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CA Final Paper 4 study materials
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CA Final Paper 4 practice questions

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Question 1Paper 4 syllabus domain (not enumerated in source)

Under the Income-tax Act, 1961, which authority is empowered to issue a notice for reassessment of income that has escaped assessment under section 148?

  1. The jurisdictional Principal Commissioner of Income-tax
  2. The Central Board of Direct Taxes directly
  3. The Assessing Officer after obtaining the prescribed sanction Correct answer.
  4. The National Faceless Assessment Centre

Explanation

Section 148 requires the Assessing Officer to issue the notice, but only after obtaining the sanction prescribed in section 151, which varies with the amount involved and the time elapsed. The Board, the faceless centre and the Principal Commissioner do not themselves issue section 148 notices.

Question 2Paper 4 syllabus domain (not enumerated in source)

Which of the following best describes the treatment of a capital receipt under the Income-tax Act, 1961?

  1. It is taxable only when expressly charged by a charging provision Correct answer.
  2. It is taxable only if received in cash
  3. It is always exempt from tax
  4. It is taxable at the rate applicable to business income

Explanation

A capital receipt is outside the scope of income tax unless a specific charging provision brings it within the tax net, as with section 45 for capital gains or section 56(2)(x) for certain receipts. Mere receipt in cash does not convert a capital receipt into income.

Question 3Paper 4 syllabus domain (not enumerated in source)

In a tax audit report under section 44AB, which form is prescribed for an assessee covered under the presumptive taxation scheme of section 44AD?

  1. Form 3CD
  2. Form 3CB
  3. Form 3CA
  4. Form 3CE Correct answer.

Explanation

Rule 6G prescribes Form 3CE for a person covered by the presumptive scheme who is required to furnish a report under section 44AB. Forms 3CA, 3CB and 3CD relate to the conventional audit of accounts and the statement of particulars.

Question 4Paper 4 syllabus domain (not enumerated in source)

Which of the following is the correct order of the three components of a Statement of Cash Flows prepared under AS 3?

  1. Investing, operating, financing
  2. Financing, operating, investing
  3. Operating, investing, financing Correct answer.
  4. Operating, financing, investing

Explanation

AS 3 (Revised) requires cash flows to be classified into operating, investing and financing activities in that order for presentation. The classification reflects the nature of the activity rather than the sequence of the balance sheet.

Question 5Paper 4 syllabus domain (not enumerated in source)

Under the Companies Act, 2013, which of the following is a valid ground on which an auditor of a company may be disqualified from appointment?

  1. Holding shares of face value of Rs. 500 in the company
  2. Being a relative of a director of the company
  3. Having completed three consecutive terms as auditor
  4. Being a member of an LLP that provides internal audit services to the company Correct answer.

Explanation

Section 141(3) disqualifies a person who, directly or indirectly, is engaged in internal audit or renders other specified services to the company, and this extends to a firm or LLP in which the person is a partner. Small shareholdings below the prescribed limit, mere relationship with a director and completion of terms are dealt with separately, not as section 141(3) disqualifications.

Question 6Paper 4 syllabus domain (not enumerated in source)

An assessee, a resident individual aged 45, has income from salary and a long-term capital gain on sale of listed equity shares. Which special rate applies to the capital gain under section 112A?

  1. 30% as normal income
  2. 15% without indexation
  3. 10% without indexation, on gains exceeding the exemption threshold Correct answer.
  4. 20% with indexation

Explanation

Section 112A taxes long-term capital gains on listed equity shares and specified securities at 10% without indexation, with the exemption of gains up to the prescribed threshold. Indexation is not available and the normal slab rates do not apply.

Question 7Paper 4 syllabus domain (not enumerated in source)

Under the GST law, which of the following is the correct treatment of interest on delayed payment of output tax?

  1. Interest is payable at 18% on the tax paid belatedly, computed from the due date Correct answer.
  2. Interest is payable on the gross tax liability, with credit for interest already paid
  3. Interest is waived if the return is filed before the assessment order
  4. Interest is payable on the net tax liability after input tax credit

Explanation

Section 50 of the CGST Act requires interest at 18% per annum on the tax paid belatedly, computed from the day following the due date until the date of payment. The rate and computation basis are statutory, and waiver applies only in the circumstances expressly notified.

