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 PAPER – 10 : CORPORATE ACCOUNTING AND AUDITING
SUGGESTED ANSWERS
SECTION-A
1.
(i) B
(ii) A
(iii) B
(iv) D
(v) B
(vi) A
(vii) C
(viii) C
(ix) D
(x) A
(xi) C
(xii) A
(xiii) A
(xiv) B
(xv) A

SECTION- B
2. (a)
In the Books of Alpha Co. Ltd.
Journal Entries

Date Particulars Debit (₹) Credit (₹)

Bank A/c Dr. 2,00,000
To Preference Share Application A/c 2,00,000
(Application money on 20,000 preference
shares at ₹10 each)
Preference Share Application A/c Dr. 2,00,000
To 12%Preference Share Capital A/c 2,00,000
(Transfer of application money to preference
share Capital account on shares being allotted)
Equity Share Capital A/c Dr. 5,00,000
Securities Premium A/c Dr. 2,50,000
To Equity Shareholders A/c 7,50,000
(Amount due to equity shareholders consequent
Upon buy-back of 50,000 Shares at ₹ 15)
Equity Shareholders A/c Dr. 7,50,000
To Bank A/c 7,50,000
(Payment to equity shareholders for amount
due to them)
General Reserve A/c Dr. 3,00,000
To Capital Redemption Reserve A/c 3,00,000
(Transfer of the nominal value of shares
bought Back out of profit)

Page 1 of 10
2. (b)
Debenture Redemption Fund A/c
Dr. Cr.
Date Particulars D Date Particulars D
31.3.2025 To General Reserve A/c 24,45,000 01.4.2024 By Balance b/d 15,00,000
[Transfer Bal/Fig.] 31.3.2025 By Interest on Debenture
Redemption Fund Investment 1,35,000
A/c [15,00,000x 9%]
By Statement of Profit & Loss
[Annual contribution] 2,10,000
By Debenture Redemption Fund
Investment A/c [Profit on sale] 6,00,000

24,45,000 24,45,000

9% Debenture Redemption Fund Investment A/c

Dr. Cr.
Date Particulars D Date Particulars D
01.4.2024 To Balance b/d. 15,00,000 31.3.2025 By Bank A/c 21,00,000
31.3.2025 To Debenture Redemption 6,00,000 [Sale proceeds]
Fund A/c [Profit on sale
transferred WN: 1]
21,00,000 21,00,000

Sale of Debenture Redemption Fund Investment

Sale proceeds of Debenture Redemption Fund Investment 2100000
(-) Cost of Debenture Redemption Fund Investment sold 1500000
Profit on sale of Debenture Redemption Fund Investment
6,00,000

3.
A Ltd.
Statement of Profit or Loss for the year ended 31st March, 2025
Particulars Note No. D
I. Revenue from operations (Sales) 62,40,000
II. Other income (interest on investment) 1,44,000
III. Total Revenue [I + II] 63,84,000
IV. Expenses:
Cost of purchase 7 34,80,000
Changes in inventories (9,60,000)
Employee Benefits Expense (Salaries) 7,20,000
Finance Costs (debenture interest) 3,36,000
Depreciation and Amortization Expenses 8 2,40,000
Other Expenses 9 7,44,000
Total Expenses 45,60,000
V. Profit before Tax (III-IV) 18,24,000
VI. Tax Expenses @ 30% 5,47,200
VII. Profit for the period 12,76,800

Page 2 of 10
 A Ltd.
Balance Sheet as on 31.03.2025
Particulars Note No. D
I EQUITY AND LIABILITIES
(1) Shareholders' Funds
Share Capital 1 24,00,000
Reserves and Surplus 2 20,56,800
(2) Non-current Liabilities
Long-term Borrowings (14% debentures) 24,00,000
(3) Current Liabilities
Trade Payable (Sundry Creditors) 11,04,000
Other Current Liabilities 3 2,52,000
Short-Term Provisions (Provision for Tax) 5,47,200
Total 87,60,000
II ASSETS
(1) Non-current Assets
(a)PPE
Tangible Asset 4 34,20,000
(b) Non-current Investments 14,40,000
(2) Current Assets
Inventories 5 13,56,000
Trade Receivables 6 14,40,000
Cash and Cash equivalent (Bank Balance) 3,60,000
Short Term Loans and Advances 7,20,000
(Advance Payment of Tax)
Other Current Assets 24,000
(Interest accrued on investments)
Total 87,60,000
Note:
(1) Contingent Liability for bills discounted but not yet matured D 120,000.
(2) Contingent Liability for Proposed Dividend = 24,00,000 x 25% = D 6,00,000

Notes to Accounts supporting the B/S and Statement of P/L:

D D
1. Share Capital
Authorized Capital
60,000 Equity Shares of D 100 each 60,00,000
Issued Capital
24000 Equity Shares of D 100 each 24,00,000
Subscribed and Paid-up Capital
24000 Equity Shares of D 100 each 24,00,000
2. Reserve and Surplus
General Reserve [ D 480000 + D 127680] 6,07,680
Balance of Statement of Profit & Loss Account
Opening Balance 3,00,000
Add: Profit for the period 12,76,800
15,76,800
Page 3 of 10
 Approp: Transfer to General Reserve @ 10% (1,27,680) 14,49,120
20,56,800
3. Other Current Liabilities
Unclaimed Dividend 60,000
Outstanding Expenses 24,000
Interest accrued on Debentures 1,68,000
2,52,000
4. Tangible Assets
Buildings 34,80,000
Less: Provision for Depreciation 6,00,000 28,80,000
Plant and Equipment 12,00,000
Less: Provision for Depreciation 6,60,000 5,40,000
34,20,000
5. Inventories
Closing Stock of Finished Goods 10,80,000
Loose Tools 2,76,000 13,56,000
6. Trade Receivables
Sundry Debtors 15,00,000
Less: Provision for Doubtful Debts 60,000 14,40,000
7. Cost of purchase:
Adjusted purchase 25,20,000
Add: (Closing stock - Opening Stock) 9,60,000 34,80,000
8. Depreciation and Amortization:
On Building 96,000
On Machinery 1,44,000 2,40,000
9. Other Expenses
Rent 3,12,000
Directors' Fees 1,20,000
Bad Debts 72,000
Provision for Doubtful Debts [(4% of D 24,000
15,00,000) less. D 36,000]
Sundry Expenses 2,16,000
7,44,000

4. (a)
Calculation for unsecured portion of loan (D in lakhs)
Particulars Term loan Export credit
Balance outstanding on 31.3.2025 70.00 60.00
Less: Realizable value of Securities 20.00 16.00
50.00 44.00
Less: DICGC cover @ 40% 20.00 –
ECGC cover @ 50% - 22.00
Unsecured balance 30.00 22.00

Required Provision:(D in lakhs)

Assuming the balance was outstanding upto one year:
Particulars Term loan Export credit
100%* for unsecured portion 30.00 22.00
25% for secured portion 5.00 4.00
Total provision required 35.00 26.00

Page 4 of 10
Alternatively:
Assuming the balance was outstanding one year to three year:
Particulars Term loan Export credit
100%* for unsecured portion 30.00 22.00
40% for secured portion 8.00 6.40
Total provision required 38.00 28.40
Alternatively:
Assuming the balance was outstanding more than three year:
Particulars Term loan Export credit
100%* for unsecured portion 30.00 22.00
100% for secured portion 20.00 16.00
Total provision required 50.00 38.00

* The above solution has been provided based on the Norms for Provisions on NPA as per the Master Circular
Issued by RBI dated 01.04.2024.

4. (b)
In the Books of Prakash Life Insurance Company Limited
Valuation Balance Sheet as on 31st March, 2025
Liabilities (₹) Assets (₹)
Net Liability 28,80,000 Life Assurance Fund 34,00,000
Net Profit 5,20,000
34,00,000 34,00,000

Net Profit for the Two-Year Period (₹)

Profit as per Valuation Balance Sheet 5,20,000
Add: Interim Bonus paid during the Previous Two Years 40,000
Net Profit 5,60,000
Distribution of the Profits
Net Profit 5,60,000
Less: Amount proposed to be carried forward 1,10,000
Balance 4,50,000
Share of Policyholders (95% of ₹ 4,50,000) 4,27,500
Less: Interim Bonus paid 40,000
Amount due to Policyholders 3,87,500
Share of Shareholders (5% of ₹ 4,50,000) 22,500

Page 5 of 10
5. (a)
Calculation of Basic and Diluted EPS

Basic EPS Diluted EPS

Particulars
D D
Net Profit for the year 4,00,00,000 4,00,00,000
Adjustment for after tax interest expense on conversion of debenture -- 33,60,000
[48,00,000 x (1 – 0.30)]
(A) 4,00,00,000 4,33,60,000
No. of Equity Shares outstanding 2,00,00,000 2,00,00,000
No. of potential equity shares (400000 x 10) 40,00,000
Weighted average no. of shares (B) 2,00,00,000 2,40,00,000
EPS (A/ B) 2.00 1.81

5. (b)
Cash Flow Statement for the year ended on 31.03.2025
Particulars D D
A. Cash flow from operating activities:
Sales (all in cash) 4800000
Less: Payment to suppliers (Note) 3550000
1250000
Less: Operating expenses 360000
890000
Less: Income Taxe paid 150000
740000
B. Cash flow from investing activities:
Purchase of building (400000)
Purchase of furniture (200000)
Dividend received on investment __10000 (590000)

C. Cash flow from financing activities:

Interest paid (120000)
(A+B+C) 30000
Add: Opening cash and cash equivalent _40000
Closing cash and cash equivalent 70000

Note: Payment to suppliers:

COGS = 75% of Sales of D 48,00,000 = D 36,00,000
COGS = Op. Stock + Purchase - Cl. Stock
Or, 3600000 = Op. Stock + Purchase – (Op. Stock + 50,000)
Or, Purchase = 36,50,000

Payment to Creditors = Op. Balance + Credit purchase – Cl. Balance

Or, Payment to Creditors = Op. Balance + 36,50,000 – (Op. Balance + 100000)
Or, Payment to Creditors = 35,50,000
Page 6 of 10
6. (a)
Tax Audit can be defined as “an examination of financial records to assess correctness of calculation of
taxable profit to ensure compliance with provisions of the Income Tax Act and also ensure of fulfilment of
conditions of deductions under Income Tax Act.”

Tax Audit is required in addition to the Financial Audit since taxable income largely differs from accounting
profit because of various allowances, disallowances, deductions and exemptions suggested under tax laws.

In India the Income Tax Act 1961 contains a number of provisions requiring Tax Audit of an entity. Section
44AB gives the provisions relating to the class of tax payers who are required to get their accounts audited
from chartered accountant.

The audit under Section 44AB aims to ascertain the compliance of various provisions of the Income Tax Law
and the fulfilment of other requirements of the Income Tax Law.

The prime objective tax audit is to stop tax evasion.

6. (b)
As per Companies (Cost Records and Audit) Rules 2014 as amended up to date, a cost auditor needs to
report the following in CRA-3:

(a) Whether he has obtained all the information and explanations, which to the best of his knowledge and
belief were necessary for the purpose of the audit.
(b) Whether in his opinion, proper cost records, as per rule 5 of the Companies (Cost Records and Audit)
Rules,2014 have been maintained by the company in respect of its product(s)/ service(s) under
reference.
(c) Whether in his opinion, proper returns adequate for the purpose of the cost audit have been received
from the branches not visited by him.
(d) Whether in his opinion, and to the best of his information, the said books and records give the
information required by the Companies Act, 2013, in the manner so required.
(e) Whether in his opinion, the company has adequate system of internal audit of cost records which to his
opinion is commensurate to its nature and size of the business.
(f) Whether in his opinion, information, statements in the annexure to the cost audit report give a true and
fair view of the cost of production of product(s)/rendering of service(s), cost of sales, margin and other
information relating to product(s)/service(s) under reference.
(g) Whether detailed unit-wise and product/service-wise cost statements and schedules thereto in respect of
the product /service of the company duly audited and certified by him are kept in the company.

7. (a):
The reporting requirements as per Companies (Auditor’s Report) Order, 2020 is as follows:
(i) Acceptance of Deposits [Clause 3 (v)]:
In case the company has accepted deposits, whether the directives issued by the Reserve Bank of India
and the provisions of Sections 73 to 76 or any other relevant provisions of the New Act and the rules
framed there under, where applicable, have been complied with. If not, the nature of contraventions
should be stated. If an order has been passed by Company Law Board or National Company Law
Tribunal or Reserve Bank of India or any court or any other tribunal, whether the same has been
complied with or not.
Page 7 of 10
 (ii) Statutory Dues [Clause 3 (vii)]
(a) CARO 2020, specifically clause 3(vii), mandates auditors to report on the company's compliance with
statutory dues. This includes verifying if the company is regular in depositing undisputed statutory dues
including provident fund, employees’ state insurance, income tax, goods and services tax (GST) and any
other statutory dues with the appropriate authorities? And if not, the extent of the arrears of outstanding
statutory dues as at the last day of the financial year concerned for a period of more than six months
from the date they became payable, shall be indicated by the auditor.

(b) In case dues of income tax or goods and services tax (GST) have not been deposited on account of any
dispute, then the auditor must disclose the amount involved and the forum where dispute is pending shall
be mentioned.

(iii) Reporting of Fraud [Clause 3 (xi)]

(a) whether any fraud by the company or any fraud on the company has been noticed or reported during the
year, if yes, the nature and the amount involved is to be indicated;

(b) whether any report under sub-section (12) of section 143 of the Companies Act has been filed by the
auditors in Form ADT-4 as prescribed under rule 13 of Companies (Audit and Auditors) Rules,
2014with the Central Government;

(c) whether the auditor has considered whistle-blower complaints, if any, received during the year by the
company;

7. (b)
Constitution of NFRA
The National Financial Reporting Authority (NFRA) was constituted on 1st October,2018 by the Government
of India under Sub Section (1) of section 132 of the Companies Act, 2013. The body will comprise of one
Chairman who will be an eminent individual with competence in accounting, auditing, finance, or law as
Chairperson. In addition, there can be a maximum of 15 members.

Functions and Duties of NFRA

As per Section 132(2) of the Companies Act, 2013, the duties of the NFRA are to:
(i) Recommend accounting and auditing policies and standards to be adopted by companies for approval by
the Central Government;

(ii) Monitor and enforce compliance with accounting standards and auditing standards;

(iii) Oversee the quality of service of the professions associated with ensuring compliance with such
standards and suggest measures for improvement in the quality of service;

(iv) Perform such other functions and duties as may be necessary or incidental to the aforesaid functions and
duties.

Page 8 of 10
8. (a)
The special steps involved in the audit of an educational institution are the following:

(i) Examine the Trust Deed, or Regulations in the case of school or college and note all the provisions
affecting accounts. In the case of a university, refer to the Act of Legislature and the Regulations framed
thereunder.

(ii) Read through the minutes of the meetings of the Managing Committee or Governing Body, noting
resolutions affecting accounts to see that these have been duly complied with, especially the decisions as
regards the operation of bank accounts and sanctioning of expenditure.

(iii) Verify the Tuition Fees: Tally the counterfoils of fee receipt with fee register to see whether they
have been duly recorded or not. Check the register to identify whether all the students have paid their
fees in due time. If any student has deposited the fees beyond the due date, check whether late fine has
been charged or not and whether the same has been properly recorded. See whether all collections are
deposited in the bank account at the end of the day. Total up the various columns of the Fees Register.

(iv) Verify the Admission Fees: Check admission fees with admission slips signed by the head of the
institution and confirm that the amount had been credited to a Capital Fund, unless the Managing
Committee has taken a decision to the contrary.

(v) Verify the Other Fees and receipts: Verify the collection of other fees such as library fees,
development fees, fees for hostel etc. based on the counterfoils and fee registered and ensure that the
fees have been accounted for in appropriate heads. Verify grants received from Government or other
organisations. Ensure that donation received, if any, has been acknowledged and recorded properly in
the books of accounts. Check income from letting out institutional properties based on the counterfoil of
receipts issued to parties.

(vi) Verify the salary and wages paid to the employees. In case of Govt. or aided colleges, verify that the
claims have been properly prepared and the amount sanctioned has been distributed to the right person.
Check the deductibles from salary, such as Provident Fund Contribution and Income Tax deducted at
source, have been deposited with the authority concerned in due time

(vii) Examine whether all the expenditure associated with special events has been accounted for by matching
the expenditure in this regard against the amount obtained from any organisation or sanctioned by the
institution itself. Vouch all the regular expenses and purchase of fixed assets, expenditure for
construction of college buildings based on the available vouchers, resolution of the meetings of
purchase/finance committee.

(viii) Vouch the refund of Caution Deposit from the students based on receipts and accounting records.
Examine the payments on account of hostel facilities including repairs and maintenance of hostel
building, electricity charges, purchase of food items etc.

(ix) Verification of Assets and Liabilities: Conduct physical verification of tangible fixed assets as shown
in the Fixed Asset Register. Verify investments based on Investment Register. Check whether
depreciation and amortization has been provided as per the policy adopted. Verify the inventories of
furniture, stationery, clothing, provision and all equipment, etc. These should be checked by reference to
Stock Register and values applied to various items should be test checked.

(x) Verification of Financial Statements: Verify that the financial statements (i.e., Income and
Expenditure Account and Balance Sheet) have been prepared in the form and manner as specified by the
regulatory authority complying with the account standards and applicable legal requirements.
Page 9 of 10
 8. (b)
As per the Companies Act 2013, an auditor has the following rights:

i. Right to Inspect Books of Accounts and Vouchers Every auditor of a company shall have the right of
access at all times to the books of account and vouchers of the company kept at the registered office of
the company or at any other place.

ii. Right to Obtain Information and Explanations The auditor is also entitled to ask for such information
and explanation as he may consider necessary for the performance of his duties as the auditor from the
officers of the company [Section 143(1)].

iii. Right to Inspect Branch Offices and Branch Accounts He is also entitled to inspect the accounts of any
branch office [Section 143(8)].

iv. Right to Receive the Report of Branch Audit from the Branch Auditor In case a separate auditor has
been appointed to audit the branch accounts, the company auditor has the right to receive the branch
audit report from the branch auditor. [Section 143(8)].

v. Right to Receive Notices and Attend General Meetings The company auditor is also entitled to receive
all notices of, and other communications relating to, any general meeting and to attend such meetings
and being heard [Section 146].

vi. Right to Sign the Audit Report and Other Documents The company auditor also has the right to sign the
auditor’s report or sign or certify any other document of the company in accordance with the provisions
of Section 141(2) [Section 145].

vii. Right to Have Audit Report Read at the AGM The company auditor has the right to have the report read
before the company in the General Meeting and the same shall be open to inspection by any member of
the company [Section 145].

viii. Right to Attend the Meeting of the Audit Committee He also has a right to attend the meetings of the
Audit Committee and to be heard in the meetings when the Committee considers the auditor’s report.

ix. Right to be Indemnified The auditor of a company shall also have the right to be indemnified for any
expenses incurred by him in defending himself in case the judgement in any law suit (whether civil or
criminal) against the company goes in favour of the auditor.

_______________________________________

Page 10 of 10
-

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-

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-

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-
 PAPER – 10 : CORPORATE ACCOUNTING AND AUDITING
SUGGESTED ANSWERS
SECTION-A
1.
(i) (C)
(ii) (D)
(iii) (B)
(iv) (D)
(v) (D)
(vi) (A)
(vii) (C)
(viii) (B)
(ix) (C)
(x) (D)
(xi) (C)
(xii) (D)
(xiii) (D)
(xiv) (C)
(xv) (D)
SECTION-B
2. (a)
In the books of P Ltd.
Journal
Date Particulars L.F Debit (₹) Credit (₹)
1st Equity Share Capital A/c …… Dr. 3,000
Securities Premium A/c Dr. 200
To Equity Share Allotment A/c 500
To Equity Share Call A/c 1,200
To Forfeited Share A/c 1,500
Alternatively,
Equity Share Capital A/c ….. Dr. 3,000
Securities Premium A/c Dr. 200
To Calls-in-arrear A/c 1,700
To Forfeited Share A/c 1,500
2nd Bank A/c………………………………… Dr. 2,000
Forfeited Share A/c……………………… Dr. 500
To Equity Share Capital A/c 2,500
3rd Forfeited Shares A/c …………………………Dr. 700
To Capital Reserve A/c 700
Note: Entries to be supported by Narration.

Calculation of Amount to be transferred to Capital Reserve

Amount forfeited per share of M ₹3
Less: Loss on re-issue per share ₹2
Surplus ₹1
Amount forfeited per share of N ₹6
Less: Loss on re-issue per share ₹2
Surplus ₹4
Transferred to Capital Reserve: M’s share (100 x ₹ 1) = ₹100;
N’s share (150 x ₹ 4) = ₹ 600.
Total = ₹100 + ₹ 600 = ₹700.
1 of 9
2. (b)
(i) Number of shares issued:
Debenture holders opted for conversion (40,000 /100) = 400
Option for conversion = 20%
Number of debentures to be converted (20% of 400) = 80
Redemp. value of 80 debentures at a premium of 5% [80 x (100+5)] = ₹ 8,400
Equity shares of ₹ 10 each issued on conversion [₹ 8,400/ ₹.20] = 420 shares

(ii) Cash to be paid:

Number of debentures - number of debentures to be converted into equity shares= 400- 80 =320 Debentures
Redemption value of 320 debentures (320 × ₹ 105) = ₹ 33,600

(iii) Journal of Akash Limited:

Date Particulars L.F. Dr.( ₹.) Cr.( ₹)
1 Debentures A/c Dr. 40,000
Premium on redemption A/c Dr. 2,000
To Debenture holders A/c 42,000
2 Debenture holders A/c Dr. 42,000
To Equity Share capital A/c 4,200
To Securities premium A/c 4,200
To Bank A/c 33,600
Note: Entries to be supported by Narration.
3.
Alpha Ltd.
Statement of Profit and Loss for the year ended 31st March, 2024
Particulars Amount(₹)
I. Revenue from operations 57,00,000
II. Other income (Income from Govt. Securities) 24,000
III. Total Revenue [I + II] 57,24,000
IV. Expenses:
Cost of purchase 32,00,000
Changes in inventories (50000)
Employee Benefits Expense 7,72,000
Finance Costs 30,000
Depreciation and Amortization Expenses 5,00,000
Other Expenses 4,45,750
Total Expenses 48,97,750
V. Profit before Tax (III-IV) 8,26,250
VI. Provision for Tax 1,50,000
VII. Profit for the period 6,76,250

Balance Sheet as on 31.03.2024

Note No. Amount(₹)
I EQUITY AND LIABILITIES
(1) Shareholders' Funds
Share Capital 1 30,00,000
Reserves and Surplus 2 11,76,250
(2) Non-Current Liabilities
Long-term Borrowings (10% debentures) 3,00,000
(3) Current Liabilities
Trade Payable 2,00,000
Other Current Liabilities 3 7,500
Short-Term Provisions (Provision for tax) 4 1,50,000
Total 48,33,750
II ASSETS
(1) Non-Current Assets
(a)PPE 5 31,00,000
2 of 9
 (b)Non-current Investments (12%L T Govt. Securities) 2,00,000
(2) Current Assets
Inventories 3,50,000
Trade Receivables 7 9,61,750
Cash and bank balances 2,22,000
Total 48,33,750
Note: Contingent Liability for Proposed Dividend (3000000 x 10%) = ₹ 3,00,000.

Notes to Accounts:
Particulars Amount(₹)
1. Share Capital
Subscribed and Paid-up Capital
300000 Equity Shares of Rs. 10 each 30,00,000
2. Reserve and Surplus
General Reserve 3,00,000
Balance of Statement of Profit & Loss A/c
Opening Balance 3,00,000
Add: Profit for the period 6,76,250
9,76,250
Appropriations
Transfer to General Reserve (1,00,000)
8,76,250
11,76,250
3. Other Current Liabilities
Interest accrued on Debentures 7,500
4. Short Term Provision
Provision for Tax 1,50,000
5. PPE
Buildings 1200000
Less: Depreciation 60000 1140000

Machinery 2000000
Less: Depreciation 400000 1600000

Motor van 400000

Less: Depreciation 40000 360000
31,00,000
6. Total depreciation 5,00,000
7. Trade Receivables
Sundry Debtors 10,00,000
Less: Provision for Doubtful Debts 38,250
9,61,750
8. Employee Benefit Expenses
Salaries 6,72,000
Contribution to P.F. and Gratuity Funds 1,00,000
7,72,000
9. Finance Cost
Interest on Debenture 22,500
Outstanding Interest on Debenture 7,500
30,000
10. Other Expenses
Discount Allowed 7,500
Carriage Outward 1,50,000
Rent and Rates 50,000
Advertisement 1,50,000
Bad Debt 20,000
Misc. Expenditure 30,000
Provision for Doubtful Debts 38,250 4,45,750

3 of 9
4. (a)
Secured and unsecured portion of loan
Date Particulars Amount(₹)
31.03.2024 Balance of Loan (Principal) 15,00,000
Add: Outstanding Interest 1,97,112
Total Claim 16,97,112
Less: Value of security at that date 14,70,000

2,27,112
Classification: Secured portion of loan. 14,70,000
Unsecured portion of loan 2,27,112

Outstanding interest
Quarter ending Interest (₹) Closing balance
with Principal (₹)

31.03.2023 37,500 15,37,500

30.06.2023 38,438 15,75,938
30.09.2023 39,398 16,15,336
31.12.2023 40,383 16,55,719
31.03.2024 41,393 16,97,112
1,97,112

4. (b)
Statement showing Life Assurance Fund
Particulars Amount(₹) Amount(₹) Amount(₹)
Balance of Fund as on 31st March, 2023 30,00,000
Add:
Interest on securities 4,100
Premium outstanding 2,700
6,800
Less: 30,06,800
Claims outstanding 13,250
(-) Covered under re-insurance 6,000 7,250
Bonus in reduction of premium 2,250
9,500
Balance of Life Assurance Fund 29,97,300

5. (a)
Bonus payable for current year = ₹..300000 + 6% of ₹.300000 = ₹ 3,18,000
No. of employees in payroll = 450 – 8% of 450 = 414
Provision for bonus = ₹.318000 x 414 = ₹ 13,16,52,000
Note: Here, the company has a constructive obligation and not a legal obligation to increase the bonus.

This will be falling under the category of Short Term Employee Benefit.

4 of 9
5. (b)
Y Ltd.
Cash Flow Statement for the year ended on 31.03.2023
Particulars Amount(₹)
Cash Flows from Operating Activities
Net Profit before Taxation 10,00,000
Add back:
Depreciation on Fixed Assets 2,95,000
Discount on Issue of Debentures 15,000
Interest Expenses (Debentures) 1,75,000
14,85,000
Less: Profit on Sale of Investment (10,000)
Less: Interest Income from Long-term Investments (30,000)
Cash Generated from Operations Before WC Changes 14,45,000
Less: Increase in non-cash working capital(639000-586000)
Cash Generated from Operations (53,000)
Less: Income-tax Paid 13,92,000
Net Cash from Operating Activities (5,25,000)
8,67,000

6. (a)
Following are the essential characteristics or principles of a good internal check system:
(i). Division of work:
The entire task should be divided among the staff in such a way that no single person is allowed to complete the
work solely by himself from the beginning to the end.
(ii). Provision of check:
There must be clear instruction that the work performed by any staff must be checked by the next staff.
(iii). Responsibility:
Responsibility of each individual must be properly defined and fixed.
(iv). Use of technology:
As far as possible, various technology enabled devices should be used to minimise human error.
(v). Rotation of employees:
A system of transfer or rotation of employees from one responsibility to another must be followed by the
business.
(vi). Control over employees:
Generally, chances of frauds are high in case there is direct contact between staff and the customers. So, a
manager can keep eyes in those areas to make internal check system more effective.
(vii). Supervision:
A strict supervision should be exercised to ensure that the prescribed internal checks and procedures are fully
operative.
(viii). Periodical review:
The system of internal check is reviewed from time to time to introduce improvements.

6. (b)
Applicability and Conduct of Secretarial Audit:
(a) The Companies Act 2013: As per the provision of Section 204(1) of the Companies Act, 2013 read with Rule 9 of
the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014:
1. Every listed company;
2. Every public company having a paid-up share capital of 50 crore rupees or more; or
3. Every public company having a turnover of 250 crore rupees or more; or
4. Every company having outstanding loans or borrowings from banks or public financial institutions of 100crore
rupees or more.
- is required to annex with its Board’s Report made in terms of Section 134(3) of the Companies Act, 2013, a
Secretarial Audit Report, given by a Company Secretary in practice, in Form No. MR-3.
5 of 9
 As per Section 204(2), it shall be the duty of the company to give all assistance and facilities to the company
secretary in practice, for auditing the secretarial and related records of the company.

Moreover, Section 204(4) further provides that if a company or any officer of the company or the company
secretary in practice, contravenes the provisions of this section, the company, every officer of the company or the
company secretary in practice, who is in default, shall be liable to a penalty of two lakh rupees.

(b) SEBI Regulations: As per Regulation 24A of the SEBI(LODR) Regulations, 2015, every listed entity and its
material unlisted subsidiaries incorporated in India shall undertake secretarial audit and shall annex a secretarial
audit report given by a company secretary in practice, in such form as specified, with the annual report of the
listed entity.

In addition to the above, every listed entity shall submit a secretarial compliance report in such form as specified,
to stock exchanges, within sixty days from end of each financial year.(Amended by the SEBI (Listing Obligations
and Disclosure Requirements)(Second Amendment) Regulations, 2021 w.e.f. 5.5.2021).

7. (a)
Difference Between Audit Report and Audit Certificate:
Points Auditor’s Report Auditor’s Certificate
It is an expression of opinion It is a confirmation of correctness
Nature about the financial statements. and accuracy about some matters.

Basis of The report is based on facts, The certificate is based on actual

audit assumptions and estimations figures and facts.
The scope of audit report is Its scope is limited
Scope
large.
In audit report, there is a scope No scope of constructive advice
Advice of giving constructive advice to exists in the case of the certificate.
the company.
Audit report is an opinion by the Audit certificate is a formal
auditor and does not guarantee statement by the auditors which
Guarantee
the accuracy of the financial guarantee the accuracy of the facts
statements stated therein
The report is submitted to the Certificates are issued as and when
Time of
appointing authority only after required.
issue
the audit is complete.
As a report is merely an opinion, In case of the wrong certificate, the
if it is not correct, the auditor auditor will be held responsible.
Liability
may not be held responsible,
of
unless he is found to be
auditor
negligent to his duty.

7. (b)
Role Of NFRA: The NFRA's role, it is a statutory body established by the Companies Act of 2013. Its major
responsibility is ensuring that Auditing and Accounting Standards for Public Interest Entities are followed.

 The NFRA oversees the Quality Review Board. Its primary function will be quality audits of public, listed and
private firms. This will allow the NFRA to contribute to the development of legislation governing accounting and
auditing.
 The NFRA has the authority to investigate professional misconduct, levy fines, and potentially prevent a
Practicing Professional from practising for 10 years.
 The NFRA, in addition to supervising the auditing profession, advises the Central Government on accounting
standards and auditing rules.
 The National Financial Reporting Authority can also investigate misbehaviour, chequebooks, papers, and oaths.
6 of 9
  The NFRA will be tasked with ensuring the quality of its members' services and defining criteria for auditors and
auditing companies.
 The NFRA may also organize research groups, advisory committees, and task teams. These organizations are in
charge of developing people's awareness of auditing standards, as well as auditor obligations and quality.
 If the auditors commit fraud, the regulator may suspend them for ten years or more. A fine of up to five times the
auditor's fees can also be levied.
 The NFRA may also become a member of worldwide or regional groups of independent audit regulators. In
addition to these core responsibilities, the NFRA may be in charge of specific financial companies.
 Its role has expanded to encompass the creation of standards that are applicable to all enterprises and professions.
The NFRA can also undertake industry studies and enlist the assistance of other specialists.
 The NFRA may also ask additional experts to assist in the creation of accounting principles and other relevant
functions. Previously, the Central Government mandated accounting standards based on ICAI recommendations.
This body, however, has been superseded by the NFRA.

Alternative:
Role of NFRA:
A. Recommending Auditing Standards
As mentioned earlier, NFRA recommends auditing policies and standards to be adopted by companies for approval
by the Central Government. For this purpose, the Authority –

 shall receive recommendations from the Institute of Chartered Accountants of India on proposals for new
accounting standards or auditing standards or for amendments to existing accounting standards or auditing
standards;

 may seek additional information from the Institute of Chartered Accountants of India on the recommendations
received under clause (a), if required.

Further, the Authority shall consider the recommendations and additional information in such manner as it deems fit
before making recommendations to the Central Government.

B. Monitoring and Enforcing Compliance with Auditing Standards

(1) For the purpose of monitoring and enforcing compliance with auditing standards under the Act by a company or a
body corporate governed under Rule 3, the Authority may:

(a) review working papers (including audit plan and other audit documents) and communications related to the audit;
(b) evaluate the sufficiency of the quality control system of the auditor and the manner of documentation of the system
by the auditor; and
(c) perform such other testing of the audit, supervisory, and quality control procedures of the auditor as may be
considered necessary or appropriate.

(2) The Authority may require an auditor to report on its governance practices and internal processes designed to
promote audit quality, protect its reputation and reduce risks including risk of failure of the auditor and may take
such action on the report as may be necessary.

(3) The Authority may seek additional information or may require the personal presence of the auditor for seeking
additional information or explanation in connection with the conduct of an audit.

(4) The Authority shall perform its monitoring and enforcement activities through its officers or experts with
sufficient experience in audit of the relevant industry.

(5) The Authority shall publish its findings relating to non-compliances on its website and in such other manner as it
considers fit, unless it has reasons not to do so in the public interest and it records the reasons in writing.

(6) The Authority shall not publish proprietary or confidential information, unless it has reasons to do so in the public
interest and it records the reasons in writing.

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 (7) The Authority may send a separate report containing proprietary or confidential information to the Central
Government for its information.

(8) Where the Authority finds or has reason to believe that any law or professional or other standard has or may have
been violated by an auditor, it may decide on the further course of investigation or enforcement action through its
concerned Division.

C. Power to Investigate
In addition to the above, the Authority also enjoys power to -
(i) investigate any matter of professional or other misconduct under sub-section (4) of section 132 of the Act;
(ii) undertake investigation into any matter on the basis of its compliance or oversight activities; or
(iii) undertake suo-motu investigation into any matter of professional or other misconduct, after recording reasons in
writing for this purpose.

If, during the investigation, the Authority has evidence to believe that any company or body corporate has not
complied with the requirements under the Act or rules which involves or may involve fraud amounting to rupees
one crore or more, it shall report its findings to the Central Government.

On the commencement of these rules-

(a) the action in respect of cases of professional or other misconduct against auditors of companies referred to in rule 3
shall be initiated by Authority and no other institute or body shall initiate any such proceedings against such
auditors:

Provided that no other institute or body shall initiate or continue any proceedings in such matters of misconduct
where the Authority has initiated an investigation under this rule;

(b) the action in respect of cases of professional or other misconduct against auditors of companies or bodies
corporate other than those referred to in rule 3 shall continue to be proceeded with by the Institute of Chartered
Accountants of India as per provisions of the Chartered Accountants Act, 1949 and the regulations made
thereunder.

