CA Final IBS Q MTP 1 Nov 2024 Exam Castudynotes Com

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Mock Test Paper - Series I: September, 2024
Date of Paper: 21st September, 2024
Time of Paper: 2 P.M. to 6 P.M.
FINAL COURSE: GROUP – II
PAPER – 6: INTEGRATED BUSINESS SOLUTIONS
Attempt any four out of five case study based questions.
Each Case Study carries 25 Marks.
Time Allowed – 4 Hours Maximum Marks – 100
CASE STUDY 1
Journey of Rahul & Raj Films Ltd.

The journey of Rahul & Raj Films Ltd. (“R & R”) began in 1994, weaving captivating
tales that unfolded on small screen, followed by hitting the big screen in 2000. At the
helm of this creative enterprise, is Mr. Shah Ratan Kumar, Ms. Rani Kapoor and Ms.
Nutan Dubey orchestrated a symphony of talent and vision, propelling R & R to the
forefront of India’s entertainment industry. Recognized as pioneers in movie
production, The company have carved a niche for itself, enchanting viewers with an
array of captivating narratives across various mediums and genres.
1994 2000 2014 2023

First appearance Major Cemented Launched
in movie breakthrough leadership streaming
business with many hits position platform
The company has established strong Board of Directors comprising seasoned

professionals from diverse backgrounds, who bring their expertise and guidance to
steer the company towards sustainable growth. The Board exercises prudent
oversight, ensuring strategic alignment, risk management and adherence to corporate
governance standards. The Board of Directors and senior management details are
given as per Annexure -A.
India’s Film Industry: A Growing Giant
India’s film industry is one of the largest in the world with more than 2,000 motion
picture films (‘movies’) release per year viewed by over 3 billion moviegoers annually.
It is ` 260 billion industry and is expected to grow to ` 600 billion by 2039. The Indian
Film Industry comprises of motion picture films produced across India. This industry
enjoys mass appeal and is probably the most important content feeder to other
businesses in the Media & Entertainment space. Opportunity in the industry lies in
meeting the demands of the new age consumer who seeks customized content
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tailored to their preferences. This shift in consumer behaviour presents a favourable
environment for the company to thrive and capitalize on emerging opportunities. The
industry is witnessing the following megatrends:
Megatrend 1: Witnessing Megatrend 2: With the Megatrend 3: The

the adoption of emerging rise of digitalized globalization of media
technologies to offer communities, brands and entertainment
immersive viewing and platforms are services presents new
experiences. Virtual actively incorporating opportunities for
Reality and Augmented features like ‘go live’ to content creators,
Reality are being build online distributors and
leveraged. communities. advertisers.
Key Business Strategies: Expanding Horizons

R & R, remains committed to producing engaging content, leveraging experience and
expertise and expanding customer base. The focus on quality, adaptability and
innovation continues to drive success in the dynamic world of entertainment. Movie
making broadly involves the following steps:
Ideation Pre-production Production Release
• Budget study • Script writing • Film shooting • Marketing for

• Recee • Audition of • Visual effects release
• Script artists • Dubbing • Event
scouting • Set expenses
constuction
The key business strategies of R & R are as follows:

 Expanding into Non-Fiction: The company also enhances its focus towards
non-fiction content and successfully launched ‘Locked in’ in the current year,
which emerged as the highest-watched movie, showcasing the extensive reach
of its business. This success encourages to continue emphasizing transforming
passive audiences into engaged prospects by striving to bring more out-of-the-
box content-led movies.
 Quality over Quantity: The company driven by fundamental principle of
choosing quality over quantity when it comes to content. With decades of
experience, the enhanced industry knowledge and ability to gauge ongoing and
emerging trends have helped the company serve better. The company have built
a better understanding of the choices and preferences of audience, enabling it
to consistently deliver content that resonates with them.
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 Enhancing User Experience: While the emphasis remains on connecting with
more people in better way The company also stay aligned with the need of the
time to adapt to the surrounding changes. Technological upgradation has
become an integral part of our business as the company continue to cater to the
entertainment needs of audiences through digital platforms. Refer Annexure B
for customer feedback.
Box office hits of the current year
The swords of Locked

