Paper10 Syl22 June24 Set1 Sol

INTERMEDIATE EXAMINATION SET 1
MODEL ANSWER TERM – JUNE 2024

PAPER – 10 SYLLABUS-2022
CORPORATE ACCOUNTING AND AUDITING
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
SECTION – A (Compulsory)
1. Choose the correct option: [15 x 2 = 30]

(i) Which of the following is not a Free Reserve?
a. General Reserve
b. Dividend Equalization Reserve
c. Revaluation Reserve
d. Revenue Reserve
(ii) Instalment of principal amount of long-term loan payable within next 12 months is
shown under Balance Sheet of a company under the heading.
a. Non-current Assets
b. Non-current Liabilities
c. Current Assets
d. Current Liabilities
(iii) Depreciation is added back to profit when arriving at the cash flow from operating
activities as ________________.
a. Depreciation is a non-cash expenditure
b. Depreciation does not affect profit
c. Depreciation only affects the balance sheet, not the profit and loss account
d. None of Above
(iv) Rate of provision on advances doubtful for more than 3 years is __________.
a. 40%
b. 25%
c. 100%
d. Nil
(v) If the net profits earned during the year is `50,000 and the bills receivables have
decreased by `10,000 during the year then the cash flow from operating activities will
be equal to:
a. `30,000
b. `40,000
c. `50,000
d. `60,000
1
Directorate of Studies, The Institute of Cost Accountants of India
(vi) Which of the following is not a step of Audit Sampling?

a. Sample Design
b. Sample Size Determination
c. Sample Selection
d. Sample Displaying
(vii) Which of the following is/are benefits of Internal Financial Control?

a. Improved controls over financial reporting process
b. Trickling down of accountability to operational management
c. Improved investor confidence in entity’s operations and financial reporting
process
d. All of the above
(viii) The company shall inform the auditor concerned of his or its appointment, and also
file a notice of such appointment with the Registrar within fifteen days of the meeting
in which the auditor is appointed in Form __________.
a. ADT-1
b. ADT-2
c. ADT-3
d. None of these
(ix) Permanent Audit File does not contain?

a. A record of study and evaluation of internal control system
b. Significant audit observations of earlier years
c. Copies of management letters
d. Analysis of significant ratios and trends
(x) SA 530 stands for____________________.

a. Audit Documentation
b. Audit Sampling
c. Responsibility of Joint Auditor
d. Agreeing the terms of Audit Engagements
(xi) Which of the following is not a content of audit report?

a. Signature of the auditor
b. Date of the report
c. Attachment of audit evidences
d. Auditor’s address
(xii) Secretarial Audit is covered under section___________.

a. Section 204
b. Section 148
c. Section 139
d. None of the above
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(xiii) Test checking requires application of __________________.

a. mathematical theory
b. sampling theory
c. geometry theory
d. stakeholder theory
(xiv) A cost auditor submits his report along with reservations and observations in Form No.
a. CRA 1
b. CRA 2
c. CRA 3
d. CRA 4
(xv) Which of the following is not a part of Temporary Audit file?

a. Correspondence relating to acceptance of annual reappointment
b. Audit programme
c. Extracts of minutes of board meetings
d. Legal and organisation structure of the company
Answer:
i ii iii iv v vi vii viii ix x

b. d. a. c. d. d. d. a. c. b.
xi xii xiii xiv xv
c. a. b. c. d.
SECTION – B
(Answer any five questions out of seven questions given. Each question carries 14 Marks.)
2. (a) Prepare journal entries for the following:
(i) PK Ltd. forfeited 10,000 equity shares of `10 each for non-payment of first call of
`2 and final call of `3 per share. These shares were reissued at a discount of `3.50
per share.
(ii) KP Ltd. forfeited 20,000 equity shares of `15 each (including `5 per share as
premium), for non-payment of final call of `3 per share. Out of these 10,000 shares
were reissued at a discount of `4 per share.
(iii) KP Ltd. forfeited 15,000 equity shares of `15 each (including `5 per share as
premium), for non-payment of allotment money `8 (including premium money) and
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first & final call of `5 per share. Out of these 10,000 shares were reissued at `14 per
share. [7]
Answer:
2.(a)
In the books of .....................
Particulars Dr. Cr.

