Paper I — Q2
(a) A Ltd. has acquired the business of B Ltd., whose Balance Sheet as at 31st March, 2024 is as under : [Balance Sheet details…
(a) A Ltd. has acquired the business of B Ltd., whose Balance Sheet as at 31st March, 2024 is as under : [Balance Sheet details provided] A Ltd. was to take over all assets (except cash) and liabilities (except for interest due on debentures) and to pay the following amounts : (i) ₹ 4,00,000, 7% Debentures (₹ 100 each) in A Ltd. for the existing debentures in B Ltd.; for the purpose, each debenture of A Ltd. is to be treated as worth ₹ 105. (ii) For each preference share in B Ltd. ₹ 10 in cash and 9% preference shares of ₹ 100 each in A Ltd. (iii) For each equity share in B Ltd. ₹ 20 in cash and one equity share in A Ltd. of ₹ 100 each having market value of ₹ 140. (iv) Expenses of liquidation of B Ltd. are to be reimbursed by A Ltd. to the extent of ₹ 20,000. Actual expenses amounted to ₹ 25,000. A Ltd. valued Land and Building at ₹ 11,00,000, Plant and Machinery at ₹ 13,00,000 and Patents at ₹ 40,000 of B Ltd. for the purpose of amalgamation. Pass necessary journal entries in the books of A Ltd. and B Ltd. 20 (b) A Ltd. furnishes the following Balance Sheet as at 31st March, 2024 : [Balance Sheet details provided] The company passed a resolution to buy back 20% of its equity capital @ ₹ 15 per share. For this purpose, it sold its investments of ₹ 60 lakhs for ₹ 50 lakhs. You are required to pass necessary journal entries in the books of A Ltd. and prepare Balance Sheet after buyback of shares. 15 (c) (i) State the methods of computation of Short-term and Long-term capital gains under Indian Income Tax Act, 1961. (ii) State the rules of capital gains in case of transfer of depreciable assets under Section 50 of the Indian Income Tax Act, 1961. 15
हिंदी में प्रश्न पढ़ें
(a) A लिमिटेड ने B लिमिटेड के व्यवसाय का अधिग्रहण किया है, जिसका तुलन-पत्र 31 मार्च, 2024 को इस प्रकार है : [तुलन-पत्र विवरण] A लिमिटेड को सभी परिसम्पत्तियों (नकदी को छोड़कर) और देयताओं (ऋणपत्रों पर देय ब्याज को छोड़कर) को अपने अधीन करना है और निम्नलिखित राशियों का भुगतान करने का अधिकार दिया गया है : (i) ₹ 4,00,000, 7% ऋणपत्रों (प्रत्येक ₹ 100), जो A लिमिटेड में हैं, उन्हें B लिमिटेड में मौजूदा ऋणपत्रों के लिए; इस प्रयोजन के लिए, A लिमिटेड के प्रत्येक ऋणपत्र का मूल्य ₹ 105 प्रति माना जाएगा। (ii) B लिमिटेड में प्रत्येक अधिमान शेयर के लिए ₹ 10 प्रति शेयर नकदी तथा A लिमिटेड में 9% अधिमान शेयर ₹ 100 प्रति शेयर दिया जाएगा। (iii) B लिमिटेड में प्रत्येक इक्विटी शेयर के लिए ₹ 20 प्रति शेयर नकद तथा A लिमिटेड में एक इक्विटी शेयर ₹ 100 का, जिसका बाजार मूल्य ₹ 140 है, दिया जाएगा। (iv) B लिमिटेड के परिसमापन के खर्चों की पूर्ति A लिमिटेड द्वारा ₹ 20,000 तक की सीमा तक की जाएगी, जबकि वास्तविक खर्चे की राशि ₹ 25,000 है। A लिमिटेड ने समामेलन के उद्देश्य से, B लिमिटेड की भूमि व भवन का मूल्य ₹ 11,00,000, संयंत्र व मशीनरी का मूल्य ₹ 13,00,000 तथा पेटेंट का मूल्य ₹ 40,000 आँका है। A लिमिटेड तथा B लिमिटेड की पुस्तकों में आवश्यक रोजनामचा प्रविष्टियाँ कीजिए। 20 (b) A लिमिटेड 31 मार्च, 2024 को निम्नलिखित तुलन-पत्र प्रस्तुत करती है : [तुलन-पत्र विवरण] कंपनी ने ₹ 15 प्रति शेयर की दर से अपने इक्विटी पूँजी के 20% शेयर वापस खरीदने का प्रस्ताव पारित किया। इस उद्देश्य के लिए, कंपनी ने अपने ₹ 60 लाख के निवेश को ₹ 50 लाख में बेच दिया। A लिमिटेड की पुस्तकों में आवश्यक रोजनामचा प्रविष्टियाँ कीजिए तथा शेयरों की पुनर्खरीद के बाद तुलन-पत्र तैयार कीजिए। 15 (c) (i) भारतीय आयकर अधिनियम, 1961 के अंतर्गत अल्पकालिक और दीर्घकालिक पूँजीगत लाभ के अभिकलन की विधियों का उल्लेख कीजिए। (ii) भारतीय आयकर अधिनियम, 1961 की धारा 50 के अंतर्गत मूल्यह्रास-योग्य परिसम्पतियों के हस्तांतरण के मामले में पूँजीगत लाभ के नियमों का उल्लेख कीजिए। 15
Directive word: Solve
This question asks you to solve. The directive word signals the depth of analysis expected, the structure of your answer, and the weight of evidence you must bring.