8. (a)
The following are the steps to be taken by an auditor of a co-operative society:
(i) General Points:
In general, while conducting audit of Co-operative society,the auditor needs to lookinto the following: -
 The auditor should carefully go through the bye-laws of the society and see that they are being observed both in
letter and spirit.
 He should examine the Register of Members of the society and individual shareholdings.
 He should test-check the internal check and control system operated by the society and model his audit
examination based on its strengths and weaknesses.

(ii) Audit of income:

He should carefully vouch the receipt of cash. Cash receipts on account of share capital should be vouched with
the Register of Members. Cash received against sales should be vouched with the cash memos and invoices
issued to customers as also Sales Account. Receipt of cash in respect of payment of interest and repayment of
loans advanced by the society should be vouched with the loan agreements. Cash received from members towards
construction of houses or their maintenance, should be vouched with the Register of Members, demands made by
the society from time to time, and money receipts.

(iii) Audit of Expenditure:

 He should vouch all expenditure with reference to authorisation from the Managing Committee, particularly in
the case of large capital expenditure, as also the bills received from individual parties, the money receipts
obtained from them, and entries in the Bank Pass Book along with counter-foils of cheques.

8 of 9
  He should vouch the payment of loans from the loan agreements entered into with borrower members.

 He should vouch establishment expenses with reference to the resolutions of the Managing Committee,
agreements with the persons concerned, and money receipts obtained from them.

(iv) Other points:

 He should appropriately classify overdue debts for a period from six months to five years and more, and report
them to the members, with a note regarding the effects these might have on the financial position of the society.
He should also put a note regarding the probability of recovery of such debts.
 Similarly, he should make a special reference to the overdue amount of interest from members. Generally, interest
on overdue debts should not be credited to Interest Account but to the Overdue Interest Reserve Account.
 Writing off of bad debts should be after prior authorisation from the Managing Committee of the society.
According to the Maharashtra Co-operative Societies Rules, a bad debt can be written off only when it is certified
to be irrecoverable by the auditor. This casts a special obligation on the auditor to ascertain whether the debt in
question was created within the Rules of the society, and whether it has now really become bad and irrecoverable.

8. (b)
Provisions Relating to Appointment of First Auditor
(I) In case of a company other than a Government Company [Section 139(6)]
 The first auditor of a company, other than a Government company, shall be appointed by the Board of Directors
within thirty days from the date of registration of the company.

 In the case of failure of the Board to appoint such auditor, it shall inform the members of the company, who shall
appoint such auditor within ninety days at an extraordinary general meeting.

 The auditor, so appointed, shall hold office till the conclusion of the first annual general meeting.

(II) In case of a Government Company [Section 139(7)]

 In the case of a Government company or any other company owned or controlled, directly or indirectly, by the
Central Government, or by any State Government, or Governments, or partly by the Central Government and
partly by one or more State Governments, the first auditor shall be appointed by the Comptroller and Auditor-
General of India within sixty days from the date of registration of the company.
 In case the Comptroller and Auditor-General of India does not appoint such auditor within the aforesaid period,
the Board of Directors of the company shall appoint such auditor within the next thirty days.
 Further, in the case of failure of the Board to appoint such auditor within the next thirty days, it shall inform the
members of the company who shall appoint such auditor within sixty days at an extraordinary general meeting.
 The auditor, so appointed, shall hold office till the conclusion of the first annual general meeting.

_________________________________

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 PAPER – 10 : CORPORATE ACCOUNTING AND AUDITING
SUGGESTED ANSWERS
SECTION – A

1.
(i) (A)
(ii) (A)
(iii) (B)
(iv) (D)
(v) (D)
(vi) (D)
(vii) (C)
(viii) (B)
(ix) (D)
(x) (D)
(xi) (D)
(xii) (D)
(xiii) (B)
(xiv) (D)
(xv) (C)

SECTION – B

2. (a)
(i) Theoretical market price of one share = D 35.57
(ii) Value of Rights = D 9.43
(iii) % increase in share capital = 40%

2. (b)
Liability of the underwriters (No. of shares)
Particulars A B C D
Share of gross liability 30% 30% 20% 20%

Gross Liability 60,000 60,000 40,000 40,000

Net Liability 7,000 25,000 Nil 14,000

Add: Firm Underwriting 6,000 4,000 2,000 2,000

Total Liability 13,000 29,000 2,000 16,000

1
3.
Statement of Profit and Loss
For the year ended 31st March, 2024
Particulars 31.03.2024
Revenue from operations (Sales + Discount Received) 13,72,000
Other income Nil
Total revenue 13,72,000
Expenses: Purchases of stock-in-trade 9,40,000
Changes in inventories of stock-in-trade (52,000)
Employee benefits expense 1,53,600
Depreciation and amortization expenses 25,160
Other expenses 53,240
Total expenses 11,20,000
Profit before tax 2,52,000
Less: Provision for taxation @ 30% 75,600
Profit after tax 1,76,400

Star Ltd.
Balance Sheet as on 31st March, 2024
Particulars As on 31.03.2024
EQUITY AND LIABILITIES
Shareholders' funds:
(a) Share capital 4,00,000
(b) Reserves and surplus 2,62,400
Non-current liabilities Nil
Current liabilities:
(a) Trade payables 98,000
(b) Other current liabilities 6,800
(c) Short-term provisions (Provision for tax) 75,600
Total 8,42,800
ASSETS
Non-current assets:
(a) PPE 1,59,800
(b) Intangible assets 18,240
Current assets:
(a) Inventories 3,52,000
(b) Trade receivables 1,27,960
(c) Cash and cash equivalents 1,84,800
Total 8,42,800

2
4. (a)
(i) Rebate on bills discounted
(Amount of discount has been rounded off for different bills)
Amount Discount Amount
36,000 805
34,200 843
14,000 422
14,000 759
12,500 703
11,000 802
1,21,700 4,334

In the books of Bank

Journal Entries
Dr. Cr.
(i) Rebate on bills discounted Account Dr. 65,500
To Discount on bills Account 65,500
(ii) Discount on bills Account Dr. 4,334
To Rebate on bills discounted Account 4,334
(iii) Discount on bills Account Dr. 1,86,166
To Profit and loss Account 1,86,166

(ii) Amount credited to Profit and Loss A/c will be = D 1,86,166

4. (b)
Form B – RA
Name of the Insurer: Jwala Fire Insurance Ltd.
Revenue Account for the year ended 31st March, 2024
Sr. No. Particulars Amount (E)
1 Premium earned 11,75,000
2 Other income ----------
3 Interest, dividend and rent -----------
Total 11,75,000
4 Claims incurred 5,40,000
5 Commission 3,00,000
6 Operating expenses related to insurance business 2,00,000
Total 10,40,000
Operating Profit 1,35,000

5. (a)
Basic EPS for 2022-23 = D 1.50
Basic EPS for 2023-24 = D 1.88
Restated EPS for 2022-23 = D 1.46
3
5. (b)
Cash Flow Statement
For the year ended on 31.03.2024
Particulars E E
Cash Flow from Operating Activities
Cash Sales 3,00,000
Collection from Trade Receivables 3,20,000
Trade Commission received 80,000
2,60,000 7,00,000
Less: Cash purchase 2,88,000
Less: Payment to Trade Payables 1,00,000
Less: Payment of Rent 50,000
Less: Payment of administration expenses 6,98,000
Cash Generated from Operations 2,000
Less: Payment of Income Tax 60,000
(58,000)
Cash Flow from Investing Activities
Sale of investment 1,60,000
Interest and dividend received 4,000
Purchase of investment (1,80,000) (16,000)
Cash Flow from Financing Activities 3,00,000
Bank loan raised (2,00,000)
Repayment of loan (14,000)
Interest on bank loan 86,000
12,000
2,50,000
Add: Opening Cash Balance 2,62,000
Closing Cash Balance

6. (a)
Contents of Audit Working Papers:
As per SA-230, ‘Audit Documentation’, an auditor should follow the guidelines mentioned below to decide on
the form, content and extent of audit documentation (or working papers).
(i) The auditor shall prepare audit working papers on a timely basis. They should be prepared while
performing the task itself rather than after the audit work is performed.
(ii) The auditor shall prepare audit working papers that is sufficient to enable an experienced auditor, having
no previous connection with the audit, to understand:
(a) the nature, timing and extent of audit procedures performed to comply with the SAs and applicable legal
and regulatory requirements;
(b) the results of the audit procedures performed and the audit evidence obtained; and
(c) Significant matters arising during the audit, the conclusion reached thereon and significant professional
judgements made in reaching those conclusions.
(iii) In documenting the nature, timing and extent of audit procedures performed, the auditor shall record:
(a) the identifying characteristics of the specific items or matters tested;
(b) who performed the audit work and the date such work was performed; and
(c) who reviewed the audit work performed and the date and extent of such review.
(iv) The auditor shall document discussions of significant matters with management, those charged with
governance and other, including the nature of the significant matters discussed and when and with whom
the discussions took place.
(v) If the auditor identified information that is inconsistent with the auditor’s final conclusion regarding a
significant matter, the auditor shall document how the auditor addressed the inconsistency.

4
(vi) If, in exceptional circumstances, the auditor judges it necessary to depart from a relevant requirement in a
SA, the auditor shall document how the alternative audit procedures performed achieved the aim of that
requirement, and the reasons for the departure.

6. (b)
Power of Audit Committee
(a) Committee may ask for Auditor’s Comment: The Audit Committee may call for the comments of the
auditors about internal control systems, the scope of audit, the observations of the auditors and review of
financial statement before their submission to the Board. The Committee may also discuss any related
issues with the internal and statutory auditors and the management of the company. [Section 177(5)]
(b) Investigation: The Audit Committee shall have authority to investigate into any matter in relation to the
items specified in Section 177(4) or referred to it by the Board. For this purpose, the Committee shall
have power to obtain professional advice from external sources and have full access to information
contained in the records of the company. [Section 177(6)]
(c) Board’s Report and Audit Committee: The Board’s report under sub-section (3) of section 134 shall
disclose the composition of an Audit Committee and where the Board had not accepted any
recommendation of the Audit Committee, the same shall be disclosed in such report along with the
reasons therefor. [Section 177(8)]
(d) Whistle Blowing Policy: Every listed company and company accepting public deposits or borrowing in
excess of fifty crore rupees from banks and financial institutions shall establish a vigil mechanism for
directors and employees to report genuine concerns in such manner as may be prescribed. [Section
177(9)]
(e) Safeguards against Victimization: The vigil mechanism under sub-section (9) shall provide for adequate
safeguards against victimization of persons who use such mechanism and make provision for direct
access to the chairperson of the Audit Committee in appropriate or exceptional cases. The company shall
disclose establishment of such mechanism on its website, if any, and in the Board’s report. [Section
177(10)]

7. (a)
Inventories/Stock in Trade
Inventory includes raw materials, loose tools, spare parts, semi-finished goods or work-in- progress, packing
materials as well as finished goods ready for sale. Even for some organisations, it includes stock at branch (in
case of branch accounting), stock with customers (in case of hire purchase accounting), stock with consignee (in
consignment arrangement), stock with customer on sale or approval (in case of sales on approval).

The responsibility for properly determining the quantity and value of inventories rests with the management of
the entity. The management satisfies this responsibility by carrying out appropriate procedures which include
verification of all items of inventory at least once in every financial year. This responsibility is not reduced even
where the auditor attends any physical count of inventories in order to obtain the audit evidence. However, mere
presence at the time of physical stock count does not relieve the auditor from his duty, rather the auditor is
required to follow a detailed procedure to verify the inventories.
Audit Procedure to be followed
(a) Existence
(i) The auditor should review the client’s plan to verify inventory physically. He shall see that the process is
properly supervised. He must ensure that all stock count sheets are signed by a responsible official of the
client.
(ii) Where the client follows periodic system stock count should be done at the end of the period. On the
other hand, where the client follows perpetual system, stock count should be done at interim dates.
(iii) The auditor must satisfy himself about any inventory lying at public warehouses or with third party.
5
(b) Rights and Obligations
(i) The auditor shall also vouch recorded purchases to underlying documentation such as purchase invoice,
purchase order, Goods Received Notes etc. to determine that client is the owner of such goods.
(ii) He shall evaluate consignment agreement and any collateral agreement and examine the terms and
conditions binding on the client.
(iii) He shall also obtain confirmation from the third parties for inventories lying with them.

(c) Cut-off
The auditor shall see that the value of investments shown in the Balance Sheet comprises all investments existed
and under the ownership of the company on the reporting date.

(d) Completeness
(i) The auditor should perform analytical procedure to identify any abnormality.
(ii) He should collect non-financial information such as weights and measures and check the same with
physical verification reports.
(iii) He shall also perform purchase and sale cut-off test to identify misappropriation near the year end. He
shall also ensure that no item is omitted from inventories and no invalid item is included in inventories.
For this purpose, information of all stock lying with customers (under hire purchase system or sale on
approval system), at branch and with consignee must be procured and verified.

(iv) He shall reconcile physical inventory amounts with perpetual records including stores ledger. The value
of the inventory should also be tallied with the amount recorded in the books as adjustment entry of
closing stock.

(e) Valuation
(i) The auditor must determine the appropriateness of the method of issuing inventory (LIFO, FIFO,
Weighted Average, etc.) for valuation purpose.
(ii) Value of raw materials must be examined based on the cost of purchase, carriage inwards, duties paid,
market price of raw materials and estimated cost of disposal. The auditor shall see that lower of cost and
NRV has been considered as the value. Relevant documents for this purpose would be purchase invoice,
voucher for transport cost, etc.
(iii) He shall also ensure that work-in-progress has been valued considering the completed stage of production
and all direct and relevant indirect costs (up to works cost).
(iv) He shall ensure that cost of finished goods includes all direct and relevant indirect costs. In case the
finished goods are expected to fetch value lower than the cost, the auditor shall see that the same is valued
at NRV.
(v) He shall also see that damaged goods are valued at net realisable value. Moreover, he shall ensure that all
obsolete goods have been written off fully.

(f) Presentation and Disclosure

(i) In case of companies, as per Part I of Schedule III of the Companies Act, 2013 all items of inventories
shall be included in the head ‘Current Assets’ under the subhead ‘Inventories’.
(ii) Additionally, in notes to accounts the following disclosures shall be made.
● Inventories shall be classified as – (a) Raw materials (b) Work-in-progress (c) Finished goods (d) Stock in
trade (in respect of goods acquired for trading) (e) Stores and spares (f) Loose goods (g) Others (specify
nature).
● Goods-in-transit shall be disclosed under the relevant sub-head of inventories.
● Mode of valuation shall be stated.

6
7. (b)
Reporting on Internal Financial Control over Financial Reporting – Auditor’s Responsibility

Sec 143(3) (i) of Companies Act, 2013 requires that the report of the auditor should state as to whether the
company has adequate Internal Financial Control system in place and the operating effectiveness of such
controls.

Further, Rule 10A of Companies (Audit & Auditors) Rules 2014 states that:
a) For the financial years commencing on or after 1st April 2015, the report of the auditor should state about
existence of adequate Internal financial controls and its operating effectiveness.
b) The auditor of a company may voluntarily include the statement referred to in this rule for the financial
year commencing on or after 1st April 2014 and ending on or before 31st March 2015.

As per the Guidance Note issued by The Institute of Chartered Accountants of India in this respect:

● The auditor’s objective in an audit of internal financial controls over financial reporting is to express an
opinion on the effectiveness of the company’s internal financial controls over financial reporting and the
procedures in respect thereof are carried out along with an audit of the financial statements.

● Globally, auditor’s reporting on internal controls is together with the reporting on the financial statements
and such internal controls reported upon relate to only internal controls over financial reporting.
Accordingly, the term ‘internal financial controls’ wherever used in this Guidance Note in the context of
the responsibility of the auditor for reporting on such controls under Section 143(3)(i) of the Act, per se
implies and relates to internal financial controls over financial reporting.

Therefore, ‘internal financial controls over financial reporting’ shall mean ‘A process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal financial control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorisations of management and
directors of the company; and

(iii) Provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

An auditor needs to conduct an audit of IFC-FR though a proper planning followed by testing the design
effectiveness of control and operating effectiveness of control and thereafter report on IFC over Financial
Reporting.

The Guidance Note also provides that reporting on the adequacy and operating effectiveness of IFC-FR would
apply even in case of consolidated financial statements, for the respective components included in the
consolidated financial statements only if it is a company under the 2013 Act. However, reporting on IFC will not
be applicable with respect to interim financial statements, such as quarterly or half-yearly financial statements,
unless such reporting is required under any other law or regulation.

7
8. (a)
The following is the list of important items to be checked in conducting the audit of Deluxe Hotels:
(i) Vouch the collections from boarders based on their check-in and check-out information recorded in the
register, counterfoils of bills and cash book.
(ii) Verify the room rent receipts and daily occupancy reports. Ask for proper clarification for differential rent
charged from any boarder. Be careful while verifying the adjustment of unrealised room rent, cancellation
charges of booking accommodation at the time of closing of accounts.
(iii) Vouch collections on account of special events such as conferences, wedding ceremony etc. separately
based on counterfoil of receipts and cash book.
(iv) Income from bar, casino, health centre, etc. associated with the hotel should be vouched based on
counterfoils of bills and cash book. Vouch the rent from shops situated in the premises of the hotel, if any.
(v) Vouch transactions relating to purchase of food materials, drinks and other materials. Check whether the
payments have been made based on purchase orders or contracts, invoice, etc.
(vi) Verify the salary paid to permanent staff based on their payroll. Salary paid to casual and contractual
employees should be verified based on documentary evidences like authorisation by management.
(vii) All overhead expenses including electricity bills, telephone and broadband bills, taxes to local authorities,
etc. should be vouched based on the respective bills.
(viii) Carefully examine the valuation of stock. If possible, remain physically present at the time of stock
taking.
(ix) Conduct physical verification of fixed assets and investments based on Fixed Asset Register and
Investment Register respectively. Check the adequacy of depreciation and its proper accounting.
(x) Collect the list of all liabilities and verify them based on the contracts and arrear bills.

8. (b)
The benefits of joint audit are as follows:
i) Joint audit reduces the workload of a single auditor.
ii) Since different auditors may be engaged to handle different parts of accounts, timely completion of work
is possible even in a large organisation.
iii) The auditors may share their expertise and solve critical problems in the process.
iv) Joint audit improves the quality of audit work to a great extent.
v) There may be healthy competition among the auditors which improves the quality and speed of the audit
work.
vi) Under joint audit, it is possible to get the benefit of extensive knowledge of different auditors at the same
time.

The limitations of joint audit are enumerated below:

i) Established auditors may have a superiority complex over the less experienced one.
ii) It is not suitable for a small entity due to substantial cost burden.
iii) At times, lack of coordination among the auditors may slow down the speed of work.
iv) There may be uncertainty about the liability of any work.
v) Areas of common concern may be neglected.
vi) The auditors have to share the fees.

________________________

8
 PAPER – 10 : CORPORATE ACCOUNTING AND AUDITING
SUGGESTED ANSWERS
SECTION - A

1.
(a) (C)
(b) (A)
(c) (A)
(d) (B)
(e) (D)
(f) (B)
(g) (C)
(h) (B)
(i) (D)
(j) (A)
(k) (C)
(l) (B)
(m) (A)
(n) (B)
(o) (C)

SECTION – B

2. (a)
In the books of A Ltd.
Journal
Date Particulars Dr. (D) Cr. (D)
Equity Share Capital A/c ……………….……...Dr. 3,00,000
(i) To Calls in Arrear A/c 1,50,000
To Forfeited Shares A/c 1,50,000
Equity Share Capital A/c ………………..……..Dr. 6,00,000
(ii) To Calls in Arrear A/c 1,20,000
To Forfeited Shares A/c 4,80,000
Bank A/c ……………….……………………...Dr. 8,10,000
(iii) Forfeited Shares A/c ……………….…………..Dr. 90,000
To Equity Share Capital A/c 9,00,000
Forfeited Shares A/c…………………………... Dr. 5,40,000
To Capital Reserve A/c 5,40,000
Bank A/c ………………………..….. ………...Dr. 78,00,000
(iv) To Equity Share Capital A/c 60,00,000
To Securities Premium A/c 18,00,000

1
2. (b)
(i) Theoretical market price = D 33.14
(ii) Value of Rights = D 8.86
(iii) % increase in share capital = 40%

3.
PQR Ltd.
Profit and Loss Statement for the year ended 31st March, 2023
Particulars D
I. Total Revenue 5,32,000
II. Total Expenses 3,70,000
III. Profit before Tax (I-II) 1,62,000
IV. Tax Expenses @ 30% 48,600
V. Profit for the period 1,13,400

Balance Sheet as on 31.03.2023

D
I EQUITY AND LIABILITIES
(1) Shareholders' Funds 3,78,400
(2) Non-Current Liabilities 2,00,000
(3) Total Current Liabilities 1,61,600
Total 7,40,000
II ASSETS
(1) Non-Current Assets 4,05,000
(2) Current Assets 3,35,000
Total 7,40,000

4. (a)
Statement of Interest on Working Capital
(₹ in lakhs)
Particulars Year 1 Year 2 Year 3 Year 4 Year 5
Total Working Capital 4,350 4,350 4,550 4,550 4,550
Rate of Interest 12% 12% 12% 12% 12%
Interest on Working Capital 522 522 546 546 546

4. (b)
In the Books of Well Assurance Co. Ltd.
Valuation Balance Sheet as on 31st March, 2023
Liabilities ₹ Assets ₹
Net Liability as per Actuarial Valuation 1,65,00,000 Life Assurance Fund 2,40,00,000
Surplus / Net Profit 75,00,000
2,40,00,000 2,40,00,000
2
 Profit Distribution Statement
Particulars ₹ (In Lakhs)
Surplus / Net Profit 75,00,000
Add: Interim Bonus Paid 25,00,000
1,00,00,000
Policy Holders’ Shares 95,00,000
Less: Interim Bonus Paid 25,00,000
70,00,000
Shareholders’ Share 5,00,000

Journal
Date Particulars Debit (₹) Credit (₹)
Life Assurance Fund A/c Dr. 75,00,000
To Profit and Loss A/c 75,00,000
Profit and Loss A/c Dr. 37,80,000
To Bonus (In Cash) Payable A/c 37,80,000
Profit and Loss A/c Dr. 44,40,000
To Life Assurance Fund A/c 44,40,000

5. (a)
Basic EPS = D 5.00
Diluted EPS = D 4.71

5. (b)
Cash Flow from Operating Activities D 10,30,000

6. (a)
Concept of Audit Trail
Audit trail may be defined as the documents, records relating to transactions that enables an auditor to trace
the transactions from the source documents to the summarised total in accounting reports. It is an orderly,
step-by- step record of transactions that serves as a proof of a transaction’s history, right from recording to
tracking all changes that may take place. For example, a sequentially numbered sales invoice copies would
normally be listed in a Register and subsequently filed either in numerical or chronological order. Thus, it
would be possible to trace a particular invoice from the daybook to the original file by reference to the
number or date of the invoice.
In an automated environment accounting software provides the ideal example of audit trails. For example, when
a transaction is entered in the software, the software will maintain a record of it. Any further edits made to the
details, such as a change in the name or amount will also be tracked by the software along with the user who
made the changes and the time of change. Even if some transactions were to be deleted, the software will track
that as well and keep the record of everything since the original entry was made.

Statutory Requirement for Audit Trail

According to Rule 3(1) of Companies (Accounts) Rules, 2014, as amended by Companies (Accounts)
Amendment Rules, 2021, for the financial year commencing on or after the 1st day of April, 2022, every
company which uses accounting software for maintaining its books of account, shall use only such accounting
software which has a feature of recording audit trail of each and every transaction, creating an edit log of each
change made in books of account along with the date when such changes were made and ensuring that the
audit trail cannot be disabled.
3
In simple words, the expectation is to maintain the edit log of every transition right from recording to tracking
the changes that may take place.

6. (b)
Applicability of Secretarial Audit As per the provision of Section 204(1) of the Companies Act, 2013 read with
Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014:
1. Every listed company;
2. Every public company having a paid-up share capital of 50 crore rupees or more; or
3. Every public company having a turnover of 250 crore rupees or more; or
4. Every company having outstanding loans or borrowings from banks or public financial institutions of
100 crore rupees or more,
- is required to annex with its Board’s Report made in terms of Section 134(3) of the Companies Act, 2013, a
Secretarial Audit Report, given by a Company Secretary in practice, in Form MR-3. Appointment of
Secretarial Auditor As per Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014, read
with Section 179 of the Companies Act, 2013, secretarial auditor is required to be appointed by means of
resolution at a duly convened board meeting.
It is advisable for the Secretarial Auditor to get a letter of engagement from the company. Secretarial Auditor
should accept the letter of engagement. The company shall report any change in the secretarial auditor during
the financial year to the members through the Board’s Report. The qualifications, observations or comments /
remarks of the secretarial Audit Report shall be read at the annual general meeting of the company along with
the explanation and comments of the Board of Directors (Clause 13 of Secretarial Standard 2).

7. (a)
Audit Procedure for Unpaid Dividend
(i) The auditor should collect a statement or list containing every detail regarding the unpaid dividend
such as the names of the shareholders, dividend payable to them, dividend warrant number, reason
for the dividend remaining unpaid etc.
(ii) The auditor shall conduct an enquiry to identify whether there was any fault on the part of the
company and if so, what action has been taken against the company.
(iii) The auditor shall verify the statement provided by the management in this respect with other
supporting documents like Dividend Register, Returned Warrants, bank statement, etc. and shall
determine whether the dividend amount has been accurately calculated.
(iv) The auditor shall also verify whether the unpaid dividend has been transferred to a separate account
namely Unpaid Dividend Account within seven days from the expiry of 30 days allowed for
declaration and payment of dividend.
(v) The auditor must verify whether there is any fault on the part of the company and if so whether they
have deposited the interest and the penalty.
(vi) The auditor shall also verify whether the company has published the details of unpaid dividend in its
own website and also in other website(s) approved by the government for this purpose.
(vii) Any payment of previously unpaid dividend must be verified by the auditor to see that the same has
been paid to the rightful owner.
(viii) In case any amount of dividend is remaining unpaid for more than seven years, the auditor shall
verify whether the same along with the interest accrued thereon has been transferred by the company
to IEPF.
(ix) The auditor shall also verify whether all the shares in respect of which unpaid dividend has been
transferred to IEPF, have also been transferred to such fund.

4
7. (b)
The Cost Auditor is to be appointed by the Board of Directors (BOD) on the recommendation of the Audit
Committee, where the company is required to have an Audit Committee. The cost auditor proposed to be
appointed is required to give a letter of consent to the Board of Directors.
The company shall inform the cost auditor concerned of his or its appointment as such and file a notice of such
appointment with the Central Government within a period of thirty days of the Board meeting in which such
appointment is made or within a period of one hundred and eighty days of the commencement of the financial
year, whichever is earlier, through electronic mode, in form CRA-2 along with the fee as specified in
Companies (Registration Offices and Fees) Rules,2014.
Any casual vacancy in the office of a cost auditor, whether due to resignation, death or removal, shall be filled
by the Board of Directors (BOD) within thirty days of occurrence of such vacancy and the company shall
inform the Central Government in Form CRA-2 within thirty days of such appointment of cost auditor.

8. (a)
Audit Procedure for Receipts Related Transactions of an Educational Institution
(i) Tuition Fees: Tally the counterfoils of fee receipt with fee register to see whether they have been duly
recorded or not. Check the register to identify whether all the students have paid their fees in due
time. If any student has deposited the fees beyond the due date, check whether late fine has been
charged or not and whether the same has been properly recorded. See whether all collections are
deposited in the bank account at the end of the day. Total up the various columns of the Fees Register
for each month or term to ascertain that fee paid in advance have been carried forward and the arrears
that are irrecoverable have been written off under the sanction of an appropriate authority.

(ii) Admission Fees: Check admission fees with admission slips signed by the head of the institution and
confirm that the amount had been credited to a Capital Fund, unless the Managing Committee has
taken a decision to the contrary.
(iii) Other Fees: Verify the collection of other fees such as library fees, session fees or development fees,
fees for hostel etc. based on the counterfoils and fee registered and ensure that the fees have been
accounted for in appropriate heads.

(iv) See that all arrears on account of fees, fines, etc. have been taken into consideration at the end of
accounting period.

(v) See that free studentship and concessions have been granted by a person authorised to do so, having
regard to the prescribed Rules.

(vi) Confirm that hostel dues were recovered before students’ accounts were closed and their deposits of
caution money refunded.

(vii) Verify grants received from Government or other organisations based on the sanction letter and bank
statement.
(viii) Ensure that donation received, if any, has been acknowledged and recorded properly in the books of
accounts.

(ix) Check income from letting out institutional properties based on the counterfoil of receipts issued to
parties.

(x) Vouch income from endowments and legacies, as well as interest and dividends from investment;
also inspect the securities in respect of investments held.

5
8. (b)
Role of NFRA in Monitoring and Enforcing Compliance with Auditing Standards
(1) For the purpose of monitoring and enforcing compliance with auditing standards under the Act by a
company or a body corporate governed under Rule 3, the Authority may:

(a) review working papers (including audit plan and other audit documents) and communications related
to the audit;

(b) evaluate the sufficiency of the quality control system of the auditor and the manner of documentation
of the system by the auditor; and

(c) perform such other testing of the audit, supervisory, and quality control procedures of the auditor as
may be considered necessary or appropriate.

(2) The Authority may require an auditor to report on its governance practices and internal processes
designed to promote audit quality, protect its reputation and reduce risks including risk of failure of
the auditor and may take such action on the report as may be necessary.

(3) The Authority may seek additional information or may require the personal presence of the auditor
for seeking additional information or explanation in connection with the conduct of an audit.

(4) The Authority shall perform its monitoring and enforcement activities through its officers or experts
with sufficient experience in audit of the relevant industry.

(5) The Authority shall publish its findings relating to non-compliances on its website and in such other
manner as it considers fit, unless it has reasons not to do so in the public interest and it records the
reasons in writing.

(6) The Authority shall not publish proprietary or confidential information, unless it has reasons to do so
in the public interest and it records the reasons in writing.
(7) The Authority may send a separate report containing proprietary or confidential information to the
Central Government for its information.

(8) Where the Authority finds or has reason to believe that any law or professional or other standard has
or may have been violated by an auditor, it may decide on the further course of investigation or
enforcement action through its concerned Division.

______________________

6
 F
F
T

Premium

Inventories
Present

Revisionally Bonus
 T

T
T

CRA-I

Shareholders
25 %

Trading
 SUGGESTED ANSWERS TO QUESTIONS
SECTION-A
1. (a)
(i) (A)
(ii) (A)
(iii) (D)
(iv) (D)
(v) (B)
(vi) (A)

1. (b)
(i) False
(ii) False
(iii) True
(iv) True
1. (c)
(i) Premium
(ii) Inventories
(iii) Present
(iv) Reversionary Bonus

2. (a)
Particulars A B C D
Net Liabilities 0 11,250 0 13,750

2. (b)
Journal of N. Limited:
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
Bank A/c Dr. 1,32,000
To Equity Share Capital A/c 1,20,000
1 To Securities Premium A/c 12,000
(Being raising of funds through issue of
equity shares)
Bank A/c Dr. 1,08,000
Profit and Loss A/c Dr. 12,000
2
To Investment A/c 1,20,000
(Being Sale of Investment at a loss)
14% Preference Share Capital A/c Dr. 2,50,000
Premium on Redemption A/c Dr. 20,000
3 To Preference Shareholders A/c 2,70,000
(Being Redemption of Pref. shares at
premium)
Securities Premium A/c Dr. 20,000
To Premium on Redemption A/c 20,000
4
(Being Premium on redemption met out
of Security Premium)
General Reserve A/c Dr. 75,000
Profit and Loss A/c Dr. 55,000
5
To Capital Redemption Reserve A/c 1,30,000
(Being amount transferred to CRR A/c)

1
 Preference Shareholders A/c Dr. 2,70,000
To Bank A/c 2,70,000
6
(Being Redemption amount paid to
Preference Shareholders)

3. (a)
Cash Flow Statement for the year ended 31st March, 2023:

Particulars Rs.
A. Cash Flow from Operating Activities: 1,80,000
B: Cash Flow from Investing Activities: 4,40,000
C: Cash Flow from Financing Activities: (2,25,000)
Cash Flow during the year (A+ B+C) 3,95,000
Add: Opening Balance of Cash & Cash Equivalents 1,00,000
Closing balance of Cash & Cash Equivalents 4,95,000

3. (b)
Income to be Recognised D 2,114 (Rs. in Crore)

4.
Balance Sheet Total C 94,78,500

5. (a)
Actual return on plan assets C 95,000

5. (b)
(i) In the Books of Prakash Life Insurance Co. Ltd.

Valuation Balance Sheet as on 31st March, 2023

Liabilities ₹ Assets ₹
Net Liability 28,80,000 Life Assurance Fund 34,00,000
Net Profit 5,20,000
34,00,000 34,00,000

(ii) & (iii)

₹
Net Profit for the Two Years Period 5,60,000
Distribution of the Profits:
Net Profit 5,60,000
Less: Amount proposed to be carried forward 1,10,000
Balance 4,50,000
Share of policyholders 4,27,500
Less: Interim bonus paid 40,000
Amount due to policy holders 3,87,500
Share of Shareholders 22,500

2
 SECTION B
6. (a)
(i) (B)
(ii) (C)
(iii) (B)
(iv) (C)
(v) (C)
(vi) (B)

6. (b)
(i) True
(ii) False
(iii) True
(iv) True

6. (c)
(i) CRA-1
(ii) shareholders
(iii) 25%
(iv) trading

7. (a)
The basic principles governing an Audit are stated below:

(i) Integrity, Objectivity and Independence: The auditor has to be straightforward, fair, impartial,
honest and sincere in his approach to professional work.
(ii) Confidentiality: The auditor should uphold the privacy of the information and should not disclose
any such information to a third party, including the employees of the entity, without the explicit
authority of the management or client or unless there is a lawful or a professional responsibility to
do so.
(iii) Professional Care, Skill and Competence: The auditor should exercise due professional care,
competence and diligence expected of him while carrying out the audit work.
(iv) Responsibility of Work Performed by Others: The auditor should carefully direct, oversee and
review the work delegated to staff. Likewise, the auditor may also use the work done by other
auditors or experts.
(v) Documentation: The auditor should document matters, which are essential in providing evidence
that the audit was carried out in accordance with the standards.
(vi) Planning: The auditor should plan his work in such a way as to enable him to conduct an audit in a
timely and efficient manner. The audit plan should be based on the knowledge of the business of
the entity. The plan should be continuously reviewed and modifications should be incorporated if
required.
(vii) Audit Evidence: The auditor should get hold of enough suitable evidence to enable him to draw
reasonable conclusions there from.
(viii) Accounting System and Internal Control: The auditor should have an understanding of the internal
control and risk management framework established by the management. He has to judge the
adequacy of such framework as well.
(ix) Audit Conclusions and Audit Report: The auditor should review and measure the conclusions
drawn from the audit evidence obtained, as the basis for his findings contained in his report.
Nevertheless, in case the auditor comes across any actual or suspected fraud, it would be more apt
for him to bring the same instantaneously to the notice of the management

3
 7. (b)
According to SA-520, Analytical Procedure means evaluation of financial information through analysis of
plausible relationships among both financial and non-financial data. Analytical procedure also encompasses
such investigation, as is necessary, of identified fluctuations or relationships that are inconsistent with
other relevant information or that differ from expected values by a significant amount.
Tools and Techniques of Analytical Procedures

As per SA-520, analytical procedures include application of the following tools and techniques:
a. Trend Analysis: Under this method, analysis is done for to assess fluctuation of the amount of any item
over the year or years.
b. Testing of Reasonableness: This is done by comparing certain items or account balances with other
accounts or balances. Some examples are as follows;
(i) Raw material consumption to production (quantity)
(ii) Percentage of wastage and scrap against production and raw material consumption
(iii)Work-in-progress based on material issued

c. Ratio Analysis: This technique calculates different ratios between various items of financial statements
in order to study their relationships. Some common ratios include:

(i) Gross Profit Ratio

(ii) Receivable Turnover Ratio
(iii)Inventory Turnover Ratio
d. Sources of Information: Analytical procedures also require analysing the following sources of
information.
(i) Interim financial information
(ii) Budgets
(iii)Management Accounts
(iv) Non-financial information, etc.

