EXAMINERS’ COMMENTS ON THE PERFORMANCE OF EXAMINEES

PAPER − 5 : ADVANCED MANAGEMENT ACCOUNTING

Specific Comments
Question 1.(a) This was a practical question relating to topic ‘Profitability Analysis’. It was
required to reconcile the profit of two years considering the factors responsible for change in
profit. Examinees failed to identify change in profit due to market size factor/ productivity/
product differentiation. Performance of the examinees was poor in this question.
(b) This was a theoretical question on ‘Cost Concepts’. It was required to identify type of
cost with examples and its relevance in decision making. Many examinees correctly identified
the type of cost and its relevance in decision making but failed to give correct examples.
Performance of the examinees was average in this question.
(c) This was a practical question on ‘Shut Down or Continue’ decision. Most of the
examinees answered well.
(d) This was a practical question relating to topic ‘Learning Curve’. Most of the examinees
answered well.
Question 2.(a) This was a practical question relating to topic ‘Activity Based Costing’.
Calculation of the forecast total cost using ABC principles and finding the cost gap by
comparing with target cost were well answered by most of the examinees. Overall
performance of the examinees was good in this question.
(b) This was a practical question relating to topic ‘Linear Programming’. It was required to
formulate the problem as LP model. Examinees failed to identify the percentage of inert
ingredients in the mixture of each product. Performance of the examinees was below average
in this question.
Question 3.(a) This was practical question related to topic ‘Standard Costing’. It was
required to compute sales mix, quantity, market share, market size variances. Many
examinees did not attempt this question which is due to a lack of understanding of basic
concepts of standard costing. Performance of the examinees was poor in this question.
(b) This was a practical question relating to topic ‘PERT & CPM’ in which examinees were
required to crash the relevant activities and determine the lowest cost and the associated
time. Most of the examinees answered well. Part (i) and (ii) was correctly answered by many
examinees. However, some of the examinees failed to ascertain the lowest cost and
associated time which showed lack of knowledge relating to concept of crashing. Performance
of the examinees was average in this question.

© The Institute of Chartered Accountants of India

 EXAMINERS’ COMMENTS 101

Question 4.(a) This was a practical question relating to topic ‘Decision Making’. Examinees
failed to apprehend calculation of profitability based on best product mix using make or buy
decision. Performance of the examinees was average in this question.
(b) This was a practical question relating to topic ‘Simulation’. Many examinees failed to
answer this question due to lack of knowledge regarding preparation of simulation work sheet
(under stock replenishment decision). Overall performance of the examinees was average in
this question.
Question 5.(a) This was a practical question relating to topic ‘Costing of Service Sector’.
Overall performance of the examinees was average in this question.
(b) This was a practical question relating to topic ‘Theory of Constraints’. Performance of
the examinees was good in this question.
Question 6.(a) This was a practical question relating to topic ‘Cash Budget’. Many
examinees answered well. However, some of the examinees failed to solve it correctly due to
wrong calculation of amount collected from debtors. Few examinees attempted a consolidated
six-month budget which is not the requirement of the question. Overall performance of the
examinees was average in this question.
(b) This was a practical question from the topic ‘Transportation Problem’. Examinees failed
to apply the optimality test on the initial solution given in the question. Average performance
was observed.
Question 7.(a) to (e) This question comprises five questions and examinees were required to
answer any four.
(a) This was a practical question from the topic ‘Control Ratios’. Majority of the examinees
answered well.
(b) This was a theoretical question on limitations of ‘Uniform Costing’. Most of the
examinees attempted this question. Some examinees gave an excellent and comprehensive
answer.
(c) This was a theoretical question relating to topic ‘Synchronous Manufacturing’.
Performance of the examinees was poor in this question.
(d) This was a theoretical question from the topic ‘Pareto Analysis’. Most of the examinees
explained the area of application of Pareto analysis instead of uses. Overall Performance of
the examinees was average in this question.
(e) This was a straight forward theoretical question from the topic ‘Pricing Decisions’ on
pricing policy. Examinees performance was good in this question.

