(a) What is meant by buyback of shares by companies? Explain the reasons and sources of buyback of shares. (10 marks) (b) "Cost…

(a) Buyback of shares

Buyback is a company purchasing its own fully paid-up shares or other specified securities from its shareholders (Sections 68 to 70 of the Companies Act, 2013). The shares are extinguished, as treasury shares are not allowed, and their nominal value is transferred to the Capital Redemption Reserve.

Reasons: returning surplus cash, improving earnings per share and return on equity, supporting an undervalued share price, resisting a hostile takeover, and adjusting the capital structure.

Sources: free reserves, the securities premium account, or the proceeds of a fresh issue of shares or other specified securities (but not of the same kind as those bought back). The main limits: authorisation by the articles, a ceiling of 25% of paid-up capital and free reserves, and a post-buyback debt-equity ratio of at most 2 : 1. A board resolution suffices up to 10%; beyond that a special resolution is needed. Listed companies also follow the SEBI Buyback Regulations.

(b) Relevance of cost accounting in India

The statement is largely correct. Liberalisation and global competition have squeezed margins, so firms need product-wise costs for pricing, cost reduction and make-or-buy choices. Cost data is needed in regulated pricing such as drugs and power, under GST where input-tax benefits must be passed on to buyers, and in the fast-growing services and MSME sectors. Section 148 of the Companies Act makes cost records and cost audit compulsory for specified industries, and costing tools such as activity-based and target costing, and sustainability costing, guide efficiency.

However, relevance depends on quality. Costing that is a compliance exercise, or an inaccurate overhead allocation, misleads rather than helps. Its value is greatest where it feeds real decisions, so cost accounting is relevant, provided the system is accurate and management uses it.

(c) Audit of a non-profit organisation

The auditor checks that the entity has used its funds for its stated objects and has complied with the law. The main points are:

The governing documents (trust deed or rules) and the minutes, which set the powers to receive and spend funds. Receipts such as donations, subscriptions, entrance fees, legacies and grants are verified against receipt books and bank records, with restricted and endowment funds kept separate and the conditions of grants checked against utilisation certificates. Expenses are checked with vouchers and approvals, and capital and revenue items are separated. Fixed assets, investments and their permitted modes are verified. Compliance is examined for registration (12A/12AB, 80G), application of at least 85% of income, and FCRA for foreign contributions. Finally, the receipts and payments account, income and expenditure account and balance sheet are checked for true and fair presentation.

(d) Government grants under AS-12

A grant is recognised only when there is reasonable assurance that the entity will comply with its conditions and that the grant will be received.

Revenue grants are taken to the profit and loss statement over the periods in which the related costs are incurred, as other income or as a deduction from the expense. Grants for depreciable assets are either deducted from the asset's cost, so that depreciation is charged on the reduced cost, or shown as deferred income and credited to profit and loss in proportion to depreciation. A grant in the nature of a promoter's contribution goes to shareholders' funds as capital reserve and is not income. Non-monetary grants are recorded at fair value or a nominal value.

A refund is first set against any unamortised deferred credit, and the balance is charged to profit and loss; a refund of a capital grant increases the asset's book value, with depreciation revised prospectively. (Ind AS entities follow Ind AS 20.)

(e) Extended tax liability of an assessee

An assessee is taxed mainly on his own income, but the Income-tax Act, 1961 (replaced by the Income-tax Act, 2025 from 1.4.2026, which carries these rules forward under new section numbers) extends his liability in three ways.

Clubbing of income: income transferred without the asset (Section 60), income from revocable transfers (61–63), and certain income of a spouse or minor child, such as a spouse's remuneration from a concern in which the assessee has a substantial interest (Section 64), is added to the assessee's total income to stop avoidance.

Representative assessee: the tax on a non-resident's Indian income may be recovered from his agent, and trustees, guardians and managers are assessed on behalf of minors or persons of unsound mind (Sections 160 to 163).

Successor liability: the legal representative of a deceased person (Section 159) is liable up to the estate inherited, and the partners of a firm are liable for its unpaid tax.