8. (a)
Manner of rotation of Auditors by the Companies on Expiry of Their Term As per Section 139(4), the
Central Government may, by rules, prescribe the manner in which the companies shall rotate their auditors
in pursuance of Section 139(2). Accordingly, the Central Government has prescribed the following
provisions under Rule 6 of the Company (Audit and Auditor) Rules 2014.
i. Where a company is required to constitute an Audit Committee u/s 177 of the Act, the Audit
Committee shall recommend to the Board, the name of an individual auditor or of an audit firm
whomayre place the incumbent auditor on expiry of the term of such incumbent.
ii. Where a company is not required to constitute an Audit Committee u/s 177 of the Act, the Board shall
consider the matter of rotation of auditors and make its recommendation for appointment of the next
auditor by the members in annual general meeting.
For the purpose of the rotation of auditors–
(i) The period for which the individual or the firm has held office as auditor prior to the commencement
of the Act shall be taken in to account for calculating the period of five consecutive years or ten
consecutive years, as the case may be;
(ii) The incoming auditor or audit firm shall not be eligible if such auditor or audit firm is associated
with the outgoing auditor or audit firm under the same network of audit firms.
4
 The term “same network” shall include the firms operating or functioning, hitherto or in future,
under the same brand name, trade name or common control.
For the purpose of rotation,
(i) A break in the term for a continuous period of five years shall be considered as fulfilling the
requirement of rotation;
(ii) If a partner, who is in-charge of an audit firm and also certifies the financial statements of the
company, retires from the said firm and joins another firm of chartered accountants, such other firm
shall also be ineligible to be appointed for a period of five years.

8. (b)
As per the provision of Section 204(1)of the Companies Act, 2013 read with Rule 9 of the Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014:
Every listed company;
Every public company having a paid-up share capital of 50 crore rupees or more; or
Every public company having a turnover of 250crore rupees or more; or
Every company having outstanding loans or borrowings from banks or public financial institutions of
Rs.100 crore rupees or more.
In the given case, the company is an unlisted public company with paid up capital of Rs. 45 crore (less
than Rs. 50 crore) and its turnover of Rs. 225 crore is also lower than the threshold of Rs. 250 crore.
However, the company has an outstanding bank loan of Rs.110 crore which is higher than the threshold of
Rs. 100 crore. Thus, the company will need to conduct secretarial audit.

9. (a)
The duties of an auditor in relation to the audit of debentures are discussed below:
(i) The auditor should verify that the prospectus had been duly filed with the registrar before the date
of allotment of debentures.
(ii) He should check the amount collected in the cash book with the counterfoils of receipts issued to
the applicants and also cross check the amount into the application and allotment book.
(iii) He should examine the debenture trust deed and note the conditions contained therein as to issue
and repayment.

(iv) If the debentures are covered by a mortgage of a charge, it should be verified that the charge has
been correctly recorded in the register of mortgage and charges and it has also been registered with
the registrar of the companies.
(v) Compliance with SEBI guidelines should also be ensured.
(vi) Where debentures have been issued as fully paid up to vendors as a part of the purchase
consideration, the contract in this regard should be checked

9. (b)
An Auditor may not be able to express an Unqualified Opinion when any of the following circumstances
exist and in the auditor’s judgement, the effect of the matter is or may be material to the Financial
Statements.
[SA 700].
i. Limitation on Scope: Limitation on scope of Auditor’s work may be imposed by the clients or
imposed by circumstances. It may lead to situations where the Auditor may have to issue a
Qualified Opinion or a Disclaimer of Opinion.
ii. Disagreement with management: The Auditor may disagree with the Management as to

5
 (a)
The acceptability of the accounting policies selected, or the method of their application,
(b)
The adequacy of disclosure in the Financial Statements, or (c) the compliance of the Financial
Statements with relevant regulations and statutory requirements. In such cases, he may have to give
an Adverse Opinion or a Qualified Opinion.
iii. Significant Uncertainty: If there is a significant uncertainty affecting the Financial Statements
(other than Going Concern problem), for example, litigation involving legal claims, etc. the result
of which is dependent upon the resolution of the future events, the Auditor may have to quality his
opinion or disclaim an opinion.
However, where such significant uncertainty is not material, the Auditor may issue an Unqualified
Opinion, by adding an “Emphasis of Matter” paragraph, without qualifying his opinion.

10. (a)
(i) Check the letter of appointment to ascertain the scope of responsibilities.
(ii) Study the Charter or Trust Deed under which the hospital has been set up and take a special note of
the provisions affecting the accounts.
(iii) Examine, evaluate and verify the system of internal check, internal control and determine the
nature, timing and the extent of the audit procedures.
(iv) Vouch the entries in the Patient’s Bill Register with a copies of bill issued. Test check the selected
bills to see that these have been correctly prepared taking into consideration the period of stay of
each patient as recorded in the Attendance Schedule.
(v) Vouch the collection from patients with copies of bills and entries in Bills Register. Arrears of dues
should be properly carried forward and where these are deemed to be irrecoverable, they should be
written off under due authorizations.
(vi) Interest and/ or dividend income should be vouched with reference to the Investment Register and
Interest and Dividend warrants.
(vii) In case of legacies and donations which are received for specific purposes, it should be ensured that
any income there from is not utilized for any other purposes.
(viii) Where receipts of subscription show a significant deviation from budgeted figures, it should be
thoroughly inquired into and the matter be brought to the notice of the trustees or the Managing
Committee.
(ix) Government grants or grants from local bodies should be verifies with the reference to the
correspondence with the concerned authorities.
(x) Clear distinction should be made between the items of capital and revenue nature.
(xi) The capital expenditure should be incurred under proper authorization by a valid resolution of the
trustees or the Managing Committee.
(xii) Verify the system of internal check as regards purchases and issue of stores, medicines etc.
(xiii) Examine that the appointment of the staff, payment of salaries etc. are duly authorized.
(xiv) Physically verify the investments, fixed assets and inventories.
(xv) Check that adequate depreciation has been provided on all the depreciable assets.

10. (b)
The auditor may perceive the following risks:

i. Inherent Risk: It is possible that the employees might have misappropriated the inventory by
manipulating the inventory records. So, inventory records may not be accurate. This leads to a risk of
material misstatement.
ii. Control Risk: Here each item of inventory carries a price tag with bar code as well as a security code
(which is removed only after the billing). Additionally, physical verification of inventory is done on a
fortnightly basis. Thus, the internal control appears to be quite satisfactory. However, collusion among
employees at multiple layers can evade the control implemented at any time. Hence, an element of
control risk is present.
6
iii. Detection Risk: It is expected that the auditor will apply appropriate procedures to judge the efficiency
of the control system before deciding on the extent of test checking. However, there may still be
possibilities of material misstatements and the same may not be detected due to adoption of test
checking. Hence, an element of detection risk can also exist.

___________________________

7
 INTERMEDIATE EXAMINATION SET 1
MODEL QUESTION PAPER TERM – DEC 2025
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)
I. Choose the correct option: [15 x 2 = 30]

(i) The net profit on forfeiture and reissue of equity shares is transferred to _________.
a. Capital Reserve
b. General Reserve
c. Dividend Equalization Reserve
d. Revaluation Reserve

(ii) In case of ___________________ issue the shares are offered to the existing shareholders of the company
without any consideration.
a. Private Placement
b. Rights Issue
c. Bonus Issue
d. Offers for sale

(iii) As per Schedule III Current Maturities of Long-term Borrowings should be shown under -
a. Current Assets in Balance Sheet
b. Non-current Liability in Balance Sheet
c. Current Liabilities in Balance Sheet
d. Other Expenses in Statement of Profit and Loss

(iv) As per Division II of Schedule III of the Companies Act 2013, the Statement of Changes of Equity has
_________ parts
a. One
b. Two
c. Three
d. Four

(v) Under which of the following, a business must generate positive net cash flow for it to survive in the long
run?
a. Investing activities
b. Financing activities
c. Operating activities
d. Non cash activities

Directorate of Studies, The Institute of Cost Accountants of India 1

 INTERMEDIATE EXAMINATION SET 1
MODEL QUESTION PAPER TERM – DEC 2025
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING

(vi) A banking company is required to maintain ___________ provision on unsecured portion of doubtful
advances.
a. 25%
b. 40%
c. 50%
d. 100%

(vii) Y Ltd. supplied the following information: Net Profit for 2021-22 = Rs.10,00,000 Net Profit for 2022-23 =
₹ 15,00,000 No. of shares prior to right issue = 5,00,000 Terms of right issue: 1 new share for every 4 shares
held; right issue price = ₹ 20 Fair value of 1 ordinary share immediately prior to exercise of right = ₹ 25.
Compute the Right Factor.
a. 2.5
b. 1.92
c. 1.04
d. 2.00

(viii) The expected sales value of stock is ₹ 20 lakhs and a commission at 10% on sale is payable to the agent.
Calculate NRV.
a. ₹12 lakh
b. ₹14 lakh
c. ₹16 lakh
d. ₹18 lakh

(ix) Ordinary shares are 1,00,000 of ₹1.00;10% Preference shares are 200000 of ₹1.00; PAT ₹10,00,000.
Calculate basic EPS.
a. ₹9.80
b. ₹9.60
c. ₹9.40
d. ₹9.20

(x) According to SA 200, which of the following principles require the auditor to oversee and remain
responsible for audit work delegated to assistants, other auditors, or experts?
a. Integrity, Objectivity & Independence
b. Skills and Competence
c. Work performed by Others
d. Confidentiality

(xi) Internal check is meant for _______________.

a. Prevention of frauds
b. Detection of frauds
c. Helping audit is depth
d. Detection of errors

Directorate of Studies, The Institute of Cost Accountants of India 2

 INTERMEDIATE EXAMINATION SET 1
MODEL QUESTION PAPER TERM – DEC 2025
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING

(xii) Which of the following is not a duty of duties of the NFRA?

a. Recommend accounting and auditing policies and standards to be adopted by companies for approval
by the Central Government.
b. Monitor and enforce compliance with Income Tax Act and auditing standards
c. Perform such other functions and duties as may be necessary or incidental to the aforesaid functions and
duties.
d. Oversee the quality of service of the professions associated with ensuring compliance with such
standards and suggest measures for improvement in the quality of service.

(xiii) No individual shall be appointed or reappointed as auditor for more than one term of _______ consecutive
years
a. 4
b. 5
c. 6
d. 3

(xiv) In relation to advances made by bank an auditor needs to review which of the followings?
a. Scrutinise the subsidiary, ledger, & control accounts
b. Scrutinise the overdue account and scheme for recovery of such amount.
c. Ensure the proper documentation of account
d. All of these

(xv) Which of the following is not a part of rural self-governance system in India?
a. Gram Panchayat
b. Gram Parishad
c. Panchayat Samiti
d. Zilla Parishad

Section – B
(Answer any five questions out of seven questions given. Each question carries 14 Marks)
[5 x 14 = 70]
(2) (a) X Ltd. issued 10,000 Equity shares of ₹10 each at a premium of ₹2 per share, payable : ₹3 on application
(including premium of ₹1); ₹4 on allotment (including the balance of premium) and the balance in a call.
Public subscribed for 12,000 shares. Excess application money was refunded. One shareholder Mr. A holding
50 shares paid the call money along with allotment. Another Mr. B failed to pay allotment & call on 30
shares.
These shares were forfeited after the call and 25 of those were reissued at ₹9 each.
Pass Journals Entries. [7]

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 INTERMEDIATE EXAMINATION SET 1
MODEL QUESTION PAPER TERM – DEC 2025
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING

(b) M Ltd., incorporated on April 1, 2024, issued a prospectus inviting applications for 5,00,000 equity shares of
₹10 each. The issue was fully underwritten by A, B, C and D as follows:
A - 2,00,000; B - 1,50,000; C - 1,00,000; and D - 50,000.
The applications were received for 4,50,000 shares of which marked applications were as follows: A - 2,20,000;
B- 90,000; C - 1,10,000; and D - 10,000.
Calculate the liability of the individual underwriters in each of the following cases:
(i) Unmarked applications are apportioned in the ratio of “Gross Liability”; and
(ii) Unmarked applications are apportioned in the ratio of “Gross Liability (-) Marked Applications”.
[7]

(3) Following are the balances of A Ltd. as on 31.03.2024

Debit ₹ Credit ₹
Premises 30,72,000 Equity share capital 40,00,000
Plant 33,00,000 12% debentures 30,00,000
Stock 7,50,000 Surplus A/C 2,63,000
Debtors 8,70,000 Bills payable 3,70,000
Goodwill 2,50,000 Creditors 4,00,000
Bank 4,52,000 General reserves 2,50,000
Calls in arrears 75,000 Sales 4,15,000
Interim dividend paid 6,00,000 Bad debts Provision 35,000
Purchases 18,50,000
wages 7,71,000
General expenses 74,000
Salaries 2,03,000
Bad debts 21,000
Debenture interest paid 1,80,000
124,68,000 124,68,000
Additional information:
(i) Depreciate plant by 10%;
(ii) Half-year debenture interest is due;
(iii) Create 5% Provision on Debtors for bad debts;
(iv) Provide for income tax @ 35%;
(v) Stock on 31.03.2024 is ₹9,50,000;
(vi) No final dividend is declared by company;
(vii) Transfer the minimum required amount to general reserve;
(viii) Ignore corporate dividend tax.

Prepare the Profit & loss Account and Balance Sheet of A Ltd. [14]

Directorate of Studies, The Institute of Cost Accountants of India 4

 INTERMEDIATE EXAMINATION SET 1
MODEL QUESTION PAPER TERM – DEC 2025
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING

(4) (a) Given below are details of interest on advance of a Commercial Bank as on 31.03.2025:
(₹ in crores)
Particulars Interest Earned (₹) Interest Received (₹)
Performing Assets
Term Loan 240 160
Cash Credit and Overdraft 1,500 1,240
Bills Purchased and Discounted 300 300
Non-Performing Assets
Term Loan 150 10
Cash Credit and Overdraft 300 24
Bills Purchased and Discounted 200 40
Calculate the income to be recognized for the year ended 31st March 2025. [7]

(b) The Life Insurance Fund of Avni Life Insurance Co. Ltd. was ₹25 lakhs on 31.03.2025. Its actuarial valuation
on 31.03.2025 disclosed a net liability of ₹21.25 lakhs. An interim bonus of ₹40,000 was paid to the policy
holders during previous two years. It is now proposing to carry forward ₹75,000 and to divide the balance
between policy holders and the shareholders. Prepare the
(i) Valuation Balance Sheet;
(ii) Net profit for the two-year period; and
(iii) Distribution of Profit [7]

(5) (a) The following information is provided by Greenco Ltd, Calculate Diluted Earnings per share. [7]

Amount
Particulars (₹ in Lakhs)
Net profit for the year 100
Number of equity shares outstanding 20
Basic Earnings per share 5.00
Number of 11% convertible debentures of ₹100 each = 25,000
Each debenture is convertible into 8 equity shares
Interest expense for the current year 2.75
Tax saving relating to interest expense (30%) 0.825

(b) The following relevant items of cash flow statement of Gems Ltd. Prepared for the year 31st March,2025:

Particulars Amount (₹) Amount (₹)

Net profit 75,00,000
Add: Sale of investment 87,50,000

Directorate of Studies, The Institute of Cost Accountants of India 5

 INTERMEDIATE EXAMINATION SET 1
MODEL QUESTION PAPER TERM – DEC 2025
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
Depreciation of Assets 13,75,000
Issue of preference shares 11,25,000
Loan raised 5,62,500
Decrease in stock 15,00,000
2,08,12,500
Less:
Purchase of Fixed Assets 81,25,000
Decrease in Creditors 7,50,000
Decrease in Debtors 10,00,000
Exchange gain 10,00,000
Profit on sale of investments 15,00,000
Redemption of debentures 7,12,500
Dividend paid 1,75,000
Interest paid 1,18,125 (1,33,80,625)
74,31,875
Add: Opening Cash and Cash Equivalent 15,42,625
Closing Cash and Cash equivalent 89,74,500
Redraft and reconstruct the cash flow statement of Gems Ltd. in proper order for the year ended 31st
March,2025 in accordance with AS-3 using indirect method. [7]

(6) (a) Distinguish between statutory audit and non-statutory audit. [7]
(b) Discuss the provisions of Companies Act, 2013 and SEBI Regulations relating to the applicability and conduct
of Secretarial Audit. [7]

(7) (a) Analyse the key distinctions between an audit report and an audit certificate? [7]
(b) Discuss the functions and duties of the National Financial Reporting Authority (NFRA) of the Companies Act,
2013. [7]

(8) (a) Discuss the procedures you would follow to audit the inventory of a hospital pharmacy. [7]
(b) Discuss the provisions of the Companies Act ,2013 regarding appointment of first Auditor of a company. [7]

Directorate of Studies, The Institute of Cost Accountants of India 6

 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)

1. Choose the correct option: [15×2 = 30]

i. Given, paid -up share capital ₹10,00,000 and free reserves ₹2,00,000, what is the maximum amount
permissible for buy-back of shares.
a. ₹2,00,000
b. ₹2,50,000
c. ₹2,80,000
-
d. ₹3,00,000

ii. As per Schedule III of Companies Act 2013, while preparing the financial statements in case of a
Finance Company, interest received from borrowers should be shown under.
a.
~ Revenue from operation
b. Other Income
c. Current assets.
d. Non-current assets

iii. Which of the following is a defined contribution plan?

a. Multi-employer plan
b. State plan
c. Insured benefits
d. All the above
-
iv. If the net profits earned during the year is ₹50,000 and the bills receivables have decreased by ₹10,000
during the year then the cash flow from operating activities will be equal to.:
a. ₹30,000.
-
b. ₹40,000.
c. ₹50,000.
d. ₹60,000.

v. In case of an electricity company, depreciation on assets is calculated based on the rates notified by?
a. Companies Act 2013.
b. State Electricity Commission.
-
c. Central Electricity Regulatory Commission.
d. Income Tax Act 1961.

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 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
vi. Internal Audit is mandatory for every unlisted public company having paid up share capital of.
a. ₹100 crores during the preceding financial year
b. ₹50 crores during the preceding financial year.
-
c. ₹500 crores during the preceding financial year
d. ₹ 200 crores during the preceding financial year

vii. Test checking requires application of __________.

a. mathematical theory
- b. sampling theory
c. geometry theory
d. stakeholder theory

viii. Each qualified chartered accountant not in full time employment can be the auditor of at most _______
companies.
a. 10
b. 15
-c. 20
d. 30

ix. Which of the following is not a content of audit report?

a. Signature of the auditor
b. Date of the report
-
c. Attachment of audit evidences
d. Auditor’s address

x. According to the Central Co-operatives Societies Act, ________ of the profits of a co-operative society
should be transferred to a Reserve Fund before distribution of dividend or payment of bonus to its
members.
a. 20%
-
b. 25%
c. 30%
d. 35%

xi. Which of the following is not a part of rural self-governance system in India?
a. Gram Panchayat
-
b. Gram Parishad
c. Panchayat Samiti
d. Zilla Parishad

xii. SA 210 stands for________?

a. Audit Planning
b. Audit Working Papers
-
c. Agreeing the terms of Audit Engagements
d. Audit Documentation

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 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
xiii. Which of the following is not a content of audit report as per CARO?
a. Inventory
b. Acceptance of deposit
-c. Recruitment of employees
d. Repayment of loan.

xiv. An auditor shall submit an unmodified report when__________.

a.
- The financial statements exhibit true and fair view
b. The financial statements are partially correct
c. The financial statements are partially correct
d. The financial statements are unavailable

xv. Which of the following is not a part of Temporary Audit file?

a. Correspondence relating to acceptance of annual reappointment
b. Audit programme
c. Extracts of minutes of board meetings
-
d. Legal and organisation structure of the company

Answer:

i ii iii iv v vi vii viii ix x xi xii xiii xiv xv

d a d b c b b c c b b c c a d

Section – B

(Answer any five questions out of seven questions given. Each question carries 14 Marks)
[5 × 14 = 70]

2. (a) Priyanka Industries Ltd. has an authorized capital ₹2,00,000 divided into shares of ₹100 each. Of these,
600 shares were issued as fully paid for payment of machinery purchased from Z Ltd. 800 shares were
subscribed for by the public and during the first year ₹50 per share was called up payable ₹20 on
application, ₹10 on allotment, ₹10 on the first call and ₹10 on second call.
The amounts received in respect of these shares were as follows: -
On 600 Shares Full amount called up
On 125 Shares ₹40 Per Share
On 50 Shares ₹30 Per Share
On 25 Shares ₹20 Per Share
The directors forfeited the 75 shares, on which less than ₹40 per share had been paid.
Required:
Give Journal Entries recording the above transactions (including cash transactions) and prepare
Balance-Sheet of the Company, in accordance with Part 1 of Schedule III to the Companies Act.

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 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING

(b) On 1st April 2020. H Ltd. issued 442, 10% Debentures of ₹1000 each at a discount of 10% redeemable
at a premium of 5% after 4 years. It was decided to create a Sinking Fund for the purposes of
accumulating sufficient funds to redeem the Debentures and to invest in some radily convertible
securities yielding 10% interest p.a. Reference to the table shows that ₹1.00 p.a. at 10% compound
interest amounts to ₹4.641 in 4 years. Investments are to be made in the Bonds of ₹1000 each available
at par. On 31st March 2024, the investments realised ₹3,40,000 and debentures were redeemed. The
bank balance as on that date was ₹50,000. Fund Investments Account for 4 years.

Required: Prepare Debenture Redemption Fund Account and Debenture Redemption [7 + 7 = 14]

Answer:

(a)
In the books of Priyanka Industries Ltd.
Journal
Particulars Dr.(₹) Cr. (₹)
Machinery A/c Dr. 60,000
To Z Ltd. A/c 60,000
(Being the purchase of machinery from Z Ltd. as per agreement dated...)
Z Ltd. A/c Dr. 60,000
To Share Capital A/c 60,000
(Being the issue of 600 shares at par to Z Ltd)
Bank A/c Dr. 16,000
To Share Application A/c 16,000
(Being the application money received for 800 shares subscribed @ ₹20.00 per
share.)
Share Application A/c Dr. 16,000
To Share Capital A/c 16,000
(Being the application money adjusted as per Board’s Resolution No.... dated.)
Share Allotment A/c Dr. 8,000
To Share Capital A/c 8,000
(Being the allotment money due for 800 shares subscribed @ ₹10.00 per share
as per Board’s Resolution No.... dated. )
Bank A/c Dr. 7,750
Calls in Arrear A/c Dr. 250
To Share Allotment A/c 8,000
(Being the allotment money received on 775 shares)

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 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
Share First Call A/c Dr. 8,000
To Share Capital A/c 8,000
(Being the first call money due as per Board’s Resolution No.... dated.)
Bank A/c Dr. 7,250
Calls in Arrear A/c Dr. 750
To Share First Call A/c 8,000
(Being the first call received on 725 shares @ ₹10)
Share Second Call A/c Dr. 8,000
To Share Capital A/c 8,000
(Being the second call money due as per Board’s Resolution No.... dated.)
Bank A/c Dr. 6,000
Calls in Arrear A/c Dr. 2,000
To Share Second Call A/c 8,000
(Being the second call received on 600 shares)
Share Capital A/c Dr. 3,750 2,000
To Forfeited Share A/c [(50×30) + (25 ×20)] 1,750
To Calls in Arrear A/c [(50×30) + (25 ×10)]
(Being 75 shares forfeited as per Board’s Resolution No.... dated. )

Name of the Company: Priyanka Industries Ltd.

Balance Sheet as at....
Ref Particulars Note Current Year Previous Year
No. No. Reporting Period Reporting Period
₹ ₹
I EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share capital 1 97,000
2 Share application money pending allotment Nil
3 Non-current liabilities Nil
4 Current Liabilities Nil
Total (1+2+3+4) 97,000
II ASSETS
1. Non-current assets
(a) PPE and Intangible assets
(i) Tangible assets - PPE 2 60,000
2 Current assets
(a) Cash and cash equivalents 3 37,000
Total (1+2) 97,000

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 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
Notes to the Accounts:
Note 1. Share Capital Current Year (₹) Previous Year (₹)
Authorized Capital
2,000 Equity share of ₹100 each 2,00,000
Total 2,00,000
Issued Capital
1,400 shares of ₹100 each 1,40,000
Total 1,40,000
Subscribed Capital
600 Shares of ₹100 each 60,000
725 shares of ₹100 each out of ₹50 paid 36,250
96,250
Less. Calls Unpaid 1,250
95,000
Add: Forfeited Shares 2,000
Total 97,000

Note 2. PPE Current Year (₹) Previous Year (₹)

Machinery 60,000
Total 60,000

Note 3. Cash and Cash Equivalents Current Year (₹) Previous Year (₹)
Cash at Bank 37,000
Total 37,000

(b) DRF = Debenture Redemption Fund, DRFI = Debenture Redemption Fund Investment
Debenture Redemption Fund Account
Dr. Cr.
Date Particulars ₹ Date Particulars ₹
31.03.2021 To Balance c/d 1,00,000 31.03.2021 By P&L App. A/c 1,00,000
31.03.2022 To Balance c/d 2,10,000 01.04.2021 By Balance b/d 1,00,000
31.03.2022 By Interest on DRFI 10,000
A/c
By P&L App. A/c 1,00,000
2,10,000 2,10,000
31.03.2023 To Balance c/d 3,31,000 01.04.2023 By Balance b/d 2,10,000
31.03.2023 By Interest on DRFI 21,000
A/c
31.03.2023 By P&L App. A/c 1,00,000

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 INTERMEDIATE EXAMINATION SET - 1
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CORPORATE ACCOUNTING AND AUDITING
3,31,000 3,31,000
31.03.2024 To Loss on issue of 22,100 01.04.2023 By Balance b/d 3,31,000
Debentures/ Premium on
redemption of Debentures A/c
To Debenture Redemption 4,51,000 31.03.2024 By Interest on DRFI 33,100
Reserve A/c A/c
31.03.2024 By P&L App. A/c 1,00,000
By Debenture
Redemption Fund
Investment A/c (Profit)
4,73,100 4,73,100

Debentures Redemption Fund Investment (DRFI) Account

Dr. Cr.
Date Particulars ₹ Date Particulars ₹
31.03.21 To Bank A/c 1,00,000 31.03.21 By Balance c/d 1,00,000
01.04.21 To Balance b/d 1,00,000 31.03.22 By Balance c/d 2,10,000
31.03.22 To Bank A/c 1,10,000
2,10,000 2,10,000
01.04.22 To Balance b/d 2,10,000 31.03.23 By Balance c/d 3,31,000
31.03.23 T Bank A/c 1,21,000
3,31,000 3,31,000
01.04.23 To Balance b/d 3,31,000 31.03.24 By Bank A/c (Sales) 3,40,000
31.03.24 To Debenture Redemption Fund A/c (Profit) 9,000
3,40,000 3,40,000

Working Note:
(i) Calculation of the amount of profit set aside ₹
a. Face Value of Debentures 4,42,000
b. Premium Payable on Redemption 22,100
c. Depreciable Cost (A + B) 4,64,100
d. Value of annuity per ₹ 1 4,641
e. Annual amount to be charged (C/D) 1,00,000

(ii) Calculation of the amount of investments and interest

Year Opening Balance Interest Saving Investments Closing Balance
(a) (b) (c)= b×10/100 (d) e=c+d f=b+e
2020-21 — — 1,00,000 1,00,000 1,00,000
2021-22 1,00,000 10,000 1,00,000 1,10,000 2,10,000
2022-23 2,10,000 21,000 1,00,000 1,21,000 3,31,000

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 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – JUNE 2025
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
2023-24 3,31,000 33,100 1,00,000 — —

3. The following information has been extracted from the books of account of Hero Ltd. as at 31st March, 2024:

Particulars Dr. (₹’000) Cr. (₹’000)

Administration Expenses 480
Cash at Bank and on Hand 228
Cash Received on Sale of Fittings 10
Long Term Loan 70
Investments 200
Depreciation on Fixtures, Fittings, Tools and Equipment (1st April, 2023) 260
Distribution Costs 102
Factory Closure Costs 60
Fixtures, Fittings, Tools and Equipment at Cost 680
Profit & Loss Balance (at 1st April, 2023) 80
Purchase of Equipment 120
Purchases of Goods for Resale 1710
Sales (net of Excise Duty) 3,000
Share Capital (1,00,000 shares of ₹10 each fully paid) 1,000
Stock (at 1st April, 2023) 140
Trade Creditors 80
Trade Debtors 780
4,500 4,500
Additional Information:
1. The stock at 31st March, 2024 (valued at the lower of cost or net realizable value) was estimated to be
worth ₹2,00,000.
2. Fixtures, fittings, tools and equipment all related to administration. Depreciation is charged at a rate
of 20% per annum on cost. A full year’s depreciation is charged in the year of acquisition, but no
depreciation is charged in the year of disposal.
3. During the year to 31st March, 2024, the Company purchased equipment of ₹1,20,000. It also sold
some fittings (which had originally cost ₹60,000) for ₹10,000 and for which depreciation of ₹30,000 had
been set aside.
4. The average Income tax for the Company is 50%. Factory closure cost is to be presumed as an
allowable expenditure for Income tax purpose.
5. The company proposes to pay a dividend of 20% per Equity Share. Profits transferred to reserves
₹30,000.

Prepare Hero Ltd.’s Statement of Profit and Loss for the year to 31st March, 2024 and balance Sheet as at
that date in accordance with the Companies Act, 2013 as per Division I of schedule III along with the Notes
on Accounts containing only the significant accounting policies. [14]

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PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING

Answer:
Name of the Company: Hero Ltd.
Balance Sheet as at: 31st March, 2024 (₹’000)
Ref Particulars Note As at 31st March, st
As at 31 March,
No. No. 2024 2023
I EQUITY AND LIABILITIES
1 Shareholder’s Fund
(a) Share capital 1 1,000
(b) Reserves and surplus 2 350
2 Share application money pending allotment NIL
3 Non-current liabilities
(a) Long-term borrowings 3 70
4 Current Liabilities
(a) Other current liabilities 4 80
(b) Short-term provisions 5 270
Total (1+2+3+4) 1,770
II ASSETS
1 Non-current assets
(a) PPE and Intangibles
(i) PPE 6 362
(b) Non-current investments 7 200
2 Current assets
(a)Inventory 8 200
(b)Trade Receivables 9 780
(c)Cash and Cash equivalents 10 228
Total (1+2) 1,770

Note - Relevant items of Assets/ Liabilities are reflected in Balance Sheet and Schedule III. Hence sub- item not
having any value for the given illustration is not shown/ represented in Balance Sheet.

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Name of the Company: Hero Ltd.

Profit and Loss Statement for the year ended: 31st March, 2024
(₹’000)
Note As at 31st As at 31st
No. March, 2024 March, 2023
I REVENUE FROM OPERATION 11 3,000
Less: Excise duty
3,000
II OTHER INCOME
III TOTAL REVENUE(I+II) 3,000
IV EXPENSES:
(a) Cost of material consumed
(b) Purchase of products for sale 1,710
(c) changes in inventories of finished goods, work- (60)
in-progress and products for sale (140-200)
(d) Employees cost/ benefits expenses
(e) Finance cost
(f) Depreciation and amortization expenses 148
(g) Product development expenses/Engineering
expenses
(h) Other expenses 12 602
(i) Expenditure transfer to capital and other account
TOTAL EXPENSES 2,400
V PROFIT BEFORE EXCEPTIONAL AND 600
EXTRAORDINARY ITEMS AND TAX (III-IV)
VI EXCEPTIONAL ITEMS
VII PROFIT BEFORE EXTRAORDINARY ITEMS 600
AND TAX (V-VI)
VIII EXTRAORDINARY ITEMS 60
IX PROFIT BEFORE TAX FROM CONTINUING 540
OPERATIONS (VII-VIII)
X Tax expenses:
(1) Current Tax 270
(2) Deferred Tax
XI PROFIT AFTER TAX FOR THE YEAR FROM 270
CONTINUING OPERATION (IX-X)
XII Profit (loss) from discontinuing operations
XIII Tax expenses from discontinuing operations
XIV Profit(loss) from discontinuing operations (after tax)

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(XII - XIII)
XV PROFIT (LOSS) FOR THE PERIOD (XI+XIV) 270
XVI Earning per equity share:
(1) Basic
(2) Diluted

Note 1. Share Capital As at 31st March, 2024 As at 31st March, 2023

Authorized, Issued, Subscribed and paid-up Share capital:
1,00,000 Equity share of `10 each 1,000
Total 1,000

RECONCILIATION OF SHARE CAPITAL

FOR EQUITY SHARE As at 31st March, 2024 As at 31st March, 2023
Nos. (₹) Nos. (₹)
Opening Balance as on 01.04.22 ( Figure in ₹’000) 100 1,000
Add: Fresh Issue (Including Bonus shares, right shares,
split shares, share issued other than cash)
100 1,000
Less: Buy Back of share
Total 100 1,000

Note 2. Reserve & Surplus As at 31st March, 2024 As at 31st March, 2023
General Reserve 30
Profit and loss Balance 320
Total 350

Note 3. Long term borrowings As at 31st March, 2024 As at 31st March, 2023
Long term loan 70
Total 70

Note 4. Trade Payables As at 31st March, 2024 As at 31st March, 2023

Sundry Creditors 80
Total 80

Note 5. Short- term provisions As at 31st March, 2024 As at 31st March, 2023
Provision for Taxation 270
Total 270

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Note 6. PPE As at 31st March, As at 31st March,

2024 2023
Fixtures, Fittings, Tools and equipment at cost- Opening 680
Add: Additions 120
Less: Sale/ disposed (30)
Less: Depreciation (260+148) (408) 362
Total 362

Note 7. Non-Current Investments As at 31st March, 2024 As at 31st March, 2023

Investments 200
Total 200

Note 8. Inventories As at 31st March, 2024 As at 31st March, 2023

Stock 200
Total 200

Note 9. Trade Receivables As at 31st March, 2024 As at 31st March, 2023

Trade Debtors (more than six months considered good)– 780
Total 780

Note 10. Cash and cash equivalents As at 31st March, 2024 As at 31st March, 2023
Cash at Bank and on hand 228
Total 228

Note 11. Revenue from operation As at 31st March, 2024 As at 31st March, 2023
Sales (net of Excise Duty) 3,000
Total 3,000

Note 12. Other Expenses As at 31st March, 2024 As at 31st March, 2023
Administrative Expenses 480
Distribution Expenses 102
Loss on sale of Fixed Assets 20
Total 602

Note 13: Profit and Loss Balance As at 31st March, 2024 As at 31st March, 2023
Balance brought forward from previous year 80
Profit during the year 270
Profit available for appropriation 350

Appropriation:
Transfer to General Reserve 30

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Balance carried forward 320

Note 14. Contingent Liabilities for Proposed dividend As at 31st March, 2024 As at 31st March, 2023
Proposed divided (20% of ₹1,000) 200

4. (a) From the following particulars, prepare Profit and Loss A/c of ABC Bank Ltd. for the year ending
31st March 2024:
Particulars Amount (₹) Particulars Amount (₹)
Interest on Loans 34,90,000 Rent & taxes 1,80,000
Interest on Fixed deposits 36,50,000 Interest on Overdrafts 12,80,000
Rebate on bills discounted (1-4- 2023) 4,80,000 Director’s remuneration 42,000
Commission charged to customers 97,000 Interest on savings deposit A/c 6,90,000
Office expenses 15,50,000 Postal expenses 19,000
Discount on bills discounted 19,40,000 Printing and stationary 39,000
Amount charged against Current A/c 1,20,000 Other expenses 18,000
Interest on cash credit 22,40,000
Adjustments to be made:
(i) Rebate on bills discounted ₹ 485,000.
(ii) Provide for taxation @ 30% of the profit.