Baahubal
Wasseypur Heart
New Projects and Strategic Decisions

The movie ‘Simran’ is currently being conceptualised, where the primary focus is on
gathering detailed information and developing a solid foundation for the storyline. The
project aims to explore the theme of woman empowerment. The objective at this stage
is to ensure the story is grounded in accurate, relevant, and engaging content. This
includes examining historical contexts, cultural elements, scientific data, or other
relevant fields to enhance the authenticity and depth of the narrative. The next steps
involve synthesizing the gathered information into a coherent storyline, developing
character profiles, and creating a detailed plot outline. Collaboration with subject
matter experts will continue to ensure the highest level of accuracy and authenticity in
the portrayal of the chosen themes.
The company decided to abandon the movie ‘Kaleen Bhaiya’. The decision to abandon
the movie project was primarily due to the story not meeting the desired standards.
Despite multiple revisions and considerable effort from the writing team, the narrative
failed to captivate and engage in the way that was envisioned. The lack of a compelling
and cohesive storyline made it difficult to move forward with production. The team
agreed that it would be best to discontinue the project rather than invest further
resources into a script that did not meet the creative expectations.
Music Rights and Revenue Growth
In India, music is an important feature of motion picture films. Music rights are
generally sold to music companies during the production stage itself. As music plays
an important role in the marketing of a motion picture film, music companies release
the soundtrack prior to the theatrical release. These rights are generally assigned to
the music company in perpetuity for a fixed fee. Where the producer has right to future
royalty after achievement of threshold sales by the music company, royalty income is
recognized as earned, when communicated/ confirmed by the music company.
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On 1st September 2023, the company grants music rights of its three upcoming movies
to ‘GOLD’, a music company for ` 3,000 lakhs receivable on date of contract signing.
The contract condition stipulates that proportionate amount shall be refunded in case
of non-release of music of any of the three movies. The music rights are made
available to the music company for the first film on 1st December 2023, second film on
1st January, 2024 and for the third film on 1st July, 2024.
During the F.Y. 2023-24, R & R continued to thrive across various mediums,
delivering captivating content that resonated with the audiences. The Group
reported 76% increase in revenue to ` 593 crores vis-à-vis ` 337 crores in the
previous financial year. Cost of production also increased to ` 511 crores vis-à-vis
` 327 crores in the previous financial year in line with increase in production hours,
crossing the milestone of producing more than 1,000 hours of content during the
fiscal year. EBIDTA loss at ` 19 crores was narrowed by 84% in the current financial
year over loss of ` 122 crores in the previous financial year. The company has
improved its accounts receivable collection efficiency, reducing the sales
outstanding from 164 to 160 days
Auditor Engagement and Concerns
Ranveer and Ranbir LLP are appointed as auditors of the company since last 4 years.
The firm’s audit & assurance practise in different sectors including Media &
Telecommunications is dedicated to delivering exceptional quality and innovative
solutions with team of experienced professionals who offer in-depth industry expertise
and insightful audits, ensuring that clients receive the highest level of assurance. The
firm is an auditor to many of the country’s most recognizable brands in the market
today.
Considering the continuance of audit, the engagement partner is deliberating whether
a new engagement letter should be sent for the audit of the current F.Y. ended
31st March, 2024. Till last year, an engagement letter was sent for audit of every
F.Y. despite no change of laws and regulations, auditors/management responsibilities.
During the audit engagement, the auditor observed that the days outstanding are
significantly higher than industry averages and decided to obtain independent balance
confirmations of trade receivables. The confirmation letter requests the customer to
respond directly to the auditor indicating whether the party agrees or disagrees with
the information in the request or provide the requested information. Based on previous
experience, the auditor believed that the responses to the confirmation requests would
be insufficient. This is primarily due to the fact the company works in an unorganised
sector and every customer may not readily maintain updated books and records. Also
due to lack of interest, customers may generally be reluctant in confirming balances.
Subsidiary Operations and Market Position
R & R operates movie theatres in different parts of the country through the following
group entities:
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Mangla Talkies Ltd.
Established 10 years ago in Mumbai with the strategic objective to identify movie
theatres at different parts of the country and secure time slot of exhibitions and other
logistical aspects. At the moment logistical related aspects of about 50% of the movies
exhibited by R & R is handled by this subsidiary. In recent years, competition between
theatre owners has intensified. It has been estimated that total annual turnover for the
movie exhibition in the country has fallen by 5% in the past two years. The estimated
market share of Mangla Talkies, which operates the fifth largest movie logistics
management company, has fallen from 14% to 13% in the same period. It has a low-
profit margin.
Prospects for the entertainment industry is uncertain, partly because of lower box
office collections but also because of availability of alternate entertainment avenues.
OTT platforms have limited the number of movies that are released each year. There
is concern that the OTT platform will reduce movie production over time.
Sangam Theatres Ltd.
Sangam Theatres was acquired about 20 years ago when it was a newly established
company. At the moment about 50% of the movies released by R & R is exhibited by
Sangam Theatres. R & R used government grants, available at the time (but no longer)
to invest in modernisation of the theatre. Sangam Theatres is now a leading theatre
operator, and it attracts a large amount of its business from other companies, partly
because of its operating capabilities but also because of its relatively low costs. The
low costs are achievable because Sangam Theatres uses relatively modern
equipments having larger capacities. The market is fairly static, increased in size by
just 2% in the past two years. Annual turnover for Sangam Theatres has risen by 8%
in the same period, and its profits are also rising. Sangam Theatre also exhibits movies
of other movie producers.
Payal Movies Ltd.
Payal was acquired 7 years ago as a strategic response to the declining regional movie
market. It operates several movie theatres at various states. R & R has experienced
problems with Payal Movies since its acquisition. Operating costs have been higher
than expected. Over the past 2 years the market has increased by 20%. Annual
revenue of has risen by 12% in the same period, but its annual profits have risen only
slightly.
Vijay Screens Ltd.
R & R established a subsidiary company - Vijay Screens to create a platform for
documentaries and similar movies created by the upcoming directors. Competition in
the business is strong, and profit margins for Vijay Screens are narrow, but R & R
considered that owning a platform for documentary movies would give it greater
control over its movies’ portfolio.
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ANNEXURE-A
The Board of Directors of R&R comprises of following persons:
Mr. Shah Ratan A celebrated movie star and starring in more than 200 movies in his
Kumar career of 50 years. He is particularly popular as a romantic lead. He is
also a reputed film producer. He has won a number of prestigious
Promoter and Non-
awards, including the Lifetime Achievement Award, as well as
Executive
Dadasaheb Phalke Academy Award
Chairman
Ms. Rani Kapoor Has been in charge of company’s operational management and
efficiency and in controlling ‘on set’ activity. She has won a number of
Promoter and
prestigious awards including CEO of the Year and Businesswoman of
Managing Director
the Year. Earlier the position was held by Mr. A. Suleiman.
Ms. Nutan Dubey Undertakes the day-to-day creative direction of movies produced by the
company. She has won a number of prestigious awards, including the
Promoter and Joint
Businesswoman of the Year and Entrepreneur of the Year.
Managing Director
Ms. Sanna An industry veteran with over three decades of experience in the media
Mukherjee and entertainment business. Appointed as CEO of Vianet19 to drive its
Independent transition into a truly integrated media company across broadcast and
Director digital, and across entertainment and sports in over 8 languages. Her
initial appointment as an Independent Director was for 1 year and was
then reappointed for another term of 5 years which would end on 30th
July, 2024. The Board proposes to appoint her for another term of 5
years. If her appointment proposal is accepted as per applicable laws
and regulations, Ms. Sanna will attain 68 years of age on completion of
her third term.
Mr. S. Dutt Chartered Accountant by profession and is a Life & Fellow Member of
the Institute of Chartered Accountants in England and Wales and a
Independent
Fellow Member of the Institute of Chartered Accountants of India. He
Director
was a partner at CA firm, Salman & Aamir from 1969 and was the Senior
Partner (Chairman) of the firm from 1989 till 1999.
Mr. Prem Naryan A Chartered Accountant by profession and is a Life & Fellow Member
Chopra of the Institute of Chartered Accountants in Australia and a Fellow
Member of the Institute of Chartered Accountants of India. He also
Group CFO
served as the Chairman of the Direct Taxation Committee of the
Southern India Chamber of Commerce & Industry and was a member
of the Board of Governors of the Doon School, Dehradun. Earlier this
position was held by Amrish Nath till last year.
Ms. Juliya Jain Joined the company in the current year and holds a Bachelor’s Degree
in Commerce and a Bachelor’s Degree in Law from the University of
Group Head –
Delhi. She has over 36 years of rich experience in the Finance, Capital
Secretarial
Markets, Banking, General Corporate Advice and Regulatory Practices.
She was a Senior Partner at BZA Legal, Executive Vice President and
Head of Legal & Compliance Department at Credit Bank Ltd. Previously
this position was held by Ms. Deepika Singhal.
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ANNEXURE-B
EXTRACTS FROM CUSTOMER’S FEEDBACK
Yusuf J., Friday, 4:00 p.m., August 15, 2024
At Rahul & Raj, I believe that the movie-going experience doesn't end when the credits roll.
Every visit to Sangam Theatres is an opportunity to create lasting memories, and I'm committed to
making each one better than the last.
Thank you so much for your kind words! We’re thrilled to hear that you had such a positive
experience at Sangam Theatres. We’ve worked hard to make sure every visit is as seamless and
enjoyable as possible; from the moment you park to the end.
Tina M., Friday, 2:30 p.m., August 15, 2024
While I've always enjoyed watching movies at Mangla Talkies, my recent visit left me with mixed
feelings. The movie itself was fantastic, but I noticed that the service quality has slipped a bit. The
concession stand took longer than usual, and the seating wasn't as comfortable as I remembered.
Thank you for sharing your experience. We truly appreciate your loyalty to Mangla Talkies and
sorry to hear that your recent visit didn’t meet your expectations. Your feedback is invaluable, and
we want you to know that we’re taking it seriously. We’re already looking into the service delays at
the concession stand and the seating comfort, and we’re committed to making improvements. We
hope you’ll notice the difference on your next visit, and We look forward to welcoming you back to a
better experience soon.
I. Multiple Choice Questions
1.1 Should the auditor send an engagement letter for the audit of the current financial
year of R & R? Choose the correct statement.
(a) New engagement letter should be sent if there is recent change of senior
management or similar at R & R.
(b) New engagement letter should be sent every year including recurring audit
engagements under the Companies Act, 2013.
(c) It is optional to obtain to new engagement letter for recurring audit
engagements as envisaged under SA 210.
(d) The Companies Act, 2013 mandates auditors to obtain engagement letter
for every audit.
1.2 What type of confirmation request have been designed by the auditor while
auditing trade receivables?
(a) Negative confirmation request
(b) Positive confirmation request
(c) Hybrid confirmation request
(d) Blank confirmation request
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1.3 What amount of revenue from music rights be recognised in the financial
statements of FY 2023-2024?
(a) ` 2,000 lakhs
(b) ` 3,000 lakhs
(c) ` 1,000 lakhs
(d) ` 593 crores
1.4 Can Ms. Sanna Mukherjee be reappointed as an independent director for
another term of 5 years?
(a) Under the Companies Act, 2013, an independent director can be appointed
for a maximum period of 10 years. Ms. Sanna Mukherjee can be
reappointed as an independent director for the remaining period of 4 years.
(b) Under the Companies Act, 2013, an independent director can be appointed
for 2 consecutive terms – each term being 5 years (i.e. 10 years). Ms.
Sanna Mukherjee can be reappointed as an independent director for
another term of 5 years since her first term was lesser period (i.e. 1 year
instead of 5 years) as provided under the Companies Act, 2013.
(c) Under the Companies Act, 2013, an independent director can be appointed
for maximum 2 consecutive terms – each term can be upto 5 years (i.e. 10
years). Ms. Sanna Mukherjee cannot be reappointed as an independent
director since she would attain 68 years of age on completion of the
proposed term of 5 years. Any person attaining 68 years of age cannot be
appointed as an independent director.
(d) Under the Companies Act, 2013, an independent director can be appointed
for maximum 2 consecutive terms – each term can be upto 5 years (i.e. 10
years). Ms. Sanna Mukherjee cannot be reappointed as an independent
director since she has completed 2 consecutive terms. Appointment for a
term less than 5 years is treated as one term.
1.5 Whether the cost of production of ‘Kaleen Bhaiya’ can be claimed as a deduction
while filing ITR by the company?
(a) Cost of production of abandoned movie can be claimed as a deduction
while filing ITR by the company as a capital expenditure.
(b) Cost of production of abandoned movie can be claimed as a deduction
while filing ITR by the company as revenue expenditure.
(c) Deduction of cost of production cannot be claimed under Rule 9A of the
Income Tax Rules 1962, since the movie was not certified for release by
Board of Censors.
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(d) Deduction of cost of production can be claimed under Rule 9A of the
Income Tax Rules 1962, since the cost of production did not exceed the
monetary limit of ` 500 crores prescribed in aforesaid Rule.
(5 x 2 = 10 Marks)
II. Descriptive Questions
1.6 EVALUATE the intricate value chain of R & R, focusing on the production,
acquisition, distribution, and exhibition of movies. DISCUSS the operational
challenges in each stage and how they affect the company's efficiency and
overall success. (6 Marks)
1.7 Whether the production of the movie ‘Simran’ is at the research or development
stage under the relevant Ind AS. Explain the accounting treatment for the cost
incurred till date with respect to the said movie? (4 Marks)
1.8 Explain the reason for obtaining independent confirmation prescribed under SA
505? What alternate procedures should the auditors, Ranveer and Ranvir LLP,
perform if the response of independent confirmation of trade receivable was
inadequate? (5 Marks)
CASE STUDY 2
Dev Products Ltd. (DPL): A Journey of Strategic Growth