See our UPSC directive words guide for a full breakdown of how to respond to each command word.
How this answer will be evaluated
Approach
The directive 'solve' demands precise numerical working with clear journal entries and financial statements. Allocate approximately 40% of time to part (a) amalgamation accounting (20 marks), 30% to part (b) buyback accounting (15 marks), and 30% to part (c) capital gains theory (15 marks). Structure: working notes first, then journal entries in proper format, followed by final statements, ensuring AS-14 and Section 68 compliance.
Key points expected
- Part (a): Computation of purchase consideration including debenture valuation at ₹105, cash and share components for preference and equity shareholders, and treatment of liquidation expenses
- Part (a): Journal entries in A Ltd. for asset revaluation (Land ₹11L, Plant ₹13L, Patents ₹40K), discharge of consideration, and liquidation expense reimbursement
- Part (a): Journal entries in B Ltd. for transfer of assets/liabilities to Realisation A/c, receipt of consideration, and distribution to stakeholders
- Part (b): Compliance check for buyback (Section 68 Companies Act), calculation of 20% equity buyback, utilization of securities premium and free reserves, and loss on sale of investments
- Part (b): Journal entries for investment sale, buyback payment, cancellation of shares, and transfer to capital redemption reserve; preparation of post-buyback Balance Sheet
- Part (c)(i): Full computation framework: STCG (holding ≤36 months/24 months for unlisted) with cost of acquisition, improvement, transfer expenses; LTCG with indexation benefit under Section 112/112A
- Part (c)(ii): Section 50 special provisions: deemed STCG on depreciable assets, computation of WDV, inadmissibility of indexation, and interaction with Section 70/71 set-off rules
Evaluation rubric
| Dimension | Weight | Max marks | Excellent | Average | Poor |
|---|---|---|---|---|---|
| Demand-directive understanding | 18% | 9 | Correctly interprets 'solve' across all three parts: for (a) prepares complete amalgamation accounting with proper purchase consideration mechanics; for (b) applies buyback legal framework with accurate CRR calculation; for (c) distinguishes computational methods with statutory references | Attempts all parts but misinterprets one component (e.g., treats debenture issue at par not ₹105, or confuses STCG/LTCG holding periods) | Fundamental misunderstanding of directive—writes descriptive essay without journal entries or numerical solutions, or omits major parts |
| Content depth & accuracy | 24% | 12 | Numerically accurate throughout: correct purchase consideration (₹10,80,000 debentures, proper cash/share mix), accurate goodwill/capital reserve computation, correct buyback entries with CRR creation, precise Section 50 depreciation recapture calculation | Minor calculation errors (e.g., wrong number of shares, incorrect indexation year, partial Section 50 explanation) but correct methodology | Major conceptual errors: wrong method of accounting (purchase vs. pooling), ignores AS-14 requirements, fundamental Section 50 misstatement |
| Structure & flow | 18% | 9 | Clear three-part separation with working notes preceding entries; logical sequence: computation → A Ltd. entries → B Ltd. entries for (a); compliance → entries → Balance Sheet for (b); structured proforma for (c) | All parts present but jumbled working; entries without supporting computations or missing narration | Disorganized presentation; no working notes; entries and explanations mixed haphazardly; missing part demarcations |
| Examples / case-law / data | 20% | 10 | Cites AS-14 (Amalgamation) for pooling method applicability, references Section 68/69/70 of Companies Act 2013 for buyback compliance, quotes Section 50(2) verbatim for depreciable assets, mentions CIT v. B.C. Srinivasa Setty (1981) for capital gains computation principles | Mentions AS-14 and Section 50 without elaboration; no case law; generic statutory references | No statutory or standard references; purely mechanical entries without legal/standard backing |
| Conclusion & analytical edge | 20% | 10 | Critical analysis: for (a) discusses amalgamation in nature of merger vs. purchase; for (b) evaluates buyback vs. dividend tax efficiency; for (c) contrasts Section 50 restriction with normal LTCG benefits and suggests tax planning implications | Brief concluding statement per part without synthesis; no comparative or evaluative element | Abrupt ending with no conclusion; missing final Balance Sheet in (b); incomplete Section 50 explanation |
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