Question 8Paper 4 syllabus domain (not enumerated in source)

In the context of the Insolvency and Bankruptcy Code, 2016, which of the following statements about a resolution plan approved by the adjudicating authority is correct?

  1. It binds only the corporate debtor and its promoters
  2. It binds all stakeholders, including dissenting creditors and the guarantors Correct answer.
  3. It binds only the financial creditors who voted in favour
  4. It binds only the operational creditors

Explanation

Section 31 of the Code provides that an approved resolution plan binds the corporate debtor and all its stakeholders, including dissenting creditors and guarantors. It is not confined to the parties who voted in its favour.

Question 9Paper 4 syllabus domain (not enumerated in source)

A company issues bonus shares out of accumulated free reserves. Which of the following is the correct accounting treatment under AS 10?

  1. Recognise a gain equal to the face value of the bonus shares
  2. Increase both reserves and paid-up capital
  3. Reduce the reserves and increase the paid-up capital by the face value Correct answer.
  4. Recognise a loss on the issue of bonus shares

Explanation

Bonus shares are issued by capitalising free reserves, so reserves decrease and paid-up capital increases by the face value of the shares issued. No gain or loss arises in the books because no consideration is received.

Question 10Paper 4 syllabus domain (not enumerated in source)

Under the Income-tax Act, 1961, which of the following penalties is levied for failure to furnish a return of income under section 234F?

  1. A fee of Rs. 1,000 where total income does not exceed the prescribed threshold and Rs. 5,000 otherwise Correct answer.
  2. A fixed fee of Rs. 5,000 regardless of total income
  3. A penalty equal to 50% of the tax payable
  4. A penalty equal to 200% of the tax payable

Explanation

Section 234F imposes a fee of Rs. 1,000 where the total income does not exceed the prescribed threshold and Rs. 5,000 in other cases, subject to the statutory conditions. The higher percentages relate to penalties for concealment, not to the late-filing fee.

Question 11Paper 4 syllabus domain (not enumerated in source)

Which of the following best explains why the auditor of a company must obtain an understanding of the entity's internal control under the Standards on Auditing?

  1. To eliminate the need for substantive testing
  2. To report every control deficiency to the shareholders
  3. To express an opinion on the effectiveness of internal control
  4. To identify and assess risks of material misstatement and design further audit procedures Correct answer.

Explanation

SA 315 requires the auditor to understand the entity and its internal control so as to identify and assess risks of material misstatement and design further audit procedures. The auditor does not opine on internal control in a statutory audit, and understanding controls does not remove the need for substantive procedures.

Question 12Paper 4 syllabus domain (not enumerated in source)

A company has issued partly paid-up equity shares on which the unpaid amount has been outstanding for more than twelve months. What is the correct treatment under the Companies Act, 2013?

  1. The amount may be recovered with interest at the prescribed rate, and the shares may be forfeited after notice Correct answer.
  2. No action is permissible once twelve months elapse
  3. The amount is treated as a secured loan
  4. The shares are automatically cancelled

Explanation

Section 46 permits the company to charge interest on unpaid calls and, after giving notice, to forfeit the shares if the amount remains unpaid. The shares are not automatically cancelled and the unpaid amount is not converted into a secured loan.

Question 13Paper 4 syllabus domain (not enumerated in source)

Under the GST law, what is the time limit for filing an appeal to the Appellate Authority against an order passed by the adjudicating authority?

  1. Ninety days from the date of communication of the order
  2. Thirty days from the date of communication of the order Correct answer.
  3. One hundred and twenty days from the date of the order
  4. Sixty days from the date of the order

Explanation

Section 107 of the CGST Act allows an appeal within three months, that is, thirty days, from the date of communication of the order, with a possible condonation of delay on sufficient cause. The other periods do not correspond to the statutory limit.

Question 14Paper 4 syllabus domain (not enumerated in source)

Which of the following is the correct measure of revenue recognised for a contract with a customer where the entity satisfies a performance obligation over time?