` `
a) Equity Share Capital A/c Dr. 1,00,000
To Calls-in-arrear A/c 50,000
To Forfeited Share A/c 50,000
(10,000 shares forfeited for non-payment of first and final call money)
Bank A/c Dr. 65,000
Forfeited Share A/c Dr. 35,000
To Equity Share Capital A/c 1,00,000
(Reissue of 10,000 sh. @ ` 6.50 each)
To Capital Reserve A/c 15,000
(Balance of Forfeited Share Account transferred)
b) Equity Share Capital A/c Dr. 2,00,000
To Calls in Arrear A/c 60,000
To Forfeited Share A/c 1,40,000
(20,000 shares forfeited for non-payment of final call money)
Bank A/c Dr. 60,000
To Equity Share Capital A/c 100,000
(Reissue of 10,000 sh. @ ` 6 each)
(Balance of Forfeited Share A/c relating to 10,000 shares transferred)
[10,000 × (7- 4)]
c) Equity Share Capital A/c Dr. 150,000
Securities Premium A/c Dr. 75,000
To Calls-in-arrear A/c 1,95,000
To Forfeited Share A/c 30,000
(15,000 shares forfeited for non- payment of allotment and first and
final call money)
Bank A/c Dr. 140,000
To Security Premium A/c 40,000
To Equity Share Capital A/c 100,000
(Reissue of 10,000 sh. @ ` 15 each)
(Balance of Forfeited share A/c on 10,000 shares transferred)
(10,000×2)
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(b) The Balance Sheet of Pixel Ltd. as on 31.12.2023 is given below

Liabilities ` in Lakh Assets ` in Lakh
Share Capital: Fixed Assets 140

10,00,000 Equity shares of `10 each 100 Investments 40
1,00,000 Redeemable Pref. shares of `100 each 100 Stock 46
Less: Call-in-arrears on 20,000 shares (4) Debtors 30
Security premium account 15 Bank 30
Reserve 30
Profit and Loss account 15
Creditors 30
286 286
On 1st Jan 2024, fixed assets costing `40 Lakh were sold for `32 Lakh. It was decided that on
1st Feb 2024, company issued sufficient number of equity shares at par so as to finance
redemption (at 20% premium) and to leaving a balance of `10 Lakh in the reserve. All the
payments were made except to a holder of 10,000 shares who could not be traced. The company
also made bonus issue to the existing equity shareholders in the ratio of 1: 10 as on 31.12.2023.
You are required to pass the necessary journal entries. [7]
Answer:
2.(b)
Workings: Requirement of Fund for Redemption
Particular No. Rate ` in
Lakhs
Pref Shares 1,00,000 100% 100
Calls in Arrear 20,000 100% 20
Bal. to be redeemed 80,000 80
Prem on redemption 20% 16
Total Fund requirement 96
(` in Lakhs)
Sources Nominal Premium Total

Value
Requirement 80 16 96
Securities Prem. A/c 15 15
P/L A/c 6 1 7
General Reserve 20 20
5
Balance fund requirement (From fresh issue) 60 60

New Issue 60
Actual payment made = (80,000 -10,000)*120 = `84 Lakh

**Bonus Shares = 10,00,000 × 1/10 = 1,00,000 @ `10 = `10 Lakhs.
Transfer to Capital Redemption Reserve ` in Lakh ` in Lakh

From P/L A/c
Balance 15
Less: Loss on Sale of Assets 8
Balance 7
Less: Used for Premium on Redemption of Pref. Shares 1 6
From General Reserve 20

Total 26
In the books of Pixel Ltd.

