particulars CGST SGST
Legal fee paid to Lawyer (Intra-state)
CGST @ 9% of ₹ 20,000 1,800
SGST @ 9% of ₹ 20,000 1,800
Rent paid to Karnataka Govt. (Intra-state)
CGST @ 9% of ₹ 30,000 2,700
SGST @ 9% of ₹ 30,000 2,700
GST Liability under RCM (A) 4,500 4,500

Computation of Liability under Forward on Outward Supply

Particulars CGST SGST
Intra-slate taxable supply of services
CGST @ 9% of ₹ 5,20,000 46,800
SGST @ 9% of ₹ 5,20,000 46,800
Total Tax Liability 46,800 46,800
Less: ITC under RCM (as computed above) (4,500) (4,500)
Output tax liability under Forward Charge after set-off of ITC (B) 42,300 42,300

Determination of Total Liability for February,2018

Particulars CGST SGST
(1) GST Liability under Reverse Charge (As per ‘A’) 4,500 4,500
(2) GST Liability under Forward Charge (As per ‘B’) 42,300 42,300
Total GST Liability Payable in cash 46,800 46,800

Notes:-

  1. Since Love all University provides education recognized by law, it is an educational institution and services provided to an educational institution, by way of conduct of examination by such institution are exempt from GST.
  2. In case of legal services provided by an advocate to any business entity GST is payable under reverse charge by the recipient of service.
  3. In case of services supplied by, inter alia, State Government by way of renting of immovable property to a person registered under the CGST Act, GST is payable under reverse charge by the recipient of service.
  4. The amount available in the electronic credit ledger may be used for making payment towards output tax. How ever, tax payable under reverse charge is not an output tax. Therefore, tax payable under reverse charge cannot be set off against the input tax credit and thus, will have to be paid in cash.

Payment of Tax – CA Inter Tax Study Material

Question 13.
From the following information, compute the NET GST payable for the month of March 2018:

(Amount in ₹)
Output GST Opening ITC as per credit ledger
CGST 2,000 NIL
SGST 15,000 1,000
IGST 24,000 37,000

[Nov. 2018, 4 Marks]
Answer:
Computation of Net GST Payable

Particulars IGST CGST SGST
GST payable on Outward supplies 24,000 2,000 15,000
Less: Adjustment of ITC on account of IGST as per section 49(5)(a) read with section 49A:
(a) Towards IGST (24,000)
(b) Towards CGST (2,000)
(c) Towards SGST (11,000)
Balance Nil Nil 4,000
Less: Adjustment of ITC on account of SGST as per section 49(5)(c) [Towards SGST] (1,000)
Net GST Payable through Cash Ledger Nil Nil 3,000

Tutorial Note: The GST on outward supply towards CGST and SGST can-not be different. However, the question has been solved on the basis of the data as given in the question.

Question 14.
Determine with brief reasons, whether the following statements are True or False:
Electronic cash ledger balance of ₹ 5,000 under the major head of IGST : can be utilized for discharging the liability of major head of CGST. [Nov. 2018, 1.5 Marks]
Answer:
The said statement is False.

The amount available under one major head cannot be utilised for dis-charging the liability under any other major head.

Payment of Tax – CA Inter Tax Study Material

Question 15.
Ms. Jimmy wants to adjust input tax credit for payment of interest, penalty and payment of tax under reverse charge. Explain whether she can do so. [Nov. 2018, 3 Marks]
Answer:
The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger which may be used for making any payment towards output tax.
“Output tax” inter alia excludes tax payable on reverse charge basis.
Thus, Ms. Jimmy cannot adjust input tax credit for payment of interest, penalty as also for payment of tax under reverse charge.

Question 16.
Mr. Himanshu, a registered supplier of chemicals, pays GST under regular scheme. He is not eligible for any threshold exemption. He has made the following outward taxable supplies for the month of September 2018 :

Intra-State supply of goods ₹ 25,00,000
Inter-State supply of goods ₹ 5,00,000

He has also made the following inward supply:

(₹)
Intra-State purchase of goods from Registered Dealer 14,00,000
Intra-State purchase of goods from Unregistered Dealer 2,00,000
Inter-State purchase of goods from Registered Dealer 4,00,000

Balance of ITC at the beginning of September 2018:

(₹)
CGST 95,000
SGST 60,000
IGST 50,000

Additional Information:

  • He purchased a car (Intra-State supply) used for business purpose at a price of ₹ 6,72,000 (including CGST of ₹ 36,000 & SGST of ₹ 36,000) on September 15, 2018. He capitalized the full value Including GST in the books on the same date to claim depreciation.
  • Out of Inter-State purchase from registered dealer, goods worth ₹ 1,00,000 were received on October 3,2018 due to road traffic jams.

Note:

  1. Rate of CGST, SGST and IGST to be 9%, 9% and 18% respectively.
  2. Both inward and outward supplies given above are exclusive of taxes, wherever applicable.
  3. All the conditions necessary for availing the ITC have been fulfilled except mentioned above.

Compute the net CGST, SGST and IGST payable in cash by Mr. Himanshu for the month of September 2018. [May. 2019, 8 Marks]
Answer:
Computation of GST payable on outward supply

Particulars IGST CGST SGST
(1) Inter-state supply of goods (18% of ₹ 5,00,000) 90,000 ———
(2) Intra-state supply of goods
CGST @ 9% of ₹ 25,00,000 2,25,000
SGST @ 9% of ₹ 25,00,000 2,25,000
Total Tax Liability 90,000 2,25,000 2,25,000

Computation of Total ITC Available

Particulars IGST CGST SGST
Opening brought forward ITC 50,000 95,000 60,000
Add: IGST in respect of Inter-state purchase of goods from registered dealer during September, 2018
(4,00,000 – 1,00,000) × 18% 54,000
Add: Intra-state purchase of goods from regis­tered dealer
CGST @ 996 of ₹ 14,00,000 1,26,000
SGST @ 996 of ₹ 14,00,000 1,26,000
Add: Intra-state purchase of goods from Un-reg­istered Dealer Nil Nil
Total ITC available on 30th September 1,04,000 2,21,000 1,86,000

Computation of Net GST Payable

                       Particulars IGST CGST SGST
GST payable on Outward supplies (as computed above) 90,000 2,25,000 2,25,000
Less: Adjustment of ITC on account of IGST as per section 49(5)(a) read with section 49A:
(a) Towards IGST (90,000)
(b) Towards CGST (4,000)
(c) Towards SGST (10,000)
Balance Nil 2,21,000 2,15,000
Less: Adjustment of ITC on account of CGST/ SGST as per section 49(5)(b)/(c)
(a) Adj. of ITC of CGST towards CGST (2,21,000)
(b) Adj. of ITC of SGST towards SGST (1,86,000)
Net GST Payable through Cash Ledger Nil Nil 29,000

Notes:

  1. Every registered person is entitled to take credit of input tax charged on any inward supply of goods used/intended to be used in the course/ furtherance of his business.
  2. Intra-State supplies received by a registered person from any unregis-tered supplier, are exempt from the whole of the tax leviable thereon under reverse charge till 30.09.2019. Since no tax has been paid, so no credit is available.
  3. Input tax paid on capital goods cannot be availed as ITC if depreciation has been claimed on such tax component. Moreover, ITC on motor vehicle (car) is blocked under section 17(5) of CGST Act, 2017.
  4. A registered person is entitled to avail input tax in respect of any supply of goods to him only if he has actually received the said goods. Since goods worth ₹ 1,00,000 have not been received by Mr. Himanshu in the month of September 2018, credit in respect of same cannot be claimed in the said month.
  5. Input tax credit of IGST has been used to pay IGST, CGST and SGST in that order.

Payment of Tax – CA Inter Tax Study Material

Question 17.
M/s. Daksha Enterprises has made a cash deposit of ₹ 10,000 under minor head ‘tax’ of major head SGST. It has a liability of ₹ 2,000 for minor head “Interest” under the major head “SGST”. State whether M/s. Daksha Enterprises can utilise the amount available for payment of interest. [May 2019, 2 Marks]
Answer:
The cash available in any minor head of a major head cannot be Jutilised for any other minor head of the same major head.

Therefore, in the given case, amount of ₹ 10,000 available under minor head ‘tax’ of major head ‘SGST’ cannot be utilised for payment of liability of ₹ 2,000 under minor head ‘interest’ of the same major head.