Founded in the heart of India's industrial hub, Lucknow, in the early 1980s, Dev
Products Ltd. (DPL) began its journey as a modest manufacturing unit specializing in
agricultural implements. The company's entrepreneurial spirit and a keen
understanding of rural India's needs propelled its initial growth. Recognizing the
burgeoning construction sector, DPL expanded its product line in the late 1990s to
include basic building materials. This strategic move proved to be a cornerstone in
solidifying the company's position in the market.
Over the decades, DPL consistently reinvested its profits into research and
development, enabling it to diversify its product portfolio. The early 2000s witnessed
DPL's foray into the consumer durables market with the introduction of essential home
appliances. This expansion was driven by the growing middle class and the increasing
demand for modern conveniences. The company's commitment to quality and
affordability quickly garnered a loyal customer base. By the mid-2010s, DPL had
established itself as a formidable force in the Indian manufacturing industry. The
company's ability to adapt to evolving market trends and consumer preferences
allowed it to navigate economic challenges and emerge stronger. A strategic focus on
building a robust distribution network and prioritizing customer satisfaction further
cemented DPL's position as a trusted brand.
The company’s product portfolio is strategically categorized to cater to different market
segments, offering a comprehensive range of building materials essential for various
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construction projects, including pipes, wires, electrical fittings, and prefabricated
building components. In the home appliances sector, DPL meets the needs of modern
households with a selection of essential appliances like refrigerators, washing
machines, and water purifiers, potentially expanding to include smaller appliances like
kettles or toasters. Recognizing the importance of long-lasting consumer durables,
DPL’s offerings in this category include products like bicycles, furniture, and even
electronics like televisions. Beyond product diversification, DPL prioritizes exceptional
customer service and has established a robust distribution network across North India,
ensuring easy product availability for retailers and consumers. Additionally, DPL
emphasizes responsive after-sales support through a network of service centres,
fostering customer satisfaction and brand loyalty.
Strategic Acquisition of BDM Ltd.
In a strategic move to enhance synergy and expand its market presence, Dev Products
Ltd. (DPL) acquired BDM Ltd. BDM Ltd. is projected to generate an expected free cash
flow of ` 2 crores for the upcoming year, with a forecasted growth rate of 5%. The
company's cost of equity is calculated at 12%, while the after-tax cost of debt stands
at 6%. Notably, the market value of BDM Ltd.'s equity is estimated to be three times
its book value, whereas the book value as well as the market value of its debt is
equivalent to book value of equity.
The acquisition process saw significant milestones, beginning with the receipt of the
certified copy of the order of amalgamation from the National Company Law Tribunal
(NCLT) on 26th April 2023. This document, dated 25th April 2023, was subsequently
filed with the Registrar of Companies (ROC) for registration on 2nd May 2023, within
the stipulated timeline. The amalgamation was officially registered by the ROC on
10th May 2023, with the scheme of amalgamation indicating an appointed date of 5th
May 2023.
Initially, BDM Ltd. was valued at `50 crores by an analyst for the purpose of
amalgamation. However, a registered valuer of DPL later discovered that the analyst
had utilized the book values of debt and equity in his calculations, which necessitated
a revision of BDM Ltd.’s value in the amalgamation scheme. As a part of the
acquisition, DPL also gained two valuable trade secrets from BDM Ltd. — 'Design A,'
a patented interlocking bricks design, and 'Design B,' which pertains to the internal
component design of bricks but lacks legal protection.
Legal Challenges and Risk Management
To commemorate two significant milestones—the successful acquisition of BDM
Ltd. and the 25th anniversary of its founding—Dev Products Ltd. (DPL) hosted a
grand celebration for the major shareholders of both companies. However, the
festive atmosphere was soon overshadowed by a controversy that emerged in the
media, shedding light on legal issues involving a former director of BDM Ltd. This
unexpected revelation posed a significant legal challenge for DPL, as the company
had to address the complexities surrounding the personal liability of directors for
actions taken before the acquisition.
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Following the acquisition, DPL’s management prioritized strengthening its internal
controls to ensure smooth integration of the merged entities and to mitigate
potential risks. As part of this initiative, DPL's management met with their statutory
auditors, LR & Co., to discuss implementing a risk-based audit approach. To further
bolster its internal controls, particularly in Accounts & Finance, DPL purchased
standardized finance software at a list price of `15 lakhs, paying `0.25 lakh towards
non-refundable purchase tax. The company was also granted a trade discount of
5% on the initial list price and incurred a cost of `3.5 lakhs for customizing the
software for its intended use. Additionally, DPL secured a 5-year maintenance
contract with the vendor company for ` 1 lakh.
Audit and Financial Reporting
During the audit of DPL’s consolidated financial statements for the year 2023-24,
which are required to be prepared in accordance with Division II of Schedule III to
the Companies Act, 2013, CA Lokesh, the engagement partner from LR & Co.,
noticed important details. The notes to the accounts in respect of consolidated
financial statements disclosed additional information pertaining to the holding
company and its subsidiaries. This included percentages of consolidated net
assets, consolidated profit and loss, and total comprehensive income, along with
their respective amounts. Additionally, during the year 2023-24, goodwill of `10
crores arose from the acquisition of a subsidiary, with no impairment loss as of the
balance sheet date. Adjustments were made in the consolidated financial
statements concerning intra-group indebtedness and harmonizing different
accounting policies adopted by the parent and its subsidiaries.
DPL’s journey from a small manufacturing unit to a leading player in multiple
sectors showcases its strategic foresight and adaptability. The recent acquisition
of BDM Ltd. and the company's ongoing efforts to strengthen internal controls
reflect DPL’s commitment to sustainable growth and strong governance.
ANNEXURE
City Times
Lucknow, May 15, 2024 — In the aftermath of a high-profile corporate amalgamation, Mr. Ashok, a
former director of BDM Ltd., finds himself embroiled in a legal controversy that could have significant
implications for corporate governance and accountability. The amalgamation, which saw BDM Ltd.
being acquired by Dev Products Ltd. (DPL), has brought to light a series of alleged offenses
committed by Mr. Ashok in violation of the Companies Act, 2013.
Mr. Ashok, who was a key figure in BDM Ltd. before the company's amalgamation with DPL, is now
under scrutiny for actions that reportedly breached corporate regulations. The offenses, which
include several violations of the Companies Act, 2013 were committed prior to the completion of the
amalgamation. However, Mr. Ashok is attempting to distance himself from the legal consequences
of these actions, arguing that since the offenses occurred before the amalgamation, he should not
be held liable for any resulting penalties or punishments.
Legal experts are closely watching the case, as it raises important questions about the extent of
personal liability for directors in the context of corporate mergers and acquisitions. The key issue at
hand is whether a director can be absolved of responsibility for actions taken before a amalgamation
simply because the company has changed ownership or structure.
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2.1 From the following options you are required to choose the correct ‘effective
date’ of amalgamation:
(a) 25/04/2023
(b) 26/04/2023
(c) 10/05/2023
(d) 05/05/2023
2.2 Under McKinsey’s 7S framework, DPL’s acquisition of BDM Ltd. and
subsequent efforts to strengthen internal controls would most likely be
classified under:
(a) Strategy and Systems
(b) Shared Values and Skills
(c) Structure and Staff
(d) Style and Strategy
2.3 At what cost the intangible asset i.e. the finance software will be recognised
by DPL?
(a) ` 17.95 lakhs
(b) ` 18 lakhs
(c) ` 18.2 lakhs
(d) ` 17.75 lakhs
2.4 Considering disclosure of additional information in consolidated financial
statements, which of the following statements is correct?
(a) The said disclosure is not proper as percentage of consolidated revenue
from operations along with respective amount pertaining to holding
company and its subsidiaries is also required.
(b) The said disclosure is not proper as percentage of other comprehensive
income along with respective amount pertaining to holding company and
its subsidiaries is also required.
(c) The said disclosure is not proper as percentages of consolidated
revenue from operations as well as other comprehensive income along
with their respective amounts pertaining to holding company and its
subsidiaries are also required.
(d) The said disclosure is proper.
2.5 Which of the following statements best reflects the proper treatment of
goodwill and the other consolidation adjustments within the context of these
financial statements?
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(a) Goodwill represents current period consolidation adjustments.
