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ICWAI/ICAI Student news letter
« on: May 17, 2013, 12:13:40 PM »

ICWAI Student news letter
May 2013

(Source :suggested answer)
Q: a) Manufacturers use a number  of trade promotion tools. Give   Four    Reasons    why manufacturers use money to the trader as one of the promotion tools?

ANS: Manufacturer’s award  money  to the trade for promotional tools, reasons are:-
a) To persuade the retailer  or    wholesaler to carry the brand;
b)To persuade the retailer  or  wholesaler to carry
more units than the normal amount;
c)To  induce   retailers  to  promote the  brand   by featuring, display, and price reductions; and
d)To stimulate retailers and their sales personnel to push the product.

b)In   which   sector  of   products  market-skimming pricing   practice is used?In which sector of products market-skimming pricing  practice is used?
Ans  :    Market-skimming   pricing   is   a   strategy whereby prices    start high  and  slowly  drop  over time. This is a prevalent practice in consumer electronics products

(c)  Your   research  shows   that  over   53%   of   all purchases are made  on impulse. You advise your packaging design  team That the package must communicate many of the sales   Tasks. List the sales tasks that packaging must now  Incorporate.

Ans : Packaging may be defined  as the general  group of    activities in  the planning  of  a  product. These activities  concentrate on formulating a design of the package and producing  an appropriate and attractive container or  wrapper  for  a  product. The  tasks of packaging are:
a) Attract attention
b) Describe the product's features;
c) Create consumer confidence, and
d) Make a favourable overall impression.

(d)  “In the maturity stage of Product Life Cycle (PLC) the  Market becomes   saturated,  price  competition intensifies And the rate of sales growth slows down.” Suggest five Strategic choices in such a stage of PLC.

Ans : In order  to face the situations characterized by
the  maturity stage of PLC, alternative marketing and distribution strategies listed below are suggested:-

•   Brand-stressing advertising
•   Trading down through
•   Trading  up  (strategy  opposite  to item  2 through
•    Proliferation, exclusive or radical, by
•   Increase of product availability and  point- of-
•   sale services through more distribution
•   outlets/dealers/services centres, etc.

(e) Write a brief note on ‘Sensitivity Analysis’.

Ans :  The "Sensibility Analysis (SA)" is the study of how  the    uncertainty  in  the output of  a  model (numerical   or    otherwise) can  be  apportioned to different sources  of uncertainty in the model  input. A related practice is uncertainty analysis  which focuses rather on quantifying uncertainty in model output. Ideally, uncertainty and  sensitivity analysis should be run in tandem. Sensitivity analysis can be useful   to   computer   modelers  for   a   range    of purposes including:-
(a) Support decision making or the develop (b)recommendation for decision makers (c)Enhancing communication from modelers
to decision makers
(d)Increase understanding or quantification of the system
(e) Model development

Q:  (a)   M/s  Aurobind   Ltd.  is  a   small   scale Industrial Unit which  is   producing  glass  fibre  an excisable  Product. As per  financial    statement for the year 2011-12, it shows a gross sales turnover of
205.10  lakhs  inclusive of excise Duty & VAT. There
Product  glass fibre attract Duty @ 12% and VAT @
1%. It may be noted that for the year 2010-11, the taxable clearance ofMisAurobind  Ltd. SSIUnit was `
160.00   lakhs.   Please   calculate  the  excise   duty liability   under    Notification    No.    8/2003   dt.
01.03.2003   as  the gross    sales  turnover ` 205.10 lakhs is eligible for examination.
ANS: For this problem we have  to compute   excise duty liability under    Notification No.   8/2003  date:
01/03/2003  .

(b)  (i)What do  you  mean   by  project import under customs Act?

Ans:   Project import means, import of machineries required   for   initial      set  up   of  project  and   also includes   raw   materials,   consumables   and   spare parts, (10% value of machinery) is allowed  to import at concessional or  nil rate of duty. Heavy  customs duty  on  imported   machinery  for  project  makes project cost very high and may become unviable.  The goods  are  classified  under  heading  9801,    that the clearance of goods be come faster.
of the Central Govt. would  be liable to deduct. tax at source   from  such  arrear. However   Mr.  K  can claim   relief   u/s  89(1)   of   the  Income  Tax  Act provided the employee would produced the details in the prescribakForm 10E to his employer to consider  the relief  u/ s 89 while  deducting tax at source.

(ii) MIS  X Ltd. enter into an  agreement  with MIS ABC    tax   at   source    @2%   u/s   194C.   Finance department of the view that tax dedu  tion should be 10% u/s 194J of Income Tax Act. Consultants for providing  engineering services  to the Company for a  Consideration of  ` 10,000  per  month. MIS  ABC Consultants requires  MIS X Ltd. to deduct
(ii) Which projects are  eligible for benefit of custom duty?
Ans: Project eligible are
(a) Industrial plan
(b) lrrigation Project
(c) Power Project
(d) Mining Project
(e)Project for Oil and Mineral Exploration
(f) Other Project specified by the Central Govt.

(iii) What to do to get such benefit?
Ans:   To  get  benefit   under    Project  Import,   the Contract   for   import  has   to  be   registered   with Customs. Application is required to be made   before importation and  contract must be registered before order  for clearance of goods  is made  from Customs. The contract  can be amended if required. After completion of Project and   submission of documents assessment shall be finalized within 60 days. MF (DR) Circular No. 22/2011-CUS dt. 04 May, 2011.