© The Institute of Chartered Accountants of India

 102 FINAL EXAMINATION: NOVEMBER, 2016

PAPER – 6: INFORMATION SYSTEMS CONTROL AND AUDIT

Specific Comments
1. This was a compulsory case-study based question having 4 sub-parts.
(a) This sub-part was based on “Enablers described by COBIT 5 Framework”. Most of
the examinees could attempt this question very well. However, few mentioned only the head
points and could not explain those points.
(b) This question was based on “Limitation of Mobile Computing”. Most of the
examinees answered this question satisfactorily and scored well. Though few examinees
explained on Mobile Computing Security instead.
(c) This sub-part expected examinees to explain on the “Information that an as IS Auditor
is expected at the audit location before IS Audit”. Excepting few, most of the examinees
provided a generalized answer and the performance was below average.
(d) This sub-part was based on “Impact of Cyber Frauds on Enterprises”. Most of the
examinees answered this question and described about Cyber Frauds commonly.
Question 2.(a) This question was based on “Pre-requisites of an effective MIS”. Most of
the examinees wrote only the head points with little or irrelevant explanation of them. The
performance was average throughout.
(b) This question was based on “Categories of Risk” and was attempted by most of the
examinees. Some examinees only mentioned about Categories of Risks and did not explain
them well whereas some others mentioned about “Risk Management Strategies” instead.
(c) This question was an “IT Governance” based question. Most of the examinees
answered this question but not satisfactorily.
Question 3.(a) This question was on “Characteristics of a good coded application
program”. Few examinees attempted this question very well but majorly examinees could
write only the name of characteristics well and could not explain them correctly.
(b) This question was based on “Support of Audit Trails for Security Objectives”. Many
examinees answered this question satisfactorily.
(c) This questions expected examinees to write “Maintenance tasks in Development of
BCP”. Many attempted this question, but only some examinees pointed out all tasks
perfectly. Many of them described about BCP in a generic way.
Question 4.(a) The question was on “Characteristics of types of information used in
Executive Decision Making”. Many examinees attempted this question and listed out the
characteristics correctly, but their explanations were not satisfactory.
(b) This question based on “Key benefits of IT Governance in an organization” was well-
attempted by the examinees and they fetched good marks in this.

© The Institute of Chartered Accountants of India

 EXAMINERS’ COMMENTS 103

(c) This question was projected on “Characteristics of Detective Control”. Though many
examinees attempted this question; the overall performance was not reasonable.
Question 5. In general, very few examinees opted to attempt this question and did not perform
well.
(a) This question was based on “File Interrogation as an Input Validation Control”. Only
some examinees did well in this part.
(b) This question required examinees to write on “ITIL and Service Design under ITIL”.
Most of the examinees neither could define ITIL nor Service Designs under ITIL.
(c) This question was based on “Risk based approach to make an audit plan”. Very few
examinees did well, however, most of them elaborated audit plan in generic ways.
Question 6.(a) The question was on “Critical factors for preliminary review considered by IS
Auditor”. Many examinees attempted this question and performed satisfactorily. Only a few
examinees explained the factors upto the mark.
(b) This question was based on “Role of individual in SLDC”. Many examinees discussed the
role with their common understanding and mostly missed out the points related to the core of the
roles.
(c) This question was based on “Competencies for personnel in Management
responsibilities while developing BCM”. Only some examinees could list out the competencies
perfectly. Many examinees instead pointed out the arrangements to be carried out in BCM.
Question 7. This was the question based on short-notes with five subparts. The candidates were
required to answer any 4 out of 5 questions.
(a) This question was based on “Types of Back-Ups”. Many examinees attempted this
question very well and fetched good marks.
(b) This question was based on “Indian Computer Emergency Response Team”. Only few
examinees answered this question and could not perform well as they were not able to explain the
role of the team.
(c) This question was based on “Major Components of Web 3.0”. Most of the examinees
either could only name the components of Web 3.0 or list out the components of Web 2.0 instead.
(d) This question was based on “Fixed Acceptance Testing”. Many examinees presented the
final acceptance Testing in surface level and could not explain its major parts. Only few
examinees have done well.
(e) This question was based on “Advantages of BYOD”. Many of the examinees answered
this question satisfactorily.