(b) Prepare the Fire Insurance Revenue A/c as per IRDA regulations for the year ended 31st March, 2024
from the following details:
Particulars ₹
Claims paid 4,90,000
Legal expenses regarding claims 10,000
Premiums received 13,00,000
Re-insurance premium paid 1,00,000
Commission 3,00,000
Expenses of management 2,00,000
Provision against unexpired risk on 1st April, 2023 5,50,000
Claims unpaid on 1st April, 2023 50,000
Claims unpaid on 31st March, 2024 80,000

Create Reserve for Unexpired Risk @ 50%. [7 + 7 = 14]

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Answer:
(a)
Profit and Loss Account for the year ended 31st March 2024
Particulars Schedule No. Amount (₹ in 000’s)
I. Income
Interest earned 13 29,225
Other Income 14 97
Total 29,322
II. Expenditure
Interest expended 15 4,340
Operating expenses 16 1,848
Provisions and contingencies 6,940.20
Total 13,128.20
III. Profit
Net Profit for the year 16,193.80
Add: Profit/ (Loss) brought forward
Total 16,193.80
IV. Appropriations
Transfer to Statutory Reserve (25%) 4,048.45
Transfer to Capital Reserve
Transfer to Investment Fluctuation Reserve
Transfer to Revenue and other Reserves
Dividend for the current year
Balance carried over to Balance Sheet 12,145.35
Total 16,193.80
V. Earnings Per Equity share (face value 1 per share)
Basic (in ₹)
Diluted (in ₹)

Schedule 13: Interest Earned

Particulars Amount (₹ in 000’s)
Interest on loan 3490
Discount on bills discounted 1940
Interest on Cash credits 22,400
Interest on Overdrafts 1280
Amount charged against current A/C 120
Less: Rebate on Bills discounted 485
Add: Rebate on Bills discounted 480

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Total 29,225

Schedule 14: Other Income

Particulars Amount (₹ in 000’s)
Commission charged to customers 97

Schedule 15: Interest Expended

Particulars Amount (` in 000’s)
Interest on Fixed Deposits 3650
Interest on savings deposit A/C 690
Total 4340

Schedule 16: Operating Expenses

Particulars Amount (` in 000’s)
Director’s remuneration 42
Rent, Taxes etc. 180
Office expenses 1550
Postal expenses 19
Printing and stationery 39
Other expenses 18
Total 1848

(b) Name of the Insurer:

FORM B – RA
Registration No. and Date of Registration with the IRDA:
Fire Insurance Revenue Account for the year ended 31st March, 2024
Particulars Schedule Amount (₹)
(1) Premium earned 1 11,50,000
(2) Other income -
(3) Interest, dividend and rent -
Total (A) 11,50,000
(4) Claims incurred 2 5,30,000
(5) Commission 3 3,00,000
(6) Operating expenses related to Insurance business 4 2,00,000
Total (B) 10,30,000
Operating Profit (A)- (B) 1,20,000

Schedule 1 : Premium earned (net) ₹

Premium received 13,00,000
Less: Re-insurance premium 1,00,000
Net premium 12,00,000

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Adjustment for change in reserve for unexpired risks (Refer W.N.) 50,000
11,50,000

Schedule 2 : Claims Incurred ₹

Claims paid including legal expenses (4,90,000 + 10,000) 5,00,000
Add : Claims outstanding at the end of the year 80,000
Less : Claims outstanding at the beginning of the year (50,000)
Total claims incurred 5,30,000

Schedule 3 : Commission ₹
Commission paid 3,00,000
3,00,000

Schedule 4: Operating expenses ₹

Expenses of management 2,00,000
2,00,000
Working Note:
Change in the provision for unexpired risk ₹
Unexpired risk reserve on 31st March, 2023 = 50% of net premium
i.e. 50% of `12,00,000 (See Schedule 1) 6,00,000
Less : Unexpired risk reserve as on 1st April 2022 5,50,000
Change in the provision for unexpired risk 50,000

5. (a) Describe the disclosure requirements for provisions as per Ind AS 37.

(b) How would you deal with the following in the annual accounts of a company for the year ended
31.3.2023?
“The company has to pay delayed cotton clearing charges over and above the negotiated price for
asking delayed delivery of cotton from the supplier’s godown. Up to 2021-22, the company has
regularly included such charges in the valuation of closing stock. This being in the nature of interest
the company has decided to exclude it from closing stock valuation for the year 2021-22. This would
result into decrease in profit by ₹7.60 lakhs.” [7 + 7 = 14]

Answer:

(a) For each class of provision, an entity shall disclose:

 the carrying amount at the beginning and end of the period;
 additional provisions made in the period, including increases to existing provisions;
 amounts used (i.e., incurred and charged against the provision) during the period;
 unused amounts reversed during the period; and
 the increase during the period in the discounted amount arising from the passage of time and the effect

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of any change in the discount rate.
Comparative information is not required.
An entity shall disclose the following for each class of provision:
 a brief description of the nature of the obligation and the expected timing of any resulting outflows of
economic benefits.
 an indication of the uncertainties about the amount or timing of those outflows. Where necessary to
provide adequate information, an entity shall disclose the major assumptions made concerning future
events, as addressed in paragraph; and
 the amount of any expected reimbursement, stating the amount of any asset that has been recognised
for that expected reimbursement.

(b) As per Ind AS 2, Inventories, interest and other borrowing costs are usually considered as not relating to
bringing the inventories to their present location and condition and are, therefore, usually not included in the
cost of inventories. Thus, it becomes quite clear that delayed cotton clearing charges which were treated in
the nature of interest must not be included while valuing closing stock as per the provision of Ind AS 2 and
it is not in compliance with Ind AS 2 which was done up to 2020-21.
But from year 2021-22, the company decided to change the earlier view i.e. they decided to exclude the same
from the valuation of closing stock which is, no doubt, in compliance with Ind AS 2.
As a result of change in accounting policy regarding valuation of stock, the profit was reduced by is. `7.60
lakhs which must be disclosed in the financial statement.

6. (a) Illustrate the meaning of Audit Trail. Summarize the statutory provisions relating to audit trail.
(b) Discuss about the applicability of secretarial audit for companies. [7 + 7=14]

Answer:

(a) Audit trail may be defined as the documents, records relating to transactions that enables an auditor to trace
the transactions from the source documents to the summarised total in accounting reports. It is an orderly,
step-by- step record of transactions that serves as a proof of a transaction’s history, right from recording to
tracking all changes that may take place. For example, a sequentially numbered sales invoice copies would
normally be listed in a Register and subsequently filed either in numerical or chronological order. Thus, it
would be possible to trace a particular invoice from the daybook to the original file by reference to the number
or date of the invoice.
In an automated environment accounting software provides the ideal example of audit trails. For example,
when a transaction is entered in the software, the software will maintain a record of it. Any further edits made
to the details, such as a change in the name or amount will also be tracked by the software along with the
user who made the changes and the time of change. Even if some transactions were to be deleted, the software
will track that as well and keep the record of everything since the original entry was made.

Statutory Requirement for Audit Trail:

According to Rule 3(1) of Companies (Accounts) Rules, 2014, as amended by Companies (Accounts)
Amendment Rules, 2021, for the financial year commencing on or after the 1st day of April, 2022, every

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company which uses accounting software for maintaining its books of account, shall use only such accounting
software which has a feature of recording audit trail of each and every transaction, creating an edit log of
each change made in books of account along with the date when such changes were made and ensuring that
the audit trail cannot be disabled.
In simple words, the expectation is to maintain the edit log of every transition right from recording to tracking
the changes that may take place.

(b) The Companies Act 2013: As per the provision of Section 204(1) of the Companies Act, 2013 read with Rule
9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014:
1. Every listed company;
2. Every public company having a paid-up share capital of 50 crore rupees or more; or
3. Every public company having a turnover of 250 crore rupees or more; or
4. Every company having outstanding loans or borrowings from banks or public financial institutions of
100 crore rupees or more.- is required to annex with its Board’s Report made in terms of Section 134(3)
of the Companies Act, 2013, a Secretarial Audit Report, given by a Company Secretary in practice, in
Form [Link] per Section 204(2), it shall be the duty of the company to give all assistance and
facilities to the company secretary in practice, for auditing the secretarial and related records of the
company.
Moreover, Section 204(4) further provides that if a company or any officer of the company or the company
secretary in practice, contravenes the provisions of this section, the company, every officer of the company
or the company secretary in practice, who is in default, shall be liable to a penalty of two lakh rupees.

SEBI Regulations: As per Regulation 24A of the SEBI(LODR) Regulations, 2015, every listed entity and its
material unlisted subsidiaries incorporated in India shall undertake secretarial audit and shall annex a
secretarial audit report given by a company secretary in practice, in such form as specified, with the annual
report of the listed entity.

In addition to the above, every listed entity shall submit a secretarial compliance report in such form as
specified, to stock exchanges, within sixty days from end of each financial year. (Amended by the SEBI
(Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2021 w.e.f. 5.5.2021).

7. (a) Analyse the audit procedures to be followed for audit of revenue from operation.

(b) Discuss the role of NFRA in monitoring and enforcing compliance with auditing standards. [7+7 = 14]

Answer:

(a) Revenue from operation comprises sale of goods, sale of services and other operating revenues. Other
operating revenue includes any revenue earned by the company from its operations other than its principal
activities. For example, Discount Received, Bad Debt Recovery etc. For a finance company, revenue from
operation primarily includes interest income and income from other financial services.

Audit Procedure to be Followed:

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Apart from evaluating the adequacy of internal control with respect to revenue related transactions, the
auditor shall resort to the following audit procedure to audit the revenue from operations.
(a) Occurrence:
(i) The auditor should ensure that all revenue items recognised are genuine and no sale transactions
have been recorded twice.
(ii) He may test check a few invoices with accounting entries. Further, he should check the sequence
of sales invoices, review the recording of unusual transactions, verify the return transactions
with sales invoice, challan, credit note and stock records.
(iii) He should also obtain confirmation from few customers to check whether the transactions are
genuine.
(iv) He should ensure that no fake sale transactions have been recorded.
(v) For services, he must see that revenue has been recognised based on the policy undertaken.

(b) Cut-off:
He shall see whether revenue from operation includes the sale made and services performed during
the year only.

(c) Completeness:
The auditor should verify that all sales effected during the year have been included in revenue. He
should apply the cut-off procedure to ensure that revenues are recognised in the current accounting
period and check if year-end sale transactions have been tempered.

(d) Measurement
(i) The auditor shall see that revenues are accurately measured based on applicable Accounting
Standards.
(ii) Trade discount allowed to the customers should be checked. No separate entry for trade discount
should be passed in the books. If there is any significant variation in trade discount allowed to
different customers, the auditor is required to inquire into the reason for such variations.
(iii) The sales tax, insurance charges, etc. collected through sales invoices must be recorded under
separate accounts.

(e) Presentation and Disclosures:

The auditor shall ensure the following disclosure for revenue from operation in respect of a company
other than a finance company as per Schedule III (Part 2):
(i) Disclosure should be available for each class of goods.
(ii) Revenue from operations shall disclose separately in the notes revenue from – (a) Sale of
products; (b) Sale of services; (c) Other operating revenues; Less: (d) Excise duty.
(iii) In respect of a finance company, revenue from operations shall include revenue from - (a)
Interest; and (b) Other financial services
(iv) Discount other than usual trade discount must be disclosed. Similarly, transactions with related
parties should be separately disclosed in the Notes.

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(v) In the case of companies rendering or supplying services, gross income derived from services
rendered or supplied under broad heads.

(b) The National Financial Reporting Authority (NFRA) was constituted on 1st October,2018 by the Government
of India under Sub Section (1) of section 132 of the Companies Act, 2013. The body will comprise of one
Chairman who will be an eminent individual with competence in accounting, auditing, finance, or law as
Chairperson. In addition, there can be a maximum of 15 members.

Monitoring and Enforcing Compliance with Auditing Standards:

(1) For the purpose of monitoring and enforcing compliance with auditing standards under the Act by a
company or a body corporate governed under Rule 3, the Authority may:
(i) review working papers (including audit plan and other audit documents) and communications
related to the audit;
(ii) evaluate the sufficiency of the quality control system of the auditor and the manner of
documentation of the system by the auditor; and
(iii) perform such other testing of the audit, supervisory, and quality control procedures of the auditor
as may be considered necessary or appropriate.
(2) The Authority may require an auditor to report on its governance practices and internal processes
designed to promote audit quality, protect its reputation and reduce risks including risk of failure of
the auditor and may take such action on the report as may be necessary.
(3) The Authority may seek additional information or may require the personal presence of the auditor for
seeking additional information or explanation in connection with the conduct of an audit.
(4) The Authority shall perform its monitoring and enforcement activities through its officers or experts
with sufficient experience in audit of the relevant industry.
(5) The Authority shall publish its findings relating to non-compliances on its website and in such other
manner as it considers fit, unless it has reasons not to do so in the public interest and it records the
reasons in writing.
(6) The Authority shall not publish proprietary or confidential information, unless it has reasons to do so
in the public interest and it records the reasons in writing.
(7) The Authority may send a separate report containing proprietary or confidential information to the
Central Government for its information.
(8) Where the Authority finds or has reason to believe that any law or professional or other standard has
or may have been violated by an auditor, it may decide on the further course of investigation or
enforcement action through its concerned Division.

8. (a) Examine important areas, as regards auditing the accounts of a hospital.

(b) Discuss the benefits and limitations of Joint Audit. [7 + 7= 14]

Answer:

(a) Healthcare Organisations primarily include hospitals and nursing homes. They are established to provide
medical services to the public. There may be hospitals run and funded by the Government or local authorities
or by any charitable trust. These are generally non-profit seeking organisations. However, hospitals may also

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be established by private sector organisations. These are profit seeking organisations (and are popularly
known as private nursing homes). Since healthcare organisations largely differs from other commercial
organisations on account of their business processes, an auditor needs to prepare a sound audit plan to cover
typical aspects of these organisations. Accordingly, the audit procedure must highlight the following steps:
(i) Understand the Constitution: Study all the relevant documents to determine its nature and ownership
structure (i.e., trust, partnership or company). Study the trust deed (in case of trust), partnership
agreement (in case of partnership business) and articles and memorandum of association (in case of a
company) and accordingly identify the rules and regulation relating to its management and process of
preparation of accounts.
(ii) Assess the Internal Control System: Evaluate the internal control system associated with acquisition
and maintenance of assets, authorisation of transactions, etc. and determine the scope of the audit work.
(iii) Consult the Minute Book: Carefully examine the notices and minutes of the meeting of Board of
Directors, Managing Committee and other committees (such as purchase committee) and identify the
decisions which may affect the accounting. Confirm that the decisions undertaken with respect to
operation of bank accounts, approval of expenditure, etc. have been duly complied with.
(iv) Verify the Receipts Related Transactions:
 In case of a hospital run by state government or any local authority, vouch the grants received
from the state or the local authority based on Govt. Orders, sanction letters, counterfoil of
receipts.
 Vouch collection from patients admitted to the paying beds based on the Patient Admission
Registrar and counterfoil of receipts/ copies of bills.
 Vouch collection from various pathological tests based on the counterfoils of receipts/ copies of
bills.
 Vouch donations based on the counterfoils of receipts.
 In case hospitals having guest houses, assess the collections based on the register, counterfoils
of receipts and accounting entries.
 Interest and/ or dividend income should be vouched with reference to the Investment Register
and Interest and Dividend warrants.
 In case of legacies and donations which are received for specific purposes, it should be ensured
that any income therefrom is not utilized for any other purposes.
(v) Verify the Payments Related Transactions:
 Verify that all capital expenditure associated with machineries, furniture, vehicle, etc. is
approved and supported by documentary evidences such as counterfoils cheque, invoices,
tenders, etc.
 Vouch the salary paid to staff based on attendance register, payroll, etc. Examine that the
appointment of casual staff and payment of their salaries are duly authorized.
 Verify doctor’s remuneration should be verified based on the list of visits and operations
performed.
 Verify the purchases of pathological test kits, X-ray plate and other consumables based on
tenders, orders placed and invoices received.

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 Vouch all other overhead expenses like telephone bills, electricity bills, fuel bills, etc. based on
appropriate documentary evidences.
(vi) Verification of Assets and Liabilities:
 Verify the stock registers of medicines, food items and other equipment and check their
valuations.
 Conduct physical verification of fixed assets and investments based on Fixed Asset Register and
Investment Register respectively.
 Check the adequacy of depreciated and its accounting.
 Collect the list of all liabilities and verify them based on the contracts and arrear bills.
(vii) Verification of Financial Statements:
 Verify that the financial statements have been prepared in the manner and format appropriate to
the nature (profit seeking or non-profit seeking) and ownership structure of the organisation.

(b) Joint audit refers to the process of conducting the audit of a single organisation by more than one auditor.
Large Companies with diversified business operations often resort to this process of auditing where they
employ multiple auditors to conduct statutory audit. The basic aim in applying joint audit is to pull the
resources of multiple auditors to conduct audit efficiently and within lesser amount of time.

Benefits of Joint Audit:

The benefits of joint audit are as follows:
(i) Joint audit reduces the workload of a single auditor.
(ii) Since different auditors may be engaged to handle different parts of accounts, timely completion of
work is possible even in a large organisation.
(iii) The auditors may share their expertise and solve critical problems in the process.
(iv) Joint audit improves the quality of audit work to a great extent.
(v) There may be healthy competition among the auditors which improves the quality and speed of the
audit work.
(vi) Under joint audit, it is possible to get the benefit of extensive knowledge of different auditors at the
same time.

Limitations of Joint Audit:

The limitations of joint audit are enumerated below:
(i) Established auditors may have a superiority complex over the less experienced one.
(ii) It is not suitable for a small entity due to substantial cost burden.
(iii) At times, lack of coordination among the auditors may slow down the speed of work.
(iv) There may be uncertainty about the liability of any work.
(v) Areas of common concern may be neglected.
(vi) The auditors have to share the fees.

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CORPORATE ACCOUNTING AND AUDITING
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)

1. Choose the correct option: [15×2 = 30]

i. Equity shares amounting to `2,00,000 are brought back at a premium of 5%, by issue of preference
shares amounting to `1,00,000 at a premium of 10%. Compute the amount to be transferred to Capital
Redemption Reserve.
a.
- ₹1,00,000
b. ₹90,000
c. ₹1,50,000
d. ₹50,000

ii. Futura Ltd had the following items under the head “Reserves and Surplus” in the Balance Sheet as on
31st March: (` in Lakhs) Securities Premium Account - 80, Capital Reserve – 60, General Reserve –
90. The Company had an Accumulated Loss of Rs250 Lakhs on the same date. Reserves & Surplus to
be disclosed in B/S is _______________.
a. `250 Lakhs
b. `230 Lakhs
c. `20 Lakhs
d.
- `(20 Lakhs)

iii. Interest on Long term borrowing is an expense relating to _____________.

a. Investing Activity
b. Operating Activity
c.
- Financing Activity
d. All the above

iv. _____________ is a reserve which should be created by the insurers towards losses which might arise
due to entirely unexpected set of events and not for any specific known purpose.
a. General Reserve
b.
- Catastrophe Reserve
c. Revenue Reserve
d. Surplus

v. Which of the following is included in cost of inventory as per Ind AS 2?

a. Duties and taxes subsequently recoverable from taxing authorities.
b.
- Freight inward.
c. Rebates.
d. Duty drawbacks.

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vi. NFRA consists which of the following?

a. Accounting Standards Committee
b. Auditing Standards Committee
c. Enforcement Committee
d.
- All of these

vii. Basic Elements of Audit Report as per Standards on Auditing are___________.

a. Key Audit Matters
b. Auditor’s Opinion
c. Basis for Opinion
d.
- All of these

viii. Audit Report contains ______________.

a. Details of Facts
b. Details of Frauds
-c. Expression of Opinion
d. Expression of Suggestions

ix. A cost auditor submits his report along with reservations and observations in Form No._____________.
a. CRA 1
b. CRA 2
c.
- CRA 3
d. CRA 4

x. Auditor of a company appointed u/s ____________shall not act as the cost auditor of the company.
a.
- 139
b. 148
c. 204
d. 141

xi. _________________refers to the process of conducting the audit of a single organisation by more than
one auditor.
-
a. Joint audit
b. Cost audit
c. Internal audit
d. Continuous audit

xii. Benefits of Audit Sampling are ____________________.

a. It reduces the workload of the auditor
b. It saves time and cost
c. It gives dependable result as it is based on statistical sampling methods
d. All of these
-

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xiii. Which of the following records are not maintained by a co-operative society as accounting records?
a. Cash book
-b. Memorandum of Association
c. Register of assets and investments
d. Register of sureties

xiv. In relation to advances made by bank an auditor needs to review which of the followings?
a. Scrutinise the subsidiary, ledger, & control accounts
b. Scrutinise the overdue account and scheme for recovery of such amount
c. Ensure the proper documentation of account
d.
w All of these

xv. Which of the following is not falling under the broad category of Banks?
a. Commercial Banks
b. Regional Rural Banks
c. Co-operative Banks
-
d. None of these

Answer:

i ii iii iv v vi vii viii ix x xi xii xiii xiv xv

a d c b b d d c c a a d b d d

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MODEL ANSWERS TERM – JUNE 2025
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
Section – B

(Answer any five questions out of seven questions given. Each question carries 14 Marks)
[5 × 14 = 70]

2. (a) The issued share capital of KGF Ltd. consists of 50,000 equity shares of `10 each fully paid up. The
company offers to its shareholders shares on rights basis in the ratio of 1:1; the shares of `10 each
being offered at a premium of `10 per share. Half of the price was payable with the application and
the balance was payable on allotment, distribution being as follows:
With application (`) On allotment (`)
Share Capital 5 5
Share Premium 5 5
All the shareholders accepted the offer. One shareholder holding 150 shares paid the full offer price
with his application. Another shareholder holding 100 shares failed to pay the allotment money and
his shares were subsequently forfeited. Later, the shares were re-issued as fully paid up for ` 2,000
cash.
Journalise the above-mentioned transactions.

(b) D&CO. Ltd. issued 5,000 shares of `20 per share. The entire was underwritten as follows: X 2,500
shares, Y: 1,500 shares, Z: 1,000 shares.
The firm underwriting was to be X 500 shares, Y 250 shares, Z 250 shares. Shares applied for were
4,500 (including firm underwriting); Marked applications being: X 1,750 shares, Y 700 shares and Z
800 shares. Calculate the liability of each underwriter.
[7 + 7 = 14]
Answer:
(a)
Journal Entries in the books of KGF Limited
Date Particulars Debit (₹) Credit (₹)
Bank A/c Dr. 5,01,500
To Equity Share Application A/c 5,00,000
To Calls –in – Advance A/c 1,500
(Application money received on 50,000 equity shares @ `10 each and
Allotment money on 150 shares @ `10 each received in advance )
Equity Share Application A/c Dr. 5,00,000
To Equity Share Capital A/c 2,50,000
To Security Premium A/c 2,50,000
(Application money on 50,000 equity shares transferred @ `5 each
to share capital A/c and @ `5 each to Security Premium A/c)

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Equity Share Allotment A/c Dr. 5,00,000
To Equity Share Capital A/c 2,50,000
To Security Premium A/c 2,50,000
(Allotment made for 50,000 Equity Shares and the amount due transferred to
Equity Share Capital A/c and Security Premium A/c as per Resolution……
dated…..)
Bank A/c Dr. 4,97,500
Calls-in-Advance A/c Dr. 1,500
To Equity share Allotment A/c 4,99,000
(Allotment money received on 49,750 Equity Shares @ `10 each and the
Allotment received in advance on 150 shares @ `10 each transferred to
Share Allotment A/c)
Equity Share Allotment A/c [100 × `10] Dr. 1,000
Security Premium A/c [ 100 × `5] Dr. 500
To Equity Share Allotment A/c 1,000
To Forfeited Shares A/c [100 × `5] 500
(200 Shares of `10 each, forfeited for non-payment of allotment money including
premium due @ `5 each as per Resolution……dated…..)
Bank A/c Dr. 2,000
To Equity Share Capital A/c 1,000
To Security Premium A/c 1,000
(200 forfeited shares of `10 each re-issued at a premium of ` 10 each )
Forfeited Shares A/c Dr. 500
To Capital Reserve A/c 500
(Profit on re-issue of forfeited shares transferred to Capital Reserve)

(b)
Statement showing the Liability of underwriters
Particulars X (`) Y (`) Z (`)
Gross Liability 2,500 1,500 1,000
Less: Unmarked Applications [ 4,500 – (1,750+700+800)] or 1,250 625 375 250
in the ratio of 5:3:2
1,875 1,125 750
Less: Marked Applications 1,750 700 800
Remaining liability 125 425 (50)
Oversubscription of Z divided between X and Y as 5:3 (31.50) (18.50) 50
Net Liability 93.50 406.50 -
Add: Firm underwriting 500 250 250
Total liability 593.50 656.50 250

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3. Prepare the Balance sheet as at 31st March 2024 from the particulars furnished by KGF Ltd as per Schedule
III of Companies Act,2013.
Particulars Amount (₹)
Equity Share Capital 8,00,000
Calls in Arrears 800
Land 1,60,000
Building 2,80,000
Plant & Machinery 4,20,000
Furniture 40,000
General Reserve 1,68,000
Loan from IDBI 1,20,000
Loans(unsecured) 96,800
Provision for taxation 54,400
Sundry Debtors 1,60,000
Advances (Dr.) 34,160
Proposed Dividend 48,000
Profit and Loss account 80,000
Cash Balance 24,000
Cash at bank 1,97,600
Preliminary Expenses 10,640
Sundry Creditors (for goods and expenses) 1,60,000
Stock:
Finished Goods 1,60,000
Raw Materials 40,000 2,00,000
Adjustment:
i. 1500 equity shares were issued for consideration other than cash.
ii. Loan of ₹1,20,000 for IDBI is inclusive of ₹6,000 for interest accrued but not due. The loan is hypothecated
by plant and machinery.
iii. Debtors of ₹50,000 are due for more than 6 months.
iv. The cost of assets:
a. Building-₹3,20,000
b. Plant and Machinery-₹5,60,000
c. Furniture -₹50,000
v. Bank balance includes ₹2,000 with Trust Bank Ltd which is not a scheduled bank.
vi. Bills receivables for ₹2,20,000 maturing on 30th June 2024 have been discounted.
vii. The company had contract for the erection of machinery at ₹1,50,000 which is still incomplete.
[14]

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Answer:
Balance Sheet of KGF Ltd as on 31/03/2024

Particulars Note As at 31.03.2024 As at 31.03.2023

no (₹) (₹)
Equity and liabilities
Shareholders’ Funds:
Equity Share Capital 1 7,99,200
Reserve and Surplus 2 2,37,360
Non-Current Liabilities
Loan from IDBI (1,20,000 – 6,000) 1,14,000
Unsecured Loans 96,800
Current Liabilities:
Accrued Interest 6,000
Trade Payables 1,60,000
Provision for taxation 54,400
Proposed Dividend 48,000
Total: 15,15,760
Assets
Non-Current Assets:
Property, Plant and Equipment 3 9,00,000
Current Assets
Sundry Debtors (50,000 overdue for more than 6 months) 1,60,000
Advances (Dr.) 34,160
Cash & Cash Equivalents 2,21,600
Stock ( 1,60,000 + 40,000 ) 2,00,000
Total: 15,15,760

Note to Balance Sheet

Note 01: Share Capital:

Particulars As at 31.03.2024 As at 31.03.2023

(₹) (₹)
Paid up Capital (80,000 shares of `10 each) 8,00,000
(1,500 Equity Shares issued for consideration other than cash)
Less: Unpaid Calls (800)
Total 7,99,200

Note 02: Reserve and Surplus:

Particulars As at 31.03.2024 As at 31.03.2023

(₹) (₹)

General Reserve 1,68,000

Profit and Loss A/c 80,000
Less: Preliminary Expenses (10,640) 69,360
Total 2,37,360

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Note 03: Property, Plant and Equipment:

Particulars As at 31.03.2024 As at 31.03.2023

(₹) (₹)
Land 1,60,000
Building 3,20,000
Less: Depreciation (3,20,000 – 2,80,000) (40,000) 2,80,000
Plant and Machinery 5,60,000
Less: Depreciation (5,60,000 – 4,20,000) (1,40,000) 4,20,000
Furniture 50,000
Less: Depreciation ( 50,000 -40,000) (10,000) 40,000
Total 9,00,000

Note 04: Cash and Cash Equivalents:

Particulars As at 31.03.2024 As at 31.03.2023

(₹) (₹)
Cash Balance 24,000
Bank Balance 1,97,600
Total 2,21,600

4. (a) Given below are details of interest on advance of a Solution Bank as on 31.03.2024:
(` in Crore)
Particulars Interest Earned Interest Received
Performing Assets:
Term Loan 60 40
Cash Credit and Overdraft 375 310
Bills Purchased and Discounted 75 75
Non-Performing Assets:
Term Loan 37.50 2.50
Cash Credit and Overdraft 75 6
Bills Purchased and Discounted 50 10

Calculate the income to be recognized for the year ended 31st March,2024.
(b)The Life Insurance Fund of Avni Life Insurance Co. Ltd. was ₹25 lakhs on 31.03.2024. Its actuarial
valuation on 31.03.2024 disclosed a net liability of ₹21.25 lakhs. An interim bonus of ₹40,000 was paid to
the policy holders during previous two years. It is now proposing to carry forward ₹75,000 and to divide
the balance between policy holders and the shareholders. Prepare the
a. Valuation Balance Sheet;
b. Net profit for the two-year period; and
c. Distribution of profits. [7+7=14]

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Solution:
(a)

 Basis of Recognition: As per RBI Circular, Interest on non-performing assets are considered on Cash Basis and
interest on performing assets are considered on Accrual Basis.
 Statement showing interest income to be recognized for the year ended 31.03.2024:

Particulars Amount(₹) Amount(₹)

A. Interest on Performing Assets: Accrual Basis:
Term Loan 60
Cash Credit and Overdraft 375
Bills Purchased and Discounted 75 510
B. Interest on Non-Performing Assets: Cash Basis
Term Loan 2.50
Cash Credit and Overdraft 6
Bills Purchased and Discounted 10 18.50
C. Interest Income to be recognized( A+B) 528.50

(b)
a. Valuation Balance Sheet as on 31.03.2024
Liabilities Amount(₹) Assets Amount(₹)
To Net Liability as per Acturial Valuation 21,25,000 By Life Insurance Fund 25,00,000
To Surplus (b/f) 3,75,000
25,00,000 25,00,000

b. Calculation of Net profits made by Avni life insurance company for two-year period:
Particulars Amount(₹)
a) Surplus as per valuation balance sheet 3,75,000
b) Add: Interim Bonus paid during the two year period 40,000
c) Total profit made during the valuation period (a + b) 4,15,000
d) Less: Amount to be carried forward to next year (75,000)
e) Profit available for distribution ( c – d ) 3,40,000
c. Statement showing distribution of Profit:

Particulars Amount(₹) Amount(₹)

a) To Policy Holders:
95% of profit (3,40,000 × 95%) 3,23,000
Less: interim Bonus distributed to policy holders (40,000)
Amount Payable to policy holders (3,23,000 – 40,000) 2,83,000
b) To Shareholders (3,40,000 × 5% ) 17,000
c) Total profit distributed now ( a + b ) 3,00,000

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5. (a) The information provided by SDF Ltd for the year ended 31/03/2024 and request you calculate the
liability and expense to be recognised as per Ind AS 19.
No. of employees (Same as Last year) 150
Employee’s turnover rate 6%
Bonus paid to each employee last year ₹50,000
Increase in bonus rate due to inflation as per regular practice of SDF Ltd 10%
(b) A Major fire has damaged the assets in factory of SDF Ltd on 2nd April 2024, two days after the book
closure date. The loss is estimated at ₹40 Crores out of which 24 Crores will be recoverable from the
insurers. Explain - how the loss should be treated in the financial statements for the year ended
31/03/2024? [7 + 7 = 14]
Answer:
(a)
i. Calculation of amount of provision for bonus for the year ended 31/03/2024:
Particulars Amount(₹)
a) Expected amount of bonus per employee (50,000×110%) 55,000
b) Expected number of employee eligible for bonus [150 – (150×6%) = 150-9] 141
c) Amount of provision for bonus (a×b) 77,55,000

ii. Accounting Entry:

Date Particulars Debit (₹) Credit (₹)

Employee Benefits Expenses A/c Dr. 77,55,000
To Provision for Bonus A/c 77,55,000

(b) As per Ind AS 10, Any event taken place after the balance sheet but before approval by board of directors
with respect to which no stipulation or condition exist on the balance sheet is classified as Non-Adjusting
events and does not require any adjustment to financials as on the balance sheet date.

In the given case, fire taken place on 2nd April 2024 but no condition exists with respect to the same on
31/03/2024. Therefore, it is a non-adjusting event and does not require any adjustments to financials as on
31/03/2024.

Amount of loss by fire is material 40 crores – 24 crores = 16 crores. It should be disclosed by way of note to
account.

6. (a) Explain the basic elements of Internal Control.

(b) Discuss the reporting requirements of Cost Audit as per CRA-3. [7 + 7=14]

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Answer:

(a) An effective system of internal control should have the following basic elements:
(i) Financial and Other Organisation Plans: This may take the form of manual suitably classified by flow
charts. It should specify the various duties and responsibilities of both management and staff, stating
the powers of authorisation that reside with various members.
(ii) Competent Personnel: In any internal control system, personnel are the most important element. When
the employees are competent and efficient in their assigned work, the internal control system can be
operated efficiently and effectively.
(iii) Division of Work: In any internal control system, each and every work of the organisation should be
divided in different stages and should be allocated to the employees in accordance with quality and
skill.
(iv) Separation of Operational Responsibility from Record Keeping: In order to ensure reliable records and
information, record-keeping function must be separated from the operational responsibility of the
concerned department.
(v) Separation of the Custody of Assets from Accounting: To protect assets from misuse and
misappropriation, it is required that the custody of assets and their accounting should be done by
separate persons.
(vi) Authorization: In an internal control system, all the activities must be authorized by a proper authority.
(vii) Managerial Supervision and Review: The internal control system should be implemented and
maintained in conformity with the environmental and elemental changes of the concern. There must
be regular supervision and review of the effectiveness of the internal control system of the organisation.