Adjustments relating to intra-group indebtedness and those relating to
harmonizing different accounting policies being adopted by the parent
and its subsidiaries represent permanent consolidation adjustments.
(b) Adjustments relating to goodwill, intra-group indebtedness and those
relating to harmonizing different accounting policies being adopted by
parent and its subsidiaries represent current period consolidation
adjustments.
(c) Goodwill represents permanent consolidation adjustments. Adjustments
relating to intra-group indebtedness and those relating to harmonizing
different accounting policies being adopted by the parent and its
subsidiaries represent current-period consolidation adjustments.
(d) Goodwill and adjustments relating to harmonizing different accounting
policies being adopted by the parent and its subsidiaries represent
permanent consolidation adjustments. Adjustments relating to intra-
group indebtedness represent current period consolidation adjustments.
(5 x 2 = 10 Marks)
2.6 How should DPL APPLY the relevant Indian Accounting Standards (Ind AS) to
account for the acquisition of Design A and Design B and at what amount?
(5 Marks)
2.7 Determine the accurate valuation of BDM Ltd. as calculated by the registered
valuer of DPL, and provide an ANALYSIS based on the revised valuation.
(6 Marks)
2.8 Can Mr. Ashok be absolved of responsibility for actions taken prior to the
acquisition solely because the company has undergone a change in ownership
or structure? COMMENT. (4 Marks)
CASE STUDY 3
Company Overview
Founded by Manish Jha and Keyur Vasai in 2006, Doormato is a public company
whose shares are traded on a stock exchange. The company has developed a
multifaceted business model within the food and restaurant industry, incorporating
various revenue streams and services. Despite facing stiff competition both
domestically and internationally, Doormato’s ability to adapt, diversify its services,
and leverage technology has secured its strong position in the market. The
company utilizes AI across multiple aspects of its operations.
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Understanding that trust is paramount in the online food delivery business,
Doormato has introduced the "food soldier" program. This initiative goes beyond
data security, involving representatives who personally interact with restaurant
partners to address concerns and foster positive relationships. Additionally,
Doormato’s user-driven review system creates a sense of community where users
can share their food experiences and engage in creating stories. This engagement
builds a community centered around shared culinary experiences, encouraging
users to return to the platform and explore new restaurants.
Doormato’s user base of over 20 million, which includes both restaurants and
individual consumers, fuels a powerful network effect. The platform's value to each
user increases as more participants join. For users, a vast pool of restaurants
ensures a diverse selection of cuisines, while restaurants benefit from a wider
customer reach and increased order volume. This cycle of growth and satisfaction
enhances user loyalty and enables Doormato to negotiate better deals with
restaurants, offering more competitive options to customers.
Revenue Streams
One of Doormato’s primary revenue streams is the commission it charges
restaurants for each order placed through its food delivery service. When a user
orders food from a restaurant via the Doormato app, the restaurant pays a
percentage of the order value as a commission to Doormato. This commission
varies but is typically in the range of 15% to 25% of the order amount, depending
on the restaurant’s agreement with Doormato. Also, Doormato earns a commission
from the restaurant for each successful reservation made through its platform.
In addition to the commission received from restaurants, Doormato imposes
delivery fees charged directly to customers at checkout. These fees are not a flat
rate, but rather a calculated amount that considers several factors to ensure
fairness and affordability. The primary determinant is the order value itself. Larger
orders, with a higher order subtotal, typically incur proportionally lower delivery fees
compared to smaller orders.
Furthermore, Doormato recognizes the impact of location on delivery logistics.
Delivery fees may be slightly higher in areas with greater geographical spread or
limited delivery personnel, reflecting the additional cost of fulfilling the order. This
dynamic pricing approach allows Doormato to maintain a competitive edge while
ensuring the sustainability of their extensive delivery network. Ultimately,
transparency in delivery fee calculation fosters trust with customers, who can make
informed decisions based on their order details and location.
Beyond connecting users with restaurants, Doormato offers a robust suite of
advertising and promotional services designed to enhance a restaurant's presence
on the platform. Restaurants can leverage these services to gain a competitive
edge by featuring their listings more prominently in search results, running targeted
ad campaigns to specific customer segments, and offering enticing deals to attract
new patrons. This focus on restaurant visibility translates into a significant revenue
14
stream for Doormato, as restaurants are willing to invest in promoting themselves
to the platform's vast user base.
One such customer-centric initiative by Doormato is the voucher program. Here,
users can purchase a voucher for `1,000 that unlocks a value of `1,200 worth of
food credit. This effectively provides a 20% discount on any food items from
participating restaurants within a 3-month validity period. This program incentivizes
users to explore new restaurants and potentially spend more due to the increased
credit value, ultimately benefiting both Doormato and participating restaurants by
increasing order volume.
Furthermore, many restaurants listed on Doormato operate their own loyalty
programs, allowing customers to earn points on each order. These points can then
be redeemed for future discounts, further enhancing customer loyalty and
encouraging repeat business. Imagine a scenario where a customer has
accumulated enough points through Doormato's loyalty program with a specific
restaurant to earn ` 200 discount on their next order. If their current bill amount at
the same restaurant is `900, they can seamlessly combine the discount with the
Doormato voucher, effectively reducing their final bill to just `700. This combination
of promotional efforts by Doormato and individual restaurants creates a win-win
situation for all parties involved – users enjoy significant savings, restaurants attract
new customers and retain existing ones, and Doormato benefits from increased
platform activity.
Doormato Gold is a subscription-based loyalty program that offers members
exclusive discounts and perks at partner restaurants. Users pay a subscription fee
to access these benefits. While a portion of this fee is passed on to the partner
restaurants, Doormato retains a share, contributing to its revenue. Subscription to
Doormato Silver provides customers with a printed copy a high-quality magazine
focusing on food and health, that will be delivered to their doorstep each month and
access to the magazine’s online content.
Strategic Expansion Consideration
In lieu of strategic expansion, management wants to place an agenda in its coming
meeting to acquire a company “African Eats”. African Eats is an online food
ordering and delivery platform. The meals are delivered by couriers using various
methods, including cars, scooters, bikes, or on foot. It is operational in over 60 cities
in 5 African countries. These countries use common currency ‘African Rand’. In
2023, the company was sued for antitrust price manipulation, from forcing
restaurants to charge the same price for delivery as for dine-in if the restaurant
wants to be listed on the African Eats app, along with charging fees of 13–40% of
revenue. The exchange rate for the African Rands is extremely volatile. The rate of
inflation in this African Region is presently 10% a year. Inflation in India is currently
5% a year. Management of Doormato expects these rates likely to continue for the
foreseeable future. Estimated projected cashflows, in real terms, for the first three
years of the project are as follows:
15
Year–0 Year–1 Year–2 Year-3
Cash flows in Indian ₹ (000) -1,00,000 -3,00,000 -4,00,000 -50,000
Cash flows in African Rand -4,00,000 +5,00,000 +6,50,000 +7,50,000
(000)
Doormato assumes the year 3 nominal cash flows will continue to be earned each
year indefinitely. It evaluates all investments using nominal cash flows and a
nominal discounting rate. The present exchange rate is African Rand 4.5 to ₹ 1.
Audit Considerations
JS & Associates are at a crossroads regarding their audit approach for Doormato
for the financial year ending March 31st, 2024. Historically, they have identified
management override of controls and revenue recognition as significant risks.
However, their audits in the past 2 financial years yielded clean reports with no
issues detected in these areas.
This absence of recent red flags presents a dilemma. On one hand, maintaining a
conservative approach suggests continuing to assess these areas as significant risks.
This ensures a thorough examination and mitigates the chance of missing potential
issues that could arise due to unforeseen circumstances or changes within Doormato.
On the other hand, consistently clean reports raise the question of continued
significance. JS & Associates might consider performing a more focused
assessment or reducing the emphasis on these risks while still acknowledging their
potential impact. This could streamline the audit process without compromising
effectiveness.
As part of a risk-based audit approach, JS & Associates focus on areas with a
higher likelihood of material misstatement.
ANNEXURE
The New Age