Question 18.
M/s. Grey, a registered taxable person under regular scheme provides following information in respect of supplies made by it during the month of April 2019:

(Amount in ₹)
(i) Inter-state supply of goods 1,00,000
(ii) Intra-state supply of 500 packets of detergent @ ₹ 400 each along with a plastic bucket worth ₹ 100 each with each packet, being a mixed supply. (Rate of GST on detergent is 18% and on plastic bucket is 28%)
(iii) Supply of online educational journals to M/s. Pinnacle, a private coaching centre providing tuitions to students of Class X-XII, being intra-state supply. 50,000

M/s. Grey has also received the following inward supplies:

(iv) Inter-state supply of goods (out of which invoice for goods worth ₹ 20,000 is missing and no other tax paying document is available) 70,000
(v) Repairing of bus with seating capacity of 20 passengers used to transport its employees from their residence, being intra-state supply. 50,000

Details of opening balances of ITC follows as on 1-4-2019 are as follows:

CGST 5,000
SGST 5,000
IGST 40,000

Following additional information is provided:

(a) Rate of GST in respect of all inward and outward supplies except item (ii) above is 18%. i.e. CGST and SGST @ 9% and IGST @ 18%.
(b) All figures mentioned above are exclusive of taxes.
(c) All the conditions for availing the ITC have been fulfilled except specifically given and M/s. Grey is not eligible for any threshold exemption.
Compute the minimum net GST payable in cash by M/s. Grey for the month of April 2019. [Nov. 2019, 8 Marks]
Answer:
Computation of GST payable on outward supply

Particulars IGST CGST SGST
(1) Inter-state supply of goods (18% of ₹ 1,00,000) 18,000 ————
(2) Intra-state supply of 500 packets of deter­gents @ ₹ 400
CGST @ 14% of ₹ 2,00,000 28,000
SGST @ 14% of ₹ 2,00,000 28,000
(3) Supply of online educational journal to pvt. Coaching centre
CGST @ 9% of ₹ 50,000 4,500
SGST @ 99„ of ₹ 50,000 4,500
Total Tax Liability 18,000 32,500 32,500

Payment of Tax – CA Inter Tax Study Material

Computation of Total ITC Available

Particulars IGST CGST SGST
Opening brought forward ITC 40,000 5,000 5,000
Add: IGST in respect of Inter-state purchase of goods
(70,000 – 20,000) X 18% 9,000
Add: Intra-state inward supply of repair services
CGST @ 9% of ₹ 50,000 4,500
SGST @ 9% of ₹ 50,000 4,500
Total ITC available on 30th April 49,000 9,500 9,500
Particulars IGST CGST SGST
GST payable on Outward supplies (as computed above) 18,000 32,500 32,500
Less: Adjustment of ITC on account of IGST as per section 49(5)(a) read with section 49A:
(a) Towards IGST (18,000)
(h) Towards CGST (23,000)
(c) Towards SGST (8,000)
Balance Nil 9,500 24,500
Less: Adjustment of ITC on account of CGST/ SGST as per section 49(5)(b)/(c)
(a) Adj. of ITC of CGST towards CGST (9,500)
(b) Adj. of ITC of SGST towards SGST (9,500)
Net GST Payable through Cash Ledger Nil Nil 15,000

Note:

(a) Supply of detergent and bucket together with a single price of ₹ 400 is a mixed supply. Being a mixed supply comprising of two supplies, it shall be treated as supply of that particular supply that attracts highest rate of tax (28%).

(b) Supply of online educational journal is exempt only when the same is provided to an educational institution w hich provides a qualification recognised by law. Since, the private coaching centre does not provide any recognised qualification, the supply of online educational journals to the same will be taxable.

(c) ITC can be taken only on the basis of a valid tax paying document. Thus, ITC will not be available on goods for which the invoice is missing.

(d) ITC on motor vehicles for transportation of persons with seating capacity > 13 persons (including the driver) used for any purpose is allowed. Further, ITC is allowed on repair and maintenance services relating to motor vehicles, ITC on wdiich is allowed.

Tutorial Note:

Under the amended position of law, the IGST credit, after being set-off against IGST liability, can be utilised against CGST and SGST liability in any order and in any proportion. Thus, there can be other answer also, but the total GST payable after adjustment of ITC should not be more than ₹ 15,000, as calculated above.

Question 19.
State the items which are to be debited to Electronic liability register of the taxable person under the CGST Act, 2017 and rules thereunder. [Nov. 2019, 3 Marks]
Answer:
The items to be debited to electronic liability register of the taxable person are as under:-

  1. all amounts payable towards tax, interest, late fee and any other amount as per return filed ;
  2. all amounts payable towards tax, interest, penalty and any other amount determined in a proceeding by an Assessing authority or as ascertained by the taxable person;
  3. the amount of tax and interest as a result of mismatch.
  4. any interest amount that may accrue from time to time.
Introduction to Company Accounts-Issue of Debentures – CS Foundation Fundamentals of Accounting Notes

Introduction to Company Accounts-Issue of Debentures – CS Foundation Fundamentals of Accounting Notes

Go through this Introduction to Company Accounts-Issue of Debentures – CS Foundation Fundamentals of Accounting and Auditing Notes will help students in revising the entire subject quickly.

Meaning:

  • A debenture is a bond issued by a company acknowledging a debt and containing provisions for repayment of interest and principal.
  • It refers to the loan capital of the company or a source of long-term borrowing.
  • The interest on debentures is a charge against profits of the company.
  • The holders of debentures are known as the debenture holders.
  • Debenture holders are not the owner of the company and hence, do not have voting rights.
  • Debentures may or may not create a charge on the assets of the company.
  • Debentures may be issued at par, premium or discount.
  • Interest on debenture is to be paid even if the company does not earn any profits i.e. at loss also.

Distinction between Shares and Debentures:

Shares Debentures
1. Shareholders are owners of company. Debenture holders are creditors of the company.
2. Shareholders have voting rights. Debenture holders do not have voting rights.
3. Dividend on equity shares is not fixed and is an appropriation of profit. Interest on debentures is at a fixed rate and is a charge against profit.
4. Shares are owned capital of the company. Debentures are the loan capital of the company.
5. In Balance Sheet, shares are shown under Shareholders fund. Debentures are shown in the Balance Sheet under the head Non-Current liabilities.

Types of Debentures:

  • Secured Debentures: These are secured by a charge on the assets of the company.
  • Unsecured Debentures: These are not secured by any charge on the assets of the company.
  • Convertible Debentures: Debentures which have an option of conversion into equity shares at some point of time are called convertible debentures.
  • Non-convertible Debentures: These can never be converted into equity shares.
  • Redeemable Debentures: These debentures have to be redeemed after a fixed period of time.
  • Irredeemable Debentures: Also known as perpetual debentures, these are not redeemable and will be repaid only at the time of liquidation.
  • Registered Debentures: These debentures are payable only to that person whose name is present in the Register of Debenture holders. These are not transferred by mere delivery.
  • Bearer Debentures: Debentures which are transferred by mere delivery and not entered in Register are bearer debentures.

Issue of Debentures:
Introduction to Company Accounts-Issue of Debentures – CS Foundation Fundamentals of Accounting Notes 3
1. Issue of Debentures for cash:
(a) Debentures issued at par and redeemable at par –
→ If full amount is paid at once:
(i) Bank A/c                                   Dr.
To Debenture Application A/c (Being receipt of application money)

(ii) Debenture Application A/c      Dr.
To Debentures A/c (Being debentures allotted)

→ If payment is made in installments:
(i) Bank A/c                                    Dr.
To Debenture Application A/c (Being amount received on application)

(ii) Debenture Application A/c       Dr.
To Debenture A/c (Being debentures allotted)

(iii) Debenture Allotment A/c         Dr.
To Debenture A/c (Being allotment due)

(iv) Bank A/c                                   Dr.
To Debenture Allotment A/c (Being allotment money received)

(v) Debenture Calls A/c                   Dr.
To Debenture A/c (Being call due)

(vi) Bank A/c                                    Dr.
To Debenture Call A/c (Being call amount received)

(b) Issue of Debentures at a premium:
If premium is to be received at the time of allotment:
Debenture Allotment A/c                Dr.
To Debenture A/c To Securities Premium A/c

(c) Issue of Debentures at discount:
Debenture Allotment A/c                Dr.
Discount on issue of debenture A/c Dr.
To Debentures A/c
(Being Debentures issued at a discount)
All other entries will be same.