(b) As per Companies (Cost Records and Audit) Rules 2014 as amended up to date, a cost auditor needs to report
the following in CRA-3.
(A) Whether he has obtained all the information and explanations, which to the best of his knowledge and
belief were necessary for the purpose of the audit.
(B) Whether in his opinion, proper cost records, as per rule 5 of the Companies (Cost Records and Audit)
Rules, 2014 have been maintained by the company in respect of its product(s)/ service(s) under
reference.
(C) Whether in his opinion, proper returns adequate for the purpose of the cost audit have been received
from the branches not visited by him.
(D) Whether in his opinion, and to the best of his information, the said books and records give the
information required by the Companies Act, 2013, in the manner so required.
(E) Whether in his opinion, the company has adequate system of internal audit of cost records which to
his opinion is commensurate to its nature and size of the business.
(F) Whether in his opinion, information, statements in the annexure to the cost audit report give a true and
fair view of the cost of production of product(s)/rendering of service(s), cost of sales, margin and other
information relating to product(s)/service(s) under reference.
(G) Whether detailed unit-wise and product/service-wise cost statements and schedules thereto in respect
of the product /service of the company duly audited and certified by him are kept in the company.

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7. (a) Describe the Essential Characteristics of a Good Audit Report .

(b) Discuss auditor’s responsibility for reporting on Internal Financial Control over Financial Reporting.
[7+7 = 14]
Answer:

(a) After conducting an audit of an organisation, it is the duty of the auditor to communicate, to the appointing
authority, his opinion on the exhibition of true and fair view of financial performance and financial position
of the organisation. Audit report is the written communication on the part of the auditor to convey his opinion
to the client.

The following are the essential characteristics of a good audit report:

A) Simplicity: An audit report should be simple and easily understandable to the users. It should be written
is simple language and should be self-explanatory.
B) Clarity: The audit report should be clear and unambiguous. The auditor must clearly mention, in his
report, the purpose of audit, sources of information, his findings and overall opinion.
C) Brevity: The report should be brief and specific. While everything relevant must be disclosed, the
report should avoid unnecessary detailing.
D) Firmness: The report should firmly state whether, in the opinion of the auditor, the financial statements
represent the true and fair view of the performance and state of affairs of the business.
E) Objectivity: The audit report should always be based on objective evidences. It is very much required
to reduce or eliminate biases, prejudices, or subjective evaluations by relying on verifiable data.
F) Disclosure: The audit report should properly disclose all relevant facts and the truth. The relevance
should be decided based on materiality of the concerned item.
G) Impartiality: The report should be unbiased. The recommendations must be impartial and objective.
H) Information-based: Only relevant and accurate information should be included in the audit report.
I) Timeliness: The report should be prepared and presented within the stipulated time. This will help in
timely decision making.

(b) As mentioned earlier, Sec 143(3)(i) of Companies Act, 2013 requires that the report of the auditor should
state as to whether the company has adequate Internal Financial Control system in place and the operating
effectiveness of such controls.
Further, Rule 10A of Companies (Audit & Auditors) Rules 2014 states that:
a) For the financial years commencing on or after 1st April 2015, the report of the auditor should state
about existence of adequate Internal financial controls and its operating effectiveness.
b) The auditor of a company may voluntarily include the statement referred to in this rule for the financial
year commencing on or after 1st April 2014 and ending on or before 31st March 2015.

As per the Guidance Note issued by The Institute of Chartered Accountants of India in this respect -
🟀 The auditor’s objective in an audit of internal financial controls over financial reporting is to express
an opinion on the effectiveness of the company’s internal financial controls over financial reporting

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and the procedures in respect thereof are carried out along with an audit of the financial statements.

🟀 Globally, auditor’s reporting on internal controls is together with the reporting on the financial
statements and such internal controls reported upon relate to only internal controls over financial
reporting.
Accordingly, the term ‘internal financial controls’ wherever used in this Guidance Note in the context of the
responsibility of the auditor for reporting on such controls under Section 143(3)(i) of the Act, per se implies
and relates to internal financial controls over financial reporting.
Therefore, ‘internal financial controls over financial reporting’ shall mean ‘A process designed to provide
rea- sonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal financial control over financial reporting includes those policies and procedures that –
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorisations of management
and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use,
or disposition of the company’s assets that could have a material effect on the financial statements.

An auditor needs to conduct an audit of IFC-FR though a proper planning followed by testing the design
effectiveness of control and operating effectiveness of control and thereafter report on IFC over Financial
Reporting.
The Guidance Note also provides that reporting on the adequacy and operating effectiveness of IFC-FR would
apply even in case of consolidated financial statements, for the respective components included in the
consolidated financial statements only if it is a company under the 2013 Act. However, reporting on IFC will
not be applicable with respect to interim financial statements, such as quarterly or half-yearly financial
statements, unless such reporting is required under any other law or regulation.

8. (a) Examine important areas, as regards conducting the audit of Local bodies.

(b) Discuss the disqualification of a Company Auditor. [7 + 7= 14]

Answer:

(a) In India, local self-government refers to governmental jurisdictions below the level of the state. With the
introduction of 73rd and 74th amendments to the Indian Constitution, the local self-governance system has
been recognised as the formal system of governance at the local level in both rural and urban areas throughout
the country. In addition, state legislations also have given power to these organisations.

The urban local self-governance bodies are further divided into Municipal Corporation or Nagar Nigam,
Municipality or Nagar Palika and Notified Area Council or Town Panchayat or Nagar Panchayat. Similarly,

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the rural self-governance in India is structured in three layers, viz. Gram Panchayat (at village level),
Panchayat Samiti (at block level) and Zilla Parishad (at district level). All these local bodies are operated by
representatives elected through a democratic process by participation of every Indian citizen.

Both urban and rural local bodies are vested with a long list of functions delegated to them by the state
governments. Grants are issued by the States and these are to be utilized by the local bodies within the set
parameters to execute the sanctioned projects. In addition, several local taxes are also the sources of revenue
for them and they employ such funds for development and maintenance of public assets and similar other
works. For example, urban local bodies are required to perform functions including general administration
and revenue collection, public health, public safety, education, public works, and others such as interest
payments. Similarly, rural local bodies are primarily required to help plan, coordinate, monitor and wherever
required regulate the implementation of various national programmes. The responsibility of maintaining the
assets created through various programmes also lies on them.
Since these organisations deal with public money, audit or the accounts of these bodies are of immense
importance to ensure transparency and accountability.

The major objective of audit of Municipalities and Panchayats are enumerated below:
A) To ensure on the fairness and correctness of contents in the Financial Statement
B) To report on adequacy of Internal control
C) To ensure value of money is fully received on amount spent.
D) To detect the frauds and errors.

Accordingly, the auditor is supposed to consider the following general points in conducting the audit of local
bodies:
A) Ensure that his appointment is in line with the respective regulation of the local body and approved by
the appropriate authority.
B) Obtain a detail understanding of the rules and regulations that governs the operations, especially the
financial control and accounting of the organisation.
C) Consult the relevant documents, minutes and resolutions of various meetings of different committees.
D) With regards to various government schemes which are implemented through local bodies, check the
utilization of grant, appropriate authorization being maintained throughout and adequacy of
accounting.
E) Apply in depth investigation in areas with potential fraud such as revenue collection, various waiver
schemes, use of casual labour etc.
F) Whenever there is a provision of funds, ensure that the expenditure is incurred from the provision and
the same has been authorized by the competent authority.
G) Ensure that where huge financial expenditure is involved, the schemes are running economically and
is expected to generate the targeted outcome.

(b) As per Section 141(3), read with Rule 10 of Company (Audit and Auditor) Rule 2014, the following persons
shall not be eligible for appointment as an auditor of a company:

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CORPORATE ACCOUNTING AND AUDITING
(a) a body corporate other than a limited liability partnership registered under the Limited Liability
Partnership Act, 2008;
(b) an officer or employee of the company;
(c) a person who is a partner, or who is in the employment, of an officer or employee of the company;
(d) a person who, or his relative or partner:
(i) is holding any security of or interest in the company or its subsidiary, or of its holding or
associate company or a subsidiary of such holding company, of face value not exceeding rupees
one lakh;
(ii) is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary
of such holding company, in excess of rupees five lakh;
(iii) has given a guarantee or provided any security in connection with the indebtedness of any third
person to the company, or its subsidiary, or its holding or associate company or a subsidiary of
such holding company, in excess of rupees one lakh;
(e) a person or a firm who, whether directly or indirectly, has business relationship with the company, or
its subsidiary, or its holding or associate company or subsidiary of such holding company or associate
company of such nature as may be prescribed;
(f) a person whose relative is a director or is in the employment of the company as a director or key
managerial personnel;
(g) a person who is in full time employment elsewhere or a person or a partner of a firm holding
appointment as its auditor, if such persons or partner is at the date of such appointment or
reappointment holding appointment as auditor of more than twenty companies;
(h) a person who has been convicted by a court of an offence involving fraud and a period of ten years has
not elapsed from the date of such conviction;
(i) a person who, directly or indirectly, renders any service referred to in Section 144 to the company or
its holding company or its subsidiary company.
Where a person appointed as an auditor of a company incurs any of the disqualifications mentioned in sub-
section (3) after his appointment, he shall vacate his office as such auditor and such vacation shall be deemed
to be a casual vacancy in the office of the auditor [Section 141(4)].

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 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – DEC 2024
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)
1. Choose the correct option: [15 x 2 = 30]

(i) Which of the following is correct?

(a) Debenture carries a fixed rate of dividend
(b) A company limited by shares may issue irredeemable preference shares
(c) Unmarked applications are those applications that bear the stamp of the
underwriter
(d) Except as provided in Section 54, a company shall not issue shares at a
discount.

(ii) In a Balance Sheet prepared under Schedule III of Companies Act, 2013, 'Share
application money pending allotment' shall be shown
(a) under Shareholder's Fund
(b) under Non-Current Liabilities
(c) under Current Liabilities
(d) as a separate line item

(iii) Under which of the following, a business must generate positive net cash flow for it to
survive in the long run?
(a) Investing activities
(b) Financing activities
(c) Operating activities
(d) Non cash activities

(iv) Losses of theft are covered by_________________insurance policies.

(a) Burglary
(b) Fire
(c) Marine
(d) None of the above

(v) The expected sales value of stock is ₹20 lakhs and a commission at 10% on sale is
payable to the agent. Calculate NRV.
(a) ₹ 12 lakh
(b) ₹ 14 lakh
(c) ₹ 18 lakh
(d) ₹ 16 lakh

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(vi) SA 230 stands for –

(a) Quality control for an audit of Financial Statements

(b) Agreeing the terms of Audit Engagements
(c) Audit Documentation
(d) Responsibility of Joint Auditor

(vii) Secretarial Audit is applicable to the Public Company having the paid-up share
capital of ₹__________________.
(a) 50 crore
(b) 75 crore
(c) 100 crore
(d) 200 crore

(viii) Form for Secretarial Audit Report is ____________.

(a) MR-2
(b) MR-3
(c) MR-4
(d) MR-5

(ix) Unpaid dividend standing at the credit of Unpaid Dividend A/C should be transferred
to Investor Education and Protection Fund after _____________years of its
remaining unpaid.
(a) six
(b) eight
(c) seven
(d) five

(x) Which of the following services cannot be rendered by an auditor as per Companies
Act 2013?
(a) Vouching
(b) Verification of assets and liabilities
(c) Issuing certificates on relevant matters
(d) Providing investment advisory services

(xi) An individual auditor who has completed his term shall not be eligible for
reappointment as auditor in the same company for ________________.
(a) Next 3 Years
(b) Next 5 Years
(c) Next 7 Years
(d) Next 8 Years

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MODEL ANSWERS TERM – DEC 2024
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CORPORATE ACCOUNTING AND AUDITING
(xii) Which of the following is not an audit risk?
(a) Inherent Risk
(b) Detection Risk
(c) Control Risk
(d) Omission Risk

(xiii) An audit which is conducted considering the particular area of accounting which the
owner thinks essential is known as -
(a) Complete Audit
(b) Partial Audit
(c) Balance Sheet Audit
(d) Cost Audit

(xiv) A company auditor resigning from his post shall inform the same to the Registrar in
(a) Form No. ADT – 1
(b) Form No. ADT – 2
(c) Form No. ADT – 3
(d) Form No. ADT – 4

(xv) Which of the following is not a part of rural self-governance system in India?
(a) Gram Panchayat
(b) Gram Parishad
(c) Panchayat Samiti
(d) Zilla Parishad
Answer:

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x)
d d c a c c a b c d
(xi) (xii) (xiii) (xiv) (xv)
b d b c b

SECTION – B

(Answer any 5 questions out of 7 questions given. Each question carries 14 marks.)
[5 x 14 = 70]
2. (a) Jhakas Ltd. issued 1,00,000 shares of ₹10, each payable as under:
On Application: ₹1
On Allotment: ₹2
On First Call: ₹3
On Final Call: ₹4

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 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – DEC 2024
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
All moneys payable on application, allotment and calls has been received with the
following exceptions: Bheem who holds 1,000 shares has not paid the money due on
allotment and calls. Ram who holds 500 shares has not paid the money due on the
first and final calls. Sam who holds 300 shares has not paid the due on the final call.
The shares of Bheem, Ram and Sam were, therefore, forfeited. These shares were
subsequently reissued for cash at a discount of 5 per cent. Pass journal entries
recording the above transactions from the stage of receipt of application money till
the reissue. [7]

(b) XYZ Ltd. is issuing 20,00,000 shares of Rs.10 each to the public. N Ltd. has been
appointed as the underwriter for 5% of the issue size. The commission payable to the
underwriter is 5% of the issue price. Calculate the amount of underwriting
commission payable to N Ltd. if the shares are issued at par. How will your answer
change if the shares are issued at 20% premium? [7]

Answer:

2. (a)
In the Books of Jhakas Ltd.
Journal
Dr. Cr.
Particulars Rs. Rs.
Bank A/c Dr. 1,00,000
To Share Application A/c 1,00,000
[Being Receipt of application money on 1,00,000 shares @ ₹ 1 per share]
Share Application A/c Dr. 1,00,000
Share Allotment A/c Dr. 2,00,000
To Equity Share Capital A/c 3,00,000
[Being Application money @ Re. 1 received and allotment money @ ₹ 2 due
on 1,00,000 shares transferred to share capital account as per resolution
no....dated...)
Bank A/c Dr. 1,98,000
To Share Allotment A/c 1,98,000
[Being Allotment money @ ₹2 received on 99,000 shares]
Share First Call Account Dr. 3,00,000
To Equity Share Capital Account 3,00,000
[Being First call money @ ₹ 3 due on 1,00,000 shares vide resolution
no....dated,.]
Bank A/c Dr. 2,95,500
To Share First Call A/c 2,95,500
[Being First call money received on 98,500 shares @ ₹ 3 per share]
Share Second and Final Call A/c Dr. 4,00,000
To Equity Share Capital A/c 4,00,000
[Being Second call due on 1,00,000 shares @ ₹ 4 per share vide resolution
no…dated]
Bank A/c Dr. 3,92,800
To Share Second and Final Call A/c 3,92,800

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CORPORATE ACCOUNTING AND AUDITING
[Being Final call money @ ₹4 per share received on 98,200 shares]
Share Capital A/c Dr. 18,000
(1,800 x ₹ 10)
To Share Forfeited A/c (1,000 x ₹ 1) + (500 x ₹ 3) + (300 x ₹ 6) 4,300
To Share Allotment A/c ( 1,000 x ₹ 2) 2,000
To Share First Call A/c ( 1,500 x ₹ 3) 4,500
To Share Second and Final Call A/c (1,800 x ₹ 4) 7,200
[Being forfeited of shares for non-payment of instalments]
Bank A/c (1,800 x ₹ 9.50 ) Dr. 17,100
Share Forfeited A/c (1,800 x ₹ 0.50) Dr. 900
To Equity Share Capital A/c 18,000
[Being Reissue of forfeited shares at ₹ 9.50 per share]
Share Forfeited A/c Dr. 3,400
To Capital Reserve A/c 3,400
[Being transfer of the credit balance in the share forfeited account to the
capital reserve account, being the profit on reissue]

(b) When shares have been issued at par:

Gross Liability = 5% of 20,00,000 = 1,00,000 shares.

Issue price = Face Value = ₹ 10 per share
Underwriting Commission = [Gross Liability (in shares) × Issue price per share] × Rate of
Commission = [1,00,000 × 10] × 5% = ₹ 50,000

When shares have been issued at a premium of 20%:

Gross Liability = 5% of 20,00,000 = 1,00,000 shares.
Issue price = ₹10 × 120% = ₹12 per share
Underwriting Commission = [Gross Liability (in shares) × Issue price per share] × Rate of
Commission = [1,00,000 × 12] × 5% = ₹ 60,000

3. Trial Balance of Balu Ltd.

Debit Balances ₹
Opening stock 30,000
Rent and Taxes 6,000
Purchases 60,900
Wages 55,200
Discount 1,500
Fuel 2,570
Building 70,000
Carriage inward 1,175
Sundry Debtors 20,000
Goodwill 28,000
Plant and Machinery 25,000

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Loose Tools 6,000
Advertisement 3,000
General expenses 4,400
Bad debts 1,030
Debenture interest 625
(Half year interest up to 30/9/2023)
Miscellaneous Expenses 3,000
Insurance 1,000
Cash and bank 5,000
Total 3,24,400
Credit Balances
Equity share capital 1,00,000
(1000 shares of 100 each)
5% Debentures 25,000
Sales 1,75,000
Sundry creditors 10,000
Bank overdraft 12,000
Discount 2,200
Transfer fee 100
Return outward 100
Total 3,24,400

Prepare Statement of Profit & Loss as per Division II of Schedule III of the Companies Act
2013 for the year ended 31.03.2024 and Balance sheet at that date. Take into consideration
the following adjustments:
a. The authorized capital of the company is ₹2,00,000.
b. Stock on 31.03.2024 was ₹35,000.
c. Depreciate plant and machinery by 9% and revalue loose tools at ₹4,400.
d. Provide 2% as bad debt reserve and 2.5% discount on debtors.
e. Final dividend at 10% was proposed by the Board of Directors. [14]

Answer:
3.
I. Statement of Profit and Loss for the year ended on 31 March 2024.
Particulars Note Amount
No. (₹)
Income
Revenue from Operations 1,75,000
Other Income (2,200 + 100) 2,300
Total Income 1,77,300
Expenses

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Purchase of Stock-in-Trade (60,900 + 1,175 - 100) 61,975

Changes in Inventories of Finished Goods, Work-in-Progress and Stock-in- (5,000)
Trade
Employee Benefits Expense 55,200
Finance Costs 5 1,250
Depreciation Expenses 6 2,250
Other Expenses 7 24,990
Total Expenses 1,40,665
Profit Before Tax 36,635
Current Tax
Profit for the Year 36,635
Other Comprehensive Income
A. i. Items that will not be reclassified to Profit or Loss
ii. Income tax relating to items that will not be reclassified to Profit or
Loss
B. iii. Items that will be reclassified to Profit or Loss
iv. Income tax relating to items that will be reclassified to Profit or
Loss
Total Other Comprehensive Income/(Loss) for the Year (Net of Tax)
Total Comprehensive Income for the Year 36,635
Earnings Per Equity Share of Face Value of ₹10 each 36,635

II. Balance Sheet as on 31 March 2024

Particulars Note Amount
No ₹
Assets:
Non-Current Assets
Property, Plant and Equipment 1 92,750
Goodwill 28,000
Total Non-Current Assets (a) 1,20,750
Current Assets
Inventories 2 39,400
Trade Receivables 3 19,110
Cash and Cash Equivalents 5,000
Other Current Assets -
Total Current Assets (b) 63,510
Total Assets (a+b) 1,84,260
Equity and Liabilities:
Equity
Equity Share Capital 1,00,000
Other Equity 36,635
Liabilities:

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Non-Current Liabilities
5% Debentures 25,000
Total Non-Current Liabilities (a) 25,000
Current Liabilities
Financial Liabilities
Bank Overdraft 12,000
Trade Payables
Other Current Liabilities 10,625
Total Current Liabilities (b) 22,625
Total Liabilities (a+b) 45,625
Total Equity and Liabilities 1,84,260
Contingent Liabilities and Commitments (Dividend) 10,000

Notes:

Note -1 Property, Plant and Equipment

Particulars Amount (₹)

Building 70,000
Plant and Machinery 22,500
Total 92,750

Note 2-Inventories

Particulars Amount (₹)

Closing stock 35,000
Loose Tools 4,400
Total 39,400

Note 3-Trade receivables

Particulars Amount (₹)

Debtors 20,000
Less: Provision for bad debts 400
Less: Provision for discount on debtors 490
Total 19,110

Note 4: Other Current Liabilities

Particulars Amount (₹)

Sundry Creditors 10,000
Debenture Interest outstanding 625
Total 10,625

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Note 5: Finance Cost

Particulars Amount (₹)

Interest on Debentures 1,250
Total 1,250

Note 6: Depreciation Expenses

Particulars Amount (₹)

Depreciation on Plant and Machinery (25,000 x 0.09) 2,250
Total 2,250

Note-7: Other Expenses

Particulars Amount (₹)

Rent and taxes 6,000
Discount 1,500
Fuel 2,570
Advertisement 3,000
General Expenses 4,400
Bad debts 1,030
Depreciation of Loose tools 1,600
Miscellaneous expenses 3,000
Insurance 1,000
Provision for bad debts 400
Provision for discount on debtors [19,600 × (2.5/100) 490
Total 24,990

4. (a) The following figures are extracted from the Trial Balance of a Bank as on 31.3.2024.
Discount Received (Cr.) 480,000
Rebate on Bills Discounted (1/4/2023) 27,500
No . Date of Bill Term Amount (`) Rate
1 02.01.2024 3 months 4,00,000 5%
2 10.01.2024 4 months 2,00,000 4%
3 05.02.2024 2 months 1,00,000 4%
4 03.03.2024 4 months 3,00,000 5%

You are required to:

i. Calculate the rebate on Bills discounted as on 31/03/2024 and show necessary journal
entries.
ii. Compute the amount of discount credited to profit and loss account. [7]

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(b) Model Insurance Company's Fire Insurance division provide the following information,
show the amount of claim at it would appear in the Revenue Account for the year ended
31st March, 2024.
Particulars Direct Business Re-insurance
` `
Claim paid during the year 35,30,000 8,20,000
Claim received 3,20,000
Claim payable:
1st April 2023 8,23,000 58,000
31st March, 2024 8,75,000 87,000
Claim Receivable:
1st April, 2023 85,000
31st March, 2024 1,42,000
Expenses of Management 3,45,000

(Includes ` 38,000 Surveyor's fee and ` 42,000 Legal expenses for settlement of claims). [7]

Answer:

4. (a)
(i) Rebate on Bills Discounted on 31/03/2024
No Due date Unexpired days Amount (₹) Rebate
1 05/04/2024 5 4,00,000 274
2 13/05/2024 43 2,00,000 942
3 08/04/2024 8 1,00,000 88
4 06/07/2024 97 3,00,000 3,986
Total 5,290

(ii) Discount received during the year ₹4,80,000

Less: Rebate at the end ₹5,290
_________
₹4,74,710
Add: Rebate at the beginning ₹27,500
-----------------
Amount to be credited to P&L A/c ₹5,02,210

Discount Received A/c

Dr. Cr.
Particulars Amount Particulars Amount
₹ ₹
To Rebate on bills discounted 5,290 By Customer 4,80,000

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To Profit and loss 5,02,210 By Rebate on Bills discounted 27,500

5,07,500 5,07,500

(b) Net claims incurred:

Particulars Amount Amount

(₹) (₹)
Claims paid on direct business (35,30,000 + 38,000 + 42,000) 36,10,000

Add: Re-Insurance 8,20,000

Add: Outstanding as on 31.3.2024 87,000
Less: Outstanding as on 1.4.2023 (58,000) 8,49,000
44,59,000
Less: Claims received from re-insurance (3,20,000)
Add: Outstanding as on 31.3.2024 1,42,000
Less: Outstanding as on 1.4.2023 (85,000) 3,77,000
40,82,000
Add: Outstanding direct claims at the end of the year 8,75,000
Less: Outstanding claims at the beginning of the year` (8,23,000)
Net claims incurred 41,34,000

5. (a) KK Ltd. had 10,00,000 ordinary shares outstanding on 01.04.2022. Profit for 2023-24 was
`24,00,000. Average fair value per share during 2023-24 was ` 20. KK Ltd. has given share option
to its employees of 2,00,000 shares at option price of `15. Calculate basic EPS and diluted EPS.
[7]
(b) The comparative balance sheets of a company are given below:
Liabilities 2023 2024 Assets 2023 2024
` ` ` `
Share Capital 35,000 52,000 Cash at bank 5500 18,900
12%Debentures 7000 3000 Book debts 7450 8850
Creditors 5180 5920 Stocks 24600 21,350
Provision for doubtful 350 400 Land 10000 15,000
Debts
Profit and loss A/c 5020 5280 Goodwill 5000 2500
52,550 66,600 52,550 66,600

Additional Information:
i. Dividends paid amounted to `1,750
ii. Land was purchased for `5,000 and amount provided for the amortization of goodwill
amounted to ` 2,500.
iii. Debentures were repaid to the extent of `4,000.

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MODEL ANSWERS TERM – DEC 2024
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Prepare Cash flow statement as per AS-3 (Indirect Method). [7]

Answer:
5.
(a) Profit for the year = ₹24,00,000
Weighted average number of shares = 10,00,000
Basic EPS = 24,00,000/10,00,000 = ₹2.40
No. of shares under option = 2,00,000
No. of shares that would have been issued at fair value = 2,00,000 x 15/20 = 1,50,000
Weighted average number of shares = 10,00,000 + (2,00,000 – 1,50,000) = 10,50,000
Adjusted earnings = ₹24,00,000
Diluted EPS = 24,00,000/10,50,000 = ₹2.29
(b)
Land A/c
Dr. Cr.
Particulars Amount (₹) Particulars Amount (₹)
To Balance b/d 10,000 By Balance 15,000
To Cash (Purchase) 5,000
15,000 15,000

Good will A/c

Dr. Cr.
Particulars Amount (₹) Particulars Amount (₹)
To Balance b/d 5,000 By P/L A/c 2,500
By Balance c/d 2,500
5,000 5,000

Share Capital A/c

Dr. Cr.
Particulars Amount (₹) Particulars Amount (₹)
To Balance c/d 52,000 To Balance b/d 35,000
By Cash 17,000
52,000 52,000

Debentures A/c
Dr. Cr.
Particulars Amount (₹) Particulars Amount (₹)
To Cash 4,000 To balance b/d 7,000
To balance c/d 3,000

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7,000 7,000

Cash Flow Statement (Indirect Method)

Particulars Amount
(₹)
I. Cash Flow from Operating Activities
Net Profit before Tax (5,280 - 5,020) 260
Add: Non-Cash and Non-Operating items
Goodwill written off 2,500
Dividend paid 1,750
Less: Non-Cash and Non-Operating Income -
Operating profit before Working Capital Changes
Add: Decrease in stock ₹3,250
Increase in creditors ₹740
Increase in provision for bad debts ₹50
4,510
Less: Increase in book debts ₹1,400
Net Cash from Operating Activities 7,150
II. Cash flow from the Investing activities
Purchase of Land (5,000)
Net cash from investing activities (5,000)
III. Net Cash from Financing activities
Issue of Shares 17,000
Repayment of Debentures (4,000)
Dividend Paid (1,750)
Net Cash from Financing Activities 11,250
Net Increase in cash and cash equivalents 13,400
Add: Opening Cash and Cash Equivalents 5,500
Cash and Cash Equivalents at the end 18,900

6. (a) Distinguish between Audit and Investigation. [7]

(b) Discuss the rights of a company auditor. [7]

Answer:
6.
(a) It is to be noted that both Both Auditing and Investigation have a fact-finding character. Both
involve a systematic and critical examination of the available evidence, yet these are quite distinct
from each other as follows:

BASIS AUDIT INVESTIGATION

1. Meaning Auditing is an independent and An investigation may be defined as
systematic examination of the an examination of accounts and

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evidence underlying the records with a view to ascertain any
accounting or other data in fact for some special purpose which
accordance with the generally varies from assignment to
accepted auditing practices to assignment.
ascertain the true and fair view of the
financial statements of an
enterprise.
2. Scope The audit has a wide scope. In The scope of investigations, on the
statutory audit, the scope is other hand, is limited as regards the
determined by the relevant law andin period or areas to be covered.
case of a private audit (e.g.,
management audit) by a client.
3. Objective ln audit, the accounts and records
Investigation is for special purpose
are verified as to their truth and
(e.g., investigation on the behalf of
fairness.
incoming partner)
4. Audit The audit is conducted in Investigations involve an extended
Procedure accordance with the generally auditingprocedure.
accepted auditing principle.
5. Evidence An auditor will evaluate the An investigator can draw his
accounting records predominantly conclusions only on the basis of
based on persuasive evidence. substantial or sometimes conclusive
evidence.
6. Approach Auditor is skeptical and not Whereas an investigator starts with
suspicious. suspicion and collects evidence to
either confirm or dispel that suspicion.
7. Periodicity Auditing is a routine exercise Investigation may spread over a
(normally conducted annually). period longer than one year.

(b) The Companies Act, 2013 provides the following statutory rights to a company auditor:

i. Inspect Books of Accounts and Vouchers: Every auditor of a company shall have the right of
access, at all times, to the books of account and vouchers of the company, whether kept at the
registered office of the company or at any other place. In addition, auditor of a holding company
shall also have the right of access to the records of all its subsidiaries and associate companies
in so far as it relates to the consolidation of its financial statements with that of its subsidiaries
[Section 143(1)].

ii. Obtain Information and Explanations: The auditor shall be entitled to require from the
officers of the company such information and explanation as he may consider necessary for
the performance of his duties as the auditor [Section 143(1)].

iii. Inspect Branch Offices and Branch Accounts: The company auditor is also entitled to inspect
the accounts of any branch office in case he considers it necessary in order to discharge his duties

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – DEC 2024
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
as the company auditor. He can do so, even if a separate auditor has already been appointed to
audit the branch accounts [Section 143(8)].

iv. Receive the Report of Branch Audit from the Branch Auditor: In case a separate auditor has
been appointed to audit the branch accounts, the company auditor has the right to receive the
branch audit report from the branch auditor so appointed and use it to prepare the overall audit
report [Section 143(8)].

v. Sign the Audit Report and Other Documents: The company auditor also has the right to sign
the auditor’s report or sign or certify any other document of the company in accordance with the
provisions of sub-section (2) of Section 141 [Section 145].

vi. Have Audit Report Read at the AGM: The company auditor has the right to have the report
read before the company in the General Meeting (especially in case the qualifications,
observations or comments on financial transactions or matters, mentioned in the auditor’s report,
have any adverse effect on the functioning of the company) and the same shall be open to
inspection by any member of the company [Section 145].

vii. Receive Notices and Attend General Meetings: The company auditor is entitled to receive all
notices of, and other communications relating to, any general meeting and to attend such
meetings either by himself or through his authorised representative, who shall also be qualified to
be an auditor. The auditor shall also have the right to be heard at such meeting on any part of the
business which concerns him as the auditor [Section 146].

viii. Attend the Meeting of the Audit Committee: The auditors of a company shall have a right to
attend the meetings of the Audit Committee and to be heard in the meetings when the Committee
considers the auditor’s report, but shall not have the right to vote [Section 177(7)].

ix. Right to be Indemnified: The auditor of a company shall also have the right to be indemnified for
any expensesincurred by him in defending himself in case the judgement in any law suit (whether
civil or criminal) against the company goes in favour of the auditor.

7. (a) Demonstrate the audit procedure to be followed for the audit of Property, Plant and
Equipment. [7]

(b) Discuss the role of National Financial Reporting Authority (NFRA) in monitoring and
enforcing compliance with Auditing Standards. [7]

Answer:
7. (a)
Property, Plant and Equipment constitute a significant portion of total assets of an entity. audit
process for PPE is governed by the relevant Accounting Standard (AS 10 or Ind AS 16) in
organisations which are required to comply with Accounting Standards.

Audit Procedure to be Followed:

The auditor shall resort to the following audit procedure:

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – DEC 2024
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
(1) Existence
i. The auditor must ensure physical verification of the assets to confirm that they exist and are
under the possession of the client.
ii. He shall demand explanations for any discrepancies found in the above process.
iii. He shall specifically ensure that assets that are not in the working condition have been
accounted for as deletions.
(2) Rights and Obligations
i. The auditor should verify that PPE additions have been approved by the responsible official
and such additions are as per the capital expenditure budget approved by the board for
the financial year concerned.
ii. The auditor shall check that PPE purchase invoices are in the name of the client that entails
the legal ownership.
(3) Cut-off
i. The auditor shall see that the Net Block of assets shown in the Balance Sheet
comprises all assets existed and under the ownership of the company on the reporting
date and depreciation pertains to the current period only.
(4) Completeness
i. He shall also verify the PPE schedule (asset class wise) maintained by the management
and tally the closing balances to the entity’s books of accounts.

ii. He should check the arithmetical accuracy of the movement in PPE schedule and reconcile
the opening balance with the closing balance of each class of asset by considering the
additions and disposals during the year.
(5) Valuation
i. The auditor shall see that all items of PPE have been carried at cost less accumulated
depreciation less accumulated impairment1 loss. The auditor shall verify whether
depreciation has been charged on all items except the freehold land.

ii. He shall also verify the installation certificate to know the date of installation of the
asset.

(6) Presentation and Disclosure

i. In case of a company, the auditor should ensure that the all items of PPE have been
disclosed in the balance sheet of the company under the head ‘Non-current Assets’ and
sub head ‘Fixed Assets’ as ‘Tangible Asset’ as per Schedule III of the Companies Act
2013.
ii. He shall also ensure that all the relevant information has been disclosed in the ‘Notes to
Accounts’ section.

(b) Role of NFRA in Monitoring and Enforcing Compliance with Auditing Standards:
(1) For the purpose of monitoring and enforcing compliance with auditing standards under the
Act by a company or a body corporate governed under Rule 3, the Authority may:

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – DEC 2024
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CORPORATE ACCOUNTING AND AUDITING
(a) review working papers (including audit plan and other audit documents) and
communications related to the audit;
(b) evaluate the sufficiency of the quality control system of the auditor and the manner of
documentation of the system by the auditor; and
(c) perform such other testing of the audit, supervisory, and quality control procedures of
the auditor as may be considered necessary or appropriate.
(2) The Authority may require an auditor to report on its governance practices and internal
processes designed to promote audit quality, protect its reputation and reduce risks including
risk of failure of the auditor and may take such action on the report as may be necessary.
(3) The Authority may seek additional information or may require the personal presence of the
auditor for seeking additional information or explanation in connection with the conduct of
an audit.
(4) The Authority shall perform its monitoring and enforcement activities through its officers
or experts with sufficient experience in audit of the relevant industry.
(5) The Authority shall publish its findings relating to non-compliances on its website and in
such other manner as it considers fit, unless it has reasons not to do so in the public interest
and it records the reasons in writing.
(6) The Authority shall not publish proprietary or confidential information, unless it has reasons
to do so in the public interest and it records the reasons in writing.
(7) The Authority may send a separate report containing proprietary or confidential information
to the Central Government for its information.
(8) Where the Authority finds or has reason to believe that any law or professional or other
standard has or may have been violated by an auditor, it may decide on the further course of
investigation or enforcement action through its concerned Division.