Food Presentation Discrepancy Sparks Trust Concerns Among Customers on Doormato App
In a recent development, Shyam, a loyal customer of Doormato, has
raised concerns about the disparity between the food images displayed
on the Doormato app and the actual dishes served by restaurants. This
issue, which has been described as a breach of trust between customers
and restaurants, has sparked a broader discussion on the authenticity of
food presentation in online food delivery services.
Ravi, a prominent figure in the culinary industry, expressed his concerns
over the misleading nature of these images. He pointed out that while the images were initially intended
to enhance the visual appeal of dishes and attract customers, they have inadvertently led to
dissatisfaction and disappointment when the reality does not match expectations. Doormato is yet to
comment on the issue, but industry experts believe that addressing this concern promptly will be crucial
in preserving customer loyalty and trust.
16
3.1 Assuming Doormato is planning to acquire hyper-local delivery company “Kit-
Kit’, which enables to order grocery, fruits & vegetables, and other daily
essential products with intention to diversify in this field. “Kit-Kit’ has over the
period 10 million registered users throughout the country. However, “Kit-Kit’
does not have any intention to sell the customer list. Should this customer list
be recorded as an intangible in such a business combination?
(a) Such customer list should be recorded as an intangible in a business
combination as “Kit-Kit’ has the ability to transfer it.
(b) Such customer list should not be recorded as an intangible in a business
combination as “Kit-Kit’ has not the ability to transfer it.
(c) Such customer list should be recorded as an intangible in a business
combination as it gives rise to legal or contractual right.
(d) The recording of such customer list depends upon the business
combination agreement between both the companies.
3.2 As part of a risk-based audit approach, JS & Associates focus on areas with
a higher likelihood of material misstatement. Which of the following
statements best describes the concept of significant auditor attention in the
context of scenario given in the case study?
(a) JS & Associates will spend an equal amount of time reviewing all
sections of Doormato's financial statements
(b) JS & Associates will prioritize audit procedures for areas with a lower
risk of material misstatement.
(c) JS & Associates will design the audit procedures based on their
assessment of risks that could potentially cause errors in the financial
statements of Doormato.
(d) JS & Associates will rely solely on past audit results to determine the
scope of their procedures.
3.3 Under GST, what is the time of supply and taxable value for Doormato at the
time of voucher purchase of ` 1,000?
(a) Time of supply is date of issue of the voucher and taxable value is
` 1,000 (face value of voucher)
(b) Time of supply is date of issue of the voucher and taxable value is
` 1,200 (credit value of voucher)
(c) Time of supply is date of redemption of the voucher and taxable value is
` 1,200 (credit value of voucher)
(d) Time of supply is date of redemption of the voucher and taxable value is
` 1,000 (face value of voucher)
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3.4 Considering the above scenario, which of the following statements is MOST
ACCURATE regarding the dynamic QR code and invoice for ` 900 meal order,
where a customer has accumulated enough points through Doormato's loyalty
program with a specific restaurant to earn a ` 200 discount on their next order?
(a) The QR code will only display the final payable amount of ` 700 (after
` 200 discount). No mention of the original bill amount or discount details
will be shown.
(b) The QR code will display the final payable amount of ` 700 and reference
of ` 200 discount on a separate invoice, but the invoice won't mention
the original bill amount.
(c) The QR code will display the final payable amount of ` 700. The invoice
will mention the original bill amount of ` 900, ` 200 discount details
(including reference to the loyalty program), and the final payable
amount.
(d) The QR code cannot be generated in this scenario because the discount
reduces the taxable value, requiring a revised invoice without the
discount information.
3.5 According to Ind AS 115 - Revenue from Contracts with Customers, how many
performance obligations does Doormato have relating to the Doormato Silver
subscription?
(a) One performance obligation: The overall subscription service.
(b) Two performance obligations: The delivery of the printed magazine and
providing access to online content.
(c) Three performance obligations: Delivery of the printed magazine, access
to online content, and customer support.
(d) No performance obligations, as the services are not distinct.
(5 x 2 = 10 Marks)