Note:
Discount on issue of debenture being a Capital Loss must be shown specifically on the asset side under the heading Non-Current Assets. Discount on issue of debentures should be written off as quickly as possible. However, it can be treated as deferred revenue expenditure and written off over the life of the debentures.

Introduction to Company Accounts-Issue of Debentures MCQ Questions

1. Unless written off, the loss on issue of debentures is shown:
(a) On the assets side of Balance Sheet
(b) On the debit side of Profit and Loss Account
(o) By way of deduction from the amount of debentures
(d) On the liabilities side of Balance Sheet.
Answer:
(a) On the assets side of Balance Sheet

2. If debentures are issued as consideration for purchase of any fixed asset, the entry is:
(a) Debit Asset A/c; Credit Vendor A/c
(b) Debit Asset A/c; Credit Bank A/c
(c) Debit Asset A/c; Credit Debentures A/c
(d) Debit Debenture A/c; Credit Asset A/c.
Answer:
(c) Debit Asset A/c; Credit Debentures A/c

3. When debentures are issued as collateral security, the final entry for recording the transaction in the books is:
(a) Credit Debentures A/c and Debit Cash A/c
(b) Debit Debenture Suspense A/c and Credit Cash A/c
(c) Debit Debentures Suspense A/c and Credit Debenture A/c
(d) Debit Cash A/c and Credit the Loan A/c for which security is given.
Answer:
(c) Debit Debentures Suspense A/c and Credit Debenture A/c

4. Interest payable on debentures is:
(a) an appropriation of profits of the company
(b) a charge against profit of the company
(c) transferred to sinking fund investment account
(d) transferred to general reserve.
Answer:
(b) a charge against profit of the company

5. A company issues 14%, debentures of ₹ 10,00,000 at a discount of 10%. The discount allowed will be treated in the account books as:
(a) Capital Expenditure
(b) Revenue Expenditure
(c) Deferred Revenue Expenditure
(d) Capital Loss
Answer:
(d) Capital Loss

6. Which of the following statements is false?
(a) At maturity, debenture holders get back their money
(b) Debentures can be forfeited for non – payment of call money.
(c) In company’s balance sheet, debentures are shown under the head Secured Loans.
(d) Interest on debentures is charged against profits.
Answer:
(b) Debentures can be forfeited for non – payment of call money.

7. Discount on issue of debentures is a:
(a) revenue loss to be charged in the year of issue
(b) capital loss to be written off from capital reserve
(c) capital loss to be written off over the period of the debentures
(d) capital loss to be shown as goodwill.
Answer:
(c) capital loss to be written off over the period of the debentures

8. When debentures are issued at par and are redeemable at premium, the credit given to Premium of Redemption of Debenture Account is in the nature of:
(a) Personal Account
(b) Real Account
(c) Nominal A/c – Exps.
(d) Nominal Account – Income
Answer:
(a) Personal Account

9. Loss on issue of debentures is treated as:
(a) Intangible Asset
(b) Non Current Asset
(c) Non Current Liability
(d) Miscellaneous Expenditure
Answer:
(b) Non Current Asset

10. Which of the following is false?
(a) A Company can issue redeemable debentures.
(b) A Company can issue debentures with voting rights.
(c) A Company can issue convertible debentures.
(d) A Company can buy its own debentures and shares.
Answer:
(b) A Company can issue debentures with voting rights.

11. The following journal entry appears in the books of X Co. Ltd:
Bank A/c Dr. ₹ 4,75,000
Loss on Issue of Debenture A/c Dr. ₹ 25,000
To 12% Debentures A/c 5,00,000
Debentures have been issued at a discount of:
(a) 15%
(b) 5%
(c) 10%
(d) 20%.
Answer:
(b) 5%

12. X Co. Ltd. purchased assets worth ₹ 28,80,000. It issued debentures of ₹ 100 each at a discount of 4% in full satisfaction of the purchase consideration. The number of debentures issued to the vendors of asset are:
(a) ₹ 30,000
(b) ₹ 28,000
(c) ₹ 32,000
(d) ₹ 35,000
Answer:
(a) ₹ 30,000

13. How many debentures will a company be required to issue for satisfying the purchase consideration of ₹ 28,80,000, if debentures of ₹ 100 are issued at a premium of ₹ 20 per debenture?
(a) ₹ 24,000
(b) ₹ 28,000
(c) ₹ 36,000
(d) ₹ 32,000
Answer:
(a) ₹ 24,000

14. F Ltd. purchased machinery from G company for a book value of ₹ 4,00,000. The consideration was paid by issue of 10% debentures of ₹ 100 each at a discount of 20%. The debenture account will be credited by:
(a) ₹ 4,00,000
(b) ₹ 5,00,000
(c) ₹ 3,20,000
(d) ₹ 4,80,000.
Answer:
(b) ₹ 5,00,000

15. T Ltd. has issued 15% Debentures of ₹ 20,00,000 at a discount of 10% on April 01,2004 and the company pays interest half-yearly on June 30 and December 31 every year. On March 31,2006, the amount shown as “interest accrued but not due” in the Balance Sheet will be:
(a) ₹ 75,000
(b) ₹ 2,25,000
(c) ₹ 1,50,000
(d) ₹ 3,00,000.
Answer:
(a) ₹ 75,000

16. When debentures of ₹ 1,00,000 are issued as Collateral Security against a loan of ₹ 1,50,000, the entry for issue of debentures will be:
(a) Credit Debentures ₹ 1,50,000 and debit cash A/c ₹ 1,50,000
(b) Debit Debenture Suspense A/c ₹ 1,00,000 and Credit Cash A/c ₹ 1,00,000
(c) Debit Debenture Suspense A/c ₹ 1,00,000 and Credit Debentures A/c ₹ 1,00,000
(d) Debit Cash A/c ₹ 1,50,000 and Credit Bank A/c ₹ 1,50,000.
Answer:
(c) Debit Debenture Suspense A/c ₹ 1,00,000 and Credit Debentures A/c ₹ 1,00,000

17. P Ltd. issued 10,000, 12% debentures of ₹ 100 each at a premium of 10%, which are redeemable after 10 years at a premium of 20%. The amount of loss on redemption of debentures to be written off every year will be ________.
(a) ₹ 1,60,000
(b) ₹ 80, 000
(c) ₹ 20,000
(d) ₹ 16,000
Answer:
(c) ₹ 20,000

18. On May 01, 2003, Y Ltd. issued 7%, 40,000 convertible debentures of ₹ 100 each at a premium of 20%. Interest is payable on September 30 and March 31, every year. Assuming that the interest runs from the date of issue, the amount of interest expenditure debited to profit and loss account for the year ended March 31,2004 is:
(a) ₹ 2,80,000
(b) ₹ 2,33,333
(c) ₹ 3,36,000
(d) ₹ 2,56,667
Answer:
(d) ₹ 2,56,667

19. W Ltd. issued 20,000, 8% debentures of ₹ 10 each at par which are redeemable after 5 years at a premium of 20%. The amount of loss on redemption of debentures to be written off every year is:
(a) ₹ 40,000
(b) ₹ 10,000
(c) ₹ 20,000
(d) ₹ 8,000
Answer:
(d) ₹ 8,000

20. Which of the following statements is false ________.
(a) Debenture is a form of public borrowing.
(b) It is customary to prefix debentures with the agreed rate of interest.
(c) Debenture interest is a charge against profits.
(d) The issue price and redemption value of debentures cannot differ.
Answer:
(d) The issue price and redemption value of debentures cannot differ.

21. Which of the following is not a characteristic of Bearer Debentures?
(a) They are treated as negotiable instruments.
(b) Their transfer requires a deed of transfer.
(c) They are transferable by mere delivery.
(d) The interest on it is paid to the holder irrespective of identity.
Answer:
(b) Their transfer requires a deed of transfer.

