CA FINAL LAW , DIVIDEND CHAPTER

Never Miss Points in DIVIDEND Chapter---

1. Interim dividend is proposed as well as declared by board
2. Any amount can be transferred to reserves before declaration of dividend
3. Bonus shares and dividend are not substitutes i.e. bonus share cannot be issued in lieu of dividend
4. Default in  repayment of deposits and interest thereon or only DEPOSITS till such failure continues, leads to prohibition of Declaration of EQUITY dividend
5.  RULE 3 SUB RULE 5(set off losses and dep not provided for) has been omitted from rule and added as proviso to sec 123
6. OR is required for revocation of dividend once declared. Board will be justified in revocation of dividend in case its been illegally declared or intervening events leading to heavy losses and its advisable to conserve the remaining assets
7. Interest is 18 %p.a in case of late payment of dividend.  No shareholder can enforce higher rate even through court
8. Old sec 205C clarifies no claim will be entertained after 7 years while section 125(3) say that claim will be entertained even after 7 years and amount will be refunded back

CA Final FR AS 16 & 11 NMQs

Question --
Sun Co-operative Society Ltd. has borrowed a sum of US$12.50 million at the commencement of the financial year 2014-15 for its solar energy project at LIBOR (London Interbank Offered
Rate) of 1% + 4% . The interest is payable at the end of the respective financial year. The loan was availed at the then rate of ` 45 to the US dollar while the rate as on 31st March, 2015 is ` 48 to the US dollar. Had Sun Co-operative Society Ltd. borrowed the Rupee equivalent in India, the interest would have been 11%. You are required to compute Borrowing Cost‘. Also show the amount of exchange difference as per prevailing Accounting
Standards.
ANSWER--
Computation of Borrowing Cost as per para 4(e) of AS 16” Borrowing Costs” and Amount of Exchange Difference as per AS 11 “The Effects of Changes in Foreign Exchange Rates”:
(a) Interest for the period 2014-15
= US$ 12.5 million x 5% × ` 48 per US$ = ` 30 million
(b) Increase in the liability towards the principal amount
= US $ 12.5 million × ` (48 - 45) = ` 37.5 million
(c) Interest that would have resulted if the loan was taken in Indian currency
= US$ 12.5 million × ` 45 x 11% = ` 61.875 million
(d) Difference between interest on local currency borrowing and foreign currency borrowing = ` 61.875 million - ` 30 million = ` 31.875 million.

Therefore, out of ` 37.5 million increase in the liability towards principal amount, only ` 31.875 million will be considered as the borrowing cost.

Thus, total borrowing cost would be ` 61.875 million being the aggregate of interest of ` 30 million on foreign currency borrowings plus the exchange difference to the extent of difference between interest on local currency borrowing and interest on foreign currency borrowing of ` 31.875 million.

Hence, ` 61.875 million would be considered as the borrowing cost to be accounted for as per AS 16 and the remaining ` 5.625 million (37.5 - 31.875) would be considered as the exchange difference to be accounted for as per AS 11.

CA FINAL FR NOV 2016 NMQs

Ques :-
Opportunity Ltd. purchased an equipment costing ` 24,00,000 lakhs on 1.4.2013 and the same was fully financed by foreign currency loan (US Dollars) payable in four annual equal installments. Exchange rates were 1 Dollar = ` 60.00 and ` 62.50 as on 1.4.2013 and 31.3.2014 respectively. First installment was paid on 31.3.2014. The entire difference in
foreign exchange has been capitalized. You are required to state that how these transactions would be accounted for.
Ans:-
Solution
As per para 13 of AS 11 (Revised 2003) „The Effects of Changes in Foreign Exchange Rates‟, exchange differences arising on reporting an enterprise‟s monetary items at rates different
from those at which they were initially recorded during the period, should be recognized as income or expenses in the period in which they arise. Thus, exchange differences arising on
repayment of liabilities incurred for the purpose of acquiring fixed assets will be recognized as income or expense.
Calculation of Exchange Difference:
Foreign currency loan = ` 24,00,000/60 = 40,000 US Dollars
Exchange difference = 40,000 US Dollars x (62.50-60.00) = ` 1,00,000
(including exchange loss on payment of first instalment)Therefore, entire loss due to exchange differences amounting ` 1,00,000 should be charged to profit and loss account for the year.
Note: The above answer has been given on the basis that the company has not availed the option for capilisation of exchange difference as per para 46/46A of AS 11.
However, as per para 46A of the standard, the exchange differences arising on reporting of long term foreign currency monetary items at rates different from those at which they were initially recorded during the period, in so far as they relate to the acquisition of a depreciable capital asset, can be added to or deducted from the cost of the asset and shall be depreciated over the balance life of the asset.
Accordingly, in case Opportunity Ltd. opts for capitalizing the exchange difference, then the entire amount of exchange difference of ` 1,00,000 will be capitalsied to „Equipment account‟. This capitalized exchange difference will be depreciated over the useful life of the asset.
Cost of the asset on the reporting date
Initial cost of Equipment ` 24,00,000
Add: Exchange difference as on 31.3.2014 ` 1,00,000
Total cost on the reporting date ` 25,00,000