Journal
Dr. Cr.
` in Lakh ` in Lakh
Particulars
Bank A/c Dr. 32
Profit and Loss A/c Dr. 8
To Fixed Assets A/c
(Sale of Fixed Assets, Loss transferred) 40
Bank A/c Dr. 60
To Equity Share Capital A/c
( Issue of new shares) 60
Red. Pref. Share Capital A/c Dr. 80
Premium on Redemption A/c Dr. 16
To Red. Pref. Shareholders A/c 96
(Amount due on Redemption)
General Reserve A/c Dr. 20
To Capital Redemption Reserve A/c 26
(Transfer)
Securities Premium A/c Dr. 15
To Premium on Redemption A/c 16
( Transfer)
Red. Pref. Shareholders A/c Dr. 84
To Bank A/c 84
(Payment to Pref. Shareholders)
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Capital Redemption Reserve A/c Dr. 10
To Bonus to Shareholders A/c 10
(Bonus declared)
Bonus to Shareholders A/c Dr. 10
To Equity Share Capital A/c 10
(Conversion of Bonus Shares to Equity Shares)
3. PQR Ltd. was registered with a nominal capital of `20,00,000 divided into shares of `100
each. The following Trial Balance is extracted from the books on 31st March, 2023:
Particulars ` Particulars `
Buildings 11,60,000 Sales 20,80,000
Machinery 4,00,000 Outstanding Expenses 8,000
Closing Stock 3,60,000 Provision for Doubtful Debts 12,000
(1.4.2022)
Loose Tools 92,000 Equity Share Capital 8,00,000
Purchases (Adjusted) 8,40,000 General Reserve 1,60,000
Salaries 2,40,000 Profit and Loss A/c (31.03.2022) 1,00,000
Directors' Fees 40,000 Creditors 3,68,000
Rent 1,04,000 Provision for depreciation:
Depreciation 80,000 On Building 2,00,000
Bad Debts 24,000 On Machinery 2,20,000
Investment 4,80,000 14% Debentures 8,00,000
Interest accrued on 8,000 Interest on Debentures accrued but 56,000
investment not due
Debenture Interest 1,12,000 Interest on Investments 48,000
Advance Tax 2,40,000 Unclaimed dividend 20,000
Sundry expenses 72,000
Debtors 5,00,000
Bank 1,20,000
48,72,000 48,72,000
You are required to prepare Statement of Profit and Loss for the year ending 31st March,
2023 and Balance sheet as at that date after taking into consideration the following
information: [14]
(i) Closing stock is more than opening stock by `3,20,000.
(ii) Provide to doubtful debts @ 4% on Debtors.
(iii) Make a provision for income tax @30%.
(iv) Depreciation expense included depreciation of `32,000 on Building and that of `48,000
on Machinery.
(v) Transfer to General Reserve @ 10%.
(vi) The directors proposed a dividend @ 25%. Bills Discounted but not yet matured `
40,000.
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Answer:
3. PQR Ltd.
Profit and Loss Statement for the year ended 31st March, 2023
Particulars `
I. Revenue from operations 20,80,000
II. Other income (interest on investment) 48,000
III. Total Revenue [I + II] 21,28,000
IV. Expenses:
Cost of purchase [8,40,000+3,20,000] 11,60,000
Changes in inventories [40,000-3,60,000] (3,20,000)
Employee Benefits Expense 2,40,000
Finance Costs (debenture interest) 1,12,000
Depreciation and Amortisation Expenses 80,000
Other Expenses 2,48,000
Total Expenses 15,20,000
V. Profit before Tax (III-IV) 6,08,000
VI. Tax Expenses @ 30% 1,82,400
VII. Profit for the period 4,25,600
Balance Sheet as on 31.03.2023
Particulars `
I EQUITY AND LIABILITIES
(1) Shareholders' Funds
Share Capital 1 8,00,000
Reserves and Surplus 2 6,85,600
(2) Non-Current Liabilities
Long-term Borrowings (14% debentures) 8,00,000
(3) Current Liabilities