22. The debentures which are secured by a charge upon some or all assets of the company are known as:
(a) First mortgage debenture
(b) Second mortgage debenture
(c) Bearer debenture
(d) Secured debenture
Answer:
(d) Secured debenture

23. When debentures are to be redeemed at premium an extra entry has to be made at the time of issue of debentures, which a/c should be credited in this entry?
(a) Loss on issue of debentures A/c
(b) Debenture redemption premium A/c
(c) Bank A/c
(d) Debenture holder’s A/c
Answer:
(b) Debenture redemption premium A/c

24. When debentures are issued at par and are redeemable at premium, the credit given to premium on redemption of debentures account is in nature of:
(a) Personal A/c
(b) Real A/c
(c) Nominal A/c
(d) None of the above
Answer:
(a) Personal A/c

25. When debentures are issued at a discount, it is prudent to write off the discount:
(a) In the year of the issue of debentures
(b) During the life of the debentures if it is treated as deferred revenue expenditure.
(c) Within 3 years of the issue of debentures
(d) In the year of redemption of debentures
Answer:
(b) During the life of the debentures if it is treated as deferred revenue expenditure.

26. Ansh Ltd. issued 5,000 Debentures of ₹ 10 each for subscription. 4,000 Debentures were subscribed by the public by paying ₹ 3 as application money. Number of debentures allotted to public by Ansh Ltd. will be:
(a) 5,000 shares
(b) 4,000 shares
(c) 3,000 shares
(d) 1,000 shares
Answer:
(b) 4,000 shares

27. Interest received on debenture redemption fund investment is:
(a) Capital reserve a/c
(b) General reserve a/c
(c) Debenture redemption fund A/c
(d) None of the above
Answer:
(c) Debenture redemption fund A/c

28. Puru Ltd. issued 10,000 12% Debentures of ₹ 100 each at a discount of 10% payable in full on application by 31st March, 2007. Application were received for 12,000 debentures. Debentures were allotted on 9th June, 2007. The amount of excess money refunded on the same date will be:
(a) ₹ 1,80,000
(b) ₹ 1,00,000
(c) ₹ 1,10,000
(d) ₹ 1,50,000
Answer:
(a) ₹ 1,80,000

29. “Non-convertible” debentures is inferred as:
(a) Owner’s capital
(b) Loan capital
(c) Short term debts
(d) None of these
Answer:
(b) Loan capital

30. Tahil Ltd. has issued 14% Debentures of ₹ 20,00,000 at a discount of 10% on April 01, 2005 and the company pays interest half-yearly on June 30, and December 31 every year. On March 31,2007, the amount shown as “interest accrued but not due” in the balance sheet will be:
(a) ₹ 70,000 shown along with Debentures
(b) ₹ 2,10,000 under current liabilities
(c) ₹ 1,40,000 shown along with Debentures
(d) ₹ 2,80,000 under current liabilities
Answer:
(a) ₹ 70,000 shown along with Debentures

31. XYZ Ltd. purchased a machinery for ₹ 10,00,000 from Mohan Ltd. and the consideration was paid by the issue of 18% debentures of ₹ 100 each at a discount of 20%. Calculate the number of debentures to be issued:
(a) 12,500
(b) 10,000
(c) 9,333
(d) None of the above
Answer:
(a) 12,500

32. Yadav Ltd. purchased a building from Gandhi Ltd. for ₹ 50,00,000 and the consideration was paid by the issue of debentures of ₹ 100 each at a premium of ₹ 25 each. Calculate the number of debentures to be issued to Gandhi Ltd.
(a) 50,000
(b) 40,000
(c) 66,667
(d) None of the above
Answer:
(b) 40,000

33. Debenture holders are called the ________ of a company.
(a) Banker
(b) Owner
(c) Creditor
(d) Debtor
Answer:
(c) Creditor

34. ABC Ltd. purchased a machinery from Microtee Ltd. for ₹ 50,00,000 and the consideration was paid by issuing debentures of ₹ 100 each at a discount of 20%. Calculate the amount to be credited to the debenture account:
(a) ₹ 50,00,000
(b) ₹ 43,00,000
(c) ₹ 75,00,000
(d) ₹ 62,50,000
Answer:
(d) ₹ 62,50,000

35. Ram Ltd. purchased a car from Harish Ltd. for ₹ 10,00,000 and the consideration was paid by issuing debentures of ₹ 10 each at a premium of ₹ 2.5 each. Calculate the amount to be credited to Debentures Account:
(a) ₹ 8,00,000
(b) ₹ 13,33,000
(c) ₹ 12,50,000
(d) None of these
Answer:
(a) ₹ 8,00,000

36. Morseny Ltd. issued 2,000,15% debentures of ₹ 100 each at a premium of 10% which are redeemable after 10 years at a premium of 20%. Thus the discount of loss on debenture is to be written off:
(a) ₹ 20,000
(b) ₹ 10,000
(c) ₹ 40,000
(d) None of these
Answer:
(c) ₹ 40,000

37. ABCD Ltd. issued 1,000, 9% debentures of ₹ 100 each at a discount of 10%, which will be redeemed after 5 years at a premium of 10%. Calculate the discount on loss of issue of debentures to be written off each year:
(a) ₹ 40,000
(b) ₹ 20,000
(c) ₹ 10,000
(d) ₹ 5,000
Answer:
(c) ₹ 10,000

38. When the debentures are issued as a collateral security then what entry will be passed?
(a) No entry
(b) Debit Debenture Suspense A/c and Credit Debentures A/c
(c) Both (a) & (b)
(d) Neither (a) nor (b)
Answer:
(c) Both (a) & (b)

39. Which of the following statement is NOT true?
(a) On maturity the debenture holders get back their money
(b) Debentures can be forfeited for non payment of call money
(c) In the balance sheet, debentures are shown under secured loans
(d) Interest on debentures is payable even in case of loss
Answer:
(b) Debentures can be forfeited for non payment of call money

40. Interest on debentures issued as a collateral security is paid on:
(a) Nominal value of debentures
(b) No interest is paid
(c) Face value of debentures
(d) Paid up value of debentures
Answer:
(b) No interest is paid

41. A debenture holder is entitled to:
(a) Fixed dividend
(b) Share in profits
(c) Voting rights in the company
(d) Interest at the fixed rates
Answer:
(d) Interest at the fixed rates

42. If the debentures allotted for consideration other than cash are more than the agreed purchase price, the difference shall be debited to:
(a) Goodwill Account
(b) P&LA/c
(c) Securities Premium A/c
(d) Debentures A/c
Answer:
(a) Goodwill Account

43. If the debentures allotted for consideration other than cash are less than the agreed purchase price, the difference is credit to:
(a) Goodwill A/c
(b) Capital Reserve A/c
(c) P&LA/c
(d) None of these
Answer:
(b) Capital Reserve A/c

44. Shares may be issued ________.
(a) For cash
(b) For consideration other than cash.
(c) For both (a) and (b)
(d) None of the above
Answer:
(c) For both (a) and (b)
Generally a company issue shares to raise his capital for cash but company may also issue shares for consideration other than cash to vendor who sell some assets to the company.
Thus, shares can be issued both for cash or consideration other than cash.

45. Which of the following will be the journal entry for recording the issue of shares at par against purchase of Machinery?
(a) Debit Machinery A/c, Credit Share Capital A/c
(b) Debit Share Capital A/c, Credit Machinery A/c
(c) Debit Bank A/c, Credit Share Capital A/c
(d) Debit Machinery A/c, Credit Cash A/c
Answer:
(a) Debit Machinery A/c, Credit Share Capital A/c
Following entry will be passed for recording the issue of shares at par against purchase of Machinery –
Machinery A/c Dr.
To Share Capital A/c

46. Debentures of a company can be issued ________.
(a) For cash
(b) For consideration other than cash
(c) As a collateral security
(d) Any of the above.
Answer:
(d) Any of the above.
Debentures are issued for cash by a company. A company may allot debentures to the vendors for acquiring some assets as payment for purchase consideration. A company obtains a loan from a bank or insurance policy, it may issue its own debentures to the lender as collateral security against the loan in addition to any other security that may be offered.
Thus, answer is all of the above.