(c)  Examine and  state the applicability of provisions under  Income Tax Act for deductions of Income Tax at source  under  Iricome Tax Act/rules on  following cases for Asst. Year 2012-13.
(i) Mr. K an employee of Central Government is due to  receive   arrear  of  salary   for  the  earlier   three previous  years  that are  2008-09  to 2010-11  during the  previous   year   2011-12.   Whether  such  arrear salary  is subject to deduction of tax during  previous year 2011-12.
Ans:   Arrear of salary for the previous  year 2008-09
to 2010-11 are    taxable in the previous  year 2011-12 on receipt as not taxed earlier  on accrual basis in the hands  of Mr. K, an employee. The authorized person
Ans: The definition of professional service on which tax is to be   deductible under  section 194J includes engineering  services  also.  So fee  of  ` 10,000  per month paid M/S ABC Consultant represent   fee for professional Services & the income tax deduction at source    on payment is to be  made  @ 10% under such section that is 194J. M/S ABC Consultants requirement for deduction of tax at source    @2% u/s 194C is not correct.

( Sources   : Suggested Answer)    Question 1  It has been   suggested that  much   of   the  training  of management  accountants is  concerned  with  cost contol whereas the major  emphasis should  be  on cost reduction. Required:
1(a) Distinguish between cost control and cost reduction. [3]
Question   1(b)   Give   three   examples  each    of   the techniques and  principles used for (i) Cost control  and (ii) cost reduction
Answer 1(b)
i) Three examples of cost control techniques: A) Budgetary Control
B) Standard Costing
C) Limits on authority  to incur expenditure
ii) Three example  of cost reduction techniques
A) Value Analysis
B) Work study
C) Variety reduction
Question 1(c)
Discuss the proposition contained in the  statement.[6] Answer  1(c)  The  statement suggests  that  the  training of management accountants should place the major emphasis on cost reduction. Because of the following:
i)   In  a  competitive   environment,  reduced   cost  will attract the customer.
ii) For effective competition in companies,  Management
accountant  should  be  trained   to  provide  information based on cost reduction.
iii) If  emphasis  given  on  cost  control,  it  reduces   the
concentration,  effort  on  the  mechanism   of  recording and reporting  Historic cost.

Question 1(a)    Discuss the role,  membership and operations of a Nomination Committee.  [6]

Answer 1(a)
The role of nominee  committee is to
1)  Determine   the   slate   of  director   nominees   for election
2) To identify and recommend candidates to fill vacancies occurring between annual shareholder meetings,
3) To review, evaluate  and recommend changes to the
Company’s   Corporate Governance Guidelines.
4)  To review the Company’s policies and programme
1) The Member  of the committee contains  at least 2
2) Each member independently has to meet  the requirements of the board
3) The Board can remove and appoint  any member
1) The Committee meets  at least twice a year.
2)   The   Committee   shall   meet    periodically   in executive session
3)   The Committee will cause  to be kept  adequate minutes
4) Activities and Action should be reported quaterly on the next meeting
5)  Committee  members  will  be   furnished   with copies of the minutes of each meeting.

Question 1(b) In the context of management audit, what is meant by “control risk” vis-a-vis detection of    material   misstatements   in    the   financial statements? In this regard, what is “Control Risk at the maximum”  and  “Control Risk at less than the maximum?

Answer 1(b) Control Risk :
The client  internal  control  policy and  procedure is not effective in the preventing  and detecting misstatement in the financial statement.
Control Risk at the Maximum:
1) Conclusion based  upon  the  auditor’s judgement that  the  client’s internal  control  policies and procedures do not  reduce   completely  the  material errors and / or irregularities.
2) The  auditor  would  required  to  document in his
work   pare   the   fact   that   the   control   risk  is  at maximum   and   not   the   basis   for   reaching   this conclusion.

3) The auditor  may decide control risk is at the maximum based upon management accounting technique called cost benefit  decisions.
Control risk at less than the maximum
1) Based on the   initial proceedings the  auditor  can conclude that control risk is less than maximum.

2) To come to the conclusion about  control risk , the auditor has to evaluate

3) The cost / benefit decision is based upon the audit time    involved    in    extending    the    auditor’s
 understanding of internal controls, cost/benefit of existing his/her understanding in internal control.

Question 1(c)
An understanding has been  reached among  the manufacturers  of  cotton  to  control  the  price   of cotton, but the understanding is not in writing and it is also not intended to be enforced  by legal proceedings.-Examine   whether   the    above understanding can be considered as an  ‘agreement’ within   the   meaning   of    section   2(b)    of    the Competition Act,2002.      [3]

Answer 1(c)

As  per  section  2  (b) of  the  Competition Act 2002” “agreement”includes   any    arrangement    or understanding or action in concert-----
(i) Whether or not, such arrangement, understanding or action is formal or in writing; or
(ii) Whether or not  such arrangement, understanding
or action is intended to be enforceable by legal proceedings; In view of the above definition of agreement; an understanding reached by the manufacturers of Cotton to Control the price of cotton will be  an  agreement within  the  meaning  of section
2(b)  of  the  Competition Act 2002  even  though  the understanding is not  in writing and it is not  intended to be enforceable by legal proceedings


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ICWAI/ICAI Student news letter
« on: May 17, 2013, 12:13:40 PM »

Offline TechShristi

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ICWAI/ICAI Student news letter
« Reply #1 on: May 17, 2013, 12:13:40 PM »
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