  1. Revenue is recognised on the basis of progress towards complete satisfaction of the performance obligation Correct answer.
  2. Revenue is recognised only at contract completion
  3. Revenue is recognised in full at contract inception
  4. Revenue is recognised only when the customer makes payment

Explanation

Under Ind AS 115, revenue is recognised over time by measuring progress towards complete satisfaction of the performance obligation, using a method that faithfully depicts the transfer of goods or services. Payment timing and contract inception or completion do not drive recognition.

Question 15Paper 4 syllabus domain (not enumerated in source)

A firm of chartered accountants is offered an engagement that creates a self-interest threat to independence. Which of the following is the most appropriate first response under the Code of Ethics?

  1. Identify and evaluate the threat, then apply safeguards or decline the engagement Correct answer.
  2. Rely on the client to monitor the threat
  3. Decline every engagement that creates any threat
  4. Accept the engagement and disclose the threat to the client

Explanation

The Code of Ethics requires the firm to identify threats to independence, evaluate their significance and apply safeguards to eliminate or reduce them to an acceptable level; if that is not possible, the engagement should be declined. Disclosure to the client or reliance on the client is not a substitute for the firm's own evaluation.

Question 16Paper 4 syllabus domain (not enumerated in source)

Under the Income-tax Act, 1961, what is the consequence for a resident assessee who fails to furnish a report under section 92E for an international transaction?

  1. A penalty of Rs. 1,00,000 is levied under section 271BA Correct answer.
  2. The return is treated as invalid
  3. The transaction is recharacterised as domestic
  4. The assessee is prosecuted without exception

Explanation

Section 271BA levies a penalty of Rs. 1,00,000 for failure to furnish the transfer pricing report under section 92E. The transaction is not recharacterised and the return is not automatically invalidated.

Question 17Paper 4 syllabus domain (not enumerated in source)

In the context of the Foreign Exchange Management Act, 1999, which of the following is correct regarding current account transactions?

  1. The Central Government may impose reasonable restrictions on certain current account transactions Correct answer.
  2. Current account transactions are prohibited unless notified
  3. All current account transactions are freely permitted without any restriction
  4. Current account transactions require prior approval of the Reserve Bank in every case

Explanation

Section 5 of FEMA permits free current account transactions, but the Central Government may impose reasonable restrictions in the public interest, and the Reserve Bank may regulate certain payments. Prior approval is not required in every case and such transactions are not prohibited by default.

Question 18Paper 4 syllabus domain (not enumerated in source)

A company with a net worth exceeding the prescribed threshold is required to constitute a CSR Committee. Which of the following is a valid constitution of that committee under the Companies Act, 2013?

  1. Two directors, both executive
  2. The CFO and the statutory auditor
  3. Three directors, of whom at least one is an independent director Correct answer.
  4. The company secretary alone

Explanation

Section 135 requires a CSR Committee of three or more directors, including at least one independent director, for companies to which the provision applies. A two-member committee, the auditor, or the company secretary alone does not satisfy the requirement.

Question 19Paper 4 syllabus domain (not enumerated in source)

Under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, which of the following is required for the composition of the board of directors of a listed entity?

  1. At least half of the board shall comprise independent directors in every case
  2. At least one-third of the board shall comprise independent directors where the chairperson is a non-executive director Correct answer.
  3. At least two-thirds of the board shall comprise independent directors
  4. The board shall consist entirely of independent directors

Explanation

Regulation 17 requires that at least one-third of the board comprise independent directors where the chairperson is non-executive, and at least half where the chairperson is executive. The other compositions exceed or misstate the requirement.

Question 20Paper 4 syllabus domain (not enumerated in source)

In a consolidated financial statement prepared under Ind AS 110, how is a subsidiary that is held for sale classified under Ind AS 105 presented?

  1. Excluded from consolidation entirely
  2. Accounted for using the equity method
  3. Presented as a discontinued operation, with assets and liabilities classified as held for sale Correct answer.
  4. Fully consolidated line by line until disposal

Explanation

A subsidiary held for sale remains part of the group but its assets and liabilities are presented as held for sale, and its results are shown as a discontinued operation where the criteria of Ind AS 105 are met. It is not accounted for by the equity method and is not excluded from consolidation.

Question 21Paper 4 syllabus domain (not enumerated in source)

A chartered accountant in practice is approached by a client to certify a statement that the accountant knows to be materially misleading. What is the correct course of action under the Code of Ethics?