47. On issue of debentures as a collateral security, which account is credited?
(a) Debentures Account
(b) Bank Loan Account
(c) Debenture holdings Account
(d) Debenture Suspense Account
Answer:
(a) Debentures Account
On issue of debentures as a collateral security, the following entry will be passed –
Debentures Suspense A/c Dr.
To Debentures A/c
Here, Debentures A/c will be credited

48. G Ltd. purchased land and building from H Ltd. at a book value of ₹ 2,00,000. The consideration was paid by issue of 12% debentures of ₹ 100 each at a discount of 20%. For this transaction, the debentures account would be credited with ________
(a) ₹ 2,60,000
(b) ₹ 2,50,000
(c) ₹ 2,40,000
(d) ₹ 1,60,000
Answer:
(b) ₹ 2,50,000
No. of Debentures will be
Introduction to Company Accounts-Issue of Debentures – CS Foundation Fundamentals of Accounting Notes 1
Debentures A/c will be credited by = No. of debentures x Face value of debentures = 2,500 x 100 = 2,50,000

49. A limited company issued a prospectus inviting application for 2,000 shares of ₹ 10 each at premium of ₹ 2 per share payable as follows:
On application – ₹ 2
On allotment – ₹ 5
(including premium)
On Ist call – ₹ 3
On IInd final call – ₹ 2
Application were received for 3,000 shares and allotment was made on pro-rata basis to applicant of 2,400 shares. Money received in excess on application was adjusted towards allotment.
Ramesh whom 40 shares were allotted, failed to pay allotment money & first call his shares were forfeited. Find the number of shares Ramesh has applied for₹
(a) 52
(b) 50
(c) 42
(d) 48
Answer:
(d) 48
Allotment to applicants of 2,400 shares = 2,000.
Ramesh applied for some shares.
He is allotted 40 shares.
He applied for shares = \(\frac{2,400}{2,000}\) x 40
= 48 shares
Hence, option (d) is correct.

50. T Ltd. has issued 14% Debentures of ₹ 20,00,000 at a discount of 10% in April 2013 and the company pays interest half- yearly on June 30 and December 31 every year. On March 31, 2014, the amount shown as ‘interest accrued but not due’ in the balance sheet will be:
(a) ₹ 70,000
(b) ₹ 2,80,000
(c) ₹ 1,40,000
(d) ₹ 2,10,000
Answer:
(a) ₹ 70,000
Accrued but not due means amount of interest computed as per the period of the computation but the payment of amount of installment is not due. So, on March, 31,2014, the amount shown as interest “accrued but not due” in the Balance sheet will be:
20,00,000 x \(\frac{14}{100}\) x \(\frac{3}{12}\) = ₹ 70,000

51. T Ltd. has issued 14% debentures of ₹ 20,00,000 at a discount of 10% in April, 2013 and the company pays interest half yearly on June 30, and December 31, every year. On March 31, 2014 the amount shown as interest accrued but not due in the balance sheet will be:
(a) ₹ 1,40,000
(b) ₹ 2,10,000
(c) ₹ 2,80,000
(d) ₹ 70,000
Answer:
(d) ₹ 70,000
Accrued interest but not due is that interest which has been earned since the last coupon payment. Because the bond hasn’t expired yet or the next payment is not yet due, the owner of the bond hasn’t officially received the money.
∴ Interest accrued but not due as on 31st March, 2014
→ \(\frac{20,00,000 \times 14 \% \times \frac{6}{12}}{2}\)
→ ₹ 70,000

52. The holder of debentures issued as collateral security to a loan is entitled to interest on:
(a) The amount of loan only
(b) On the face value of debentures
(c) Neither loan nor debentures
(d) Both the loan amount and debentures.
Answer:
(a) The amount of loan only
Where a company obtains a loan from a bank or insurance company, it may issue its own debentures to the lender as collateral security against the loan in addition to any other security that may be offered. The holder of such debentures is entitled to interest only on the amount of loan, but not on the debentures. Such an issue of debenture is known as “Debentures issued as collateral security.”

53. K Ltd. Issued ₹ 15,000, 12% Debentures of ₹ 50/- each at premium of 10% payable as ₹ 20/- on application and balance on allotment Debentures are redeemable at per after 6 years. All the money due on allotment was called up and revised. The amount of premium will be:
(a) ₹ 3,00,000
(b) ₹ 2,25,000
(c) ₹ 75,000
(d) ₹ 5,25,000
Answer:
(c) ₹ 75,000
K Ltd. issued deb = 15,000
Face Value = ₹ 50/-
Premium = 10% on face value
Amount of premium = \(\frac { 10 }{ 100 }\) x 50 = ₹ 5
Total premium = ₹ 5 x 15,000
= ₹ 75,000

54. Debenture is issued as a collateral security to a loan, interest will be given on ________.
(a) On debentures only
(b) Both loan & debentures
(c) On loan but not on debentures
(d) None of the following
Answer:
(c) On loan but not on debentures
The term ‘Collateral Security’ implies additional security given for a loan. Where a company obtains a loan from a bank or insurance company, it may issue its own debentures to the lender as collateral security against the loan in addition to any other security that may be offered. In such a case, the lender has the absolute right over the debentures until and unless the loan is repaid.

On repayment of the loan, however, the lender is legally bound to release the debentures forthwith. But in case the loan is not repaid by the company on the due date or in the event of any other breach of agreement, the lender has the right to retain these debentures and to realise them. The holder of such debentures is entitled to interest only on the amount of loan, but not on the debentures. Such an issue of debentures is known as “Debentures issued as Collateral Security”.

55. Which of the following statement is true?
(a) A Debenture holder is an owner of the company.
(b) A Debenture is issued at a discount and can be redeemed at a premium.
(c) A Debenture Holder can get his money back only on liquidation.
(d) A Debenture Holder receives interest only in the event of profit
Answer:
(b) A Debenture is issued at a discount and can be redeemed at a premium.

A Shareholder is the owner of the company.
A Debenture is issued at discount and redeemed at premium.
A Debenture holder can get his money back on redemption also.
A Debenture holder gets profit irrespective of the fact that the company is earning profit or not.

56. Match list l with list II and select the correct answer using the codes given below the list:
Introduction to Company Accounts-Issue of Debentures – CS Foundation Fundamentals of Accounting Notes 2
Answer:
(d) 4 2 1 3
Discount on debenture is non-current liability because debenture cannot be redeemed within a year so, discount on debenture is not a current liability.

57. If shares are reissued, then they are issued at:
(a) Par
(b) Premium
(c) Discount
(d) All of the above.
Answer:
(d) All of the above.
If shares are reissued the would be issued at:
Forfeited share can be issued at Par, Premium and discount any of these. Hence, option (d) is correct.

58. G Ltd. purchased land and building from H Ltd. at a book value of ₹ 2,00,000. The consideration was paid by issue of 12% debentures of ₹ 100 each at a discount of 20%. For this transaction, the debentures account would be credited with:
(a) ₹ 2,60,000
(b) ₹ 2,50,000
(c) ₹ 2,40,000
(d) ₹ 1,60,000
Answer:
Journal entries would be as follows:
(a) Land and Building A/c Dr. 2,00,000
To H Ltd. 2,00,000

(b) H Ltd.’s A/c Dr. 2,00,000
Debenture Discount A/c Dr. 50,000
To 12% Debentures A/c 2,50,000
(\(\frac { 2,00,000 }{ 80 }\) = 2,500 debentures of ₹ 100/each on)

59. Total amount issued for shares is ₹ 3,60,000 at the rate of ₹ 10 each and premium of 20%. What is the number of issued shares.
(a) 36,000
(b) 2,460
(c) 3,000
(d) 4,000
Answer:
(a) 36,000
The Amount Issued for Share = ₹ 3,60,000
It issued @ 10 each.
Hence no. of shares issued = \(\frac {Amount issued }{ issued price }\)
= \(\frac { 3,60,000 }{ 10 }\)
= 36,000 shares.

Accounting Concepts, Principles and Conventions – CA Foundation Accounts Study Material

Accounting Concepts, Principles and Conventions – CA Foundation Accounts Study Material

Accounting Concepts, Principles and Conventions – CA Foundation Accounts Study Material is designed strictly as per the latest syllabus and exam pattern.

Accounting Concepts, Principles and Conventions – CA Foundation Accounts Study Material

Question 1.
What are Accounting Concepts, Principles & Conventions?
Answer:
Usually, accounting theories are expressed (referred) as Postulates, Concepts, Principles, Doctrines, Axioms, Rules, Standard, Assumptions, Canon etc. These are basic assumptions & norms on which the whole system of accounting is developed. These gives the basic structure & outline within which the procedures & systems can be varied as per the situation & need of an entity.