8. (a) Discuss the audit procedure for receipts – related transactions of a Healthcare Organisation.
[7]
(b) Discuss the essential characteristics of a good audit report. [7]

Answer:

8. (a) Audit Procedure for Receipts-Related Transactions of a Healthcare Organisation:

i. In case of a hospital run by State Government or any local authority, vouch the grants received
from the state or the local authority based on Govt. Orders, sanction letters, counterfoil of receipts.
ii. Vouch collection from patients admitted to the paying beds based on the Patient Admission
Registrar and counterfoil of receipts/ copies of bills.
iii. Vouch collection from various pathological tests based on the counterfoils of receipts/ copies of
bills.
iv. Vouch donations based on the counterfoils of receipts.
v. In case hospitals having guest houses, assess the collections based on the register, counterfoils of
receipts and accounting entries.
vi. Interest and/ or dividend income should be vouched with reference to the Investment Register
and Interest and Dividend warrants.
vii. In case of legacies and donations which are received for specific purposes, it should be ensured

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWERS TERM – DEC 2024
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CORPORATE ACCOUNTING AND AUDITING
that any income there from is not utilized for any other purposes.

(b) The following are the essential characteristics of a good audit report:
i. Simplicity: An audit report should be simple and easily understandable to the users. It should
be written in simple language and should be self-explanatory.
ii. Clarity: The audit report should be clear and unambiguous. The auditor must clearly mention,
in his report, the purpose of audit, sources of information, his findings and overall opinion.
iii. Brevity: The report should be brief and specific. While everything relevant must be disclosed,
the report should avoid unnecessary detailing.
iv. Firmness: The report should firmly state whether, in the opinion of the auditor, the financial
statements represent the true and fair view of the performance and state of affairs of the
business.
v. Objectivity: The audit report should always be based on objective evidences. It is very much
required to reduce or eliminate biases, prejudices, or subjective evaluations by relying on
verifiable data.
vi. Disclosure: The audit report should properly disclose all relevant facts and the truth. The
relevance should be decided based on materiality of the concerned item.
vii. Impartiality: The report should be unbiased. The recommendations must be impartial and
objective.
viii. Information-based: Only relevant and accurate information should be included in the audit
report.
ix. Timeliness: The report should be prepared and presented within the stipulated time. This will
help in timely decision-making.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWER TERM – JUNE 2024
PAPER – 10 SYLLABUS-2022
CORPORATE ACCOUNTING AND AUDITING
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)

1. Choose the correct option: [15 x 2 = 30]

(i) Which of the following is not a Free Reserve?
a. General Reserve
b. Dividend Equalization Reserve
c. Revaluation Reserve
d. Revenue Reserve

(ii) Instalment of principal amount of long-term loan payable within next 12 months is
shown under Balance Sheet of a company under the heading.
a. Non-current Assets
b. Non-current Liabilities
c. Current Assets
d. Current Liabilities

(iii) Depreciation is added back to profit when arriving at the cash flow from operating
activities as ________________.
a. Depreciation is a non-cash expenditure
b. Depreciation does not affect profit
c. Depreciation only affects the balance sheet, not the profit and loss account
d. None of Above

(iv) Rate of provision on advances doubtful for more than 3 years is __________.
a. 40%
b. 25%
c. 100%
d. Nil

(v) If the net profits earned during the year is `50,000 and the bills receivables have
decreased by `10,000 during the year then the cash flow from operating activities will
be equal to:
a. `30,000
b. `40,000
c. `50,000
d. `60,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWER TERM – JUNE 2024
PAPER – 10 SYLLABUS-2022
CORPORATE ACCOUNTING AND AUDITING

(vi) Which of the following is not a step of Audit Sampling?

a. Sample Design
b. Sample Size Determination
c. Sample Selection
d. Sample Displaying

(vii) Which of the following is/are benefits of Internal Financial Control?

a. Improved controls over financial reporting process
b. Trickling down of accountability to operational management
c. Improved investor confidence in entity’s operations and financial reporting
process
d. All of the above

(viii) The company shall inform the auditor concerned of his or its appointment, and also
file a notice of such appointment with the Registrar within fifteen days of the meeting
in which the auditor is appointed in Form __________.
a. ADT-1
b. ADT-2
c. ADT-3
d. None of these

(ix) Permanent Audit File does not contain?

a. A record of study and evaluation of internal control system
b. Significant audit observations of earlier years
c. Copies of management letters
d. Analysis of significant ratios and trends

(x) SA 530 stands for____________________.

a. Audit Documentation
b. Audit Sampling
c. Responsibility of Joint Auditor
d. Agreeing the terms of Audit Engagements

(xi) Which of the following is not a content of audit report?

a. Signature of the auditor
b. Date of the report
c. Attachment of audit evidences
d. Auditor’s address

(xii) Secretarial Audit is covered under section___________.

a. Section 204
b. Section 148
c. Section 139
d. None of the above

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWER TERM – JUNE 2024
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CORPORATE ACCOUNTING AND AUDITING

(xiii) Test checking requires application of __________________.

a. mathematical theory
b. sampling theory
c. geometry theory
d. stakeholder theory

(xiv) A cost auditor submits his report along with reservations and observations in Form No.
a. CRA 1
b. CRA 2
c. CRA 3
d. CRA 4

(xv) Which of the following is not a part of Temporary Audit file?

a. Correspondence relating to acceptance of annual reappointment
b. Audit programme
c. Extracts of minutes of board meetings
d. Legal and organisation structure of the company

Answer:

i ii iii iv v vi vii viii ix x

b. d. a. c. d. d. d. a. c. b.
xi xii xiii xiv xv
c. a. b. c. d.

SECTION – B
(Answer any five questions out of seven questions given. Each question carries 14 Marks.)

2. (a) Prepare journal entries for the following:

(i) PK Ltd. forfeited 10,000 equity shares of `10 each for non-payment of first call of
`2 and final call of `3 per share. These shares were reissued at a discount of `3.50
per share.
(ii) KP Ltd. forfeited 20,000 equity shares of `15 each (including `5 per share as
premium), for non-payment of final call of `3 per share. Out of these 10,000 shares
were reissued at a discount of `4 per share.
(iii) KP Ltd. forfeited 15,000 equity shares of `15 each (including `5 per share as
premium), for non-payment of allotment money `8 (including premium money) and

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWER TERM – JUNE 2024
PAPER – 10 SYLLABUS-2022
CORPORATE ACCOUNTING AND AUDITING
first & final call of `5 per share. Out of these 10,000 shares were reissued at `14 per
share. [7]
Answer:
2.(a)
In the books of .....................

Particulars Dr. Cr.

` `
a) Equity Share Capital A/c Dr. 1,00,000
To Calls-in-arrear A/c 50,000
To Forfeited Share A/c 50,000
(10,000 shares forfeited for non-payment of first and final call money)
Bank A/c Dr. 65,000
Forfeited Share A/c Dr. 35,000
To Equity Share Capital A/c 1,00,000
(Reissue of 10,000 sh. @ ` 6.50 each)
Forfeited Share A/c Dr. 15,000
To Capital Reserve A/c 15,000
(Balance of Forfeited Share Account transferred)
b) Equity Share Capital A/c Dr. 2,00,000
To Calls in Arrear A/c 60,000
To Forfeited Share A/c 1,40,000
(20,000 shares forfeited for non-payment of final call money)
Bank A/c Dr. 60,000
Forfeited Share A/c Dr. 40,000
To Equity Share Capital A/c 100,000
(Reissue of 10,000 sh. @ ` 6 each)
Forfeited Share A/c Dr. 30,000
To Capital Reserve A/c 30,000
(Balance of Forfeited Share A/c relating to 10,000 shares transferred)
[10,000 × (7- 4)]
c) Equity Share Capital A/c Dr. 150,000
Securities Premium A/c Dr. 75,000
To Calls-in-arrear A/c 1,95,000
To Forfeited Share A/c 30,000
(15,000 shares forfeited for non- payment of allotment and first and
final call money)
Bank A/c Dr. 140,000
To Security Premium A/c 40,000
To Equity Share Capital A/c 100,000
(Reissue of 10,000 sh. @ ` 15 each)
Forfeited Share A/c Dr. 20,000
To Capital Reserve A/c 20,000
(Balance of Forfeited share A/c on 10,000 shares transferred)
(10,000×2)

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWER TERM – JUNE 2024
PAPER – 10 SYLLABUS-2022
CORPORATE ACCOUNTING AND AUDITING

(b) The Balance Sheet of Pixel Ltd. as on 31.12.2023 is given below

Liabilities ` in Lakh Assets ` in Lakh

Share Capital: Fixed Assets 140

10,00,000 Equity shares of `10 each 100 Investments 40
1,00,000 Redeemable Pref. shares of `100 each 100 Stock 46
Less: Call-in-arrears on 20,000 shares (4) Debtors 30
Security premium account 15 Bank 30
Reserve 30
Profit and Loss account 15
Creditors 30
286 286

On 1st Jan 2024, fixed assets costing `40 Lakh were sold for `32 Lakh. It was decided that on
1st Feb 2024, company issued sufficient number of equity shares at par so as to finance
redemption (at 20% premium) and to leaving a balance of `10 Lakh in the reserve. All the
payments were made except to a holder of 10,000 shares who could not be traced. The company
also made bonus issue to the existing equity shareholders in the ratio of 1: 10 as on 31.12.2023.
You are required to pass the necessary journal entries. [7]

Answer:
2.(b)
Workings: Requirement of Fund for Redemption
Particular No. Rate ` in
Lakhs
Pref Shares 1,00,000 100% 100
Calls in Arrear 20,000 100% 20
Bal. to be redeemed 80,000 80
Prem on redemption 20% 16

Total Fund requirement 96

(` in Lakhs)

Sources Nominal Premium Total

Value
Requirement 80 16 96
Securities Prem. A/c 15 15
P/L A/c 6 1 7
General Reserve 20 20

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWER TERM – JUNE 2024
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CORPORATE ACCOUNTING AND AUDITING

Balance fund requirement (From fresh issue) 60 60

New Issue 60

Actual payment made = (80,000 -10,000)*120 = `84 Lakh

**Bonus Shares = 10,00,000 × 1/10 = 1,00,000 @ `10 = `10 Lakhs.

Transfer to Capital Redemption Reserve ` in Lakh ` in Lakh

From P/L A/c
Balance 15
Less: Loss on Sale of Assets 8
Balance 7
Less: Used for Premium on Redemption of Pref. Shares 1 6

From General Reserve 20

Total 26

In the books of Pixel Ltd.

Journal
Dr. Cr.
` in Lakh ` in Lakh
Particulars
Bank A/c Dr. 32
Profit and Loss A/c Dr. 8
To Fixed Assets A/c
(Sale of Fixed Assets, Loss transferred) 40
Bank A/c Dr. 60
To Equity Share Capital A/c
( Issue of new shares) 60
Red. Pref. Share Capital A/c Dr. 80
Premium on Redemption A/c Dr. 16
To Red. Pref. Shareholders A/c 96
(Amount due on Redemption)
General Reserve A/c Dr. 20
Profit and Loss A/c Dr. 6
To Capital Redemption Reserve A/c 26
(Transfer)
Securities Premium A/c Dr. 15
Profit and Loss A/c Dr. 1
To Premium on Redemption A/c 16
( Transfer)
Red. Pref. Shareholders A/c Dr. 84
To Bank A/c 84
(Payment to Pref. Shareholders)

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWER TERM – JUNE 2024
PAPER – 10 SYLLABUS-2022
CORPORATE ACCOUNTING AND AUDITING
Capital Redemption Reserve A/c Dr. 10
To Bonus to Shareholders A/c 10
(Bonus declared)
Bonus to Shareholders A/c Dr. 10
To Equity Share Capital A/c 10
(Conversion of Bonus Shares to Equity Shares)

3. PQR Ltd. was registered with a nominal capital of `20,00,000 divided into shares of `100
each. The following Trial Balance is extracted from the books on 31st March, 2023:

Particulars ` Particulars `
Buildings 11,60,000 Sales 20,80,000
Machinery 4,00,000 Outstanding Expenses 8,000
Closing Stock 3,60,000 Provision for Doubtful Debts 12,000
(1.4.2022)
Loose Tools 92,000 Equity Share Capital 8,00,000
Purchases (Adjusted) 8,40,000 General Reserve 1,60,000
Salaries 2,40,000 Profit and Loss A/c (31.03.2022) 1,00,000
Directors' Fees 40,000 Creditors 3,68,000
Rent 1,04,000 Provision for depreciation:
Depreciation 80,000 On Building 2,00,000
Bad Debts 24,000 On Machinery 2,20,000
Investment 4,80,000 14% Debentures 8,00,000
Interest accrued on 8,000 Interest on Debentures accrued but 56,000
investment not due
Debenture Interest 1,12,000 Interest on Investments 48,000
Advance Tax 2,40,000 Unclaimed dividend 20,000
Sundry expenses 72,000
Debtors 5,00,000
Bank 1,20,000
48,72,000 48,72,000
You are required to prepare Statement of Profit and Loss for the year ending 31st March,
2023 and Balance sheet as at that date after taking into consideration the following
information: [14]
(i) Closing stock is more than opening stock by `3,20,000.
(ii) Provide to doubtful debts @ 4% on Debtors.
(iii) Make a provision for income tax @30%.
(iv) Depreciation expense included depreciation of `32,000 on Building and that of `48,000
on Machinery.
(v) Transfer to General Reserve @ 10%.
(vi) The directors proposed a dividend @ 25%. Bills Discounted but not yet matured `
40,000.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWER TERM – JUNE 2024
PAPER – 10 SYLLABUS-2022
CORPORATE ACCOUNTING AND AUDITING

Answer:
3. PQR Ltd.
Profit and Loss Statement for the year ended 31st March, 2023

Particulars `
I. Revenue from operations 20,80,000
II. Other income (interest on investment) 48,000
III. Total Revenue [I + II] 21,28,000
IV. Expenses:
Cost of purchase [8,40,000+3,20,000] 11,60,000
Changes in inventories [40,000-3,60,000] (3,20,000)
Employee Benefits Expense 2,40,000
Finance Costs (debenture interest) 1,12,000
Depreciation and Amortisation Expenses 80,000
Other Expenses 2,48,000
Total Expenses 15,20,000
V. Profit before Tax (III-IV) 6,08,000
VI. Tax Expenses @ 30% 1,82,400
VII. Profit for the period 4,25,600
Balance Sheet as on 31.03.2023
Particulars `
I EQUITY AND LIABILITIES
(1) Shareholders' Funds
Share Capital 1 8,00,000
Reserves and Surplus 2 6,85,600
(2) Non-Current Liabilities
Long-term Borrowings (14% debentures) 8,00,000

(3) Current Liabilities

Trade Payable (Sundry Creditors) 3,68,000
Other Current Liabilities 3 84,000
Short-Term Provisions 4 1,82,400
Total 29,20,000
II ASSETS
(1) Non-Current Assets
(a) PPE and Intangible Assets
PPE 5 11,40,000
(b) Non-current Investments 4,80,000
(2) Current Assets
Inventories 6 4,52,000
Trade Receivables 7 4,80,000
Cash and bank balances 1,20,000
Short Term Loans and Advances
(Advance Payment of Tax) 2,40,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWER TERM – JUNE 2024
PAPER – 10 SYLLABUS-2022
CORPORATE ACCOUNTING AND AUDITING
Other Current Assets
(Interest accrued on investments) 8,000
Total 29,20,000
Note: Contingent Liability for bills discounted but not yet matured ` 40,000. Note: Contingent
Liability for Proposed dividend ` 2,00,000.

Notes to Accounts:
Sl. No. Particulars ` `
1. Share Capital
Authorized Capital
20,000 Equity Shares of `100 each 20,00,000
Issued Capital
8000 Equity Shares of `100 each 8,00,000
Subscribed and Paid up Capital
8000 Equity Shares of `100 each 8,00,000
2. Reserve and Surplus
General Reserve [`1,60,000 + `42,560] 2,02,560
Balance of Statement of Profit & Loss Account
Opening Balance 1,00,000
Add: Profit for the period 4,25,600
5,25,600
Appropriations
Transfer to General Reserve @ 10% (42,560)
4,83,040
6,85,600
3. Other Current Liabilities
Unclaimed Dividend 20,000
Outstanding Expenses 8,000
Interest accrued on Debentures 56,000
84,000
4. Short Term Provision
Provision for Tax 1,82,400
5. Tangible Assets
Buildings 11,60,000
Less: Provision for Depreciation 2,00,000
9,60,000
Plant and Equipment 4,00,000
Less; Provision for Depreciation 2,20,000
1,80,000
11,40,000
6. Inventories
Closing Stock of Finished Goods 3,60,000
Loose Tools 92,000
4,52,000
7. Trade Receivables

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWER TERM – JUNE 2024
PAPER – 10 SYLLABUS-2022
CORPORATE ACCOUNTING AND AUDITING
Sundry Debtors 5,00,000
Less: Provision for Doubtful Debts 20,000
4,80,000
8. Other Expenses
Rent 1,04,000
Directors' Fees 40,000
Bad Debts 24,000
Provision for Doubtful Debts (4% of `5,00,000 less. 8,000
`12,000)
Sundry Expenses 72,000
2,48,000
9. Proposed Dividend (8,00,000 × 25%) 2,00,000
Note: Total purchase is obtained by adding back the changes in inventory to Adjusted Purchase.

4. (a) On 31 March, 2021 Victory Bank Ltd. had a balance of `18 crores in Rebate on Bill
Discounted A/c. During the year ended 31st March, 2022, Victory Bank Ltd. discounted bills of
exchange of `8,000 crores charging interest at 18% p.a., the average period of discount being
for 73 days. Of these, bills of exchange of `1,200 crores were due for realization from the
acceptor/customers after 31st March, 2022, the average period outstanding after 31st March,
2022 being 36.5 days. Victory Bank Ltd. asks you to pass journal entries and show the ledger
accounts pertaining to:
(i) Discounting of Bills of Exchange; and
(ii) Rebate on bill Discounted. [7]
Answer:
4.(a) In the books of Victory Bank Ltd.
Journal (` in Crore)
Dr. (`) Cr. (`)
Date Particulars
1.4.22
Rebate on Bill Discounted A/c Dr. 18.00
To, Discount on Bills A/c 18.00
(Being the transfer of opening balance to Rebate on Bill
Discounted Account)
Bills Purchased and Discounted A/c Dr. 8,000
To, Client A/c 7,712.00
To, Discount on Bills A/c [`8,000 x 18/100 x 73/365] 288.00
(Being the discounting of bills during the year)
31.3.22 Discount on bills A/c Dr. 21.60
To, Rebate on Bills Discounted A/c 21.60
(Being the Provision for unexpired discount as on 31.03.2012)
31.03.22 Discount on bills A/c Dr. 284.40
To, Profit and Loss A/c 284.40
(Being the amount of income for the year from discounting of
bills of exchange transferred to Profit and Loss Account)

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWER TERM – JUNE 2024
PAPER – 10 SYLLABUS-2022
CORPORATE ACCOUNTING AND AUDITING
Ledger of Victory bank Ltd.
Rebate on Bills Discounted Account (` In Crores)
Dr. Cr.
Date Particulars (`) Date Particulars (`)
01.4.21 To, Discount on bills 18.00 01.4.21 By balance b/d 18.00
A/c
31.03.22 To balance c/d 21.60 31.3.22 By Discount on bills 21.60
A/c (Rebate required)
39.60 39.60

Discount on Bills Account (` In Crores)

Dr. Cr.

Date Particulars (`) Date Particulars (`)

31.03.22 To Rebate on Bills 21.60 01.4.21 By Rebate on Bills 18.00

Discount A/c Discounted A/c

31.03.22 To Profit and Loss A/c 284.40 2021-22 By Bills Purchased and 288.00
(Transfer) Discount A/c
306.00 306.00

(b) From the following figures appearing in the books of Fire Insurance division of a General
Insurance Company, show the amount of claim as it would appear in the Revenue Account for the
year ended 31st March, 2023:

Particulars Direct Business Re-Insurance

` `
Claim paid during the year 46,70,000 7,00,000
Claim Payable — 1st April, 2022 7,63,000 87,000
31st March, 2023 8,12,000 53,000
Claims received – 2,30,000
Claims Receivable — 1st April, 2022 – 66,000
31st March, 2023 – 1,13,000
Expenses of Management 2,30,000 –
(includes ` 35,000 Surveyor’s fee and ` 45,000
Legal expenses for settlement of claims)
[7]

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
MODEL ANSWER TERM – JUNE 2024
PAPER – 10 SYLLABUS-2022
CORPORATE ACCOUNTING AND AUDITING
Answer:
4.(b) General Insurance Company

(Abstract showing the amount of claims)

Particulars ` ’000 ` ’000

Claims less Re-insurance :
Paid during the year 52,20
Add : Outstanding claims at the end of the year 7,52
59,72
Less : Outstanding claims at the beginning of the year 7,84 51,88
Working Notes:

Particul ` ’000 ` ’000

ars
1. Claims paid during the year
Direct business 46,70
Reinsurance 7,00 53,70
Add : Surveyor’s fee 35
Legal expenses 45 80
54,50
Less : Claims received from re-insurers 2,30
52,20
2. Claims outstanding on 31st March, 2023
Direct business 8,12
Reinsurance 53 8,65
Less : Claims receivable from re-insurers 1,13
7,52
3. Claims outstanding on 1st April, 2022
Direct business 763
Reinsurance 87 8,50
Less : Claims receivable from re-insurers 66
7,84

5. (a) The following information applies to a company’s defined benefit pension plan for the year:
FMV of plan assets (beginning of the year) `2,00,000
FMV of plan assets (end of the year) `2,85,000
Employer’s contribution ` 70,000
Benefit paid ` 50,000
Calculate the actual return on plan assets. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
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CORPORATE ACCOUNTING AND AUDITING
Answer.

5.(a)
Particulars ` `
Change in plan assets (2,85,000 – 2,00,000) 85,000
Adjustments:
Employer’s contribution 70,000
Less: Benefit paid 50,000 20,000
Actual return on plan assets 65,000

(b) The total stock of A Ltd. as on 31.3.2023 was `5,00,000 of which stock amounting to
`31,000 were not ascertained as per Ind AS 2.
Compute the value of the said stocks as per Ind AS 2 for inclusion in financial statements
as on that date.
Type of Cost of Production Selling and Distribution Estimated
Product Materials (`) Expenses incurred expense to be incurred Selling Price (`)
(`) (`)
P 10,000 2,000 1,000 15,000
S 5,000 --- 500 4,500
T 12,000 3,000 2,000 18,000
27,000 5,000 3,500 37,500
[7]
Answer :
5.(b) As per Ind AS 2, inventories are usually written-down to net realisable value on item-by-
item basis. Thus, value of stock will be computed as:
Type of Cost Price (including Net Realizable Value Value of Stock to be
Product Production Exp.)(`) (excluding Selling & taken (lower of Cost
Distribution Expenses from Price & Net
Selling Price) (`) Realizable Value)
(`)
P 12,000 (` 10,000 + ` 14,000 (`15,000 – ` 1,000) 12,000
2,000)
S 5,000 4,000 (` 4,500 – `500) 4,000
T 15,000 (` 12,000 + ` 16,000 (`18,000 – ` 2,000) 15,000
3,000)
31,000
So, Value of Stock will be `31,000 for inclusion in financial statements as per Ind AS 2.

6. (a) Describe the contents of Audit Working Papers. [7]

Answer:
As per SA-230, ‘Audit Documentation’, an auditor should follow the guidelines mentioned
below to decide on the form, content and extent of audit documentation (or working papers).
(i) The auditor shall prepare audit working papers on a timely basis. They should be
prepared while performing the task itself rather than after the audit work is performed.

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Directorate of Studies, The Institute of Cost Accountants of India
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CORPORATE ACCOUNTING AND AUDITING
(ii) The auditor shall prepare audit working papers that is sufficient to enable an experienced
auditor, having no previous connection with the audit, to understand:
 the nature, timing and extent of audit procedures performed to comply with the SAs
and applicable legal and regulatory requirements;
 the results of the audit procedures performed and the audit evidence obtained; and
 significant matters arising during the audit, the conclusion reached thereon and
significant professional judgments made in reaching those conclusions.
(iii) In documenting the nature, timing and extent of audit procedures performed, the auditor
shall record:
 the identifying characteristics of the specific items or matters tested;
 who performed the audit work and the date such work was performed; and
 who reviewed the audit work performed and the date and extent of such review.
(iv) The auditor shall document discussions of significant matters with management, those
charged with governance and others, including the nature of the significant matters
discussed and when and with whom the discussions took place.
(v) If the auditor identified information that is inconsistent with the auditor’s final conclusion
regarding a significant matter, the auditor shall document how the auditor addressed the
inconsistency.
(vi) If, in exceptional circumstances, the auditor judges it necessary to depart from a relevant
requirement in a SA, the auditor shall document how the alternative audit procedures
performed achieved the aim of that requirement, and the reasons for the departure.

(b) P Ltd. is an unlisted public company with an authorised capital of ₹100 crore. The
issued and paid-up capital of the company is ₹45 crore. During the financial year 2020-21,
the company has been able to achieve a turnover of ₹225 crore. The company has taken a
bank loan of ₹110 crore in the current financial year for business expansion. The company
secretary of P Ltd. has asked for your opinion as a legal expert on whether the company is
required to conduct a secretarial audit. Advise the company. [7]
Answer:
As per the provision of Section 204(1) of the Companies Act, 2013 read with Rule 9 of the
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014:
1. Every listed company;
2. Every public company having a paid-up share capital of 50 crore rupees or more; or
3. Every public company having a turnover of 250 crore rupees or more; or
4. Every company having outstanding loans or borrowings from banks or public financial
institutions of 100 crore rupees or more.
In the given case, the company is an unlisted public company with paid up capital of `45 crore
(less than `50 crore) and its turnover of `225 crore is also lower than the threshold of `250 crore.
However, the company has an outstanding bank loan of `110 crore which is higher than the
threshold of `100 crore. Thus, the company will need to conduct secretarial audit.

7. (a) Demonstrate the audit procedures to be followed for verification of Cash and Cash
Equivalents. [7]
Answer:

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Directorate of Studies, The Institute of Cost Accountants of India
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MODEL ANSWER TERM – JUNE 2024
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CORPORATE ACCOUNTING AND AUDITING
Cash and Cash equivalent includes cash in hand, stamps in hand, balances held with bank in current
accounts/ margin money accounts, cash credit accounts (debit balance), fixed deposits, and cheques
in hand, etc. It is the most liquid form of assets of an organisation and hence utmost professional
scepticism needs to be exercised while auditing such balances.
Audit Procedure to be Followed
(a) Existence
(i) The auditor shall exercise special care to verify cash balances. They shall be preferably
checked by surprise. Physical verification of cash in hand would be utmost essential in this
context.
(ii) If the company maintains any rough Cash Book or details of daily balances, the auditor shall
perform test check to see that entries in the Cash Book are accurate. In case he finds any slip
indicating temporary advance given to an employee which has been included in the cash
balance, he should have them initiated by responsible official.
(iii) The auditor shall also perform a cash sensitivity analysis (by calculating total receipts and
payments month wise) to determine if there is any abnormal variation in the same in a month.
In such a case the auditor shall enquire into the same and demand explanation from the
management.
(iv) He shall also obtain the Bank Reconciliation Statements for every bank account as at the
reporting date to rule out possibility of any error in the cash book. The BRSs must be signed
by the accountant and approved by responsible official. He shall also ask the management to
reconcile all discrepancies.
(v) He shall also communicate with the respective banks and obtain written confirmation
regarding the balances held in different bank accounts and deposits.
(b) Rights and Obligations
The auditor shall verify that all the deposits are in the name of the client. For this purpose, the
confirmation of the banker and certificate of such deposits shall be examined.
(c) Cut-off
The cash balances must represent the amount of cash and cash equivalents on the reporting date.
(d) Completeness
The auditor shall ensure confirmation of 100% of the bank accounts. He shall also be careful to
include all items of cash in hand in the total balance.
(e) Valuation
In addition to performing the above steps, the auditor shall also see that all bank balances
representing holding
of foreign currencies have been appropriately restated at the exchange rate prevailing on the date
of reporting.
(f) Presentation and Disclosure
The auditor shall ensure the disclosures as per the relevant Accounting Standards and Part 1 of
Schedule III of the Companies Act 2013.

(b) Discuss the functions and Duties of National Financial Reporting Authority (NFRA). [7]
Answer:
The National Financial Reporting Authority (NFRA) was constituted on 1st October,2018 by the
Government of India under Sub Section (1) of section 132 of the Companies Act, 2013. The body will
comprise of one Chairman who will be an eminent individual with competence in accounting, auditing,

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET 1
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CORPORATE ACCOUNTING AND AUDITING
finance, or law as Chairperson. In addition, there can be a maximum of 15 members.

Functions and Duties of NFRA:

As per Section 132(2) of the Companies Act, 2013, the duties of the NFRA are to:
(vi) Recommend accounting and auditing policies and standards to be adopted by companies for
approval by the Central Government;
(vii) Monitor and enforce compliance with accounting standards and auditing standards;
(viii) Oversee the quality of service of the professions associated with ensuring compliance with such
standards and suggest measures for improvement in the quality of service;
(ix) Perform such other functions and duties as may be necessary or incidental to the aforesaid
functions and [Link] Rule (1) of Rule 4 of the NFRA Rules, 2018, provides that the
Authority shall protect the public interest and the interests of investors, creditors and others
associated with the companies or bodies corporate governed under Rule 3 by establishing high
quality standards of accounting and auditing and exercising effective oversight of accounting
functions performed by the companies and bodies corporate and auditing functions performed
by auditors.

8. (a) Discuss the steps to be taken by an auditor of a Co-Operative Society. [7]

Answer:
a) General Points: In general, while conducting audit of Co-operative society, the auditor needs to look
into the following: -
 The auditor should carefully go through the bye-laws of the society and see that they are being
observed both in letter and spirit.
 He should examine the Register of Members of the society and individual shareholdings.
 He should test-check the internal check and control system operated by the society and model
his audit examination based on its strengths and weaknesses.
b) Audit of income: He should carefully vouch the receipt of cash. Cash receipts on account of share
capital should be vouched with the Register of Members. Cash received against sales should be
vouched with the cash memos and invoices issued to customers as also Sales Account. Receipt of
cash in respect of payment of interest and repayment of loans advanced by the society should be
vouched with the loan agreements. Cash received from members towards construction of houses or
their maintenance, should be vouched with the Register of Members, demands made by the society
from time to time, and money receipts.
c) Audit of Expenditure:
 He should vouch all expenditure with reference to authorisation from the Managing
Committee, particularly in the case of large capital expenditure, as also the bills received from
individual parties, the money receipts obtained from them, and entries in the Bank Pass Book
along with counter-foils of cheques.
 He should vouch the payment of loans from the loan agreements entered into with borrower
members.
 He should vouch establishment expenses with reference to the resolutions of the Managing
Committee,agreements with the persons concerned, and money receipts obtained from them.
d) Other points:
 He should appropriately classify overdue debts for a period from six months to five years and
more, and report them to the members, with a note regarding the effects these might have on
the financial position of the society. He should also put a note regarding the probability of

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Directorate of Studies, The Institute of Cost Accountants of India
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recovery of such debts.
Similarly, he should make a special reference to the overdue amount of interest from members.
Generally, interest on overdue debts should not be credited to Interest Account but to the
Overdue Interest Reserve Account.
 Writing off of bad debts should be after prior authorisation from the Managing Committee of
the society. According to the Maharashtra Co-operative Societies Rules, a bad debt can be
written off only when it is certified to be irrecoverable by the auditor. This casts a special
obligation on the auditor to ascertain whether the debt in question was created within the Rules
of the society, and whether it has now really become bad and irrecoverable.

(b) Demonstrate the essential Characteristics of Internal Check System. [7]

Answer:

Following are the essential characteristics or principles of a good internal check system.
a. Division of work: The entire task should be divided among the staff in such a way that no single
person is allowed to complete the work solely by himself from the beginning to the end.
b. Provision of check: There must be clear instruction that the work performed by any staff must
be checked by the next staff.
c. Responsibility: Responsibility of each individual must be properly defined and fixed.
d. Use of technology: As far as possible, various technology enabled devices should be used to
minimise human error.
e. Rotation of employees: A system of transfer or rotation of employees from one responsibility
to another must be followed by the business.
f. Control over employees: Generally, chances of frauds are high in case there is direct contact
between staff and the customers. So, a manager can keep eyes in those areas to make internal
check system more effective.
g. Supervision: A strict supervision should be exercised to ensure that the prescribed internal
checks and procedures are fully operative.
h. Periodical review: The system of internal check is reviewed from time to time to introduce
improvements.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWER TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
Time Allowed: 3 Hours Full Marks: 100

The figures in the margin on the right side indicate full marks.

SECTION – A

1. Multiple Choice Questions: [15 x 2 = 30]

(i) Partly paid-up preference shares can be redeemed ______________________.
a. After the permission from company law board
b. After making them fully paid up
c. After passing a special resolution
d. After the permission from BOD

(ii) Given Paid up Share Capital ₹10 lakhs & Free Reserves ₹2 lakhs what is the maximum
amount permissible for buy back of shares _______________.
a. ₹2,00,000
b. ₹2,50,000
c. ₹2,80,000
d. ₹3,00,000
(iii) Installment of principal amount of long term loan payable within next 12 months is show
under Balance sheet of a company under the heading ________________.
a. Non-Current Assets
b. Non-Current liabilities
c. Current Assets
d. Current liabilities

(iv) Net Profit for the year is ₹15,000, interest received in advance on 1.1.21 is ₹2,000 and on
31.12.21 is ₹3,000 cash from operation will be ___________________.
a. ₹16,000
b. ₹22,000
c. ₹13,000
d. ₹15,000

(v) Date of bill: 5.01.22, period 5 months, rate of discount is 8% p.a. What is rebate on bills
discounted if accounting year ends on 31.3.22?
a. ₹852.46
b. ₹818.85
c. ₹873.22
d. ₹825.45
(vi) Audit procedure to obtain audit evidence includes _________________.
a. Compliance procedure
b. Substantive procedure
c. Both A & B
d. Neither A or B
(vii) Test checking requires application of _____________________.
a. Mathematical theory
b. sampling theory
c. Geometry theory
d. Stakeholder’s theory

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Directorate of Studies, The Institute of Cost Accountants of India
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(viii) Which of the following is not a content of audit report as per CARO _____________.
a. Inventory
b. Acceptance of Deposit
c. Recruitment of employees
d. Repayment of loan

(ix) A cost auditor submits his report along with reservations observations in form NO._____.
a. CRA1
b. CRA2
c. CRA3
d. CRA4

(x) Secretarial audit is covered under ________________.

a. Section 204
b. Section 148
c. Section 139
d. Section 141

(xi) SA 210 standards for ____________________.

a. Audit planning
b. Audit working paper
c. Agreeing the terms of Audit Engagement
d. Audit Documentation

(xii) Internal audit is mandatory for every unlisted public company having paid up share capital
of ____________.
a. ₹100 crores
b. ₹50 crores
c. ₹500 crores
d. ₹200 crores

(xiii) Auditor not to render certain services under section _______________.

a. 139
b. 144
c. 142
d. 145

(xiv) Any casual vacancy in a government company is filed by CAG within _____ days.
a. 15 days
b. 30 days
c. 45 days
d. 60 days

(xv) Which of the following is not a part of rural self-governance system in India?
a. Gram Panchayat
b. Gram Perishad
c. Panchayat samithi
d. Zilla parishad

Answer:

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xix) (xv)
b d d a a c b c c a c a b b b

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
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CORPORATE ACCOUNTING AND AUDITING

SECTION-B

Answer any 5 questions out of 7 questions given. Each question carries 14 marks,

2. (a) B limited was formed with an authorized capital of 2 lakh equity share of ₹10 each on 1st
October 2021. 1 lakh shares were issued as fully paid to the vendor and 80000 were offered
for public. ₹2.50 per share were payable on application, ₹2.50 on allotment, ₹2.50 on 1st call
due on 1st December and ₹2.50 on Final call due on 1st March 2022. On the shares subscribed
by the public there had been paid on 30th September 2022 the following:
on 60000 shares the full amount called
on 18000 shares ₹7.50 per share
on 500 shares ₹5 per share
on 1500 shares ₹2.50 per share
on 30th September 2022 the directors forfeited the shares on which less than ₹7.50 had been
paid.

