Your Answer : (Not Answered)

Correct Answer : C

It is an associate company.

Section 2(6) of the Companies Act, 2013 defines an associate company, in relation to another company, as a company in which that other company has significant influence but which is not its subsidiary; significant influence means control of at least 20 percent of total voting power or participation in business decisions under an agreement. Joint venture companies are included.

A holding company controls a subsidiary, a dormant company has no significant accounting transactions, and an unlimited company is one whose members have unlimited liability.

Your Answer : (Not Answered)

Correct Answer : D

AS-26 deals with intangible assets.

Accounting Standard 26 sets out the recognition, measurement and amortisation of intangible assets, such as patents, copyrights, software, licences and brands, including research and development costs. Its Ind AS equivalent is Ind AS 38.

Earnings per share is AS-20, employee benefits AS-15, and borrowing costs AS-16.

Your Answer : (Not Answered)

Correct Answer : A

It can carry forward its losses as it possesses its own separate entity.

A subsidiary is a company in its own right, a separate legal person distinct from its holding company, and is assessed to income tax as a separate assessee. Its losses therefore belong to it and can be carried forward and set off against its own future profits under the Income Tax Act, subject to the usual conditions.

Preparing its own accounts follows from its separate status but is not the reason in law. 'Necessary arrangements' and the protection of shareholders have nothing to do with the carry-forward of losses.

Your Answer : (Not Answered)

Correct Answer : D

TDS is deducted at the normal rate prescribed or 20%, whichever is higher.

Section 206AA of the Income Tax Act, 1961 applies when a deductee does not furnish a PAN. Tax is then deducted at the highest of the rate specified in the relevant section, the rate or rates in force, or 20%. So a payment normally subject to 10% TDS suffers 20%, while one normally subject to 30% still suffers 30%.

A flat 20% or the normal rate alone ignores the 'higher of' rule, and 30% is not the rate the section prescribes.

Your Answer : (Not Answered)

Correct Answer : B

The situation is called negative working capital.

Net working capital is current assets minus current liabilities. When current liabilities exceed current assets, the figure is negative, a working capital deficit.

Gross working capital is the total of current assets, temporary working capital is the variable part above the permanent minimum, and adjusted working capital is not a standard term for this situation.

Your Answer : (Not Answered)

Correct Answer : A

Operating leverage is Contribution / EBIT.

The degree of operating leverage measures how strongly operating profit responds to a change in sales, and it arises from fixed operating costs:

\[ \begin{aligned} \text{DOL} &= \frac{\text{Contribution}}{\text{EBIT}} \\ &= \frac{S - VC}{S - VC - FC} \end{aligned} \]

where S is sales, VC variable cost and FC fixed operating cost.

EBIT/Contribution is that ratio turned upside down. Financial leverage is EBIT/EBT, and combined leverage is Contribution/EBT; neither uses earnings after tax, so the two EAT ratios are not standard leverage measures.

Your Answer : (Not Answered)

Correct Answer : C

A material price variance can arise from loss of cash discount.

The variance is (standard price - actual price) × actual quantity, so it reflects only what was paid per unit. Causes include a change in market price, buying in uneconomic lots, emergency purchases, a change in freight, and losing a cash or quantity discount, which raises the effective price paid.

The other causes affect quantity, not price. A non-standard mixture produces a mix variance, while pilferage and careless use of material produce an adverse usage (quantity) variance.

Your Answer : (Not Answered)

Correct Answer : A

Form GST REG-09 is used by a non-resident taxable person.

Under the CGST Rules, 2017, a non-resident taxable person, who supplies occasionally in India without a fixed place of business here, applies for registration in REG-09 at least five days before starting business, and must also deposit the estimated tax liability in advance.

An input service distributor applies through the ordinary form REG-01. Persons required to deduct tax at source or collect tax at source apply in a separate form, REG-07, so options B, C and D are wrong.

Your Answer : (Not Answered)

Correct Answer : D

The consideration not taken into account is market for the product.

A make or buy decision is about how the firm should obtain a component or product it has already decided to use or sell: by making it or buying it. The relevant factors are cost (including tax effects such as depreciation and deductions), use of spare capacity, availability of funds and access to the latest technology.

Whether there is a market for the final product is a prior question about whether to produce at all, not about making or buying, so it is the odd one out.

Your Answer : (Not Answered)

Correct Answer : D

Such gratuity is assessable under Other sources.

Income is taxed as 'Salaries' only where there is an employer-employee relationship. A director who, under his contract, is not an employee or servant of the company does not receive salary, so gratuity paid to him falls outside that head. It is not income from a business or profession he carries on either, so it is taxed under the residual head, income from other sources.

Salaries would apply only to a director who is also an employee, such as a managing or whole-time director.

Your Answer : (Not Answered)

Correct Answer : A

Free land and building given by the host government is Not included in the initial cash flow.