Accounting Concepts:
Meaning:

  • Accounting Concepts is generally used to mean a ‘Notion’ only or mental idea about something.
  • It is a principle which is taken to be self-evident or axiomatic (Le., something which does not require to be proved) which has already been proved to be true.
  • In other words, it may be an assumption or axiom constituting the supposed basis of a system.
  • It is considered to be of a more fundamental character and universally acceptable which may be applied in all possible cases. It will have greater general applicability.
  • These postulates are either descriptive (explanatory) or suggestive (normative).
  • There is no authoritative list of these concepts.

Accounting Principles:
Meaning:

  • Accounting principles are the norm or rules which are to be followed in treating various items of Assets, Liabilities, Expenses, Incomes etc.
  • Example – (i) Inventory should be valued at lower of cost & net reliable value, (ii) Fixed Assets should be depreciated over its useful life, (iii) Valuation norms for current & permanent investments etc.
  • An accounting principle can have alternative methods to apply it. Like in case of inventory we have methods of cost measurement by FIFO or weighted average.

Accounting Conventions:
Meaning:

  • It refers to the general agreement on the usage and practices in social or economic life, i.e., it is a customary practice, rule, method or usage.
  • In other words, it is an accounting procedure followed by the accounting community on the basis of long-standing customs.

Accounting Concepts, Principles and Conventions – CA Foundation Accounts Study Material

Question 2.
What are Fundamental Accounting Assumptions? Explain them in detail.
Answer:
Fundamental Accounting Assumptions:

  • Fundamental accounting assumptions underline the preparation and presentation of financial statements.
  • They are usually not specifically stated because their acceptance and use are assumed.
  • Disclosure is necessary if they are not followed.
  • The Institute of Chartered Accountants of India issued Accounting Standard (AS-1) ‘Disclosure of
  • Accounting Policies’ according to which the following have been generally accepted as fundamental accounting assumptions: (i) Going Concern, (ii) Consistency and (iii) Accrual.

Question 3.
Periodicity concept.
Answer:
Periodicity concept:

  • Accounts are prepared for a fixed period usually a year.
  • Only transactions of that period has to come in that year’s accounts.
  • Period is kept uniform fa period of 12 months) so that results are com¬parable.
  • 1st Accounting period may be usually more or less than 12 months.
  • A business entity runs continuously (going concern) hence to assess its performance and see the financial position on regular basis, it is broken up into smaller, uniform time periods known as accounting period.
  • Now the Income-tax Act & Companies Act, 2013 both requires the Accounting year to be from 1 st April this year to 31 st March of next year.

Question 4.
Business Entity Concept
Answer:
Business Entity Concept:

  • A distinction is made between the concern & its owner.
  • Only those transaction which affects the concern is recorded in its books of account i.e. transactions affecting owner but not the concern will not be recorded in concerns books.

Although, we will study accounting of business concerns, but in the same manner personal account books can also be maintained by any individual.

Question 5.
Cost Concept
Answer:
Cost Concept:

  • The assets & properties are recorded at its cost to the concern & not at its market value.
  • Except stock which may be valued at cost or market price whichever is lower.
  • As per this concept Fixed assets are recorded at their acquisition cost & then depreciated over its useful life.
  • Example : Building purchased for ₹ 10 lakh. Its market value is ₹ 11 lakh. In account book building will be recorded at cost i.e. ₹ 10 lakh.

Question 4.
Dual Aspect Concept
Answer:
Dual Aspect Concept:

  • Each transaction has double effect of equal amounts on Assets, Liabilities and Capital (Expenses & Income will result in to profit/loss which is part of capital).
  • Therefore at any time the accounting equation is: Assets = Liabilities + Capital or Capital = Assets – Liabilities
  • In other words, capital, i.e. the owner’s share of the assets of firm, is always what is left out of assets after paying off outsiders.
  • Due to this dual aspect, we have double entry system of accounting.

Accounting Concepts, Principles and Conventions – CA Foundation Accounts Study Material

Question 5.
Money Measurement Concept
Answer:
Money Measurement Concept:

  • Accounting records only those transactions which are expressed in monetary terms.
  • Although quantitative records are also kept as subsidiary records but that is not part of financial account books.
  • The use of a building(depreciation or rent) and the use of clerical services (salaries) can be added up only through money values and not otherwise.
  • Example – Loss of a Managerial Personnel cannot have a specific monetary value, hence, cannot be recorded in account books although it is significant event.

Question 6.
Realization Concept.
Answer:
Realization Concept:

  • Income is accounted only when it is realised.
  • Realised means cash is received or a right to receive is established.
  • Example – A sale is recognised as income even when amount is not yet collected.
  • Income recognition (Le. accounting) is postponed, when there is no reasonable certainty of realisability.

Question 7.
Accrual Concept.
Answer:
Accrual Concept:

  • The expenses or Income of periodic nature accrues on day to day basis.
  • Therefore we make provision for interest etc. up to last date of accounting year although it may become due/payable on a later date.
  • Following accrual concept means following mercantile system of accounting.
  • Example of such items are Interest, Rent, Salary, Depreciation etc.
  • As per accrual concept/Mercantile system, the income & expenses should be recognised (Le. accounted):
  • In the accounting period to which they relate (Le. the period in which benefit/goods/services is given or taken)
  • Not in the period in which actual money is received or paid.

Example.
Loan ₹ 10 lakh taken on 1.1.06 @ 15% interest. Interest is payable annually. Accounting year ends on 31.3.06.
Answer:
Interest for 3 months from 1.1.06 to 31.3.06 ₹ 37,500 will have to be accounted even though it is neither paid, nor due, but only accrued.
Accrual is a Fundamental accounting assumption.

Question 8.
Going Concern Concept
Answer:
Going Concern Concept:

  • It implies that the concern will be continuing the business for foreseeable future.
  • It is assumed that the enterprise has neither the intention nor the necessity of liquidation or of curtailing materially the scale of the operations.
  • If such an intention or need exist, the financial statements may have to be prepared on a different basis and, if so, the basis is disclosed.
  • Because of this, expenditure is divided into capital & Revenue expenditure & the fixed Assets are valued at cost less Depreciation.
  • Because of this account of the whole life is divided into smaller accounting periods (periodicity concept).

Going concern is a fundamental accounting assumption.

Accounting Concepts, Principles and Conventions – CA Foundation Accounts Study Material

Question 9.
Matching Principle.
Answer:
Matching Principle:

  • If any income is credited in the P&L A/c then all expenses incurred or to be incurred for earning this income, should also be debited in the same years P&L A/c.
  • Similarly if expenses are debited the corresponding income should also be credited in the same P&L A/c.
  • To meet this requirement we make provision for closing stock, outstanding/prepaid expenses & outstanding/Advance income.
  • Future incomes are wot anticipated rather related expenditures are carried forward to future period like prepaid expense & closing stock.
  • If income is preponed for matching, it will be violation of realisation Concept & will also be against prudence principle.

Question 10.
Substance over form.
Answer:
Substance over form:
As per concept of Substance over form, the transaction should be recognized as per the economic reality of the transaction & not mere legal form.

Example.
A sales land to ‘B’ and gives possession of the land to B & receives full consideration. But sale deed is not yet registered for want of NOC from local authority.
Answer:
As per substance over form concept, A should recognize sale of land and consequent profit or loss and B should recognize Land as an asset in its books. Both will make suitable disclosure in notes to accounts.

Question 11.
Convention of Disclosure.
Answer:
Convention of Disclosure:

  • All material information which is relevant for the proper disclosure of true & fair position, should be disclosed prominently in the accounts & financial statements.
  • Disclosure of specified information is required by law and by Accounting Standards also, which is the minimum disclosure.

Question 12.
Convention of Materiality
Answer:
Convention of Materiality:

  • All material i.e. important/significant items or information should be properly accounted & disclosed in the accounts & financial statements.
  • That means immaterial items can be given a convenient accounting treatment.
  • Example – Stationery, Postage, such items are treated as expense in the period of purchase even though some unconsumed balance may be there.

Question 13.
Convention of Consistency
Answer:
Convention of Consistency:
1. Consistency means the same Accounting principles & policies are followed, which were followed for preparing previous years accounts.

2. Same accounting principles & policies should be followed consistently from year to year unless change is required:

  • to comply with some legal/statutory requirement or
  • to comply with Accounting Standards or
  • to show better information.

This consistency makes the information of different accounting year, comparable.
It is a fundamental accounting assumption.