CA FINAL ISCA , NMQs Chapter 1, Governance.

Question
Discuss key benefits of COBIT 5 framework.
Answer-
The key benefits of COBIT 5 framework are as follows:
• A comprehensive framework such as COBIT 5 enables enterprises in achieving
their objectives for the governance and management of enterprise IT.
• The best practices of COBIT 5 help enterprises to create optimal value from IT by maintaining a balance between realizing benefits and optimizing risk levels and resource use.
• Further, COBIT 5 enables IT to be governed and managed in a holistic manner for the entire enterprise, taking in the full end-to-end business and IT functional areas of responsibility, considering the IT related interests of internal and external stakeholders.
• COBIT 5 helps enterprises to manage IT related risk and ensures compliance,
continuity, security and privacy.
• COBIT 5 enables clear policy development and good practice for IT management including increased business user satisfaction.
• The key advantage in using a generic framework such as COBIT 5 is that it is useful for enterprises of all sizes, whether commercial, not-for-profit or in the public sector.
• COBIT 5 supports compliance with relevant laws, regulations, contractual agreements and policies.

Circulars issued by CBDT from Nov 2015 to April 2016.

Significant Circulars issued by CBDT applicable for CA Final Nov 2016

Circular No - 18/2015
Date - 2/11/15
Subject- Whether in the case of banks, expenses relatable to investment in non-SLR securities need to be disallowed under section 57(i), by considering interest on non-SLR securities as “Income from other sources".
Clarification by CBDT-  In CIT v. Nawanshahar Central Cooperative Bank Ltd. [2007]160 Taxman 48, the Supreme Court held that investments made by a banking concern are part of the business of
banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head "Profits and Gains of Business and Profession
Even though the above mentioned decision was in the context of co-operative societies/Banks claiming deduction under section 80P(2)(a)(i), the principle is equally applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 applies.

Circular No - 21/2015
Date- 10/12/2015
Subject - Revision of monetary limits for filing of appeals by the Department before the ITAT and High Courts and SLP before Supreme Court
Clarification by CBDT - Appeals/SLP shall not be filed in cases where tax effect does not exceed the monetary limits given hereunder –
`10 lakhs, in case of appeal before ITAT;
`20 lakhs, in case of appeal before High Court; and
`25 lakhs, in case of appeal before Supreme Court.
Further, appeal should not be filed merely because the tax effect in a case exceeds the monetary limits prescribed above. Filing of appeal in such cases is to be decided on merits of the case. The above limits would apply equally to cross objections under section 253(4) and references to High Court under sections 256(1)and (2).


Circular No - 22/2015
Date - 17/12/15
Subject - Allowability of employers contribution to welfare funds of employees remitted after due date under the relevant Act but before the due date of fi ling of return under section 139(1).
Clarification  by CBDT-  If the assessee deposits any sum payable by it by way of tax, duty, cess or fee by whatever name called under any law for the time being in force, or any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, on or before the ‘due date’ applicable in his case for furnishing the return of income under section 139(1), no disallowance can be made under section 43B.This clarification is based on Supreme Court decision in CIT v. Alom Extrusions Ltd. (2009) 185 Taxman 416.
It is further clarifi ed that this Circular does not apply to claim of deduction relating to employee’s contribution to welfare funds which are governed by section 36(1)(va) of the Income-tax Act,
1961.