© The Institute of Chartered Accountants of India

 104 FINAL EXAMINATION: NOVEMBER, 2016

PAPER – 7: DIRECT TAX LAWS

Specific Comments
Question 1.(a) Many of the examinees have not mentioned the reason for taxability or non-
taxability of an item in the hands of REIT/unit-holder based on the relevant provision of law in their
answer. Most of the examinees have wrongly stated that interest of Rs.1 crore received from
investments in unlisted debentures is exempt in the hands of REIT and taxable in the hands of unit
holders.
(b) Many of the examinees were not aware of the tax implications arising in the hands of the
company or the individual shareholder, on distribution of capital assets on liquidation of the
company. Most of the examinees have not mentioned that the company is liable to pay
dividend distribution tax on such distribution. Even the examinees who have mentioned the
same, have not computed the dividend distribution tax correctly by grossing up the dividend.
Further, while arriving at the consideration for computing capital gains in the hands of
shareholders, many examinees have not deducted deemed dividend under section 2(22)(c).
Question 2. Common mistakes committed by examinees are:
(1) Bringing to tax rent received from vacant land as “Income from house property” instead of
“Income from other sources”.
(2) Setting of long-term capital loss against income under other heads instead of carrying
forward the said loss for set-off against long-term capital gains of the subsequent year(s).
(3) Adding back 30% of audit fees of P.Y.2014-15 paid this year after deduction of tax at
source (and depositing the tax so deducted), instead of deducting the same.
(4) Computing additional [email protected]% (50% of 15%) instead of 10% (50% of 20%), in
respect of new plant and machinery purchased on 15.10.2015.
Question 3.(a) Some examinees were not aware of the provisions of section 9(1) and were
hence not able to answer the question giving the correct reasons based on the provisions of
section 9(1)(vii) and Explanation below section 9(2).
(b) Some examinees have wrongly answered that even if Yoga is a charitable purpose, the
institution will lose its charitable status if its business receipts exceed Rs.25 lakhs or if such
receipts were more than 20% of its gross receipts. Some examinees have answered that the
institution would lose its charitable status if it fails to apply 85% of its business receipts for
charitable purposes.
(c) Many of the candidates were not aware of the manner of computing double taxation
relief; Even those who were aware of the manner of computation of double taxation relief,
have wrongly provided for deduction of Rs.30,000 under section 80D instead of Rs.25,000,
consequent to which their computation of total income and tax liability were incorrect.
Deduction under section 91 in a case where India does not have a DTAA with the foreign

© The Institute of Chartered Accountants of India

 EXAMINERS’ COMMENTS 105

country was also not computed correctly due to provision of higher deduction of ` 30,000
under section 80D while computing total income.
Question 4.(a) There are five sub-parts in this question based on interpretation of case laws
and examinees were required to answer any four. Some examinees were not aware of the
relevant judicial decisions and hence, were not able to answer these sub-parts correctly. Even
the examinees who were aware of the relevant judicial decisions seemed to be under the
wrong impression that merely by giving the name of the parties involved in the judgments, they
could secure sufficient marks for the sub-division. Examinees should take care to write the
answer to such questions by identifying the issue involved, discussing the relevant provision of
law, explaining the rationale of the relevant court ruling and applying the same to the case on
hand and stating the proper conclusion, which would make their answer complete and help
them score good marks. Mentioning the name of the parties involved would certainly add value
to the answer but that alone is not sufficient to score good marks.
Question 5.(a) Many examinees have wrongly answered that MAT credit of ABC Private Ltd.
can be carried forward by the LLP. Also, some examinees have wrongly apportioned the
depreciation on the basis of number of months, instead of apportioning the same on the basis
of the number of days the assets were used by the company and LLP.
(b) Most of the examinees were not aware of the provisions of section 80P providing for
deduction to co-operative societies in respect of certain income earned by it, and hence, were
not able to compute the total income of the co-operative society correctly.
(c) Though most of the examinees seemed to know the conclusion, they were unable to
substantiate their conclusion with proper reasoning based on the relevant provisions of law.
Question 6.(a) Most of the examinees were unable to compute the arm’s length price as per
the cost plus method and the amount of increase in the total income of Hitech Ltd. Some of
them have wrongly deducted the cost of credit to the associated enterprise instead of adding
the same to arrive at the arm’s length gross profit mark up. Some others have taken the cost
of credit as a percentage of normal gross profit instead of normal billing rate.
(b) Some examinees have not discussed whether “paintings” and “shares” were included in
the definition of the term “property” and whether “nephew” and “son of karta” fell within the
definition of the term “relative” while answering the first two sub-parts of the question.
(c) Many examinees were not aware of the recent legislative amendment in section 115JB
and hence, their answers were vague and general.
Question 7.(a) For sub-part (i), many of the examinees have failed to bring out that tax is
deductible under section 194A from interest on compensation amount awarded by the Motor
Accidents Claims Tribunal only at the time of payment and not at the time of credit. For sub-
part (ii), some of the examinees were not aware of the correct threshold limit, beyond which
tax is deductible under section 194LA on any sum paid to a resident as consideration for
compulsory acquisition of any immovable property. For sub-part (iii), some examinees have

© The Institute of Chartered Accountants of India

 106 FINAL EXAMINATION: NOVEMBER, 2016

not considered the higher basic exemption limit available to a resident senior citizen while
computing the tax liability of Mr. Ravi Kumar.
(b) For sub-part (i), most of the examinees have not mentioned that penalty of Rs.10,000 is
leviable under section 271(1)(b). For sub-part (iii), several examinees have wrongly answered
that the Tribunal does have the power to levy penalty for concealment of income.