The calls in arrears on 18000 shares were collected on 31st October 2022 together with
necessary interest. The forfeited shares were reissued on the same date at ₹8 per share.

Pass necessary journal entries in the book of company. [7]

(b) Ratan & Co Ltd issued 10000 shares of ₹100 each at a Premium of ₹20 per share. The entire
issues were underwritten as follow:

A 5000 shares Firm underwriting 1000 shares

B 3000 shares Firm underwriting 500 shares
C 2000 shares Firm underwriting 500 shares

Shares applied for were 9000 shares. The following being the marked forms - A 3500 shares,
B 1400 shares, C 1600 shares including firm under writing.

Compute the liability of each underwriter and compute how much commission will each
underwriter get assuming it is the maximum allowed by law? [7]

Answer:

(a)
Date Particulars Dr. (₹) Cr. (₹)
Oct 1st Sundry Assets A/c Dr 10,00,000
To Vendor A/c 10,00,000
Oct 1st Vendor A/c Dr 10,00,000
To E.S. cap. A/c 10,00,000
st
Oct 1 Bank A/c Dr 2,00,000
To E.S app & allot A/c 2,00,000
st
Oct 1 E.S app & allot. A/c Dr 4,00,000
To E.S. Cap. A/C 4,00,000
Oct 1st Bank A/c Dr 1,96,250

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To E.S app & allot .A/c 1,96,250
st
Dec 1 E.S 1st call A/c Dr 2,00,000
To E.S cap. A/c 2,00,000
st
Dec 1 Bank A/c Dr. 1,95,000
1st Call arrears A/c Dr. 5,000
To E.S 1st Call A/c 2,00,000
st
March 1 E.S 2nd Call A/c Dr 2,00,000
To E.S cap A/c 2,00,000
March 1st Bank A/c Dr 1,50,000
2nd call arrears A/c Dr. 50,000
To E.S 2nd Call A/c 2,00,000
th
Sep 30 ESC A/c Dr. 20,000
To Calls in arrears 10,000
To E.S app & allot A/c 3,750
To Shares forfeited A/c 6,250
Oct 31st Bank A/c Dr. 46,500
To Calls in arrears A/c 45,000
To Int. On calls in arrears A/c 1,500
Oct 31st Bank A/c Dr. 16,000
S. forfeited A/c Dr. 4,000
To E S C A/c 20,000
Oct 31st S. Forfeited A/c Dr. 2,250
To Cap. Res. A/c 2,250
st
March 31 Int. on Calls in arrears A/c Dr. 1,500
To P & L A/c 1,500

(b)
Particulars A B C
Gross liability in shares 5000 3000 2000
(-) Un marked app. [2500 X 5: 3:2] 1250 750 500
Balance 3750 2250 1500
(-) Marked app 3500 1400 1600
Balance 250 850 -100
(-) Surplus of c to A & B in GL ratio 5:3 63 37 100
Net liability in shares 187 813 0
(+) Firm underwriting 1000 500 500
Total liability 1187 1313 500
Commission will be @ 5% of the issue price of shares under written as shown below.

5000  120  5
A=  30000
100

3000  120  5
B=  18000
100

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Directorate of Studies, The Institute of Cost Accountants of India
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CORPORATE ACCOUNTING AND AUDITING
2000  120  5
C=  12000
100

3. Following are the balances of A Ltd. as on 31.03.2022

Debit ₹ Credit ₹
Premises 30,72,000 Equity share capital 40,00,000
Plant 33,00,000 12% debentures 30,00,000
Stock 7,50,000 Surplus A/C 2,63,000
Debtors 8,70,000 Bills payable 3,70,000
Goodwill 2,50,000 Creditors 4,00,000
Bank 4,52,000 General reserves 2,50,000
Calls in arrears 75,000 Sales 4,15,000
Interim dividend paid 6,00,000 Bad debts Provision 35,000
Purchases 18,50,000
wages 7,71,000
General expenses 74,000
Salaries 2,03,000
Bad debts 21,000
Debenture interest paid 1,80,000
124,68,000 124,68,000

Additional information:

(i) Depreciate plant by 10%;

(ii) Half-year debenture interest is due;
(iii) Create 5% Provision on Debtors for bad debts;
(iv) Provide for income tax @ 35%;
(v) Stock on 31.3.2022 is ₹9,50,000;
(vi) No final dividend is declared by company;
(vii) Transfer the minimum required amount to general reserve;
(viii) Ignore corporate dividend tax.

Prepare the Final Accounts of the company. [14]

Answer:

Statement of Profit & Loss for the year ending 31.3.2022 of A Ltd.
Income
Particulars ₹
Revenue from operation 41,50,000
Other incomes -
Total revenue 41,50,000

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Directorate of Studies, The Institute of Cost Accountants of India
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Expenses
Particulars ₹
Purchases 18,50,000
Change in Inventory (2,00,000) 16,50,000
Employee benefits WN(1) 9,74,000
Finance cost WN(2) 3,60,000
Dep & Amortization WN(3) 3,30,000
Other Exp. WN(4) 1,03,500
Total Exp. 34,17,500
P.B Tax 73,200
(-) Pro. for tax@35% 2,56,375
P.A tax 4,76,125

WN (1) E. Benefits.
Particulars ₹
Wages 7,71,000
Salaries 2,03,000
9,74,000

WN (2) F. Cost
Particulars ₹
Deb. Int. paid 1,80,000
(+) o/s Int 1,80,000
3,60,000

WN (3) Dep & Amortization:

Dep. on P&M 33,00,000 × 10% = 3,30,000

WN (4) other Exp.

Particulars ₹ ₹
Bad debt 21,000
(+) RBD 870000 x 5 % 43,500
(-) RBD (old) 35,000
29,500
General Exp. 74,000
1,03,500

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Directorate of Studies, The Institute of Cost Accountants of India
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Balance Sheet of A Ltd as on 31.3.2022

Particular W. Notes No. Amount (₹)
I. Equity & liabilities
SHF
Share Capital A 39,25,000
Reserves & surplus B 3,89,125
Non-Current liabilities
Long term borrowing C 30,00,000
Current liabilities
Trade Payable
Creditor 4,00,000
Bills Payable 3,70,000 77,00,000
Other current liabilities D 1,80,000
Short term provisions E 2,56,375
Total 85,20,500
II Assets
Non Current Assets
Tangible Assets F 60,42,000
Intangible Assets G 2,50,000
Current Assets
Inventories 9,50,000
Trade receivable H 8,26,500
Cash & Cash Equivalents 4,52,000
Total 85,20,500

WN(A) Share Capital

Particulars ₹
Equity Share Capital 40,00,000
(-) Calls in arrears 75,000
3,92,500

WN(B) Reserves & Surplus

Particulars ₹ ₹
General Reserve 2,50,000
Surplus Bal. on 01/4/19 2,63,000
(+) NP during the year 4,76,125
(- ) Interim dividend 6,00,000 1,39,125

WN (C) Long Term Borrowing

Particulars ₹
12% Debentures 30,00,000

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WN(D) Other Current Liabilities

Particulars ₹
O/S int. on debentures 1,80,000

WN(E) Short Term Provisions

Particulars ₹
Pro. For Tax 2,56,375

WN(F) Tangible Assets

Particulars ₹
Premises 30,72,000
P&M 33,00,000
(-)dep. 3,30,000 29,70,000
60,42,000

WN(G) Intangible Assets

Particulars ₹
Goodwill 2,50,000

WN(H) Trade Receivables

Particulars ₹
Debtors 8,70,000
(-) 5% RBD 43,500
8,26,500

4. (a) On 31.03.2022 Loan A/c in the books of a bank showed a debit balance of ₹3 lakhs including
₹24,000 due from a merchant which is doubtful. The interest accrued on loan upto 31.03.2022
was ₹15,000 including ₹3,000 on doubtful debts. The merchant become insolvent and the
official receiver paid a dividend of 50 paise in a rupee on 30.04.2022.
Pass necessary Journal entries relating to the Merchant Loan A/c which is doubtful in the
books of the bank on 31.03.2022 and 30.04.2022 and prepare a Merchant Loan A/c. [7]

(b) An LIC company disclosed a fund of ₹20 lakhs and the Balance Sheet total is ₹45 lakhs as on
31.03.2022 before taking the following into consideration.
(i) A claim of ₹10,000 was intimated and admitted but not paid during the year.
(ii) A claim of ₹6,000 outstanding in the books for 8 years is written back.
(iii) Interest on securities accrued ₹800 but not received during the year.
(iv) Rent of the own building occupied ₹2,000.
(v) Premium of ₹600 in payable under re-insurance.
(vi) Re-insurance recoveries ₹26,000.
(vii) Bonus utilized in reduction of premium ₹10,000.
(viii) Agents commission to be paid ₹8,000.
Re-compute the fund & show the balance sheet total after making the above adjustments. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
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CORPORATE ACCOUNTING AND AUDITING

Answer:

(a) Journal Entries

Date Particulars Dr. (₹) Cr. (₹)

31/03/22 Merchants loan A/c Dr. 3,000

To Int. Suspense A/c 3,000
30/04/22 Cash A/c Dr. 13,500
To Merchant’s loan A/c 13,500
30/04/22 Interest Suspense A/c Dr. 3,000
To Merchant’s loan A/c 1,500
To Interest A/c 1,500
30/04/22 Bad debts A/c Dr. 12,000
To Marchant’s loan A/c 12,000

Merchant Loan Account

Dr. Cr.
Date Particulars ₹ Date Particulars ₹
31/03/22 To Balance b/d 24,000 31/03/22
To Intents Suspense A/c 3,000 By Bal. C/d 27,000
A/C 27,000 27,000
1/04/22 To Balance b/d 27,000 30/04/22
By Cash 13,500
By Int. Suspense 1,500
By Bad debts 12,000
27,000 27,000

(b) Re-Computation of Life Assurance fund

Particulars ₹
Balance of L.A fund on 31/3/22 20,00,000
(+) o/s Claim written back 6,000
Accrued Interest 800
Claims covers under reinsurance 26,000
Bonus utilized in reduction of premium 10,000
20,42,800
(-) Claims intimated & admitted 10,000
Premium payable under reinsurance 600
Commission payable to agents 8,000
Bonus in reduction of premium 10,000 (28,600)
Correct balance of L.A fund 20,14,200

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CORPORATE ACCOUNTING AND AUDITING

Balane Sheet as on 31.3.22

Liabilities Amount Assets Amount
₹ ₹
B/S total as given 45,00,000 B/S total as given 45,00,000
(+) Increase in L.A 14,200 Accrued intents 800
Fund (20,14,200-20,00,000) o/s claims receivable 26,000
o/s claims 10,000
(-) o/s claims 6,000 4,000
O/S Premium Payable 600
O/S Commission payable 8,000
45,26,800 45,26,800

5. (a) M Ltd Equity Capital of ₹40 lakhs consisting of fully paid equity shares of ₹10 each. The net
Profit for the year 2021-22 was ₹60 lakhs. It has also issued 36000, 10% convertible debentures
of ₹50 each. Each debenture is convertible into 5 equity shares. The tax rate applicable is 30%.
Compute Basic EPS and Diluted EPS. [7]

(b) On 31.08.2022 the BOD of M Ltd. proposed dividend of 10% for the year 2021-22. Financial
Statement of 2021-22 are approved by the BOD on 30.09.2022. Discuss the accounting
treatment of the proposed dividend as per Ind AS-10. [7]

Answer:

60 L
(a) (i) Basic EPS =  ₹15 per ES
4 Lakhs ES
(ii) Int. Exp. that need not be paid after conversion 36000 × ₹50 × 10% = ₹1,80,000
(iii) Income tax exp. (₹1,80,000 x 30%) = 54000
(iv) Adj. NP to ESH ₹ 60,00,000 + ₹1,80,000- ₹54,000 = ₹61,26,000
(v) No. of ES resulting from conversion of debentures
= 36000 Debentures x 5 = 180000 Equity Shares
(vi) Total No. of Equity Shares after conversion = 4,00,000 + 1,80,000 = 5,80,000
612600
(vii) Diluted EPS=  ₹10.56 per ES
580000 ES

(b) Proposed dividends is an event occurring after the Balance Sheet date. The company does not have
any liability to pay dividend on B/S date. The reason being dividend will be a liability to the
company only when it is approved by the members of the [Link] AGM.
As there are no conditions existing on 31.3.22 the subsequent proposal of dividend is not adjusting
event hence the co. should not make a provision for the same.
As Per Ind. AS. proposed dividend should be disclosed in the notes to accounts separately.

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Directorate of Studies, The Institute of Cost Accountants of India
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CORPORATE ACCOUNTING AND AUDITING
6. (a) Distinguish between Internal control, Internal check and Internal audit. [7]

(b) Explain the provisions of Companies Act 2013 regarding Audit Committee. [7]

Answer:

(a)
S. Point of Internal Audit Internal Control Internal Check
No. Distinction
1. Mode of In an internal In internal controls It operates in routine to
checking audit system, systems, work of one doubly check every part of
each component person is automatically a transaction at the time of
of work is checked by another. occurrence and recording
checked. of the same
2. Objective Its objective is Its objective is to ensure Its objective is to ensure
to evaluate the adherence to management that no one employee has
internal control policies, safeguarding of exclusive control over any
system and to assets, prevention and transaction or group of
detect frauds detection of frauds and transactions and their
and errors. errors, accuracy and recording in the books
completeness of
accounting records.
iii. Point of In an internal In an internal control Methods of recording
Time audit system, system, checking is done transactions are devised
work is checked simultaneously with the where work of an
after it is done. conduct of work. Every employee is checked
transaction is checked as continuously by
soon as it is entered. correlating it with the work
of others.
iv. Thrust of The thrust of The thrust of internal The thrust of internal
system internal system check system is to prevent control lies in fixing of
is to detect errors responsibility and division
errors and of work to avoid
frauds. duplication.
v. Cost In an internal The system proves to be It is a part of internal
Involvement audit system, costly in case of small control and a method of
work is checked businesses because a division of work, therefore
specially; greater number of does not add to the cost.
therefore, cost employees are engaged
is involved in
addition to
accounting

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Directorate of Studies, The Institute of Cost Accountants of India
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CORPORATE ACCOUNTING AND AUDITING
vi. Report The internal Internal Controls provide The summary of day-to-
auditor submits for built in MIS reports day transactions work as
his report to the report for the senior.
management

(b) A. Formation of Audit Committee: As per Section 177(1) read with Companies (Meetings of
Board and its Powers) Rules, 2014, the Board of directors of every listed company and the
following classes of companies shall constitute an Audit Committee of the Board-
(i) all public companies with a paid-up capital of ten crore rupees or more;
(ii) all public companies having turnover of one hundred crore rupees or more;
(iii) all public companies, having in aggregate, outstanding loans or borrowings or
debentures or deposits exceeding fifty crore rupees or more.

B. Composition: The Audit Committee shall consist of a minimum of three directors with
independent directors forming a majority: Moreover, majority of members of Audit
Committee including its Chairperson shall be persons with ability to read and understand,
the financial statement. [Section 177(2)]

C. Broad Functions of Audit Committee: As per Section 177(4) of the Act, The Board shall
specify, in writing, the terms of reference for the Audit Committee which shall, inter alia,
include —
(i) the recommendation for appointment, remuneration and terms of appointment of
auditors of the company;
(ii) review and monitor the auditor’s independence and performance, and effectiveness
of audit process;
(iii) examination of the financial statement and the auditors’ report thereon;
(iv) approval or any subsequent modification of transactions of the company with related
parties:
(v) scrutiny of inter-corporate loans and investments;
(vi) valuation of undertakings or assets of the company, wherever it is necessary;
(vii) evaluation of internal financial controls and risk management systems;
(viii) monitoring the end use of funds raised through public offers and related matters.

D. Power of Audit Committee

(a) Committee may ask for Auditor’s Comment: The Audit Committee may call for
the comments of the auditors about internal control systems, the scope of audit, the
observations of the auditors and review of financial statement before their submission
to the Board. The Committee may also discuss any related issues with the internal
and statutory auditors and the management of the company. [Section 177(5)]
(b) Investigation: The Audit Committee shall have authority to investigate into any
matter in relation to the items specified in Section 177(4) or referred to it by the
Board. For this purpose, the Committee shall have power to obtain professional
advice from external sources and have full access to information contained in the
records of the company. [Section 177(6)]

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(c) Board’s Report and Audit Committee: The Board’s report under sub-section (3) of
section 134 shall disclose the composition of an Audit Committee and where the
Board had not accepted any recommendation of the Audit Committee, the same shall
be disclosed in such report along with the reasons therefor. [Section 177(8)]
(d) Whistle Blowing Policy: Every listed company and company accepting public
deposits or borrowing in excess of fifty crore rupees from banks and financial
institutions shall establish a vigil mechanism for directors and employees to report
genuine concerns in such manner as may be prescribed. [Section 177(9)]
(e) Safeguards against Victimization: The vigil mechanism under sub-section (9) shall
provide for adequate safeguards against victimization of persons who use such
mechanism and make provision for direct access to the chairperson of the Audit
Committee in appropriate or exceptional cases. The company shall disclose
establishment of such mechanism on its website, if any, and in the Board’s report.
[Section 177(10)]

7. (a) Discuss the matters to be included in audit report as per CARO-2020. [7]

(b) Describe the role of NFRA in auditing. [7]

Answer:

(a) A. Notification
The Ministry of Corporate Affairs, Government of India notified Companies (Auditor’s
Report) Order 2020 on 25th February, 2020. This order was issued in supersession of
Companies (Auditor’s Report) Order 2016. Accordingly, CARO 2020 is applicable for all
statutory audits commencing on or after 1st April, 2021 corresponding to the financial year
2020-21

B. Eligible Companies
It shall apply to every company including a foreign company as defined in clause (42) of
Section 2 of the Companies Act, 2013 (18 of 2013) [hereinafter referred to as the Companies
Act], except –
(i) a banking company as defined in clause (c) of section 5 of the Banking Regulation
Act, 1949 (10 of 1949);
(ii) an insurance company as defined under the Insurance Act,1938 (4 of 1938);
(iii) a company licensed to operate under section 8 of the Companies Act;
(iv) a One Person Company as defined in clause (62) of section 2 of the Companies Act
and a small company as defined in clause (85) of section 2 of the Companies Act; and
(v) a private limited company, not being a subsidiary or holding company of a public
company, having a paid-up capital and reserves and surplus not more than one crore
rupees as on the balance sheet date and which does not have total borrowings
exceeding one crore rupees from any bank or financial institution at any point of time
during the financial year and which does not have a total revenue as disclosed in
Scheduled III to the Companies Act (including revenue from discontinuing
operations) exceeding ten crore rupees during the financial year as per the financial
statements.

C. Matters to be Included in Auditor’s Report

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Directorate of Studies, The Institute of Cost Accountants of India
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Non-current Assets [Clause 3(i)]
a) whether the company is maintaining proper records showing full particulars,
including quantitative details and situation of Property, Plant and Equipment and full
particulars of intangible assets;
b) whether these Property, Plant and Equipment have been physically verified by the
management at reasonable intervals; and whether any material discrepancies were
noticed on such verification and if so, whether the same have been properly dealt with
in the books of account;
c) whether the title deeds of all the immovable properties (other than properties where
the company is the lessee and the lease agreements are duly executed in favour of the
lessee) disclosed in the financial statements are held in the name of the company. If
not, provide the details thereof in the prescribed format.
d) whether the company has revalued its Property, Plant and Equipment (including Right
of Use assets) or intangible assets or both during the year and, if so, whether the
revaluation is based on the valuation by a Registered Valuer; specify the amount of
change, if change is 10% or more in the aggregate of the net carrying value of each
class of Property, Plant and Equipment or intangible assets;
e) whether any proceedings have been initiated or are pending against the company for
holding any benami property under the Benami Transactions (Prohibition) Act, 1988
(45 of 1988) and rules made thereunder, if so, whether the company has appropriately
disclosed the details in its financial statements.

Inventory [Clause 3(ii)]

a) whether physical verification of inventory has been conducted at reasonable intervals
by the management and whether, in the opinion of the auditor, the coverage and
procedure of such verification by the management is appropriate;
b) whether during any point of time of the year, the company has been sanctioned
working capital limits in excess of five crore rupees, in aggregate, from banks or
financial institutions on the basis of security of current assets;

Investment, Providing Guarantee/security, Granting Loan or Advances [Clause 3(iii)]

a) whether during the year the company has made investments in, provided any
guarantee or security or granted any loans or advances in the nature of loans, secured
or unsecured, to companies, firms, Limited Liability Partnerships or any other parties,
if so, -
(i) whether during the year the company has provided loans or provided advances
in the nature of loans, or stood guarantee, or provided security to any other
entity
b) whether the investments made, guarantees provided, security given and the terms and
conditions of the grant of all loans and advances in the nature of loans and guarantees
provided are not prejudicial to the company’s interest;
c) in respect of loans and advances in the nature of loans, whether the schedule of
repayment of principal and payment of interest has been stipulated and whether the
repayments or receipts are regular;
d) if the amount is overdue, state the total amount overdue for more than ninety days,

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e) whether any loan or advance in the nature of loan granted which has fallen due during
the year, has been renewed or extended or fresh loans granted to settle the overdues
of existing loans given to the same parties,

Loan to Director and Investment by the Company [Clause 3 (iv)]

In respect of loan, investment, guarantees and security, whether provisions of Sections 185
and 186 of the Companies Act, 2013 have been complied with.

Acceptance of Deposits [Clause 3 (v)]

In case the company has accepted deposits, whether the directives issued by the Reserve
Bank of India and the provisions of Sections 73 to 76 or any other relevant provisions of the
New Act and the rules framed thereunder.

Maintaining Cost Records [Clause 3 (vi)]

Where maintenance of cost records has been specified by the Central Government under
sub-section (l) of Section 148 of the New Act, whether such accounts and records have been
made and maintained.

Statutory Dues [Clause 3 (vii)]

a) Is the company regular in depositing undisputed statutory dues including provident
fund, employees’ state insurance, income tax, sales tax, wealth tax, service tax, duty
of customs, duty of excise, value added tax, cess and any other statutory dues with
the appropriate authorities? And if not, the extent of the arrears of outstanding
statutory dues as at the last day of the financial year concerned for a period of more
than six months from the date they became payable, shall be indicated by the auditor.
b) In case dues of income tax or sales tax or wealth tax or service tax or duty of customs
or duty of excise or value added tax or cess have not been deposited on account of
any dispute, then the amount involved

Disclosure of Unrecorded Income [Clause 3 (viii)]

Whether any transactions not recorded in the books of account have been surrendered or
disclosed as income during the year in the tax assessments under the Income Tax Act, 1961

Repayment of Loan [Clause 3 (ix)]

a) whether the company has defaulted in repayment of loans or other borrowings or in
the payment of interest thereon to any lender, if yes, the period and the amount of
default to be reported
b) whether the company is a declared wilful defaulter by any bank or financial institution
or other lender;
c) whether term loans were applied for the purpose for which the loans were obtained;
if not, the amount of loan so diverted and the purpose for which it is used may be
reported;
d) whether funds raised on short term basis have been utilised for long term purposes, if
yes, the nature and amount to be indicated;

Utilisation of IPO/ Further Public Offer etc. [Clause 3 (x)]

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a) whether moneys raised by way of initial public offer or further public offer (including
debt instruments) during the year were applied for the purposes for which those are
raised, if not, the details together with delays or default and subsequent rectification,
if any, as may be applicable, be reported;
b) whether the company has made any preferential allotment or private placement of
shares or convertible debentures (fully, partially or optionally convertible) during the
year and if so, whether the requirements of section 42 and section 62 of the
Companies Act, 2013 have been complied with

Reporting of Fraud [Clause 3 (xi)]

a) whether any fraud by the company or any fraud on the company has been noticed or
reported during the year, if yes, the nature and the amount involved is to be indicated;
b) whether any report under sub-section (12) of section 143 of the Companies Act has
been filed by the auditors in Form ADT-4 as prescribed under rule 13 of Companies
(Audit and Auditors) Rules, 2014 with the Central Government;
c) whether the auditor has considered whistle-blower complaints, if any, received during
the year by the company;

Nidhi Company [Clause 3 (xii)]

a) whether the Nidhi Company has complied with the Net Owned Funds to Deposits in
the ratio of 1: 20 to meet out the liability;
b) whether the Nidhi Company is maintaining ten per cent. unencumbered term deposits
as specified in the Nidhi Rules, 2014 to meet out the liability;
c) whether there has been any default in payment of interest on deposits or repayment
thereof for any period and if so, the details thereof;

(b) Constitution
The National Financial Reporting Authority (NFRA) was constituted on 1st October,2018 by the
Government of India under Sub Section (1) of section 132 of the Companies Act, 2013. The body
will comprise of one Chairman who will be an eminent individual with competence in accounting,
auditing, finance, or law as Chairperson. In addition, there can be a maximum of 15 members.

NFRA Structure
The following committees will make up the NFRA:
(i) Accounting Standards Committee;
(ii) Auditing Standards Committee
(iii) Enforcement Committee.

Functions and Duties of NFRA

As per Section 132(2) of the Companies Act, 2013, the duties of the NFRA are to:
(i) Recommend accounting and auditing policies and standards to be adopted by companies for
approval by the Central Government;
(ii) Monitor and enforce compliance with accounting standards and auditing standards;
(iii) Oversee the quality of service of the professions associated with ensuring compliance with
such standards and suggest measures for improvement in the quality of service;

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(iv) Perform such other functions and duties as may be necessary or incidental to the aforesaid
functions and duties.

NFRA’s Role in Auditing

A. Recommending Auditing Standards
As mentioned earlier, NFRA recommends auditing policies and standards to be adopted by
companies for approval by the Central Government. For this purpose, the Authority –
(a) shall receive recommendations from the Institute of Chartered Accountants of India
on proposals for new accounting standards or auditing standards or for amendments
to existing accounting standards or auditing standards;
(b) may seek additional information from the Institute of Chartered Accountants of India
on the recommendations received under clause (a), if required.

Monitoring and Enforcing Compliance with Auditing Standards

(1) For the purpose of monitoring and enforcing compliance with auditing standards under the
Act by a company or a body corporate governed under Rule 3, the Authority may:
(a) review working papers (including audit plan and other audit documents) and
communications related to the audit;
(b) evaluate the sufficiency of the quality control system of the auditor and the manner
of documentation of the system by the auditor; and
(c) perform such other testing of the audit, supervisory, and quality control procedures
of the auditor as may be considered necessary or appropriate.
(2) The Authority may seek additional information or may require the personal presence of the
auditor for seeking additional information or explanation in connection with the conduct of
an audit.
(3) The Authority shall perform its monitoring and enforcement activities through its officers or
experts with sufficient experience in audit of the relevant industry.
(4) The Authority shall publish its findings relating to non-compliances on its website and in
such other manner as it considers fit, unless it has reasons not to do so in the public interest
and it records the reasons in writing.
(5) The Authority shall not publish proprietary or confidential information, unless it has reasons
to do so in the public interest and it records the reasons in writing.
(6) The Authority may send a separate report containing proprietary or confidential information
to the Central Government for its information.

Power to Investigate
In addition to the above, the Authority also enjoys power to –
(i) investigate any matter of professional or other misconduct under sub-section (4) of section
132 of the Act;
(ii) undertake investigation into any matter on the basis of its compliance or oversight activities;
or
(iii) undertake suo-motu investigation into any matter of professional or other misconduct, after
recording reasons in writing for this purpose.

8. (a) Demonstrate as an auditor how can you audit a co-operative society. [7]

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(b) Discuss the audit procedure essential for inventories. [7]

Answer:

(a) Statutory Audit Requirement in Co-Operative Societies

As per Section 17 of the Co-Operative Societies Act, 1912 -
(i) The Registrar shall audit or cause to be audited by some person authorised by him by general
or special order in writing in this behalf, the accounts of every registered society once at least
in every year.
(ii) The audit under sub-section (1) shall include an examination of overdue debts, if any, and a
valuation of the assets and liabilities of the society.
(iii) The Registrar, the Collector or any person authorised by general or special order in writing
in this behalf by the Registrar, shall at all times have access to all the books, accounts, papers
and securities of a society, and every officer of the society shall furnish such information in
regard to the transactions and working of the society as the person making such inspection
may require.
(iv) Here, ‘Registrar’ means a person appointed to perform the duties of a Registrar of co-
operative societies under this Act.

(i) Qualifications of auditor: Generally, only a chartered accountant within the meaning of the
Chartered Accountants Act 1949, can be appointed as the auditor of a co-operative society.
(ii) Appointment of the Auditor: An auditor of a co-operative society is appointed by the
Registrar of Co-operative Societies-and the auditor so appointed conducts the audit on behalf
of the Registrar and submits his report to him as also to the society.
(iii) Books of accounting records:
 Cash book
 Stock register
 Register of assets and investments:
 Register of fixed deposits:
 Register of sureties:

(iv) Restriction on shareholding: A co-operative society cannot prescribe any other limit in its
bye-laws which is violative of this provision.

(v) Restriction on Loan:

Shareholding in a co-operative society is subject to the limit prescribed in Sec. 5 of the Co-
operative Societies Act 1912. Accordingly, no member of the society, other than a registered
society, can hold more than twenty per cent of the total number of shares of the society, or
such number of shares which in value exceeds `1,000. A co-operative society cannot
prescribe any other limit in its bye-laws which is violative of this provision. In addition to
this, the Acts passed by the states may also prescribe other restrictions as regards
shareholding. The auditor should see that the provision regarding shareholding is duly
followed.

(vi) Restriction on Borrowing:

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWER TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
As per Section 29 of Co-operative Societies Act, 1912, a registered co-operative society can
only grant loans to its members, though, with prior approval of the Registrar, it may grant
loans to other registered co-operative societies. The auditor should see that the loans granted
by the society are in conformity with this provision.

(vii) Investment of Funds:

There are restrictions on investment of funds belonging to a co-operative society.

(ix) Appropriation of profits:

According to the Central Co-operatives Societies Act, 25% of the profits of a co-operative
society should be transferred to a Reserve Fund before distribution of dividend or payment
of bonus to its members. However, the Registrar may, having regard to the financial position
of the society, reduce the percentage of profits to be transferred to the Reserve Fund. But in
any case, he cannot reduce it to less than 10% of the profits of the society. Apart from the
above mandatory provision, a co-operative society may, subject to the provisions of its bye-
laws, appropriate its profits by way of transfer to other reserves, distribution of dividends to
members, etc. However, appropriation of profits must be duly approved by the members of
the society in the general meeting called for the purpose.

(ix) Contributions to charitable Purposes:

According to Section 34 of Co-operative Societies Act, 1912, a registered society may, with
the sanction of the Registrar, contribute an amount not exceeding 10% of the net profits
remaining after the compulsory transfer to the reserve fund for any charitable purpose as
defined in Section 2 of the Charitable Endowments Act, 1890.

Steps to be Taken by an Auditor of a Co-Operative Society

 The auditor should carefully go through the bye-laws of the society and see that they are
being observed both in letter and spirit.
 He should examine the Register of Members of the society and individual shareholdings.
 He should test-check the internal check and control system operated by the society and
model his audit examination based on its strengths and weaknesses.
 He should vouch the payment of loans from the loan agreements entered into with
borrower members.
 He should vouch establishment expenses with reference to the resolutions of the Managing
Committee, agreements with the persons concerned, and money receipts obtained from
them.

(b) Inventories/Stock in Trade

Inventory includes raw materials, loose tools, spare parts, semi-finished goods or work-in- progress,
packing materials as well as finished goods ready for sale.

Audit Procedure to be Followed

(a) Existence

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWER TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
(i) The auditor should review the client’s plan to verify inventory physically. He shall
see that the process is properly supervised. He must ensure that all stock count sheets
are signed by a responsible official of the client.
(ii) Where the client follows periodic system stock count should be done at the end of the
period. On the other hand, where the client follows perpetual system, stock count
should be done at interim dates.
(iii) The auditor must satisfy himself about any inventory lying at public warehouses or
with third party.
(b) Rights and Obligations
(i) The auditor shall also vouch recorded purchases to underlying documentation such
as purchase invoice, purchase order, Goods Received Notes etc. to determine that
client is the owner of such goods.
(ii) He shall evaluate consignment agreement and any collateral agreement and examine
the terms and conditions binding on the client.
(iii) He shall also obtain confirmation from the third parties for inventories lying with
them.
(c) Cut-off
The auditor shall see that the value of investments shown in the Balance Sheet comprises all
investments existed and under the ownership of the company on the reporting date.
(d) Completeness
(i) The auditor should perform analytical procedure to identify any abnormality.
(ii) He should collect non-financial information such as weights and measures and check
the same with physical verification reports.
(iii) He shall also perform purchase and sale cut-off test to identify misappropriation near
the year end. He shall also ensure that no item is omitted from inventories and no
invalid item is included in inventories. For this purpose, information of all stock lying
with customers (under hire purchase system or sale on approval system), at branch
and with consignee must be procured and verified.
(iv) He shall reconcile physical inventory amounts with perpetual records including stores
ledger. The value of the inventory should also be tallied with the amount recorded in
the books as adjustment entry of closing stock.
(e) Valuation
(i) The auditor must determine the appropriateness of the method of issuing inventory
(LIFO, FIFO, Weighted Average, etc.) for valuation purpose.
(ii) Value of raw materials must be examined based on the cost of purchase, carriage
inwards, duties paid, market price of raw materials and estimated cost of disposal.
The auditor shall see that lower of cost and NRV has been considered as the value.
Relevant documents for this purpose would be purchase invoice, voucher for
transport cost, etc.
(iii) He shall also ensure that work-in-progress has been valued considering the completed
stage of production and all direct and relevant indirect costs (up to works cost).
(iv) He shall ensure that cost of finished goods includes all direct and relevant indirect
costs. In case the finished goods are expected to fetch value lower than the cost, the
auditor shall see that the same is valued at NRV.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 1
MODEL ANSWER TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
(v) He shall also see that damaged goods are valued at net realisable value. Moreover, he
shall ensure that all obsolete goods have been written off fully.
(f) Presentation and Disclosure
(i) In case of companies, as per Part I of Schedule III of the Companies Act, 2013 all
items of inventories shall be included in the head ‘Current Assets’ under the subhead
‘Inventories’.
(ii) Additionally, in notes to accounts the following disclosures shall be made.
 Inventories shall be classified as –
(a) Raw materials
(b) Work-in-progress
(c) Finished goods
(d) Stock in trade (in respect of goods acquired for trading)
(e) Stores and spares
(f) Loose goods
(g) Others (specify nature).
 Goods-in-transit shall be disclosed under the relevant sub-head of
inventories.
 Mode of valuation shall be stated.