  1. Certify the statement and inform the regulator later
  2. Refuse to certify the statement and consider whether to continue the engagement Correct answer.
  3. Certify the statement with a note that it is based on client information
  4. Refer the client to another professional without comment

Explanation

The Code of Ethics requires integrity and objectivity, so the member must not be associated with a misleading statement and should decline to certify it, while considering the implications for the continuing relationship. A disclaimer or later disclosure does not cure association with known misstatement.

Question 22Paper 4 syllabus domain (not enumerated in source)

Under the Income-tax Act, 1961, when is an assessee entitled to claim a deduction for a provision for gratuity based on actuarial valuation?

  1. Only when the gratuity fund is approved and the contribution is actually paid Correct answer.
  2. Whenever the provision is created in the books, regardless of payment
  3. Only when the gratuity is paid in cash to employees
  4. Only at the time of retirement of employees

Explanation

Section 36(1)(v) and section 40A(7) allow a deduction for gratuity only where it is contributed to an approved gratuity fund or actually paid, and provisions not so covered are disallowed. A mere book provision does not qualify.

Question 23Paper 4 syllabus domain (not enumerated in source)

In a bank's financial statements, which of the following is the correct treatment of a non-performing asset under the RBI norms for income recognition?

  1. Interest on an NPA is capitalised into the principal
  2. Interest on an NPA is recognised only on realisation Correct answer.
  3. Interest on an NPA is recognised at a reduced rate
  4. Interest on an NPA is recognised on accrual basis

Explanation

RBI norms require income on non-performing assets to be recognised on a cash basis, that is, only when realised, rather than on accrual. Reducing the rate or capitalising interest would not reflect the impaired status.

Question 24Paper 4 syllabus domain (not enumerated in source)

Which of the following is the correct treatment of a change in accounting policy under AS 5, where the change is not required by statute and has no material retrospective effect?

  1. The change is applied retrospectively with restatement of prior periods
  2. The change is ignored until the next statutory audit
  3. The change is applied prospectively with disclosure of the effect Correct answer.
  4. The change is adjusted directly in reserves without disclosure

Explanation

AS 5 requires a change in accounting policy to be applied retrospectively unless it is impracticable, but where the change has no material retrospective effect the impact is recognised currently, with disclosure of the change and its effect. Direct adjustment in reserves without disclosure is not permitted.

Question 25Paper 4 syllabus domain (not enumerated in source)

Under the Companies Act, 2013, which of the following statements about the punishment for a company that fails to file its financial statements with the Registrar is correct?

  1. The company is liable to a penalty, and the officer in default is also liable to a penalty Correct answer.
  2. Only the company is liable, with no liability for officers
  3. Only the officer in default is liable
  4. No penalty applies if the accounts are audited

Explanation

Section 92 provides that failure to file the financial statements attracts a penalty on the company as well as on the officer in default. The liability is not confined to one of them, and audit of the accounts does not excuse non-filing.

Question 26Paper 4 syllabus domain (not enumerated in source)

Under the Chartered Accountants Act, 1949, a member in practice accepts an audit engagement where the previous auditor has not been communicated with. Which professional misconduct does this primarily constitute?

  1. Sharing audit fees with a non-member
  2. Charging fees lower than those prescribed by the Council
  3. Gross negligence in the conduct of the audit
  4. Failure to communicate with the previous auditor Correct answer.

Explanation

Clause (8) of Part I of the First Schedule to the Chartered Accountants Act, 1949 treats accepting a position previously held by another chartered accountant without first communicating with him in writing as professional misconduct. The duty applies before acceptance of the appointment, and the communication must be in writing. Gross negligence and fee-sharing are separate clauses of the Schedules.

Question 27Paper 4 syllabus domain (not enumerated in source)

A chartered accountant holds an audit engagement and simultaneously accepts a bookkeeping assignment for the same client, with the client's management approving the arrangement. Under the Code of Ethics, which safeguard is most appropriate?

  1. Resign from the bookkeeping engagement because it is prohibited absolutely
  2. Increase the audit fee to compensate for the added risk
  3. Disclose the arrangement only in the auditor's report
  4. Apply safeguards such as using separate engagement teams and review by an independent partner Correct answer.