Trade Payable (Sundry Creditors) 3,68,000
Other Current Liabilities 3 84,000
Short-Term Provisions 4 1,82,400
Total 29,20,000
II ASSETS
(1) Non-Current Assets
(a) PPE and Intangible Assets
PPE 5 11,40,000
(b) Non-current Investments 4,80,000
(2) Current Assets
Inventories 6 4,52,000
Trade Receivables 7 4,80,000
Cash and bank balances 1,20,000
Short Term Loans and Advances
(Advance Payment of Tax) 2,40,000
8
Other Current Assets
(Interest accrued on investments) 8,000
Total 29,20,000
Note: Contingent Liability for bills discounted but not yet matured ` 40,000. Note: Contingent
Liability for Proposed dividend ` 2,00,000.
Notes to Accounts:
Sl. No. Particulars ` `
1. Share Capital
Authorized Capital
20,000 Equity Shares of `100 each 20,00,000
Issued Capital
8000 Equity Shares of `100 each 8,00,000
Subscribed and Paid up Capital
8000 Equity Shares of `100 each 8,00,000
2. Reserve and Surplus
General Reserve [`1,60,000 + `42,560] 2,02,560
Balance of Statement of Profit & Loss Account
Opening Balance 1,00,000
Add: Profit for the period 4,25,600
5,25,600
Appropriations
Transfer to General Reserve @ 10% (42,560)
4,83,040
6,85,600
3. Other Current Liabilities
Unclaimed Dividend 20,000
Outstanding Expenses 8,000
Interest accrued on Debentures 56,000
84,000
4. Short Term Provision
Provision for Tax 1,82,400
5. Tangible Assets
Buildings 11,60,000
Less: Provision for Depreciation 2,00,000
9,60,000
Plant and Equipment 4,00,000
Less; Provision for Depreciation 2,20,000
1,80,000
11,40,000
6. Inventories
Closing Stock of Finished Goods 3,60,000
Loose Tools 92,000
4,52,000
7. Trade Receivables
9
Sundry Debtors 5,00,000
Less: Provision for Doubtful Debts 20,000
4,80,000
8. Other Expenses
Rent 1,04,000
Directors' Fees 40,000
Bad Debts 24,000
Provision for Doubtful Debts (4% of `5,00,000 less. 8,000
`12,000)
Sundry Expenses 72,000
2,48,000
9. Proposed Dividend (8,00,000 × 25%) 2,00,000
Note: Total purchase is obtained by adding back the changes in inventory to Adjusted Purchase.
4. (a) On 31 March, 2021 Victory Bank Ltd. had a balance of `18 crores in Rebate on Bill
Discounted A/c. During the year ended 31st March, 2022, Victory Bank Ltd. discounted bills of
exchange of `8,000 crores charging interest at 18% p.a., the average period of discount being
for 73 days. Of these, bills of exchange of `1,200 crores were due for realization from the
acceptor/customers after 31st March, 2022, the average period outstanding after 31st March,
2022 being 36.5 days. Victory Bank Ltd. asks you to pass journal entries and show the ledger
accounts pertaining to:
(i) Discounting of Bills of Exchange; and
(ii) Rebate on bill Discounted. [7]
Answer:
4.(a) In the books of Victory Bank Ltd.
Journal (` in Crore)
Dr. (`) Cr. (`)
Date Particulars
1.4.22
Rebate on Bill Discounted A/c Dr. 18.00
To, Discount on Bills A/c 18.00
(Being the transfer of opening balance to Rebate on Bill
Discounted Account)
Bills Purchased and Discounted A/c Dr. 8,000
To, Client A/c 7,712.00
To, Discount on Bills A/c [`8,000 x 18/100 x 73/365] 288.00
(Being the discounting of bills during the year)
31.3.22 Discount on bills A/c Dr. 21.60
To, Rebate on Bills Discounted A/c 21.60
(Being the Provision for unexpired discount as on 31.03.2012)
31.03.22 Discount on bills A/c Dr. 284.40
To, Profit and Loss A/c 284.40
(Being the amount of income for the year from discounting of
bills of exchange transferred to Profit and Loss Account)
10
Ledger of Victory bank Ltd.
Rebate on Bills Discounted Account (` In Crores)
Dr. Cr.
Date Particulars (`) Date Particulars (`)
01.4.21 To, Discount on bills 18.00 01.4.21 By balance b/d 18.00
A/c
31.03.22 To balance c/d 21.60 31.3.22 By Discount on bills 21.60
A/c (Rebate required)
39.60 39.60
Discount on Bills Account (` In Crores)
Dr. Cr.
Date Particulars (`) Date Particulars (`)
31.03.22 To Rebate on Bills 21.60 01.4.21 By Rebate on Bills 18.00

