(a) ABC company produces tables. An analysis of their accounting reveals— Fixed cost ₹1,00,000 for the year Variable cost ₹40 per…

(a) Break-even analysis for ABC company

Contribution per table = 140 − 40 = ₹100.

• (i) BEP = fixed cost ÷ contribution per table = 1,00,000 ÷ 100 = 1,000 tables (sales ₹1,40,000).
• (ii) Tables for a profit of ₹60,000 = (1,00,000 + 60,000) ÷ 100 = 1,600 tables (sales ₹2,24,000), within capacity.
• (iii) At ₹120, contribution = 120 − 40 = ₹80. BEP = 1,00,000 ÷ 80 = 1,250 tables (sales ₹1,50,000). Tables for ₹60,000 profit = 1,60,000 ÷ 80 = 2,000 tables (sales ₹2,40,000), exactly at capacity.
• (iv) Profit per table in (ii) = 60,000 ÷ 1,600 = ₹37.50. New capacity = 2,000 + 600 = 2,600 tables and new fixed cost = 1,00,000 + 4,000 = ₹1,04,000, assuming all 2,600 tables are sold. Required profit = 2,600 × 37.50 = ₹97,500. Required sales = 1,04,000 + 2,600 × 40 + 97,500 = ₹3,05,500, so the selling price = 3,05,500 ÷ 2,600 = ₹117.50 per table.

Check: fixed cost per table = 1,04,000 ÷ 2,600 = ₹40, so price = 40 (variable) + 40 (fixed) + 37.50 (profit) = ₹117.50.

(b) Accounting as an information system and its characteristics

Accounting collects raw financial data about transactions, processes it by recording, classifying and summarising, and communicates it as financial statements and reports to users. This input, processing and output cycle turns data into information that reduces uncertainty in decisions. Management uses it for planning, control, pricing and investment, investors and lenders for investment and credit decisions, and the government for taxation and regulation.

Its characteristics are:

• It is systematic, following double entry and the accounting standards.
• It measures only events that can be expressed in money, mainly past events.
• It serves internal and external users, so it is both financial and management accounting.
• Its output must be relevant, reliable, timely, comparable and understandable.
• It rests on assumptions such as going concern, accrual, consistency and materiality.
• It is subject to legal and standards compliance (Companies Act, 2013, Ind AS/AS).
• It has limits: it leaves out qualitative factors, relies on estimates and is based on historical cost.

(c) Tax audit

A tax audit is an audit of a taxpayer's accounts by a Chartered Accountant under Section 44AB of the Income-tax Act, 1961, to check that income, deductions and tax have been correctly reported (the provision is carried into the Income-tax Act, 2025). It differs from a statutory audit, which gives a true and fair view for shareholders. It is required when business turnover exceeds ₹1 crore (₹10 crore if cash receipts and payments are 5% or less), when professional receipts exceed ₹50 lakh, and in certain presumptive-tax cases. The report is filed in Form 3CA or 3CB with the particulars in Form 3CD, and non-compliance attracts a penalty of 0.5% of turnover, up to ₹1.5 lakh (Section 271B).

Objectives:

• To check that proper books are kept and that they support the return.
• To verify that income, deductions, exemptions and tax liability are correctly computed.
• To check compliance with TDS, TCS and other provisions.
• To deter evasion and help the assessing officer with reliable, reported data.

Who can be a tax auditor: a Chartered Accountant within the meaning of the Chartered Accountants Act, 1949, holding a certificate of practice, or a firm of Chartered Accountants. The auditor should be independent of the assessee, and the ICAI caps the number of tax audits at 60 per CA per year.