PAPER – 8: INDIRECT TAX LAWS

Specific Comments
Question 1.(a) The question requires computation of excise duty with reference to
Notification No. 8/2003 CE dated 01.03.2003 taking into account implications of CENVAT
credit. Most of the examinees failed to correctly work out the total dutiable clearances as they
could not distinguish between the goods bearing brand name of others manufactured in rural
areas and non-rural areas for the purpose of eligibility of 1st clearances of ` 150 lakh. Further,
most of them wrongly allowed CENVAT credit of 50% on capital goods instead of 100% as the
assessee was eligible to avail SSI exemption.
(b) Most of the examinees were confused between mega exemption notification and negative
list of services. Only few of them were aware of the exclusions from the “service” as provided
in section 65B(44) of the Finance Act, 1994. They failed to bring out the proper reasoning for
not including (i) interest on home loans; (ii) sale and purchase of forward contracts and (iii)
margin earned on reverse repo transactions, in computation of value of taxable service.
(d) This question requires computation of assessable value and the customs duty on
importation of machine. Many of the examinees failed to correctly compute the assessable
value as per the provisions of the Customs Act, 1962. They could not apply the correct rate of
exchange @ Rs.99 as notified by the CBEC on the date of filing of bill of entry.
Question 2.(a) Cement for construction of a godown in the factory was incorrectly considered
as inputs by a few examinees leading to incorrect answers.
(b)(ii) Some examinees were ignorant of the threshold monetary limit of ` 1500 for exemption
in case of transportation of goods by a GTA in a single carriage. In some cases, examinees
simply mentioned “exempt” or “taxable” without providing valid reasons for the same and thus,
could not score full marks.
(d) A large number of examinees could not correctly compute the amount of redemption fine
and margin of profit.
Question 3.(a) Many examinees could not elucidate the concept laid down by the High Court
properly. Some of them wrongly answered by applying the concept of arms length price.
Overall the examinees exhibited poor knowledge with respect to the case law based problems.

© The Institute of Chartered Accountants of India

 EXAMINERS’ COMMENTS 107

Question 4.(a) This question requires the examinees to answer with reference to changes
brought out with effect from 01.03.2015. However, most of the examinees ended up writing
long answers instead of giving to the point precise answers.
Question 5(c)(i) Many examinees answered correctly but did not provide the required
reasoning. The definition of ‘intermediary’ was not explained by most of the examinees. In
most of the cases, they explained taxability of service [which was separately asked in sub-part
(ii)] instead of discussing whether representational service falls under intermediary service.
Question 6.(a) First Alternative This question requires the examinees to explain whether the
persons specified therein require registration under Central Excise Act, 1944. Most of the
examinees merely wrote "Yes/No" without giving valid reasons, and in the cases where
reasons were given the same were either incomplete or incorrect.
(d) This question requires the examinees to explain the conditions for redeeming
authorisation under Duty Free Import Authorisation scheme as per Foreign Trade Policy 2015-
2020. However, contrary to the requirement of the question, majority of the examinees
explained the general provisions of the scheme.
Question 7(b) Examinees were required to write a brief note regarding applicability of the
advance ruling with reference to section 96E of Finance Act, 1994. Section 96E enlists the
persons/matters in respect of which the advance ruling is binding. A large number of
examinees could not understand the word "applicability" given in the question in its proper
perspective. They got mislead and enlisted either the matters on which advance ruling can be
sought or the entities that could approach for advance ruling.
(c) This question requires a brief note on the relaxation available to banking companies,
financial institutions and goods transport agency under rule 4A of Service Tax Rules, 1994
regarding issue of invoice, bills or challan. Most of the examinees mentioned that banking
companies and financial institution can issue invoice within a time- period of 45 days. They,
however, did not write the other relaxation available to banking companies and financial
institutions of issuing the invoice without the serial number and address of the service
receiver. They also failed to mention the relaxation available to GTA.

© The Institute of Chartered Accountants of India