Discount A/c Discounted A/c
31.03.22 To Profit and Loss A/c 284.40 2021-22 By Bills Purchased and 288.00
(Transfer) Discount A/c
306.00 306.00
(b) From the following figures appearing in the books of Fire Insurance division of a General
Insurance Company, show the amount of claim as it would appear in the Revenue Account for the
year ended 31st March, 2023:
Particulars Direct Business Re-Insurance

` `
Claim paid during the year 46,70,000 7,00,000
Claim Payable — 1st April, 2022 7,63,000 87,000
31st March, 2023 8,12,000 53,000
Claims received – 2,30,000
Claims Receivable — 1st April, 2022 – 66,000
31st March, 2023 – 1,13,000
Expenses of Management 2,30,000 –
(includes ` 35,000 Surveyor’s fee and ` 45,000
Legal expenses for settlement of claims)
[7]
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Answer:
4.(b) General Insurance Company
(Abstract showing the amount of claims)
Particulars ` ’000 ` ’000

Claims less Re-insurance :
Paid during the year 52,20
Add : Outstanding claims at the end of the year 7,52
59,72
Less : Outstanding claims at the beginning of the year 7,84 51,88
Working Notes:
Particul ` ’000 ` ’000

ars
1. Claims paid during the year
Direct business 46,70
Reinsurance 7,00 53,70
Add : Surveyor’s fee 35
Legal expenses 45 80
54,50
Less : Claims received from re-insurers 2,30
52,20
2. Claims outstanding on 31st March, 2023
Direct business 8,12
Reinsurance 53 8,65
Less : Claims receivable from re-insurers 1,13
7,52
3. Claims outstanding on 1st April, 2022
Direct business 763
Reinsurance 87 8,50
Less : Claims receivable from re-insurers 66
7,84
5. (a) The following information applies to a company’s defined benefit pension plan for the year:
FMV of plan assets (beginning of the year) `2,00,000
FMV of plan assets (end of the year) `2,85,000
Employer’s contribution ` 70,000
Benefit paid ` 50,000
Calculate the actual return on plan assets. [7]
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Answer.
5.(a)
Particulars ` `
Change in plan assets (2,85,000 – 2,00,000) 85,000
Adjustments:
Employer’s contribution 70,000
Less: Benefit paid 50,000 20,000
Actual return on plan assets 65,000
(b) The total stock of A Ltd. as on 31.3.2023 was `5,00,000 of which stock amounting to
`31,000 were not ascertained as per Ind AS 2.
Compute the value of the said stocks as per Ind AS 2 for inclusion in financial statements
as on that date.
Type of Cost of Production Selling and Distribution Estimated
Product Materials (`) Expenses incurred expense to be incurred Selling Price (`)
(`) (`)
P 10,000 2,000 1,000 15,000
S 5,000 --- 500 4,500
T 12,000 3,000 2,000 18,000
27,000 5,000 3,500 37,500
[7]
Answer :
5.(b) As per Ind AS 2, inventories are usually written-down to net realisable value on item-by-
item basis. Thus, value of stock will be computed as:
Type of Cost Price (including Net Realizable Value Value of Stock to be
Product Production Exp.)(`) (excluding Selling & taken (lower of Cost
Distribution Expenses from Price & Net
Selling Price) (`) Realizable Value)
(`)
P 12,000 (` 10,000 + ` 14,000 (`15,000 – ` 1,000) 12,000
2,000)
S 5,000 4,000 (` 4,500 – `500) 4,000
T 15,000 (` 12,000 + ` 16,000 (`18,000 – ` 2,000) 15,000
3,000)
31,000
So, Value of Stock will be `31,000 for inclusion in financial statements as per Ind AS 2.
6. (a) Describe the contents of Audit Working Papers. [7]