Explanation

Providing bookkeeping services to an audit client creates a self-review threat, but it is not an absolute prohibition for entities that are not public interest entities, provided management takes the decisions and safeguards are applied. Typical safeguards include using personnel not involved in the audit and independent quality review of the work. Fee increases and bare disclosure do not address the threat.

Question 28Paper 4 syllabus domain (not enumerated in source)

Under the Companies Act, 2013, the auditor of a company must report on fraud committed against the company by officers or employees. When the fraud involves an amount of one crore rupees or more, what is the auditor's reporting obligation?

  1. Report to the Central Government within sixty days of the audit report
  2. Report to the Audit Committee and, if no action within forty-five days, to the Central Government Correct answer.
  3. Report to the Registrar of Companies within thirty days
  4. Report only to the Board of Directors in the audit report

Explanation

Section 143(12) read with Rule 13 of the Companies (Audit and Auditors) Rules, 2014 requires the auditor to report fraud to the Board or Audit Committee and, if the amount is one crore rupees or more and no action is taken within forty-five days, to report to the Secretary of the Ministry of Corporate Affairs. The reporting route is layered rather than direct.

Question 29Paper 4 syllabus domain (not enumerated in source)

A statutory auditor of a listed company has completed a continuous period of ten years. Which statement correctly reflects the transitional and rotation requirements under the Companies Act, 2013?

  1. The auditor must rotate, and an audit firm can be reappointed only after a cooling-off period of five years Correct answer.
  2. The auditor may continue if the shareholders pass a special resolution waiving rotation
  3. The auditor may be reappointed after a cooling-off period of three years
  4. Rotation applies only to the engagement partner and not to the audit firm

Explanation

Section 139(2) read with Rule 6 of the Companies (Audit and Auditors) Rules, 2014 prescribes rotation after one term of five consecutive years for individuals and two terms of five consecutive years for firms, followed by a cooling-off period of five years. No shareholder resolution can waive the mandatory rotation for listed companies.

Question 30Paper 4 syllabus domain (not enumerated in source)

A company's cost auditor has been appointed for the financial year 2023-24. Under the Companies (Cost Records and Audit) Rules, 2014, within what time must the cost audit report be filed with the Central Government?

  1. Within thirty days from the date of the Board meeting at which the report is approved Correct answer.
  2. Within sixty days from the date of the annual general meeting
  3. Within one hundred and eighty days from the close of the financial year
  4. Within ninety days from the end of the financial year

Explanation

Rule 6 of the Companies (Cost Records and Audit) Rules, 2014 requires the cost auditor to submit the report to the Board, and the company must file it with the Central Government within thirty days of the Board meeting at which it is approved. The timeline runs from Board approval, not from year-end or the AGM.

Question 31Paper 4 syllabus domain (not enumerated in source)

In a tax audit under Section 44AB of the Income-tax Act, 1961, the auditor discovers that the assessee has claimed a deduction that is not admissible. What is the appropriate course of action?

  1. Report the matter to the Assessing Officer without informing the client
  2. Qualify the report and disclose the inadmissible claim with reasons Correct answer.
  3. Refuse to sign the report until the claim is withdrawn
  4. Silently accept the claim because tax audit is only a formality

Explanation

A tax auditor is not required to certify the correctness of every claim; the duty is to report the particulars prescribed by the Form and to qualify or comment where the accounts or claims are not in order. The qualification must be recorded with reasons so the Assessing Officer can examine it. Confidentiality prevents unilateral reporting to the department.

Question 32Paper 4 syllabus domain (not enumerated in source)

A company with a paid-up capital of fifty lakh rupees and turnover of two crore rupees wants to appoint an auditor. Which statement about the requirement of an internal audit under the Companies Act, 2013 is correct?

  1. Internal audit is mandatory for every private company
  2. Internal audit is not mandatory unless the prescribed thresholds under Rule 13 are crossed Correct answer.
  3. Internal audit is required only for listed companies
  4. Internal audit is mandatory if the company has more than ten employees

Explanation

Section 138 read with Rule 13 of the Companies (Accounts) Rules, 2014 prescribes class-wise thresholds, such as turnover of two hundred crore rupees or borrowings of one hundred crore rupees for private companies. A company below these thresholds is not obliged to appoint an internal auditor, though it may do so voluntarily.