3.6 To place agenda regarding Strategic Acquisition African Eats before the board it
was required to:
i. To CALCULATE the net present value (NPV) of the proposed
investment. While the nominal discount rate used by Doormato is 8% but
considering risk nature of the project, 6% risk premium is required to be
considered. Notes - (1) Taxation to be ignored in this calculation (2) PVF
and exchange rates to be considered upto four decimal (3) final
calculations to be rounded off the whole number. (4 Marks)
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ii. EVALUATE the external environment for Doormato's strategic
acquisition of African Eats, considering the non-financial factors. (HINT-
How do political, economic, social, cultural, technological, legal, and
ethical factors influence the success of this investment? What strategies
should Doormato implement to address these challenges and ensure a
successful acquisition?) (3 Marks)
3.7. i. ADVISE on how to address and maintain customer trust and
relationships in response to the concerns raised in the recent newspaper
article. (2 Marks)
ii. How can blockchain technology be APPLIED by Doormato and finance
professionals in the following areas:
(a) Supply chain operations
(b) Audit processes
(c) Managing sensitive customer data (3 Marks)
3.8. DRAW a Business Model Canvas of Doormato. (3 Marks)
CASE STUDY 4
Emergence of Green Entrepreneurship

India's remarkable economic progress, marked by its position as the fastest-
growing major economy, has been driven by a comprehensive strategy that
emphasizes entrepreneurship and self-employment. The government’s policies
have fostered an environment conducive to starting businesses, particularly in
emerging sectors like sustainability and renewable energy.
Amidst this entrepreneurial renaissance, the story of Priya and Arjun stands out.
Both graduates from a prestigious engineering college, they shared a passion for
environmental conservation and a desire to contribute to a greener future. Inspired
by the government’s initiatives to promote clean technologies and the growing
global demand for eco-friendly solutions, Priya and Arjun decided to take the
entrepreneurial leap. In 2021, they founded EcoTech Innovations Pvt. Ltd., a
company dedicated to developing cutting-edge technologies for sustainable energy
generation and waste management.
Guided by their mission "to pioneer innovative, sustainable technologies that
drive environmental conservation, enhance waste management efficiency,
and contribute to a cleaner future for all," and their vision "to become a global
leader in sustainable energy and waste management solutions" Priya and
Arjun aimed to build their company that not only thrived in the market but also made
a significant positive impact on the environment.
Growth, Expansion, and Strategic Partnerships
The waste management industry, where EcoTech operates, is on a robust growth
trajectory, projected to exceed $500 billion globally by 2025. With urbanization and
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industrialization surging, the industry is witnessing rapid advancements in AI, IoT,
and recycling technologies. In 2023, the global waste management market was
valued at approximately $380 billion, highlighting significant expansion potential.
Government regulations and initiatives, such as the European Union's Circular
Economy Action Plan and India's Swachh Bharat Mission, are driving
improvements in waste desegregation, recycling rates, and plastic waste reduction.
Public-private partnerships are also increasing, enhancing infrastructure and
innovation. This sector is becoming crucial in achieving global environmental
sustainability and resource efficiency goals.
Initially, Priya and Arjun were the sole shareholders and directors of EcoTech
Innovations Pvt. Ltd. However, as the business grew, they brought on board their
friend, a sustainability expert, Rahul, as a co-shareholder with a 15% stake. Priya
and Arjun each retained 42.5% ownership. To navigate the complexities of finance,
accounting, and compliance, they appointed their trusted friend Megha as the Chief
Financial Officer (CFO).
As EcoTech experienced rapid growth and expansion, the need for a new state-of-
the-art head office became evident. The construction of the new office building
commenced on 1st September, 2023 and continued until 31st December 2023. At
the beginning of September month, the directly attributable expenditure on this
asset was ` 1,00,000. However, as construction progressed, the costs increased,
with the company incurring ` 2,50,000 in each of the subsequent months from
October to December 2023. Although EcoTech Innovations Pvt. Ltd. did not take
any specific borrowings to finance the construction, the company incurred finance
costs on its general borrowings during the construction period. To meet its capital
requirements, EcoTech issued 10% debentures with a face value of ` 20 lakhs
during the year.
Additionally, the company had an existing overdraft facility of ` 5,00,000, which was
increased to ` 7,50,000 in December, 2023. The interest rate on the overdraft was
15% until 1st October, 2023, after which it was increased to 16%. Megha was tasked
with ensuring proper accounting treatment and compliance with the relevant
accounting standards for the capitalization of borrowing costs related to the
construction of the new head office building during the construction period. Her
expertise in finance was crucial in navigating these complex financial decisions.
In addition to its domestic operations, EcoTech also exports its eco-friendly
solutions to European and Middle Eastern countries. During FY 2023-24, EcoTech
Innovations Pvt. Ltd. acquired a 55% equity stake in GreenWave Ltd., a company
engaged in manufacturing and selling a product named ‘EcoClean.’ The fair value
of GreenWave Ltd.’s identifiable net assets as per the relevant Ind AS is ` 12 crore,
and its paid up share capital is ` 10.50 crore. For the acquistion, EcoTech paid a
cash consideration of ` 10 crore, with the fair value of the non-controlling interest
on the date of acquisition being ` 3 crore. GreenWave Ltd. appointed Mr. Rahul as
its whole-time company secretary and Mr. Arjun as its managing director, positions
they also held at EcoTech Innovations Pvt. Ltd. On 25th August, 2023, GreenWave
Ltd. sold two of its machines to Mr. Arjun out of which one machinery was
exchanged for a vehicle owned by Mr. Arjun, and the other was sold for cash
consideration.
20
Compliance Challenges
EcoTech Innovations Pvt. Ltd. has been self-funded since its inception, relying on
the founders’ expertise, determination, and the support of environmentally
conscious investors. The company’s innovative solutions have garnered
recognition both domestically and internationally, exemplifying the potential of
Indian entrepreneurship to drive sustainable development while contributing to the
nation’s economic growth. To further expand their operations and accommodate
their growing team, EcoTech Innovations Pvt. Ltd. entered into a lease agreement
for a new office space in April 2023. The lease term is 10 years, with a single lease
payment of ` 1,00,000 payable at the beginning of each year. According to the
lease contract, the annual lease payments will increase by the rate of SOFR.
Megha highlighted the importance of accurately measuring the lease liability as per
the relevant Ind AS. This financial decision would play a crucial role in ensuring
accurate financial reporting and compliance, which are vital for the company’s
continued success and growth.
Priya and Arjun understood the intricate interplay between inflation, project costs,
demand patterns, and financing implications. They realized the importance of
conducting comprehensive project appraisals that account for these factors. They
appreciated Megha's expertise in guiding them through the complexities of project
evaluation, ensuring that EcoTech Innovations Pvt. Ltd. made well-informed
decisions about its future growth strategies. During a board meeting in April 2023,
Megha informed the directors that the company’s financial statements for the
current year would be prepared in accordance with the Indian Accounting
Standards (Ind AS). Priya and Arjun expressed their growing concerns to Megha
about the lack of progress following the company's recent decentralization efforts.
Despite granting greater autonomy to local managers in hopes of boosting
performance and fostering innovation, the anticipated improvements had not
materialized. They sought Megha's expertise and strategic insight on how to
navigate this complex situation, improve local managers' engagement, and ensure
the company's growth trajectory remained on track. Megha's role as CFO and her
understanding of the company's financial health and strategic goals positioned her
uniquely to provide the guidance needed to overcome this significant hurdle.
EcoTech Innovations Pvt. Ltd. had an outstanding interest liability of ` 1 crore
towards a loan payable to GreenFinance Ltd., a public financial institution that had
been a crucial supporter in the early stages of the company's growth. To manage
this liability more effectively and preserve cash flow, EcoTech issued debentures
of ` 275 lakhs carrying an interest of 7.5% to GreenFinance Ltd. in lieu of the
outstanding interest as well as for the outstanding loan payable to it. This strategic
move allowed the company to defer the immediate cash outflow and focus on its
operational needs. While computing the profits and gains of business for the
A.Y. 2024-25, EcoTech Innovations Pvt. Ltd. deducted the said interest,
anticipating it would be a legitimate business expense. However, the Assessing
Officer rejected the deduction of interest on the loan claimed by EcoTech, creating
an unexpected challenge for the financial team.
21
Additionally, EcoTech achieved a gross profit of ` 18 crores and incurred indirect
expenses of ` 4 crores for the financial year, reflecting its robust financial
performance despite the complexities in interest liability management. During the
annual audit of EcoTech Innovations Pvt. Ltd., the tax consultant raised a concern
regarding a notice issued by the Commissioner of Income-tax. The Commissioner
had initially issued a notice to revise the order passed by an Assessing Officer
under section 143. While the proceedings were ongoing before the Commissioner,
based on material gathered during a survey under section 133A after the issuance
of the first notice, the Commissioner of Income-tax issued a second notice with
different contents from the first notice. The tax consultant questioned whether the
action of the Commissioner in issuing the second notice with divergent contents
was justified.
Finally, in a separate event, EcoTech Innovations Pvt. Ltd. imported a machine
from France for ` 180 lakh during March 2023, paying all duties of customs. Due to
a technical manufacturing defect, the machine was sent back to the supplier for
repairs in October 2023 and re-imported in August 2024 without any re-
manufacturing or reprocessing, after repairs. Since the machine was under
warranty, the repairs were carried out free of cost, although the fair cost of repairs
would have been ` 5 lakh (excluding the cost of material, which was ` 10 lakh). The
actual insurance and freight charges (to and from) were ` 5 lakh (` 2.50 lakh each
way). The ownership of the machinery did not change during this period.