Answer:
As per SA-230, ‘Audit Documentation’, an auditor should follow the guidelines mentioned
below to decide on the form, content and extent of audit documentation (or working papers).
(i) The auditor shall prepare audit working papers on a timely basis. They should be
prepared while performing the task itself rather than after the audit work is performed.
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(ii) The auditor shall prepare audit working papers that is sufficient to enable an experienced
auditor, having no previous connection with the audit, to understand:
 the nature, timing and extent of audit procedures performed to comply with the SAs
and applicable legal and regulatory requirements;
 the results of the audit procedures performed and the audit evidence obtained; and
 significant matters arising during the audit, the conclusion reached thereon and
significant professional judgments made in reaching those conclusions.
(iii) In documenting the nature, timing and extent of audit procedures performed, the auditor
shall record:
 the identifying characteristics of the specific items or matters tested;
 who performed the audit work and the date such work was performed; and
 who reviewed the audit work performed and the date and extent of such review.
(iv) The auditor shall document discussions of significant matters with management, those
charged with governance and others, including the nature of the significant matters
discussed and when and with whom the discussions took place.
(v) If the auditor identified information that is inconsistent with the auditor’s final conclusion
regarding a significant matter, the auditor shall document how the auditor addressed the
inconsistency.
(vi) If, in exceptional circumstances, the auditor judges it necessary to depart from a relevant
requirement in a SA, the auditor shall document how the alternative audit procedures
performed achieved the aim of that requirement, and the reasons for the departure.
(b) P Ltd. is an unlisted public company with an authorised capital of ₹100 crore. The
issued and paid-up capital of the company is ₹45 crore. During the financial year 2020-21,
the company has been able to achieve a turnover of ₹225 crore. The company has taken a
bank loan of ₹110 crore in the current financial year for business expansion. The company
secretary of P Ltd. has asked for your opinion as a legal expert on whether the company is
required to conduct a secretarial audit. Advise the company. [7]
Answer:
As per the provision of Section 204(1) of the Companies Act, 2013 read with Rule 9 of the
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014:
1. Every listed company;
2. Every public company having a paid-up share capital of 50 crore rupees or more; or
3. Every public company having a turnover of 250 crore rupees or more; or
4. Every company having outstanding loans or borrowings from banks or public financial
institutions of 100 crore rupees or more.
In the given case, the company is an unlisted public company with paid up capital of `45 crore
(less than `50 crore) and its turnover of `225 crore is also lower than the threshold of `250 crore.
However, the company has an outstanding bank loan of `110 crore which is higher than the
threshold of `100 crore. Thus, the company will need to conduct secretarial audit.
7. (a) Demonstrate the audit procedures to be followed for verification of Cash and Cash
Equivalents. [7]
Answer:
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Cash and Cash equivalent includes cash in hand, stamps in hand, balances held with bank in current
accounts/ margin money accounts, cash credit accounts (debit balance), fixed deposits, and cheques
in hand, etc. It is the most liquid form of assets of an organisation and hence utmost professional
scepticism needs to be exercised while auditing such balances.
Audit Procedure to be Followed
(a) Existence
(i) The auditor shall exercise special care to verify cash balances. They shall be preferably
checked by surprise. Physical verification of cash in hand would be utmost essential in this
context.
(ii) If the company maintains any rough Cash Book or details of daily balances, the auditor shall
perform test check to see that entries in the Cash Book are accurate. In case he finds any slip
indicating temporary advance given to an employee which has been included in the cash
balance, he should have them initiated by responsible official.
(iii) The auditor shall also perform a cash sensitivity analysis (by calculating total receipts and
payments month wise) to determine if there is any abnormal variation in the same in a month.
In such a case the auditor shall enquire into the same and demand explanation from the
management.
(iv) He shall also obtain the Bank Reconciliation Statements for every bank account as at the
reporting date to rule out possibility of any error in the cash book. The BRSs must be signed
by the accountant and approved by responsible official. He shall also ask the management to
reconcile all discrepancies.
(v) He shall also communicate with the respective banks and obtain written confirmation
regarding the balances held in different bank accounts and deposits.
(b) Rights and Obligations
The auditor shall verify that all the deposits are in the name of the client. For this purpose, the
confirmation of the banker and certificate of such deposits shall be examined.
(c) Cut-off
The cash balances must represent the amount of cash and cash equivalents on the reporting date.
(d) Completeness
The auditor shall ensure confirmation of 100% of the bank accounts. He shall also be careful to
include all items of cash in hand in the total balance.
(e) Valuation
In addition to performing the above steps, the auditor shall also see that all bank balances
representing holding
of foreign currencies have been appropriately restated at the exchange rate prevailing on the date
of reporting.
(f) Presentation and Disclosure
The auditor shall ensure the disclosures as per the relevant Accounting Standards and Part 1 of
Schedule III of the Companies Act 2013.
(b) Discuss the functions and Duties of National Financial Reporting Authority (NFRA). [7]
Answer:
The National Financial Reporting Authority (NFRA) was constituted on 1st October,2018 by the
Government of India under Sub Section (1) of section 132 of the Companies Act, 2013. The body will
comprise of one Chairman who will be an eminent individual with competence in accounting, auditing,
15
finance, or law as Chairperson. In addition, there can be a maximum of 15 members.
Functions and Duties of NFRA:

As per Section 132(2) of the Companies Act, 2013, the duties of the NFRA are to:
(vi) Recommend accounting and auditing policies and standards to be adopted by companies for
approval by the Central Government;
(vii) Monitor and enforce compliance with accounting standards and auditing standards;
(viii) Oversee the quality of service of the professions associated with ensuring compliance with such
standards and suggest measures for improvement in the quality of service;
(ix) Perform such other functions and duties as may be necessary or incidental to the aforesaid
functions and duties.Sub Rule (1) of Rule 4 of the NFRA Rules, 2018, provides that the
Authority shall protect the public interest and the interests of investors, creditors and others
associated with the companies or bodies corporate governed under Rule 3 by establishing high
quality standards of accounting and auditing and exercising effective oversight of accounting
functions performed by the companies and bodies corporate and auditing functions performed
by auditors.
8. (a) Discuss the steps to be taken by an auditor of a Co-Operative Society. [7]
Answer:
a) General Points: In general, while conducting audit of Co-operative society, the auditor needs to look
into the following: -
 The auditor should carefully go through the bye-laws of the society and see that they are being
observed both in letter and spirit.
 He should examine the Register of Members of the society and individual shareholdings.
 He should test-check the internal check and control system operated by the society and model
his audit examination based on its strengths and weaknesses.
b) Audit of income: He should carefully vouch the receipt of cash. Cash receipts on account of share
capital should be vouched with the Register of Members. Cash received against sales should be
vouched with the cash memos and invoices issued to customers as also Sales Account. Receipt of
cash in respect of payment of interest and repayment of loans advanced by the society should be
vouched with the loan agreements. Cash received from members towards construction of houses or
their maintenance, should be vouched with the Register of Members, demands made by the society
from time to time, and money receipts.
c) Audit of Expenditure:
 He should vouch all expenditure with reference to authorisation from the Managing
Committee, particularly in the case of large capital expenditure, as also the bills received from
individual parties, the money receipts obtained from them, and entries in the Bank Pass Book
along with counter-foils of cheques.
 He should vouch the payment of loans from the loan agreements entered into with borrower
members.
 He should vouch establishment expenses with reference to the resolutions of the Managing
Committee,agreements with the persons concerned, and money receipts obtained from them.
d) Other points:
 He should appropriately classify overdue debts for a period from six months to five years and
more, and report them to the members, with a note regarding the effects these might have on
the financial position of the society. He should also put a note regarding the probability of
16
recovery of such debts.
Similarly, he should make a special reference to the overdue amount of interest from members.
Generally, interest on overdue debts should not be credited to Interest Account but to the
Overdue Interest Reserve Account.
 Writing off of bad debts should be after prior authorisation from the Managing Committee of
the society. According to the Maharashtra Co-operative Societies Rules, a bad debt can be
written off only when it is certified to be irrecoverable by the auditor. This casts a special
obligation on the auditor to ascertain whether the debt in question was created within the Rules
of the society, and whether it has now really become bad and irrecoverable.
(b) Demonstrate the essential Characteristics of Internal Check System. [7]
Answer:
Following are the essential characteristics or principles of a good internal check system.
a. Division of work: The entire task should be divided among the staff in such a way that no single
person is allowed to complete the work solely by himself from the beginning to the end.
b. Provision of check: There must be clear instruction that the work performed by any staff must
be checked by the next staff.
c. Responsibility: Responsibility of each individual must be properly defined and fixed.
d. Use of technology: As far as possible, various technology enabled devices should be used to
minimise human error.
e. Rotation of employees: A system of transfer or rotation of employees from one responsibility
to another must be followed by the business.
f. Control over employees: Generally, chances of frauds are high in case there is direct contact
between staff and the customers. So, a manager can keep eyes in those areas to make internal
check system more effective.
g. Supervision: A strict supervision should be exercised to ensure that the prescribed internal
checks and procedures are fully operative.
h. Periodical review: The system of internal check is reviewed from time to time to introduce
improvements.
17