Question 33Paper 4 syllabus domain (not enumerated in source)

An auditor of a company listed on a recognised stock exchange resigns before the end of his term. Under the Companies Act, 2013, what is the correct filing requirement?

  1. File a statement in Form ADT-3 with the company and the Registrar within thirty days of resignation Correct answer.
  2. File a statement in Form ADT-1 with the Registrar within fifteen days
  3. No filing is required if the Board accepts the resignation
  4. Inform only the stock exchange within twenty-four hours

Explanation

Section 140(2) requires a resigning auditor to file a statement in Form ADT-3 with the company and the Registrar within thirty days of resignation, indicating the reasons and other prescribed particulars. The company must then inform the Registrar and, where applicable, the Comptroller and Auditor-General.

Question 34Paper 4 syllabus domain (not enumerated in source)

Under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a listed entity must submit a compliance certificate to the stock exchange. Who is required to sign this certificate?

  1. The managing director and the chief financial officer
  2. The chief executive officer and the statutory auditor
  3. The compliance officer alone
  4. The company secretary and the managing director Correct answer.

Explanation

Regulation 17(8) requires a compliance certificate signed by the compliance officer and the chief executive officer, while Regulation 7 read with the prescribed format requires the company secretary and the managing director to certify compliance. The certification of share transfer and other compliance matters is signed by the compliance officer and the managing director.

Question 35Paper 4 syllabus domain (not enumerated in source)

In a bank's balance sheet prepared under the RBI norms, an asset becomes a non-performing asset when interest or principal remains overdue for more than ninety days. On classification as NPA, what is the correct accounting treatment of the unpaid interest already recognised as income?

  1. Capitalise the interest into the loan balance
  2. Transfer the interest to a general reserve
  3. Continue to recognise interest on accrual basis
  4. Reverse the interest income and recognise it only on receipt Correct answer.

Explanation

Once an account is classified as an NPA, income recognition on accrual ceases and interest is booked only on actual receipt. Interest already taken to income but not received must be reversed, which reduces both income and the corresponding asset. This follows the RBI prudential norms on income recognition.

Question 36Paper 4 syllabus domain (not enumerated in source)

Under the Insolvency and Bankruptcy Code, 2016, an operational creditor may initiate corporate insolvency resolution process. What is the correct sequence of steps before filing the application?

  1. File the application directly without any notice
  2. Obtain prior consent of the adjudicating authority
  3. Serve notice only after admission of the application
  4. Deliver a demand notice and wait fourteen days for payment or notice of dispute Correct answer.

Explanation

Section 8 requires the operational creditor to deliver a demand notice to the corporate debtor, who has ten days to pay or show an existing dispute. Only after the expiry of that period, and if no payment or dispute is shown, may an application under Section 9 be filed. The adjudicating authority does not grant prior consent.

Question 37Paper 4 syllabus domain (not enumerated in source)

A company wants to make an offer of securities to the public. Under the Companies Act, 2013, which document must be filed with the Registrar before the offer is made?

  1. A private placement offer letter
  2. A statement in lieu of prospectus only
  3. A prospectus or a red herring prospectus, as applicable Correct answer.
  4. A letter of offer to existing shareholders

Explanation

Section 26 requires a public offer of securities to be made by a prospectus, and a red herring prospectus may be used where the price or number of securities is not finalised. The prospectus must be filed with the Registrar before the offer is made. Private placement and rights issues follow different provisions.

Question 38Paper 4 syllabus domain (not enumerated in source)

A company declares a dividend for the financial year but does not pay or claim it within the prescribed period. Under the Companies Act, 2013, into which account must the unpaid dividend be transferred?

  1. A separate escrow account maintained by the statutory auditor
  2. The Unpaid Dividend Account opened in a scheduled bank within seven days of the expiry of thirty days Correct answer.
  3. The general reserve account of the company
  4. The Investor Education and Protection Fund immediately

Explanation

Section 124 requires the company to transfer unpaid or unclaimed dividend to a special account called the Unpaid Dividend Account within seven days of the expiry of thirty days from the declaration. Amounts remaining unclaimed for seven years are then transferred to the Investor Education and Protection Fund.