4.1 Referring to the lease transaction in the case study, at the date of
commencement of the lease, SOFR is 2 percent and the interest rate implicit in
the lease is 5 percent. The amount of lease liability to be recognized initially will
be -
(a) ` 8,60,789
(b) ` 8,80,889
(c) ` 8,75,645
(d) ` 8,74,889
4.2 Comment upon the validity of the action of the Assessing Officer on rejecting the
deduction of interest on loan claimed by EcoTech.
(a) The interest so converted into debentures shall be deemed as actual
payment but would not be allowed as deduction while computing its profits
and gains of business for A.Y.2024-25. The action of the Assessing Officer
is correct.
(b) The interest so converted into debentures shall be deemed as actual
payment, and hence, would be allowed as deduction but while computing
‘Income from other sources’ for A.Y.2024-25 even though the liability to pay
is deferred to a future date. Thus, the action of the Assessing Officer is
partially correct, as the said interest though not allowed while computing
profits and gains of business but would be allowed as deduction while
computing ‘Income from other sources’.
22
(c) The interest so converted into debentures shall not be deemed as actual
payment, and hence, would not be allowed as deduction while computing
its profits and gains of business for A.Y.2024-25. The action of the
Assessing Officer is correct.
(d) The interest so converted into debentures shall be deemed as actual
payment as in the given case loan is provided by a public financial
institution and hence, would be allowed as deduction while computing its
profits and gains of business for A.Y.2024-25. The action of the
Assessing Officer is not correct.
4.3 Whether there was any statutory requirement for GreenWave Ltd. to appoint
a whole-time Company Secretary (CS) and whether Mr. Rahul was eligible to
be appointed as its whole-time Company Secretary?
(a) No, as its paid-up capital had not exceeded the prescribed limit and also
Mr. Rahul was not eligible as he was already holding office as a whole-
time CS in one other company i.e. EcoTech Innovations Pvt. Ltd.
(b) Yes, as its paid-up capital had exceeded the prescribed limit and also
Mr. Rahul was eligible to be appointed as its whole-time CS in
GreenWave Ltd. as it was the subsidiary company of EcoTech
Innovations Pvt. Ltd.
(c) Yes, as its paid-up capital had exceeded the prescribed limit. However,
Mr. Rahul was not eligible to be appointed as its whole-time CS as he
was already holding office as a whole-time CS in one other company i.e.
EcoTech Innovations Pvt. Ltd.
(d) No, as its paid-up capital had not exceeded the prescribed limit.
However, Mr. Rahul was eligible to be appointed as its whole-time CS
as it was the subsidiary company of EcoTech Innovations Pvt. Ltd.
4.4 What will be the capitalization rate for construction period of four months for
computation of borrowing cost in accordance with the relevant Ind AS related
to the construction of a new office building?
(a) 3.987%
(b) 3.756%
(c) 2.607%
(d) 3.188%
4.5 What shall be the value of goodwill for EcoTech Innovations Pvt. Ltd. on the
acquisition of 55% shares of GreenWave Ltd. as per the fair value method
and proportionate share method?
(a) ` 1,00,00,000, ` 7,40,00,000
(b) ` 2,00,00,000, ` 3,40,00,000
(c) There is no goodwill arising but there is a gain on bargain purchase of
` 1,00,00,000
(d) ` 1,00,00,000, ` 3,40,00,000 (5 x 2 = 10 Marks)
23
4.6 EcoTech Innovations Pvt. Ltd. owns 30% of the share capital in GreenTech
Solutions Pvt. Ltd. and has the ability to exercise significant influence over it.
GreenTech Solutions Pvt. Ltd. holds the following investments:
70% of the share capital of its subsidiary, SustainCo Ltd., and 30% of the
share capital of EcoEnergy Pvt. Ltd., with the ability to exercise significant
influence. EcoTech Innovations Pvt. Ltd. transacts with SustainCo Ltd. and
EcoEnergy Pvt. Ltd.
Should EcoTech Innovations Pvt. Ltd. disclose these transactions as related
party transactions in its separate financial statements? Also, explain the
disclosure of such transactions in the financial statements of SustainCo Ltd.
and EcoEnergy Pvt. Ltd. as related party transactions. (3 Marks)
4.7 Priya and Arjun, the founders of EcoTech Innovations Pvt. Ltd., were
concerned about the potential implications of this notice on the company's tax
compliance. They sought guidance from their Chief Financial Officer, Megha.
Accordingly, examine whether the action of the Commissioner is justified as
to the second notice. (5 Marks)
4.8 You are required to advice EcoTech Innovations Pvt. Ltd. on the concessions
(if any) available for importation of the machinery after repairs, also state the
conditions to be satisfied for availing such concession. Also compute the
customs duty and integrated tax payable (if any) on the re-import of the
machine after repairs. The rate of basic customs duty is 15% and integrated
tax is 12%. Ignore Agriculture infrastructure and development cess.
(4 Marks)
4.9 Whether there were any restrictions for GreenWave Ltd. to sell its machinery
to Mr. Arjun in exchange for a vehicle and if yes, then what legal requirements
would have been followed by it? (3 Marks)
CASE STUDY 5
A Ltd., an established player in the hospitality industry, oversees its subsidiary B
Ltd., which specializes in the tourism sector, contributing to synergies between
hospitality and tourism through interconnected services and offerings. In a strategic
move to bolster its operational capabilities, A Ltd. undertook a significant expansion
by purchasing a new building and pre-installed office furniture and fixtures from P
Ltd., a well-known construction company that operates under two distinct divisions:
commercial real estate and residential real estate, managed by Manager 1 and
Manager 2 respectively.
A Ltd.'s purchase of the new building from P Ltd. marks a significant enhancement
in its infrastructure, directly impacting its ability to deliver superior services in the
hospitality sector. The integration of state-of-the-art facilities and high-quality
furnishings ensures that A Ltd. can offer a first-rate experience to its clients, setting
a benchmark in the industry. This strategic move also positions A Ltd. to better
accommodate the growing demands and complexities of the modern businesses,
which increasingly values seamless, high-quality service delivery.
24
Moreover, this also facilitates greater collaboration between A Ltd. and its
subsidiary, B Ltd., fostering an ecosystem where both entities can thrive through
mutual support and shared resources. For instance, the new building could also
serve as a central hub for both managing operations and hosting client meetings,
workshops, and corporate events, thereby enhancing the synergy between A Ltd.'s
hospitality services and B Ltd.'s tourism offerings.
P Ltd. is recognized for its diversified portfolio, catering to a broad spectrum of
clients. The commercial real estate division, under the leadership of Manager 1,
focuses on developing and selling properties tailored for businesses, such as office
spaces and commercial complexes. This division is renowned for its turnkey
solutions, providing clients with ready-to-use spaces that are modern, functional,
and well-equipped. The residential real estate division, managed by Manager 2,
deals with housing projects ranging from high-rise apartments to luxury villas,
emphasizing comfort, aesthetics, and community living.
P Ltd.'s ability to deliver such tailored real estate solutions stems from its robust
relationships with suppliers like Q Ltd., whose high-quality materials are crucial for
the construction and maintenance of premium properties. Their materials are
pivotal in ensuring the structural integrity and aesthetic quality of buildings. This
relationship highlights the importance of a reliable supply chain in maintaining the
quality and reliability of real estate developments. P Ltd.'s strategic choice of
materials ensures durability and aesthetic appeal, which are critical for properties
serving the high expectations of the hospitality and tourism sectors. Q Ltd.'s
commitment to quality and timely delivery helps P Ltd. maintain its reputation for
reliability and excellence in the construction industry.
As A Ltd. continues to grow and adapt to the changing dynamics of these industries,
the strategic foresight demonstrated in such acquisitions will be pivotal. By aligning
its physical assets with its service goals, A Ltd. enhances its competitive edge and
cements its reputation as a leader in providing comprehensive hospitality and
tourism experiences. This strategic alignment not only benefits A Ltd. but also sets
a standard for operational excellence and integration within the industry, ultimately
leading to sustained growth and success in a competitive marketplace.
Overall, the interconnections between these companies exemplify a well-integrated
supply chain and strategic business relationships that span different sectors, each
contributing to the final delivery of quality real estate solutions tailored to the
specific needs of industries such as hospitality and tourism.
The case centres around A Ltd., where a cashier committed fraud by absconding
with the company's funds. The Chief Accountant of A Ltd. was unaware of the
fraudulent activity until the audit had been completed. The audit, conducted in an
unfocussed and haphazard manner, failed to detect the fraud, which was only
discovered by the Chief Accountant post-audit. An investigation later found that the
auditor had not exercised proper skill and care.
Soon, another scandal follows. The Income-tax department collected documents
from ABC Bank which revealed that B Ltd. had remitted substantial amounts
abroad. The documents collected include Form 15CB issued by the Chartered
Accountant, list of passengers, copy of their passports, date of travel and invoice
25
raised by the foreign party. On enquiring from the passengers and verifying their
passports, it is found that they did not travel abroad during the dates mentioned in
the documents. Further, the passengers denied any sort of transactions with B Ltd.
The department, therefore, concluded that the amounts were remitted abroad on
the basis of false invoices and for wrong reasons, leading to FEMA violations and
that the Form 15CB issued by the Chartered Accountant facilitated such violations.
During the nine-month period in question, the chartered accountant had issued 150
certificates in Form 15CB approximately involving remittances of 40 crores in favour
of B Ltd.
The Chartered Accountant submitted that he had issued Form 15CB based on
invoices produced by the company and verifying the KYC documents of the
signatory to the invoices. He however, failed to bring on record the invoices. He
further submitted that since he was not the statutory auditor of the company, he did
not examine the books of account before issuance of Form 15CB or conduct due
diligence of its business activities. He had charged ` 4,000 per certificate. Mostly,
the fee was collected in cash. Some part of the fee was credited to his bank
account.
In the wake of such huge scandals, A Ltd. wants to know the provision for
applicability to conduct secretarial audit as they never conducted secretarial audit
thinking they don't have enough business transactions to consider these
requirements earlier. Company provides you information: Paid-up Share Capital
` 45 crore, Turnover ` 170 crore and Outstanding Loans and Borrowings of ` 120
crore from banks.
A Ltd has decided to appoint Mr. Anurag as Chief Internal Auditor to lead the
internal audit function for the Company. The CEO of the Company has asked the
HR head to define the reporting structure of the Chief Internal Auditor, so that he
can discharge his duties objectively.
Further, CEO is also sceptical regarding the provisions of the Companies Act, 2013,
applicable with respect to the constitution of the audit committee, he accordingly
discussed his understanding with you and asked him to rectify in case he is not
correct. He told you that he has the following understanding with respect to the
provisions applicable for Audit Committee.
- Any senior member of the company having expertise of accounting and
financial management can be appointed as the chairperson of the Audit
Committee.
As discussed earlier, P Ltd. procures its raw materials from Q Ltd., a supplier
specializing in metals. P Ltd. has recently decided to invest in an Electronic Data
Interchange system that will enable P Ltd. to automatically place orders with its
major suppliers. Currently, P Ltd.’s purchasing department staff have to place
orders using postal mails and telephone to the company's suppliers, which is slow
and inefficient.
Q Ltd. began its operations in 1991, starting as a modest enterprise and gradually
transforming into a key player in the metal supply sector. Over the years, it has
become an essential resource for a variety of industries, now supporting more than
26
twelve distinct sectors with its extensive range of metal products. These sectors
include Wood & Panel Products Manufacturing, Hearth Products, Site Furnishings,
and both Commercial and Residential Construction, among others. This diversity
has not only broadened Q Ltd.'s market presence but has also enhanced its
expertise in delivering tailored solutions across various fields.
The growth of Q Ltd. can largely be attributed to its unwavering commitment to its
clientele. The company has always prioritized customer satisfaction, ensuring that
each client receives personalized service and support tailored to their specific
industry needs. This customer-centric approach has been pivotal in fostering
strong, long-lasting relationships and in securing a loyal customer base. Moreover,
Q Ltd. prides itself on its dedication to quality. Each product in their extensive
catalogue is a testament to meticulous craftsmanship, designed to meet the highest
industry standards.
Employing a team of experts, Q Ltd. ensures that each sector it serves is backed by
professionals with deep knowledge and specialized skills. These experts not only
understand the unique demands of their respective industries but are also equipped
to advise and assist customers in selecting the best materials for their specific
applications. This level of expertise is critical in industries where the quality and
specifications of materials can significantly influence the overall success of a project.
The operational structure of Q Ltd. is divided into two main divisions: Division 'F'
and Division 'G'. Division 'F' focuses on serving industrial and commercial
construction needs, providing robust materials that are essential for large-scale
construction projects. This division is known for its ability to supply large volumes
of materials reliably and efficiently, thereby supporting some of the most demanding
construction timelines and project specifications.
On the other hand, Division 'G' caters more to specialized industries like Hearth
Products and Site Furnishings, offering bespoke solutions that often require a finer
attention to detail and aesthetics. This division combines technical expertise with
creative design, ensuring that even the most aesthetically driven projects benefit
from the highest standards of structural integrity and material excellence.
Each division works as an investment centre separately. The salary of each
divisional manager is ` 7,20,000 per annum with the addition of an annual
performance-related bonus based on divisional return on investment (ROI). A
minimum ROI of 12% p.a. is expected to be achieved by each divisional manager.
If a manager only achieves the 12% target, he will not be rewarded with a bonus.
However, for every whole 1% point above 12% which the division achieves for the
year, a bonus equal to 3% of annual salary will be paid subject to a maximum bonus
of 20% of annual salary. The figures belonging to the year ended 31 March 2024
are given in Annexure. During the financial year 2023-24, PAO, manager of Division
'G' invested ` 13.6 million in new equipment including an advanced cutting
machine, which will increase productivity by 10% per annum. BAO, manager Of
Division 'F', has made no investment during the year, even though its computer
system needs updation. Division 'F’s manager has already delayed payments of its
suppliers due to limited cash & bank balance although the cash balance at Division
'F' is still better than that of Division 'G'.
27
ANNEXURE
The News
A Ltd. Expands Infrastructure with Strategic Acquisition of State-of-the-Art Building from P Ltd.
Gurugram, 20th April 2024 – In a major step towards enhancing its
infrastructure and broadening its service offerings, A Ltd. has successfully
acquired a state-of-the-art building from P Ltd. This acquisition is a key
element of A Ltd.'s Future Ready Action Plan, aimed at revolutionizing its
ability to deliver top-tier services in the hospitality sector and reinforcing its
status as an industry leader.
The newly acquired building will house modern conference spaces, food labs,
beverage research and development facilities, and versatile common areas. These cutting-edge additions
will make conferences, virtual offices, and collaborative workspaces more accessible, affordable, and
relevant, providing businesses with the tools they need to thrive in an increasingly competitive market.
With these advanced facilities and high-quality furnishings, A Ltd. is set to offer an unparalleled experience
to its clients, setting new standards in the hospitality industry. This strategic investment not only reflects
A Ltd.'s unwavering commitment to excellence in service delivery but also positions the company to meet
the evolving demands of the modern business market.
As the complexities of the hospitality industry grow, A Ltd. is well-prepared to address the needs of today's
businesses, who prioritize seamless and high-quality service. This expansion marks a pivotal moment in
A Ltd.'s growth journey, underscoring its dedication to providing exceptional hospitality experiences and
solidifying its future-ready approach.
Ecosystem
28
Financial Performance and Asset Overview of Division F and Division G
(` in ‘000)
Division F Division G
Revenue 30,000 17,500
Profit 5,200 4,000
Less: head office cost (2,500) (1,400)
Net profit 2,700 2,600
Non-current assets 19,500 30,000
Cash, inventory and trade receivables 5,000 6,500
Trade payable 6,200 2,800
Manager responsible BAO PAO