Accounting Concepts, Principles and Conventions – CA Foundation Accounts Study Material

Question 14.
Convention of Prudence
Answer:
Convention of Prudence/Conservative approach:

  • An accountant is supposed to be conservative therefore expenses or losses are provided if there is possibility of its occurrence, but incomes are provided only if there is certainty of its earning.
  • It is application of a caution while estimating & accounting, such that expense & liabilities are not understated & income & assets are not overstated.
  • But it does not justify Creation of hidden reserve by deliberate understatement of Assets & incomes & overstatement of Liabilities & expenses.

Question 15.
Distinguish between Going Concern concept and Cost concept
Answer:
Going Concern Concept:

  • It implies that the concern will be continuing the business for foreseeable future.
  • It is assumed that the enterprise has neither the intention nor the necessity of liquidation or of curtailing materially the scale of the operations.
  • If such an intention or need exist, the financial statements may have to be prepared on a different basis and, if so, the basis is disclosed.
  • Because of this, expenditure is divided into Capital & Revenue Expenditure & the Fixed Assets are valued at cost less Depreciation.
  • Because of this account of the whole life is divided into smaller accounting periods, (periodicity concept) Going concern is a fundamental accounting assumption.

Cost Concept:

  • The assets & properties are recorded at its cost to the concern & not at its market value.
  • Except stock which may be valued at cost or market price which ever is lower.
  • As per this concept Fixed assets are recorded at their acquisition cost & then depreciated over its useful life.
  • Example – Building purchased for ₹ 10 lakh. Its market value is ₹ 11 lakh. In books of account building will be recorded at cost i.e. ₹ 10 lakh.

True or False

Question 1.
Prudence is a concept to recognize unrealized profits and not losses.
Answer:
False: Prudence is a concept to recognize future or anticipated losses and not profits.

Question 2.
As per AS-1, Fundamental Accounting Assumptions are Going Concern, Full Disclosure and Accrual Concept.
Answer:
False: As per AS-1, Fundamental Accounting Assumptions are Going Concern Concept, Consistency and Accrual Concept.

Question 3.
The financial statement must disclose all the relevant and reliable information in accordance with the full disclosure principle.
Answer:
True: The financial statement must disclose all the relevant and reliable information to comply with AS-1 Disclosure of Accounting Policies.

Accounting Concepts, Principles and Conventions – CA Foundation Accounts Study Material

Question 4.
Accrual concept implies accounting on cash basis.
Answer:
False: Accrual concept implies accounting on ‘accrual’ basis not on cash basis.

Question 5.
As per Concept of Conservatism, the accountant should provide for all possible losses, but should not anticipate income.
Answer:
True: As per Concept of Conservatism, the accountant should provide for all possible losses, but should not anticipate income.

Question 6.
The economic life of an enterprise is artificially split into periodic intervals in accordance with the going concern assumptions.
Answer:
True: The economic life of an enterprise is artificially split into periodic intervals in accordance with the accounting period concept. The going concern assumption states that an enterprise will continue its operation for indefinite period of time.

Vananchal Gramin Bank Personal Loan | EMI Calculation, Purpose, How To Apply? Features and Benefits

Vananchal Gramin Bank Personal Loan | EMI Calculation, Purpose, How To Apply? Features and Benefits

Vananchal Gramin Bank Personal Loan: The Vananchal Gramin Bank Personal Loan allows you to meet your financial demands. At the Vananchal Gramin Bank, individuals are offered personal loans at attractive rates. Vananchal Gramin Bank Personal Loan interest rate is an offering a great deal for people who are looking forward to getting personal loans.

Curious to check other banks’ offered Personal loan features, eligibility, interest rates, tax benefits, and a repayment plan. Go with our one-stop Personal Loan Page & swipe out your doubts within no time.

In this writing, we talk about all the necessary criteria for applying for a personal loan. The needed personal loan documents, eligibility criteria, repayment period, application process have all been mentioned below.

Vananchal Gramin Bank

Vananchal Gramin Bank Overview

In India, Vananchal Gramin Bank was founded on June 30, 2006, as a Regional Rural Bank. State Bank of India sponsors the bank, which is jointly owned by the Indian government, the state of Jharkhand, and the State Bank of India. Now is the time to apply for a Vananchal Gramin Bank Personal Loan to help you achieve your dreams.

At the Vananchal Gramin Bank, the person availing of the loan must be between the age limit of 21 to 58 years. They must be salaried or self-employed individuals, and the minimum loan amount that is offered is Rs. 25,000.

The Vananchal Gramin Bank is a Gramin bank from India, and at the Municipality Chowk, Dangalpara, Dumka – 814 101, Jharkhand is the bank’s headquarters. It has 203 sites throughout the state.

Vananchal Gramin Bank Features

  • The maximum loan amount is offered.
  • There are numerous debt repayment choices available.
  • Personal loan requests are processed rapidly and effortlessly.
  • Loan approval in a timely fashion
  • The bank does not need a guarantor.
  • Interest rates which are both attractive and competitive
  • Employees of large corporations are eligible for additional schemes and discounts.
  • Obtaining a personal loan generally does not require the provision of security.

How to Apply for a Personal Loan in Vananchal Gramin Bank?

  • Apply Online: You can apply online on the Vananchal Gramin Bank website by filling up your personal and work details and uploading the necessary documents. Once you’ve verified your loan eligibility, you can apply.
  • Apply Offline: You could go to any Vananchal Gramin Bank branch with all the required documents, fill out the form, and start the loan approval process.

Vananchal Gramin Bank Personal Loan Eligibility Criteria

An application must meet specific eligibility requirements, which are determined on which bank grants the applicant’s request. There are two types of candidates:

  • Salaried
  • Self-employed

Both applicants must meet a variety of requirements.

Salaried Employees

  • An applicant’s age must be between 21 and 60 years old at the time of application.
  • A borrower from a prominent city must have a minimum income of Rs 18,000 each month. The minimum salary in a non-metropolitan city should be Rs 12,000 each month.
  • The borrower should have three years of job experience and receive their salary straight into their account.
  • Strong credit history is needed while applying for a personal loan.

Self-employed Applicant

  • A self-employed person must be at least 25 years old.
  • When applying for a personal loan, the person must file ITRs for the previous three years.
  • An applicant’s credit score has to be good, and there should be no unfunded liability.
  • The minimum amount should be at least Rs 2.5 lakhs per year.
  • If the applicant owns a business, it must have been functioning for at least three years.

Vananchal Gramin Bank Personal Loan Documents Required

Vananchal Gramin Banks Personal Loan paperwork is simple and easy (though documentation varies from individual to individual). Your document requirements are determined by your occupation, salary, and loan amount.

  • Residency evidence: (Passport/ Voter card/ Id card/ Ration Card/ Driving license/ Aadhar Card) are the requirements needed as proof of residence. And if the applicant lives in a rented apartment, they must give their rental agreement, their electricity bill, and the landlord’s address.
  • Identity proof: One of the relevant documentation will be used as a verification document: (Passport/ Voter card/ Driving license/ Id card/ Aadhar Card) any one of them.
  • The formality of KYC: The applicant is required to submit their PAN card, which is a vital document.
  • Salaried Employees: If the applicant is self-employed, he or she must provide ITRs for the last three years, and his or her business should be registered.
  • Self-employed Applicants: The individual applying for the personal loan at Vananchal Gramin Bank must file ITR for the previous three years, and the business must be registered.

Vananchal Gramin Bank Personal Loan Features

  • Personal loans can be paid back in up to 60 installments. It starts with 12 EMIs. The duration of the repayment period is also decided by your credit score.
  • Personal loans are offered to both salaried and self-employed individuals.
  • Age limit for applying personal loan is 21 to 58 years.
  • The personal loan interest rate at Vananchal Gramin Bank is 9.99%
  • The person’s CIBIL score must be 750 and above.
  • The tenure of the loan is 12 to 36 months.
  • The loan processing fee at Vananchal Gramin Bank is 1% to 2%.

Types of Personal Loan Offered by the Vananchal Bank

  • Home loan
  • Education loan
  • Car loan
  • Gold loan
  • Business loan
  • Two-wheeler loan
  • Medical loan

Takeaways from the Article

Personal loans can be offered to people depending on their financial needs, and at the Vananchal Gramin Bank, personal loans are offered at a very low-interest rate. We all, at some point in our lives, need financial support to aid our needs; the personal loan from Vananchal Gramin Bank will help you.