Question 39Paper 4 syllabus domain (not enumerated in source)

A foreign company has established a place of business in India. Under the Companies Act, 2013, which document must it deliver to the Registrar for registration within thirty days of establishment?

  1. A no-objection certificate from the Reserve Bank of India
  2. A certified copy of its charter or articles and a list of directors resident in India Correct answer.
  3. A valuation report of its Indian assets
  4. A copy of its income-tax return for the preceding year

Explanation

Section 380 requires a foreign company establishing a place of business in India to deliver prescribed documents to the Registrar within thirty days, including a certified copy of the charter or articles, the full address of the office, and particulars of directors and authorised persons in India. RBI approval is governed by FEMA and is not the Companies Act requirement.

Question 40Paper 4 syllabus domain (not enumerated in source)

In a consolidated financial statement under Ind AS 110, a parent loses control of a subsidiary but retains a non-controlling investment. How is the retained interest measured at the date control is lost?

  1. At fair value, with the gain or loss recognised in profit or loss Correct answer.
  2. At the original cost of the investment in the subsidiary
  3. At the carrying amount of the subsidiary's net assets attributable to the parent
  4. At fair value, with the gain or loss recognised in other comprehensive income

Explanation

Ind AS 110 requires the parent to derecognise the subsidiary's assets and liabilities and measure any retained interest at fair value at the date control is lost. The difference between the proceeds plus the fair value of the retained interest and the carrying amount of the net assets is recognised in profit or loss. Reclassification of related OCI to profit or loss may also be required.

Question 41Paper 4 syllabus domain (not enumerated in source)

Under Ind AS 36, an entity must assess at each reporting date whether there is any indication that an asset may be impaired. Which of the following is an internal indicator of impairment?

  1. A significant decline in market interest rates
  2. An increase in the market value of the asset
  3. Obsolescence or physical damage of the asset Correct answer.
  4. A favourable change in the regulatory environment

Explanation

Ind AS 36 lists internal sources of information such as obsolescence or physical damage, significant changes with an adverse effect on the entity, and evidence that the asset's economic performance is or will be worse than expected. External indicators include market interest rate movements and adverse regulatory changes.

Question 42Paper 4 syllabus domain (not enumerated in source)

A lessee enters into a lease for five years with an option to extend for a further three years. Under Ind AS 116, when should the lessee include the extension period in the lease term?

  1. Always, because the option exists in the contract
  2. Only if the lessee is reasonably certain to exercise the option Correct answer.
  3. Never, because the extension is optional
  4. Only if the lessor consents in writing at inception

Explanation

Ind AS 116 defines the lease term as the non-cancellable period plus periods covered by an option to extend where the lessee is reasonably certain to exercise it, and periods after an option to terminate where the lessee is reasonably certain not to exercise it. The assessment considers economic incentives and facts at inception and on reassessment.

Question 43Paper 4 syllabus domain (not enumerated in source)

Under AS 10, Property, Plant and Equipment, how should the cost of an item of property, plant and equipment acquired in exchange for a non-monetary asset be measured?

  1. At the book value of the asset received as recorded by the transferor
  2. At the original cost of the asset given up less depreciation
  3. At fair value of the asset given up, unless the exchange lacks commercial substance or fair value is not reliably measurable Correct answer.
  4. At the carrying amount of the asset given up

Explanation

AS 10 requires measurement at fair value of the asset given up unless the exchange transaction lacks commercial substance or the fair value of neither the asset received nor the asset given up is reliably measurable. In that case the carrying amount of the asset given up is used.

Question 44Paper 4 syllabus domain (not enumerated in source)

A company recognises a provision for a restructuring plan. Under Ind AS 37, which cost may be included in the restructuring provision?

  1. Marketing costs for new products
  2. Costs of retraining or relocating continuing staff
  3. Future operating losses expected from the restructured unit
  4. Direct expenditure necessarily entailed by the restructuring and not associated with ongoing activities Correct answer.

Explanation

Ind AS 37 permits a restructuring provision to include only direct expenditures necessarily entailed by the restructuring that are not associated with the ongoing activities of the entity, such as employee termination benefits and contract termination costs. Retraining, marketing and future operating losses are excluded.