21
Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)

1. Choose the correct alternative: [15 x 2 = 30]

(i) Net profit for the year ₹15,000, interest received in advance on 1st January 2021 ₹2,000 and 31 st
December 2021 ₹3,000, cash from operation will be _________.
a. ₹16,000
b. ₹22,000
c. ₹13,000
d. ₹15,000

(ii) Which of the following is not a mandatory financial statement of a General Insurance Company as
per IRDA regulations?
a. Revenue Account
b. Profit and Loss Account
c. Balance Sheet
d. Cash Flow Statement

(iii) Ind AS 1 “Presentation of financial statements” applies to ______________________.

a. Consolidated financial statements in accordance with Ind AS 110, Consolidated Financial
Statements,
b. Separate financial statements in accordance with Ind AS 27, Separate Financial Statements.
c. Both of a. and b.
d. None of the above

(iv) Ordinary shares are 1,00,000 of ₹1.00;10% Preference shares are 200000 of ₹1.00; PAT ₹10,00,000.
Calculate basic EPS.
a. ₹9.80
b. ₹9.60
c. ₹9.40
d. ₹9.20

(v) 01.04.2021 B Ltd. has 1200 ordinary shares outstanding. On 31.08.2022 it issued 400 ordinary
shares for cash. On 31.01.22 it bought back 200 ordinary shares. Calculate weighted average
number of shares as on 31.03.22.
a. 1300
b. 1400
c. 1500
d. 1600

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING

(vi) Each of the three parties involved in an audit___________ plays a role that contributes to its
success.
a. the client, the auditor, and the auditees
b. the client and the auditor
c. the client, the moderator, and the auditee
d. the client, the auditor, and the auditee

(vii) Statutory Auditor can be removed by the________________.

a. Shareholders
b. Audit committee
c. BOD
d. None of the above

(viii) A nomination and remuneration committee should have_________ directors.

a. 5
b. 10
a. 2
b. 3

(ix) Secretarial Audit is applicable to the public sector company having the paid up share capital of
_______________.
a. 50 crore
b. 75 crore
c. 100 crore
d. 200 crore

(x) Member of the Institute of Company Secretaries of India are eligible to conduct Secretarial Audit
if he/she is having a valid _________________.
a. Membership No.
b. PAN No.
c. Certificate of Practice
b. None of the above

(xi) Which of the following is not an audit risk?

a. Inherent Risk
b. Detection Risk
c. Control Risk
d. Omission Risk

(xii) CAATS stands for-

a. Cornwall Air Ambulance Trust
b. Children Air Ambulance Trust
c. Center for alternatives to Animal Testing
d. Computer Assisted Auditing Technique

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING

(xiii) Permanent Audit File does not contain

a. A record of study and evaluation of internal control system
b. Significant audit observations of earlier years
c. Copies of management letters
d. Analysis of significant ratios and trends

(xiv) Check list contains the instructions to be followed by the

a. Employer of the organisation
b. Employee of the organisation
c. Banker to the organisation
d. Audit staff engaged by the auditor of the organisation

(xv) Which of the following is not a content of audit report?

a. Signature of the auditor
b. Date of the report
c. Attachment of audit evidences
d. Auditor’s address

Answer:

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xix) (xv)
a d c a b d a d a c d d b d c

SECTION-B
(Answer any five questions out of seven questions given. Each question carries 14 Marks.)

2. (a) XYZ Ltd. has the following capital structure on of 31st March 2022.
Particulars ₹ in Crores
a. Equity Share capital (Shares of ₹10 each) 300
b. Reserves:
General reserve 270
Security Premium 100
Profit and Loss A/c 50
Export Reserve (Statutory reserve) 80
c. Loan Funds 800

The shareholders have on recommendation of Board of Directors approved vide special

resolution at their meeting on 10th April 2022 a proposal to buy back maximum permissible
equity shares considering the huge cash surplus following A/c of one of its divisions.

The market price was hovering in the range of ₹25 and in order to induce existing
shareholders to offer their shares for buy back, it was decided to offer a price of 20% above
market.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
Examine the maximum number of shares that can be bought back by the company and record
journal entries for the same assuming the buy-back has been completed in full within the next
3 months.

If borrowed funds were ₹1200 crores, and 1500 crores respectively would your answer change.
[7]

(b) On 1st April 2018. H Ltd. issued 442, 10% Debentures of ₹1,000 each at a discount of 10%
redeemable at a premium of 5% after 4 years. It was decided to create a Sinking Fund for the
purposes of accumulating sufficient funds to redeem the Debentures and to invest in some
readily convertible securities yielding 10% interest p.a. Reference to the table shows that ₹1.00
p.a. at 10% compound interest amounts to ₹4.641 in 4years. Investments are to be made in
the Bonds of ₹1,000 each available at par.
On 31st March 2022, the investments realised ₹3,40,000 and debentures were redeemed. The
bank balance as on that date was ₹50,000.
Required: Prepare Debenture Redemption Fund Account and Debenture Redemption Fund
Investments Account for 4 years. [7]

Answer:

(a) Maximum shares that can be bought back

Situation I Situation II Situation III
a. Shares outstanding test (WN # 1 ) 7.5 7.5 7.5
b. Resources test (WN # 2) 6 6 6
c. Debt Equity ratio test (WN # 3) 10.68 3 -
d. Maximum number of shares for buy 6 3 -
back - LEAST of the above

Particulars Situation I Situation II

Debit Credit Debit Credit
a. Shares bought back A/c Dr. 180 90
To Bank A/c 180 90
[Being purchase of shares from public]
b. Share capital A/c Dr. 60 30
Security premium A/c Dr. 100 60
General reserve A/c (balancing figure) Dr. 20 -
To Shares bought back A/c 180 90
[Being cancellation of shares bought on buy back]
c. General reserves A/c Dr. 60 30
To Capital redemption reserve A/c 60 30
[Being transfer of reserves to capital redemption
reserve to the extent capital is redeemed]

Note: Under situation III, the company does not qualify the debt equity ratio test. Therefore, the
company cannot perform the buyback of shares

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
Working Notes:
WN # 1: Shares outstanding test
Particulars ₹
a. No. of shares outstanding 30 crores
b.. 25% of shares outstanding 7.5 crores

WN # 2: Resources test (₹ in Crores)

Particulars ₹
a. Paid up capital 300
b. Free reserves [270+100+50] 420
c. Shareholders fund (a+b) 720
d. 25% of shareholders fund 180
e. Buyback price per share ₹ 30
f. Number of shares that can be bought back 6 Crores

WN # 3: Debt Equity ratio test: (₹ in Crores)

Particular Situation I Situation II Situation III
a. Borrowed Funds 800 1.200 1.500
b. Minimum equity to be maintained after 400 600 750
buy back in the ratio 2:1
c. Present equity 720 720 720
d. Maximum possible dilution in equity 320 120 -
e. Maximum shares that can be bought back 10.67 4 -
@ ` 30/- per share

Alternatively: Let no. of shares bought back be x @ ₹30

Max ratio of Debt/Proprietors Fund = 2
I II III
800 1, 200 1,500
2 2 2
720  10 x  30 x 720  10 x  30 x 720  10 x  30 x
or , x  8 or , x  3 or , x   x, so not possible

(b) DRF = Debenture Redemption Fund, DRFI = Debenture Redemption Fund Investment

Debenture Redemption Fund Account

Dr. Cr.
Date Particulars ₹ Date Particulars ₹
31.03.2019 To Balance c/d 1,00,000 31.03.2019 By P&L App. A/c 1,00,000
31.03.2020 To Balance c/d 2,10,000 01.04.2019 By Balance b/d 1,00,000
31.03.2020 By Interest on DRFI A/c 10,000
By P&L App. A/c 1,00,000
2,10,000 2,10,000
31.03.2021 To Balance c/d 3,31,000 01.04.2020 By Balance b/d 2,10,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
31.03.2021 By Interest on DRFI A/c 21,000
31.03.2021 By P&L App. A/c 1,00,000
3,31,000
31.03.2022 To Loss on 22,100 01.04.2021 By Balance b/d 3,31,000
issue of
Debentures/
Premium on
redemption of
Debentures A/c
To Debenture 4,51,000 31.03.2022 By Interest on DRFI A/c 33,100
Redemption
Reserve A/c
31.03.2022 By P&L App. A/c 1,00,000
By Debenture Redemption
Fund Investment A/c (Profit)
4,73,100 4,73,100

Debentures Redemption Fund Investment (DRFI) Account

Dr. Cr.
Date Particulars ₹ Date Particulars ₹
31.03.2019 To Bank A/c 1,00,000 31.03.2019 By Balance c/d 1,00,000
01.04.2019 To Balance b/d 1,00,000 31.03.2020 By Balance c/d 2,10,000
31.03.2020 To Bank A/c 1,10,000
2,10,000 2,10,000
01.04.2020 To Balance b/d 2,10,000 31.03.2021 By Balance c/d 3,31,000
31.03.2021 T Bank A/c 1,21,000
3,31,000 3,31,000
01.04.2021 To Balance b/d 3,31,000 31.03.2022 By Bank A/c (Sales) 3,40,000
31.03.2022 To Debenture 9,000
Redemption Fund A/c
(Profit)
3,40,000 3,40,000

Working Note:
(i) Calculation of the amount of profit set aside ₹
a. Face Value of Debentures 4,42,000
b. Premium Premium Payable on Redemption 22,100
c. Depreciable Cost (A + B) 4,64,100
d. Value of annuity per ` 1 4,641
e. Annual amount to be charged (C/D) 1,00,000

(ii) Calculation of the amount of investments and interest

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
Year a Opening Interest c= Saving d Investments Closing Balance
Balance b b×10/100 e=c+d f=b+e
2017-18 — — 1,00,000 1,00,000 1,00,000
2018-19 1,00,000 10,000 1,00,000 1,10,000 2,10,000
2019-20 2,10,000 21,000 1,00,000 1,21,000 3,31,000
2020-21 3,31,000 33,100 1,00,000 — —

Or, Calculate the interest on opening balance of DRFI A/c.

3. XYZ Pharmaceuticals is a pharma start-up established in 2018. The company has registered
significant growth over the last two years. To further expand its business, the company wants to mop
up additional capital. Motivated by the recent success of a number of IPOs, the BOD has decided to
go for a public issue rather than accessing institutional loan.

In order to apply for the IPO to SEBI, the company requires to submit, along with all other
documents, its restated financial statements in prescribed format. The company, therefore, has hired
you as an expert to assist its accountant in preparing the financial statements so that the statements
conform, in all respect, to the relevant legislation and can be used to prepare restated financial
statements for the purpose of filing for an IPO.

You have been given the following information for the financial year 2021-2022.
Particulars Dr. (₹) Cr. (₹)
Stock on 1st April, 2021 1,60,000 -
Purchases & Sales 5,00,000 8,00,000
Purchase returns - 10,000
Carriage inward 2,100 -
Wages 50,000 -
Salaries 20,000 -
Discount Received - 8,000
Furniture & Fittings 40,000 -
Rent 10,000 -
Sundry expenses 16,500 -
Balance of Profit & Loss (1.4.2021) - 50,000
Share Capital (Subscribed & Paid-up; ₹10 each) - 2,00,000
Interim Dividend 16,000 -
Debtors & Creditors 52,400 31,000
Plant & Machinery 2,46,000 -
General Reserve - 20,000
Cash at bank 8,000 -
Bills Receivable & Bills Payable 6,000 8,000
Total 11,27,000 11,27,000

Additional information:
(i) Stock on March 31, 2022 was valued at ₹98,000
(ii) Depreciate: Plant & Machinery @ 15%, Furniture & Fitting @ 10%.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
(iii) On 31st March, 2022 outstanding rent amounted to ₹800 while outstanding salaries totalled
₹ 1,200.
(iv) Make a provision for doubtful debts @ 5%.
(v) Provision for tax is to be made @ 30%.
(vi) The directors proposed a dividend @ 10% for the year ended March 31, 2022 excluding
interim dividend and decided to transfer ₹10,000 to General Reserve.
I. You are required to prepare the Notes to Accounts to support preparation of the Statement of
Profit and Loss for the year ended on 31.03.2022.
II. You are required to prepare the Statement of Profit and Loss for the year ended on 31.03.2022.
III. You are required to prepare the Notes to Accounts to support preparation of the Balance Sheet
as on 31.03.2022.
IV. You are required to prepare the Balance Sheet as on 31.03.2022. [14]

Answer:

Notes to Accounts supporting the Statement of Profit and Loss:

(1) Cost of purchase
Particulars Amount(₹)
Purchase less. Returns (5,00,000-10,000) 4,90,000
Add: carriage inward 2,100
4,92,100

(2) Employee benefit expenses

Particulars Amount(₹)
Wages 50,000
Salaries 20,000
Add: Outstanding 71,200

(3) Depreciation and Amortization

Particulars Amount(₹)
On Plant and Machinery (2,46,000 x 15%) 36,900
On Furniture and Fittings (40,000 x 10%) 4,000
40,900

(4) Other expenses

Particulars Amount(₹) Amount(₹)
Rent 10,000
Add: Outstanding 800 10,800
Sundry expenses 16,500
Provision for doubtful debt (52,400 x 5%) 2,620
29,920

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING

XYZ Pharmaceuticals Ltd.

Profit and Loss Statement for the year ended 31st March, 2022
Particulars Amount(₹)
I. Revenue from operations 8,00,000
II. Other income (Discount received) 8,000
III. Total Revenue [I + II] 8,08,000
IV. Expenses:
Cost of purchase 1 4,92,100
Changes in inventories [1,60,000-98,000] 62,000
Employee Benefits Expense 2 71,200
Finance Costs Nil
Depreciation and Amortization Expenses 3 40,900
Other Expenses 4 29,920
Total Expenses 6,96,120
V. Profit before Tax (III-IV) 1,11,880
VI. Tax Expenses @ 30% 33,564
VII. Profit for the period 78,316

Notes to Accounts supporting Balance Sheet:

1. Share Capital Amount(₹) Amount(₹)
Subscribed and Paid-up Capital
20000 Equity Shares of ` 10 each 2,00,000
2 Reserve and Surplus
General Reserve (20,000+10,000) 30,000
Balance of Statement of Profit & Loss Account
Opening Balance 50,000
Add: Profit for the period 78,316
1,28,316
Appropriations
Interim dividend (16,000) 1,02,316
Transfer to General Reserve (10,000)
Closing balance 1,32,316
3 Trade payables
Creditors 31,000
Bills payables 8,000
39,000
4. Other Current Liabilities
Outstanding Salaries 1,200 2,000
Outstanding rent 800
5 Tangible Assets
Plant and Machinery 2,46,000

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
Less: Depreciation 36,900
2,09,100
Furniture and Fittings 40,000
Less: Depreciation 4,000 36,000
2,45,100
6 Trade Receivables
Bills receivable 6,000
Sundry Debtors 52,400
Less: Provision for Doubtful Debts 2,620 49,780
55,780

XYZ Pharmaceuticals Ltd.

Balance Sheet as on 31.03.2022
I EQUITY AND LIABILITIES Note Amount(₹)
(1) Shareholders' Funds
Share Capital 1 2,00,000
Reserves and Surplus 2 1,32,316
(2) Non-Current Liabilities
(3) Current Liabilities
Trade Payable 3 39,000
Other Current Liabilities 4 2,000
Short term provisions (Provision for tax) 33,564
Total 4,06,880
II II ASSETS
(1) Non-Current Assets
(a) PPE and Intangible Assets
PPE 5 2,45,100
(b) Non-current Investments
(2) Current Assets
Inventories 98,000
Trade Receivables 6 55,780
Cash and Cash Equivalent (Bank balance) 8,000
Total 4,06,880

Foot Note: Contingent Liabilities for Proposed Dividend = 2,00,000 x 10% = ₹20,000

4. (a) On 31 March, 2021 Victory Bank Ltd. had a balance of ₹18 crores in Rebate on Bill Discounted
A/c. During the year ended 31st March, 2022, Victory Bank Ltd. discounted bills of exchange
of ₹8,000 crores charging interest at 18% p.a., the average period of discount being for 73
days. Of these, bills of exchange of ₹1,200 crores were due for realization from the
acceptor/customers after 31st March, 2022, the average period outstanding after 31st March,
2022 being 36.5 days.

Victory Bank Ltd. asks you to pass journal entries and prepare the ledger accounts pertaining
to:

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
a. Discounting of Bills of Exchange; and
b. Rebate on bill Discounted. [7]

(b) From the following information Calculate Return on Equity: [7]

1. Date of Commercial Operation of COD = 1st April 2019
2. Approved Opening Capital Cost as on 1st April 2019 = ₹15,00,000
3. Details of allowed Additional Capital Expenditure:

1st year 2nd year 3rd year 4th year

Additional Capital
Expenditure (Allowed) 1,00,000 30,000 20,000 10,000
Rate of ROE: 15.5%

Answer:

(a)
In the books of Victory Bank Ltd.
Journal
(₹ in Crore)
Date Particulars Dr. (₹) Cr.(₹)
1.4.22 Rebate on Bill Discounted A/c Dr. 18.00
To, Discount on Bills A/c 18.00
(Being the transfer of opening balance to Rebate on Bill
Discounted Account)
Bills Purchased and Discounted A/c Dr. 8,000
To, Client A/c 7,712.00
To, Discount on Bills A/c [`8,000 x 18/100 x 73/365] 288.00
(Being the discounting of bills during the year)
31.3.22 Discount on bills A/c Dr. 21.60
To, Rebate on Bills Discounted A/c 21.60
(Being the Provision for unexpired discount as on 31.03.2012)
31.03.22 Discount on bills A/c Dr. 284.40
To, Profit and Loss A/c 284.40
(Being the amount of income for the year from discounting of
bills of exchange transferred to Profit and Loss Account)

Ledger of Victory Bank Ltd.

Rebate on Bills Discounted Account (₹ In Crores)
Dr. Cr.
Date Particulars (₹) Date Particulars (₹)
01.4.21 To, Discount on bills A/c 18.00 01.4.21 By balance b/d 18.00
31.03.22 To balance c/d 21.60 31.3.22 By Discount on bills A/c 21.60
(Rebate required)
39.60 39.60

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING

Discount on Bills Account (₹In Crores)

Dr. Cr.
Date Particulars (₹) Date Particulars (₹)
31.03.22 To Rebate on Bills 21.60 01.4.21By Rebate on Bills 18.00
Discount A/c Discounted A/c
31.03.22 To Profit and Loss A/c 284.40 2021-22 By Bills Purchased and 288.00
(Transfer) Discount A/c
306.00 306.00

(b) Statement showing Return on Equity at Normal Rate

S. No Particulars Year 1 Year 2 Year 3 Year 4
1 2 3 4 5 6
Return on Equity
1 Gross Opening Equity (Normal) 30% of 4,50,000 4,80,000 4,89,000 4,95,000
Opening Capital Cost
2 Less: Adjustment in Opening Equity Nil Nil Nil Nil
3 Adjustment during the year Nil Nil Nil Nil
4 Net Opening Equity (Normal) 4,50,000 4,80,000 4,89,000 4,95,000
5 Add: Increase in equity due to addition 30,000 9,000 6,000 3,000
during the year / period (30%)
6 Less: Decrease due to De-capitalisation Nil Nil Nil Nil
during the year / period
7 Less: Decrease due to reversal during Nil Nil Nil Nil
the year /period
8 Add: Increase due to discharges during Nil Nil Nil Nil
the year/ period
9 Net closing Equity (Normal) 4,80,000 4,89,000 4,95,000 4,98,000
10. Average Equity (Normal) 4,65,000 4,84,500 4,92,000 4,96,500
11 Rate of ROE 15.5% 15.5% 15.5% 15.5%
12 Total ROE 72,075 75,098 76,260 76,958

5. (a) The following information applies to a company’s defined benefit pension plan for the year:

FMV of plan assets (beginning of the year) ₹2,00,000

FMV of plan assets (end of the year) ₹2,85,000
Employer’s contribution ₹ 70,000
Benefit paid ₹ 50,000

Calculate the actual return on plan assets. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING

(b) The following is the income statement XYZ Company for the year 2021 – 22. [7]
Particulars ₹ ₹ ₹
Sale 1,62,700
Add: Equity in ABC company’s earning 6,000
1,68,700

Expenses
Cost of goods sold 89,300
Salaries 34,400
Depreciation 7,450
Insurance 500
Research and development 1,250
Patent amortization 900
Interest 10,650
Bad debts 2,050
Income tax:
Current 6,600
Deferred 1,550
Total expenses 8,150 1,54,650
Net income 14,050

Additional information is:

(i) 70% of gross revenue from sales were on credit.
(ii) Merchandise purchases amounting to ₹92,000 were on credit.
(iii) Salaries payable totalled ₹1,600 at the end of the year.
(iv) Amortisation of premium on bonds payable was ₹1,350.
(v) No dividends were received from the other company.
(vi) XYZ Company declared cash dividend of ₹4,000.
(vii) Changes in Current Assets and Current Liabilities were as follows:
Increase (Decrease) ₹
Cash 500
Marketable securities 1,600
Accounts receivable (7,150)
Allowance for bad debt (1,900)
Inventory 2,700
Prepaid insurance 700
Accounts payable (for merchandise) 5,650
Salaries payable (2,050)
Dividends payable (3,000)

Prepare a statement showing the amount of cash flow from operations.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING
Answer:

(a) Calculation of actual return on plan assets

Particulars ₹ ₹
Change in plan assets (2,85,000 – 2,00,000) 85,000
Adjustments:
Employer’s contribution 70,000
Less: Benefit paid 50,000 20,000
Actual return on plan assets 65,000

(b) Statement Showing Cash Flow from Operations

Cash flow from operations ₹ ₹
Cash sales (30% 1,62,700) 48,810
Collection from debtors 1,20,890
Total cash from operations 1,69,700
Uses of cash from operations
Payment to suppliers 86,350
Salaries expense 36,450
Payment for insurance 1,200
Research and development 1,250
Interest payment 12,000
Income tax payment 6,600 1,43,850
Net cash flow from operations 25,850
Notes:
(1)
Collection from debtors ₹
Credit sales (70% × 1,62,700) 1,13,890
Less: Bad debts (2,050 less 1,900) 150
1,13,740
Add: decrease in accounts receivables 7,150
Collection from debtors on credit sales 1,20,890
(2) Dividends earned `6,000 on equity of ABC Company has not been considered as it has not
been received in cash.
(3)
Payments of suppliers ₹
Cost of goods sold 89,300
Add: Increase in inventory 2,700
Purchases 92,000
Less: increase in accounts payable 5,650
Payment to suppliers 86,350
(4)
Calculation of salaries payment ₹
Salary expense 34,400
Add: decrease in salary payable 2,050
Payment of salaries 36,450
(5)
Insurance payments ₹
Insurance 500
Add: increase in prepaid insurance 700
Payment for insurance 1,200

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING

(6)
Interest expenses ₹
Add: Amortisation of bond premium 1,350
Interest payments 12,000

(7)
Income tax payments ₹
Income tax expense 8,150
Less: Deferred tax 1,550
6,600
Changes in current tax payable Nil
Income tax payments 6,600

6. (a) Define Auditing, what ate the basic principles for governing an audit. [7]

(b) Discuss the procedure of submission of Cost Audit Report as per Section 148(5) read with
Rule 6 of the Companies (Cost Records and Audit) Rules 2014. [7]

Answer:

(a) Basic Principles Governing an Audit

SA 200 issued by The Institute of Chartered Accountants of India gives the following basic
principles that govern the auditor’s responsibilities whenever an audit is carried out:
(i) Integrity, objectivity and independence: The auditor should be straight-forward, honest,
sincere and free form any influence on his audit work. He should maintain impartiality and
be free of any interest.
(ii) Confidentiality: He should not disclose the client’s information to anybody without the
client’s permission or under any regulatory requirement.
(iii) Skills and competence: The audit should be performed and audit report be prepared by
adequately trained, experienced and competent person.
(iv) Work performed by others: The auditor should carefully supervise the work performed by
others (such as his subordinates, other auditors, experts etc.) as remains responsible for the
work delegated by him to his assistants, other auditors or experts.
(v) Documentation: Proper working papers should be maintained by the auditor to evidence
the audit work. Working paper which is maintained is to demonstrate that the audit is in
adherence to the basic principles.
(vi) Planning: The auditor should obtain the knowledge about client’s business to determine the
nature, timing and the extent of the audit procedures.
(vii) Audit evidence: The auditor should obtain sufficient appropriate audit evidence through
performing the compliance and substantive procedures.
(viii) Accounting system and internal controls: An understanding of the accounting system and
the related internal controls help in determining the nature, timing and extent of other audit
procedures.
(ix) Audit conclusions and reporting: On the basis of conclusions drawn from the audit
evidence obtained the auditor should give unqualified report or qualified report or adverse
report or the disclaimer report.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING

(b) As per Section 148(5) read with Rule 6 of the Companies (Cost Records and Audit) Rules 2014:
(a) Every cost auditor, who conducts an audit of the cost records of a company, shall submit the
cost audit report along with his or its reservations or qualifications or observations or
suggestions, if any, in Form CRA-3.
(b) The cost auditor shall forward his duly signed report to the Board of Directors of the company
within a period of 180 days from the closure of the financial year to which the report relates
and the Board of Directors shall consider and examine such report, particularly any reservation
or qualification contained therein.
(c) The company covered under these rules shall, within a period of 30 days from the date of
receipt of a copy of the cost audit report, furnish the Central Government with such report
along with full information and explanation on every reservation or qualification contained
therein, in Form CRA-4 in Extensible Business Reporting Language format in the manner as
specified in the Companies (Filing of Documents and Forms in Extensible Business Reporting
language) Rules, 2015 along with fees specified in the Companies (Registration
Offices and Fees) Rules, 2014”.
Provided that the Companies which have got extension of time of holding Annual General
Meeting under section 96 (1) of the Companies Act, 2013, may file Form CRA-4 within
resultant extended period of filing financial statements under section 137 of the Companies
Act, 2013.
(d) If the Central Government is of the opinion that any further information or explanation is
necessary, it may call for such further information and explanation and the company shall
furnish the same within such time as may be specified by that government.

7. (a) Discuss the essential characteristics of a good audit report. [7]

(b) Describe the structure of NFRA, list its functions and duties. [7]

Answer:

(a) The following are the essential characteristics of a good audit report:
(i) Simplicity: An audit report should be simple and easily understandable to the users. It should
be written is simple language and should be self-explanatory.
(ii) Clarity: The audit report should be clear and unambiguous. The auditor must clearly mention,
in his report, the purpose of audit, sources of information, his findings and overall opinion.
(iii) Brevity: The report should be brief and specific. While everything relevant must be disclosed,
the report should avoid unnecessary detailing.
(iv) Firmness: The report should firmly state whether, in the opinion of the auditor, the financial
statements represent the true and fair view of the performance and state of affairs of the
business.
(v) Objectivity: The audit report should always be based on objective evidences. It is very much
required to reduce or eliminate biases, prejudices, or subjective evaluations by relying on
verifiable data.
(vi) Disclosure: The audit report should properly disclose all relevant facts and the truth. The
relevance should be decided based on materiality of the concerned item.
(vii) Impartiality: The report should be unbiased. The recommendations must be impartial and
objective.
(viii) Information-based: Only relevant and accurate information should be included in the audit
report.
(ix) Timeliness: The report should be prepared and presented within the stipulated time. This will
help in timely decision making.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
PAPER – 10 SYLLABUS 2022
CORPORATE ACCOUNTING AND AUDITING

(b) The following committees will make up the NFRA:

(i) Accounting Standards Committee;
(ii) Auditing Standards Committee
(iii) Enforcement Committee.

Functions and Duties of NFRA

As per Section 132(2) of the Companies Act, 2013, the duties of the NFRA are to:
(i) Recommend accounting and auditing policies and standards to be adopted by companies for
approval by the Central Government;
(ii) Monitor and enforce compliance with accounting standards and auditing standards;
(iii) Oversee the quality of service of the professions associated with ensuring compliance with such
standards and suggest measures for improvement in the quality of service;
(iv) Perform such other functions and duties as may be necessary or incidental to the aforesaid functions
and duties.

Sub Rule (1) of Rule 4 of the NFRA Rules, 2018, provides that the Authority shall protect the public
interest and the interests of investors, creditors and others associated with the companies or bodies
corporate governed under Rule 3 by establishing high quality standards of accounting and auditing and
exercising effective oversight of accounting functions performed by the companies and bodies corporate
and auditing functions performed by auditors.

8. (a) Demonstrate the audit procedure to be followed by an auditor while conducting the audit of
an educational institution. [7]

(b) Discuss the benefits and limitations of Joint Audit? [7]

Answer:

(a) Educational institutions of any state in India are generally established and run under the Societies
Registration Act 1960 or Public Trust Act of the state concerned. Similarly, central educational
institutions are guided by the respective regulations issued by the Ministry of Education from time
to time. In some cases, large educational institutions like universities are established by Central or
State governments by enacting special legislation. Accordingly, the audit of accounts of these
institutions is carried out as per the provisions of the legislation or the Trust Deed concerned. In
addition, various circulars issued by the Central or State Government for institutions are also
considered relevant in this respect.
a) Understand the Constitution:
Study the Trust deed, Regulation or Act under which the institution has been established and should
take note of the provisions regarding the maintenance of accounts. In case of State or Central
University, established under the Special Act, study the regulations framed under the Act.

b) Assess the Internal Control System:

Normally, these institutions have a well-organised internal control system. So, evaluate the internal
control system associated with acquisition and maintenance of assets, authorization of transactions,
etc. before finalising the audit programme.

c) Consult the Minute Book:

Carefully examine all notices and minutes of the meeting of Governing Body

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
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CORPORATE ACCOUNTING AND AUDITING
(in case of colleges), Senate, Syndicate, Court and Council (in case of universities) and other
committees which affect the accounts and finance of the institute. Confirm that the decisions taken
for operation of bank accounts, approval of expenditure etc. have been duly complied with.

d) Consult the Budget:

Check the budget allocation to different heads and confirm that all amount sanctioned beyond
budget has been duly approved.

Verify the Receipts Related Transactions:

(i) Tuition Fees: Tally the counterfoils of fee receipt with fee register to see whether they have
been duly recorded or not. Check the register to identify whether all the students have paid
their fees in due time. If any student has deposited the fees beyond the due date, check
whether late fine has been charged or not and whether the same has been properly recorded.
See whether all collections are deposited in the bank account at the end of the day. Total up
the various columns of the Fees Register for each month or term to ascertain that fee paid in
advance have been carried forward and the arrears that are irrecoverable have been written
off under the sanction of an appropriate authority.
(ii) Admission Fees: Check admission fees with admission slips signed by the head of the
institution and confirm that the amount had been credited to a Capital Fund, unless the
Managing Committee has taken a decision to the contrary.
(iii) Other Fees: Verify the collection of other fees such as library fees, session fees or
development fees, fees for hostel etc. based on the counterfoils and fee registered and ensure
that the fees have been accounted for in appropriate heads.
(iv) See that all arrears on account of fees, fines, etc. have been taken into consideration at the
end of accounting period.
(v) See that free studentship and concessions have been granted by a person authorised to do so,
having regard to the prescribed Rules.
(vi) Confirm that hostel dues were recovered before students’ accounts were closed and their
deposits of caution money refunded.
(vii) Verify grants received from Government or other organisations based on the sanction letter
and bank statement.
(viii) Ensure that donation received, if any, has been acknowledged and recorded properly in the
books of accounts.
(ix) Check income from letting out institutional properties based on the counterfoil of receipts
issued to parties.
(x) Vouch income from endowments and legacies, as well as interest and dividends from
investment; also inspect the securities in respect of investments held.

Verify the Payments Related Transactions:

(i) Verify the salary and wages paid to the employees. In case of Govt. or aided colleges, verify
that the claims have been properly prepared and the amount sanctioned has been distributed
to the right person.
Check the calculation and accounting of arrear salary and see whether the deductibles from
salary, such as Provident Fund Contribution and Income Tax deducted at source, have been
deposited with the authority concerned in due time and if not, whether the same have been
accounted for appropriately.

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Directorate of Studies, The Institute of Cost Accountants of India
 INTERMEDIATE EXAMINATION SET - 2
MODEL ANSWERS TERM – DECEMBER 2023
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CORPORATE ACCOUNTING AND AUDITING
(ii) Examine whether all the expenditure associated with special events like seminar or
symposium etc. has been accounted for by matching the expenditure in this regard against
the amount obtained from any organisation or sanctioned by the institution itself.
(iii) Vouch all the regular expenses such as electricity, telephone or broadband bills, travelling
expenses, etc. based on available vouchers and accounting records.
(iv) Vouch purchase of fixed assets, expenditure for construction of college buildings based on
the available vouchers, resolution of the meetings of purchase/finance committee. Similarly,
utilization of grants for purchase of fixed assets, library books and laboratory equipment
must be separately vouched.
(v) Vouch the refund of Caution Deposit from the students based on receipts and accounting
records.
(vi) Examine the payments on account of hostel facilities including repairs and maintenance of
hostel building, electricity charges, purchase of food items etc.
(vii) See that the investments representing endowment funds for prizes are kept separate and any
income in excess of the prizes has been accumulated and invested along with the corpus.

Verification of Assets and Liabilities:

(i) Conduct physical verification of tangible fixed assets as shown in the Fixed Asset Register.
Verify investments based on Investment Register.
(ii) Check whether depreciation and amortization has been provided as per the policy adopted.
(iii) Verify the refund of TDS in respect of interest on investment, if any.
(iv) Carefully examine all outstanding liabilities such as electricity and telephone bills
outstanding, TDS and PF not yet deposited.
(v) Verify the inventories of furniture, stationery, clothing, provision and all equipment, etc.
These should be checked by reference to Stock Register and values applied to various items
should be test checked.
(vi) Ascertain that the system ordering inspection on receipt and issue of provisions, foodstuffs,
clothing and other equipment is efficient and all bills are duly authorised and passed before
payment.

Verification of Financial Statements:

Verify that the financial statements (i.e., Income and Expenditure Account and Balance Sheet) have
been prepared in the form and manner as specified by the regulatory authority complying with the
account standards and applicable legal requirements.

(b) Limitations of Joint Audit

(i) Established auditors may have a superiority complex over the less experienced one.
(ii) It is not suitable for a small entity due to substantial cost burden.
(iii) At times, lack of coordination among the auditors may slow down the speed of work.
(iv) There may be uncertainty about the liability of any work.
(v) Areas of common concern may be neglected.
(vi) The auditors have to share the fees.

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Directorate of Studies, The Institute of Cost Accountants of India