5.1 Which of the following statements accurately characterize the situation of
fraud committed by the cashier and the subsequent action:
(i) The auditor exhibited due diligence and careful conduct.
(ii) Clause (7) Of Part I of Second Schedule to the Chartered Accountants
Act, 1949 and SA 240 are relevant in this situation
(iii) The auditor failed to plan and perform the audit with an attitude of
professional skepticism
(iv) A Chartered Accountant in practice will be deemed to be guilty of
professional misconduct based on clause (7) of Part Il of the Second
Schedule to the Chartered Accountants Act, 1949.
Options
(a) Only (iv)
(b) Both (ii) & (iv)
(c) Both (ii) & (iii)
(d) Both (i) & (iii)
5.2 The Board of director of A Ltd. appointed you to analyse the business of the
organisation and advise whether they are contravening the provision of the
Companies Act, 2013 with respect to Secretarial Audit.
(a) Yes, A Ltd. is required to conduct secretarial audit under the Companies
Act, 2013 since A Ltd. crosses the threshold limit of outstanding loans
and borrowings of rupees 100 crore or more.
(b) No, A Ltd. is not required to conduct secretarial audit under the
Companies Act, 2013 since A Ltd. does not cross the threshold limit of
outstanding loans and borrowings of rupees 200 crore or more.
29
(c) Yes, A Ltd. is required to conduct secretarial audit under the Companies
Act, 2013 since A Ltd. crosses the threshold limit of Paid-up share capital
of rupees 25 crore or more.
(d) Yes, A Ltd. is required to conduct secretarial audit under the Companies
Act, 2013 since A Ltd. crosses the threshold limit of Turnover of rupees
100 crore or more.
5.3 Whether the understanding of CEO of A Ltd. is correct with respect to the
appointment of chairperson of the Audit Committee?
(a) No, as only the company secretary of the company can be appointed as
the chairperson of the Audit Committee.
(b) No, as the Chairperson of the Audit Committee shall be an independent
director.
(c) Yes
(d) Partly correct as the chairperson should have expertise of accounting
and financial management, however he should be a Chartered
Accountant also.
5.4 With respect to the purchases made by A Ltd. from P Ltd., which of the
following is correct regarding the GST liability?
(a) There will be no GST liability on purchase of building while Office
furniture and fixtures will be liable to GST.
(b) There will be no GST liability on purchase of building and Office furniture
and fixtures.
(c) There will be GST liability on both purchase of building and Office
furniture and fixtures.
(d) There will be GST liability on purchase of building while Office furniture
and fixtures will be not liable to GST.
5.5 Given the diverse functionalities of EDI systems in automating and
standardizing transactional data across different departments and
stakeholders, which specific area within P Ltd.’s value chain is expected to
see the most significant improvement due to the implementation of this new
EDI system?
(a) Infrastructure since it supports to perform primary activities.
(b) Inbound Logistic since it is directly involved in the transformation of a
product or provisioning of a service.
(c) Procurement since it supports to perform primary activities.
(d) Outbound Logistic since it is directly involved in the transformation of a
product or provisioning of a service. (5 x 2 = 10 Marks)
30
5.6 ADVISE the ideal reporting structure of the Chief Internal Auditor that HR head
may propose to the Managing Director? (4 Marks)
5.7 EXAMINE the ethical implications of the chartered accountant's issuance of
Form 15CB without proper verification and due diligence in this case.
(3 Marks)
5.8 For each division of Q Ltd., COMPUTE, ROI for the year ending 31 March
2024. JUSTIFY the figures used in your calculation also COMPUTE bonus of
each manager for the year ended 31 March 2024. DISCUSS whether ROI
provides a justifiable basis for computing the bonuses of managers and the
problems arising from its use at Q Ltd. for the year ended 31 March 2024.
(5 Marks)
5.9 DISCUSS how the strategic acquisition of a state-of-the-art building from P Ltd.
will provide A Ltd. with a competitive advantage in the hospitality industry.
(3 Marks)
31

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