Debentures – CA Foundation Accounts Study Material

Debentures – CA Foundation Accounts Study Material

Debentures – CA Foundation Accounts Study Material is designed strictly as per the latest syllabus and exam pattern.

Debentures – CA Foundation Accounts Study Material

Question 1.
Meaning of debentures.
Answer:
Meaning of debentures:
→ Debenture means “an instrument in writing issued by a company under its common seal, acknowledging its indebtedness for a certain sum of money and undertaking to repay it on or after a fixed future date.”

→ According to sec. 2(12) of the Companies Act, 1956 (now Section 2(30) of Companies Act, 2013) “Debenture include debenture stock, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not.”

Characteristic features of a debenture:

  • It is issued by the company and is in the form of a certificate of indebtedness.
  • It usually specifies the date of redemption. It also provides for the re-payment of principal and interest at specified date or dates.
  • It generally creates a charge on the undertaking or undertakings of the company.
  • Usually the words pari passu appear in the terms and conditions of debentures.
  • This means that all the debentures of a particular class will receive the money proportionately in case the company is unable to discharge the whole obligation.

Question 2.
Discount on debentures.
Answer:
Discount on debentures:

  • The discount is a capital loss and it should be written off as early as possible.
  • Even whole amount can be written off in the year of issue itself against share premium or any other capital profit.
  • Otherwise Debenture Discount can be written off over the lifetime of debentures as follows (applying matching principle):
  • If the Debentures are redeemable at the end of a period, then the Discount will be written off equally over that period.

Debentures – CA Foundation Accounts Study Material

Question 3.
Issue of Debentures as Collateral Security.
Answer:
Issue of Debentures as Collateral Security:
Issue of Debentures as Collateral Security means issue of debentures as an additional security, i.e., in addition to the prime security. It is to be realised only when the prime security fails to pay the amount of the loan. For example, when a company takes a loan of ₹ 10,00,000 from a bank, it may have to issue debentures as collateral security in addition to the principal security.

Debentures issued as a collateral security can be dealt with in the book in two ways:
(i) First Method:
Journal entry is not passed in the books of account at the time of issue of debentures as collateral security. However, it is disclosed by way of information below debentures, which are shown as Long-term Borrowings under Non-Current Liabilities or as Short-term Borrowings under Current Liabilities.

(ii) Second Method:
Debentures issued as collateral security may be recorded in the books of account. The Journal entry passed is :
Debentures Suspense A/c          Dr.         [This appears on the assets side]
To …. % Debentures A/c                           [This appears on the liabilities side]
When the loan is paid the above entry is cancelled by means of a reverse entry.

Question 4.
Premium on issue of debentures and Premium on redemption of debentures.
Answer:
Premium on issue of debentures and Premium on redemption of debentures:

Premium on Issue of Debentures Premium on Redemption of Debentures
1. It is a capital profit and used in writing off the capital loss. It is a capital loss.
2. The balance of premium on issue of Debentures Account, (Securities Premium) is shown on the liabilities side, under the head ‘Shareholders’ Funds’ and sub-head ‘Reserves and Surplus’. It is a liability and appears under the head ‘Non-Current Liabilities’ and sub-head ‘Long-term Borrowing’ till the redemption of debentures.

Question 5.
Company issued 1000,9% debentures @ ₹ 100 each, in following manner
Application ₹ 40
Allotment ₹ 30-10
First call ₹ 20
Second and final call ₹ 10
Mr. R holder of 20 debentures failed to pay the 1st and 2nd call money. Company decided to charge ₹ 35 as Interest on calls-in-arrear. Give necessary journal entries in the books of the company.
Solution:
Journal Entries
Debentures – CA Foundation Accounts Study Material 1

Question 6.
A Company purchased some plant costing ₹ 4,30,000 at an agreed price of ₹ 4,00,000. Company decided to issue its 896 debentures of ₹ 100 each against purchased consideration. Give necessary accounting entries in the following
cases:-
(a) If debenture were issued @ ₹ 100 per debenture
(b) If debenture were issued @ ₹ 80 per debenture
(c) If debenture were issued @ ₹ 125 per debenture
Solution:
Journal Entries
Debentures – CA Foundation Accounts Study Material 2

Working Note:
Debentures – CA Foundation Accounts Study Material 3

Question 7.
A Company took a bank loan of ₹ 5,00,000 from SBI and issued its 6000, 10% debentures of ₹ 100 each as collateral security to loan. Give necessary accounting treatment.
Solution :
Ist method:
When debenture issued as collateral security are not shown as issued debentures in the balance sheet of the company.

(i) Bank a/c                                                                                            Dr.
To Bank loan a/c
(Being bank loan taken on issue of 6000, 10% debentures of ₹ 100 each as collateral security)
5,00,000  

5,00,000

(ii) No entry required for issuing debentures.

Balance sheet (Extract) as at ………….
Debentures – CA Foundation Accounts Study Material 4

Note:
(1) Long term borrowings:

Bank Loan from SBI

(on collateral security of 6,000, 10% debentures of ₹ 100 each).

5,00,000

Debentures – CA Foundation Accounts Study Material

Question 8.
A Company issued 1000, 12% debentures of ₹ 100 each on 1st Jan 2016 at a premium of 10%. Interest was given/payable on 30th June and 31st December, every year subject to 10% TDS. Give necessary journal entries for the year 2016.
Solution:
Journal Entries
Debentures – CA Foundation Accounts Study Material 5

Question 9.
ABC company issued 1000, 9% debentures of ₹ 100 each at a discount of 5% on 1st Jan, 2011. These debentures were to be redeemed after 5 years. Show necessary journal entries at the time of issue of debentures. Also prepare discount on issue of 9% debentures a/c.
Solution :
At the time of issue:
Journal Entries
Debentures – CA Foundation Accounts Study Material 6
Discount on issue of 9% debenture a/c
Debentures – CA Foundation Accounts Study Material 7
Balance sheet as at 31st December 2011

Assets Note No.
Non-current assets other non-current assets 3,000
Current assets other current assets 1,000

Working Note:
(1) \(\frac{₹ 5,000}{5 \text { years }}\) = ₹ 1,000/-

Debentures – CA Foundation Accounts Study Material

Question 10.
Suppose company decided to redeem its debentures in the following manner

  • At the end of the year 2011 ₹ 20,000
  • At the end of the year 2012 ₹ 30,000
  • At the end of the year 2013 ₹ 10,000
  • At the end of the year 2014 ₹ 20,000
  • At the end of the year 2015 ₹ 20,000

Calculate the amount to be written off at the end of every year.
Debentures – CA Foundation Accounts Study Material 8
At the beginning of the year or before redemption

Question 11.
Pure Ltd. issues 1,00,000 12% Debentures of ₹ 10 each at ₹ 9.40 on 1st January, 2018. Under the terms of issue, the Debentures are redeemable at the end of 5 years from the date of issue.
Calculate the amount of discount to be written-off in each of the 5 years.
Solution:
Total amount of Discount = 1,00,000 x 0.60 = ₹ 60,000

At the end of Year Amount of outstanding debentures Ratio Amount of discount to be written off
1st 10,00,000 1/5 60,000 = 12000
2nd 10,00,000 1/5 60,000 = 12000
3rd 10,00,000 1/5 60,000 = 12000
4th 10,00,000 1/5 60,000 = 12000
5th 10,00,000 1/5 60,000 = 12000

Question 12.
On 1st January 2018, Ankit Ltd. issued 10% debentures of the face value of ₹ 20,00,000 at 10% discount. Debenture interest after deducting tax at source @10% was payable on 30th June and 31st December every year. All the debentures were to be redeemed after the expiry of five year period at 5% premium.
Pass necessary journal entries for the accounting year 2018.
Solution:
Journal Entries
Debentures – CA Foundation Accounts Study Material 9

True or False

Question 1.
Debenture Redemption Premium Account and Discount on issue of debentures Account are Nominal Accounts.
Answer:
False: Debenture Redemption Premium Account is a Personal Account but Discount on issue of Debentures Account is a Nominal Account.

Debentures – CA Foundation Accounts Study Material

Question 2.
Now Debentures can be issued at Par/Premium but not at discount.
Answer:
False: Debentures can be issued at Par/Premium/discount since there are no restrictions on issue of debentures at discount.

Question 3.
Like Shares a Company can issue debentures with voting rights.
Answer:
False: A Company cannot issue debentures with voting rights.