Question 45Paper 4 syllabus domain (not enumerated in source)

In a company's cash flow statement prepared under Ind AS 7, interest paid by a non-financial entity may be classified in which manner?

  1. Only as an investing activity
  2. Only as a financing activity
  3. As an operating or financing activity, consistently applied Correct answer.
  4. Only as an operating activity

Explanation

Ind AS 7 permits interest paid to be classified as an operating cash flow because it enters the determination of profit, or as a financing cash flow because it is a cost of obtaining financial resources. The choice must be applied consistently. Interest received is similarly flexible between operating and investing.

Question 46Paper 4 syllabus domain (not enumerated in source)

An auditor plans to use the work of an auditor's expert under SA 620. Which statement about the auditor's responsibility is correct?

  1. The auditor may rely entirely on the expert's findings without further procedures
  2. The expert's report replaces the need for audit evidence on the matter
  3. The expert must be a member of the Institute of Chartered Accountants of India
  4. The auditor must evaluate the competence, capabilities and objectivity of the expert and the adequacy of the expert's work Correct answer.

Explanation

SA 620 requires the auditor to evaluate whether the expert has the necessary competence, capabilities and objectivity, to obtain an understanding of the expert's field of work, and to evaluate the adequacy of the expert's work as audit evidence. The auditor remains solely responsible for the audit opinion.

Question 47Paper 4 syllabus domain (not enumerated in source)

Under SA 700, Forming an Opinion and Reporting on Financial Statements, what must the auditor do when the financial statements are prepared in accordance with a fair presentation framework?

  1. State whether the financial statements give a true and fair view or present fairly, in all material respects, in accordance with the framework Correct answer.
  2. Report solely on compliance with statutory requirements
  3. Omit the opinion paragraph if the notes are adequate
  4. Express an unmodified opinion only if every accounting policy matches the industry norm

Explanation

For a fair presentation framework, SA 700 requires the auditor to express an opinion on whether the financial statements give a true and fair view or are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. The opinion paragraph is mandatory.

Question 48Paper 4 syllabus domain (not enumerated in source)

An auditor concludes that a material misstatement in the financial statements is pervasive but the financial statements as a whole are not misleading. Which opinion is appropriate under SA 705?

  1. Unmodified opinion with an emphasis of matter paragraph
  2. Qualified opinion
  3. Disclaimer of opinion
  4. Adverse opinion Correct answer.

Explanation

SA 705 requires an adverse opinion when the auditor, having obtained sufficient appropriate evidence, concludes that misstatements are both material and pervasive to the financial statements. A disclaimer arises when the auditor is unable to obtain evidence, not when misstatements are known.

Question 49Paper 4 syllabus domain (not enumerated in source)

A chartered accountant in practice is approached to act as a director of a company that is also an audit client of his firm. Under the Code of Ethics, what is the primary concern?

  1. A self-review and intimidation threat arising from management responsibilities Correct answer.
  2. A self-interest threat because the director's remuneration may be linked to profits
  3. A familiarity threat that is eliminated by disclosure in the audit report
  4. No threat because directors are not involved in accounting

Explanation

Accepting a management position such as a directorship in an audit client creates self-review and intimidation threats because the individual would be responsible for the very decisions the audit evaluates. For public interest entities, such a role is prohibited; for others, the threat must be evaluated and eliminated or reduced to an acceptable level.

Question 50Paper 4 syllabus domain (not enumerated in source)

Under the Income-tax Act, 1961, an assessee deducts tax at source on a payment but fails to deposit it with the Central Government. Which consequence follows under Section 40(a)(ia) for a resident payee?

  1. The entire expenditure is allowed because tax was deducted
  2. The expense is disallowed in full permanently
  3. Thirty per cent of the expenditure is disallowed, with relief if the payee has filed a return and paid tax Correct answer.
  4. Only interest under Section 201 applies and no disallowance arises

Explanation

Section 40(a)(ia) disallows thirty per cent of the expenditure on which tax was deductible but not paid to the Government. The proviso grants relief where the resident payee has furnished a return, taken the amount into account in income, and paid the tax due. Interest under Section 201 is a separate consequence for the deductor.