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INTERMEDIATE EXAMINATION SET 1

MODEL ANSWER TERM – JUNE 2024

1. Choose the correct option: [15 x 2 = 30]

(vi) Which of the following is not a step of Audit Sampling?

(vii) Which of the following is/are benefits of Internal Financial Control?

(ix) Permanent Audit File does not contain?

(x) SA 530 stands for____________________.

(xi) Which of the following is not a content of audit report?

(xii) Secretarial Audit is covered under section___________.

(xiii) Test checking requires application of __________________.

(xv) Which of the following is not a part of Temporary Audit file?

i ii iii iv v vi vii viii ix x

2. (a) Prepare journal entries for the following:

Particulars Dr. Cr.

(b) The Balance Sheet of Pixel Ltd. as on 31.12.2023 is given below

Share Capital: Fixed Assets 140

Total Fund requirement 96

Sources Nominal Premium Total

Balance fund requirement (From fresh issue) 60 60

Actual payment made = (80,000 -10,000)*120 = `84 Lakh

Transfer to Capital Redemption Reserve ` in Lakh ` in Lakh

From General Reserve 20

In the books of Pixel Ltd.

(3) Current Liabilities

Discount on Bills Account (` In Crores)

Date Particulars (`) Date Particulars (`)

31.03.22 To Rebate on Bills 21.60 01.4.21 By Rebate on Bills 18.00

Particulars Direct Business Re-Insurance

(Abstract showing the amount of claims)

Particulars ` ’000 ` ’000

Particul ` ’000 ` ’000

6. (a) Describe the contents of Audit Working Papers. [7]

Functions and Duties of NFRA:

8. (a) Discuss the steps to be taken by an auditor of a Co-Operative Society. [7]

(b) Demonstrate the essential Characteristics of Internal Check System. [7]

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