Answer the following questions in about 150 words each :

(a) What are Sweat Equity Shares ? Under what conditions can these shares be issued by a company ? (10 marks)

(b) What is Activity-Based Costing (ABC) ? How does ABC system support corporate

Question

Answer the following questions in about 150 words each :

(a) What are Sweat Equity Shares ? Under what conditions can these shares be issued by a company ? (10 marks)

(b) What is Activity-Based Costing (ABC) ? How does ABC system support corporate strategy ? (10 marks)

(c) What is Interim Dividend ? Specify the duties of an auditor in this regard. (10 marks)

(d) Explain briefly the steps involved in preparing the budget for an industrial organization. (10 marks)

(e) State the exceptions to the provision under the Income Tax Act regarding set-off of loss from one source against income from another source under the same head. (10 marks)

UPSC Answer Check · Accepted Answer

This multi-part question requires concise explanatory responses across five distinct areas. Allocate approximately 30 words (20% time) per sub-part, ensuring balanced coverage: define sweat equity shares with Section 54 conditions; explain ABC's cost driver logic and strategic linkage; clarify interim dividend with SA 250 auditor duties; outline budget preparation steps from sales forecast to master budget; and enumerate Section 70 exceptions with specific loss categories. Use precise legal/technical terminology throughout.
- (a) Sweat equity shares: definition (non-cash consideration for IP/know-how/expertise), Section 54 of Companies Act 2013 conditions—special resolution, 1-year lock-in, pricing by registered valuer, limit of 25% of paid-up capital
- (b) ABC: activity-based costing definition (tracing overhead via activities/cost drivers), contrast with traditional absorption costing; strategic support through accurate product costing, elimination of non-value activities, customer profitability analysis, better pricing decisions
- (c) Interim dividend: definition (dividend declared between two AGMs), auditor duties per SA 250—verify Board resolution, check sufficiency of profits, ensure depreciation provision, confirm no impairment of capital, report non-compliance
- (d) Budget preparation steps: sales forecasting → production budget → material/labour/overhead budgets → cash budget → budgeted financial statements → coordination and approval of master budget
- (e) Section 70 exceptions: speculation loss (cannot set off against non-speculation), loss from owning race horses, loss from lottery/gambling, capital loss restrictions, clubbing provisions, unabsorbed depreciation treatment

Dimension	Weight	Max marks	Excellent	Average	Poor
Demand-directive understanding	15%	7.5	Correctly identifies that (a) and (c) require definition-plus-conditions, (b) needs conceptual explanation plus strategic linkage, (d) demands process sequencing, and (e) requires precise statutory enumeration; no mixing of directives across parts	Generally understands explanatory demands but conflates 'conditions' with 'features' in (a) or treats (e) as general discussion rather than exception-listing	Misinterprets directives—describes when should enumerate, or explains when should merely state; confuses interim dividend with final dividend
Content depth & accuracy	30%	15	Precise legal citations (Section 54, SA 250, Section 70) with accurate conditions; ABC explanation includes cost hierarchy (unit/batch/product/facility-level); budget steps in logical sequence; no factual errors across any sub-part	Broadly correct content but vague on specific conditions (e.g., misses lock-in period or registered valuer requirement); ABC explanation lacks cost driver specificity; budget steps incomplete or out of order	Major inaccuracies—wrong sections, confused ABC with traditional costing, fundamental misunderstanding of auditor's role in interim dividends, jumbled budget preparation sequence
Structure & flow	20%	10	Clear five-part structure with visible sub-headings (a)-(e); each part has definitional opening followed by specific conditions/duties/steps/exceptions; parallel structure aids examiner navigation; fits 150-word constraint per part	Identifiable parts but uneven internal structure—some parts lack clear condition listing; occasional paragraph overflow between sub-parts; word allocation slightly skewed	Unstructured narrative without part demarcation; rambling or excessively bullet-heavy; severe word imbalance (e.g., 100 words on (a), 20 on others)
Examples / case-law / data	20%	10	Illustrative application: startup sweat equity example (Infosys/Flipkart model), ABC illustration in Indian manufacturing context, specific SA 250 reporting format reference, budget example from PSU or listed company, recent Budget 2023-24 tax provision updates if relevant	Generic references without specificity—mentions 'IT companies' for sweat equity, 'manufacturing firms' for ABC without Indian context; no case law or contemporary examples	No examples whatsoever; or irrelevant examples (foreign case law, outdated provisions pre-Companies Act 2013); fabricated section numbers
Conclusion & analytical edge	15%	7.5	Brief integrative closing linking sweat equity to startup ecosystem, ABC to Industry 4.0 cost management, interim dividend to shareholder value protection, budget to strategic planning, and set-off exceptions to anti-abuse intent of tax law	Mechanical endings per part without cross-linkage; restates main points without analytical elevation	Abrupt endings or missing conclusions; no demonstration of examiner-level synthesis across corporate law, cost accounting, auditing, and taxation domains

Answer the following questions in about 150 words each : (a) What are Sweat Equity Shares ? Under what conditions can these…

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