Capital budgeting counts only incremental cash flows that the investing firm actually pays or receives. Land and buildings given free involve no cash outlay by the firm, so nothing is entered for them in the initial investment of a foreign project.

Including them, or adding them to the initial outflow, would overstate the investment and understate the project's NPV. 'Not added in the income statement' refers to accounting profit, which is not what the initial cash flow measures, so it does not answer the question.

Your Answer : (Not Answered)

Correct Answer : A

The stock must be sold for ₹ 390.

The one-year return is the dividend plus the price change, divided by the price paid:

\[ \begin{aligned} r &= \frac{D_1 + P_1 - P_0}{P_0} \\ 0.40 &= \frac{30 + P_1 - 300}{300} \\ 120 &= P_1 - 270 \\ P_1 &= 390 \end{aligned} \]

Check: a dividend of 30 plus a capital gain of 90 is 120, which is 40 percent of 300. ₹ 420 is what you get by forgetting the dividend (300 \(\times\) 1.4), and ₹ 450 or ₹ 370 do not give a 40 percent return with a ₹ 30 dividend.

Your Answer : (Not Answered)

Correct Answer : D

The technique that is not a DCF method is ARR (Average Rate of Return).

Discounted cash flow techniques take the time value of money into account by discounting future cash flows. Net present value, profitability index and internal rate of return all do this.

The average (accounting) rate of return divides average accounting profit by investment, without discounting, so it is a traditional, non-DCF method like payback.

Your Answer : (Not Answered)

Correct Answer : C

A cash flow statement does not show Whether credit limit is breached.

The statement records the actual inflows and outflows of cash in the period, classified into operating, investing and financing activities. The purchase of a machine appears under investing activities, a new loan under financing activities, and the change in working capital is part of the adjustments in the operating section.

Whether a firm has exceeded the credit limit sanctioned by its bank, or allowed customers to exceed theirs, is a matter of comparing a balance with an agreed limit. That limit is not a cash flow, so nothing in the statement reveals a breach.

Your Answer : (Not Answered)

Correct Answer : A

Target cost is Market price - Desired profit margin.

Target costing starts from the price customers are willing to pay, the market or target price, and subtracts the profit the company wants to earn. What is left is the maximum cost at which the product must be designed and produced:

\[ \begin{aligned} &\text{Target cost} \\ &= \text{Market price} - \text{Desired profit} \end{aligned} \]

Options B and C start from a standard selling price set internally rather than from the market, which is the reverse of target costing's logic, and option D subtracts a return on investment instead of the profit margin.

Your Answer : (Not Answered)

Correct Answer : C

Accounting Standard 16 relates to borrowing cost.

AS 16, Borrowing Costs, issued by the Institute of Chartered Accountants of India, deals with interest and other costs incurred in borrowing funds. It requires borrowing costs directly attributable to acquiring, constructing or producing a qualifying asset, one that takes a substantial period to get ready for use, to be capitalised as part of its cost, and other borrowing costs to be charged as an expense.

The other subjects have their own standards: segment reporting is AS 17, accounting for amalgamations is AS 14, and depreciation accounting was AS 6 (now merged into AS 10 on property, plant and equipment).

Your Answer : (Not Answered)

Correct Answer : D

The item not considered is software.

Working capital is current assets minus current liabilities. Current assets are those expected to be turned into cash within the operating cycle or a year: inventories, trade receivables (debtors and bills receivable), cash at bank and in hand, short-term investments and prepaid expenses.

Software bought for use in the business is an intangible fixed asset, amortised over several years, so it is part of the long-term capital employed, not of working capital. Inventory, trade receivables and cash at bank are all current assets that enter the calculation.

Your Answer : (Not Answered)

Correct Answer : C

The proprietary ratio establishes the relationship between shareholders' funds and total tangible assets. It is the shareholders' funds divided by the total tangible assets, and a high value means that a larger part of the assets is financed by the owners. The debt-equity ratio compares outside funds with owners' funds, the capital gearing ratio compares fixed-return capital with equity, and return on total resources is a profitability measure.

Your Answer : (Not Answered)

Correct Answer : D

All three are causes. Overheads are absorbed at a predetermined rate, calculated from estimated overhead expenses divided by an estimated base such as production or machine hours. An error in estimating the overhead expenses (i), an error in estimating the level of production or other base (ii), or major unanticipated changes in the methods of production (iii) can each make actual overheads differ from absorbed overheads, giving under or over absorption. So all of (i), (ii) and (iii) are right.

Your Answer : (Not Answered)

Correct Answer : D

All three are exempt. Section 10(17) exempts the daily allowance received by a Member of Parliament or of a State Legislature, or of a committee of either, by reason of membership, any allowance received by a Member of Parliament, and the constituency allowance received by a member of a State Legislature. Since all three items listed in the question are covered, 'All (i), (ii) and (iii)' is the answer and the options with two items are incomplete.