NMQs- CA Final Paper 4 Corporate & Allied Laws

Topic- Inspection, Inquiry and Investigation
Question-
A notice was sent to Mr. Left by the registrar to furnish the information related to a business transacted during his tenure in the X company. Mr. Left ignored the notice considering that he is no more an employee of X company. Registrar issued the summon against Mr. Left. Explain in the light of the Companies Act, 2013 about the liability of the
Mr. Left in the given case.

Answer-
Power of the Registrar to call for information, explanation or documents: According to section 206(1) of the Companies Act, 2013, where on a scrutiny of any document filed by a company or on any information received by him, the Registrar is of the opinion that any further information or explanation or any further documents relating to the company is necessary, he may by a written notice require the company—
(a) to furnish in writing such information or explanation; or
(b) to produce such documents,within such reasonable time, as may be specified in the notice.
Further, proviso to sub-section (2) of section 206 provides that where such information or explanation relates to any past period, the officers who had been in the employment of the company for such period, if so called upon by the Registrar through a notice served on them in writing, shall also furnish such information or explanation to the best of their knowledge.
In the given instance, Mr. Left is a past member of the company. Registrar by serving notice asked Mr. Left to furnish the information related to the business transaction made during his tenure. So as per the above provision, where such information or explanation relates to any past period, the officers who had been in the employment of the company for such period, if so called upon by the Registrar through a notice served on him, he has
a duty to give such information/Explanation to the best of his knowledge. Mr. Left is liable to provide such information.

NMQs for CA FINAL Nov 2016 Paper -3 AAPE Topic SA 220

Very Important  Question
Question
M/s Sureshchandra & Co. has been appointed as an auditor of SC Ltd. for the
financial year 2014-15. CA. Suresh, one of the partners of M/s Sureshchandra &
Co., completed entire routine audit work by 29th May, 2015. Unfortunately, on the
very next morning, while roving towards office of SC Ltd. to sign final audit report,
he met with a road accident and died. CA. Chandra, another partner of M/s
Sureshchandra & Co., therefore, signed the accounts of SC Ltd., without reviewing the work performed by CA. Suresh. State with reasons whether CA. Chandra is right in expressing an opinion on financial statements the audit of which is performed by another auditor.
Answer
Relying on Work Performed by Another Auditor: As per SA 220 “Quality Control for an Audit of Financial Statements”, an engagement partner taking over an audit
during the engagement may apply the review procedures such as the work has
been performed in accordance with professional standards and regulatory and legal requirements; significant matters have been raised for further consideration; appropriate consultations have taken place and the resulting conclusions have been documented and implemented; there is a need to revise the nature, timing and extent of work performed; the work performed supports the conclusions reached and is appropriately documented; the evidence obtained is sufficient and
appropriate to support the auditor’s report; and the objectives of the engagement procedures have been achieved.
Further, one of the basic principles, which govern the auditor’s professional
responsibilities and which should be complied with wherever an audit is carried, is that when the auditor delegates work to assistants or uses work performed by other auditor and experts, he will continue to be responsible for forming and expressing his opinion on the financial information. However, he will be entitled to rely on work performed by others, provided he exercises adequate skill and care and is not aware of any reason to believe that he should not have so relied. This is the fundamental principle which is ethically required as per Code of Ethics.
However, the auditor should carefully direct, supervise and review work delegated. He should obtain reasonable assurance that work performed by other
auditors/experts and assistants is adequate for his purpose.

In the given case, all the auditing procedures before the moment of signing of final report have been performed by CA. Suresh. However, the report could not be signed by him due to his unfortunate death. Later on, CA. Chandra signed the
report relying on the work performed by CA. Suresh. Here, CA. Chandra is allowed
to sign the audit report, though, will be responsible for expressing the opinion. He may rely on the work performed by CA. Suresh provided he further exercises
adequate skill and due care and review the work performed by him.