KLM Private Ltd., Jaipur is a wholly owned subsidiary of MNO Ltd., Mumbai. KLM is engaged in manufacture of textile goods and beverages. It was…

KLM Private Ltd., Jaipur is a wholly owned subsidiary of MNO Ltd., Mumbai. KLM is engaged in manufacture of textile goods and beverages. It was incorporated on 15th July 2020. KLM placed order for 2 passenger vehicles (vans) for 25 lakhs each with seating capacity of each vehicle being 16 persons (excluding driver). It paid 50 lakhs plus GST @28%. It used one passenger vehicle (van) from 1st December 2023 for bringing its staff from their home to factory and for dropping them back. It donated another passenger vehicle (van) to Mother Charitable Trust (after getting the invoice and delivery of the vehicle in its name). Mother Charitable Trust is registered under section 12AB of the Income-tax Act, 1961. KLM acquired on 5th July 2023, one fork-lift truck for transport of textile goods inside the factory premises for 20 lakhs (excluding GST @18%). Fake /false figures in GST returns The GST return of KLM for the financial year 2020-21 contained some fake/false figures regarding inward supply and consequent input tax credit availed in respect of inter-state transactions. Penalty proceedings were also initiated against the GST consultant A & Co (firm) who has filed the GST returns of KLM, on a charge of abetment and aiding for filing false return. Change in inventory cost formula KLM changed its inventory cost formula for the year ended 31st March 2024. The change resulted in understatement of inventory by 50 lakhs. Proposal for investment KLM proposes to invest 500 lakhs in a new project in FY 2024-25. The risk-free rate of return is 7%. The risk premium expected by the management is 7%. The life of the project is 5 years. The estimated cash flows over the life of the project are given below: Year 1 = 120 lakhs; Year 2 = 180 lakh; Year 3 = 300 lakhs; Year 4 = 210 lakhs; and Year 5 = 130 lakhs. Present Value of 1 @ 14% Year 1 2 3 4 5 Present Value 0.877 0.769 0.675 0.592 0.519 Applying Throughput Accounting KLM has adopted Throughput Accounting to determine the profitability of the three beverages which are manufactured and marketed throughout India. The material cost, selling price and bottleneck resource details per unit are as follows: Particulars Product A Product B Product C Selling price (₹) 90 60 75 Material and variable cost (₹) 40 20 30 Bottleneck resource time (minutes) 20 15 15 Budgeted factory cost for the period is 2,70,000. The bottleneck resource time available is 1,20,000 minutes per period. MNO Limited (MNO) MNO is engaged in execution of construction contracts for its clients in India. Mittal & Co., Delhi is the statutory auditor of MNO. For the year ended 31st March 2023, MNO has non-current receivables amounting to 200 crores. The bills raised by the company represent cost overruns necessitated by delays caused by clients, change in work specifications and other related matters. There was no omission or default committed by MNO. As the company could not get positive response from the clients regarding cost overrun, it has gone for arbitration. The management of MNO claims that it can recover the cost overruns fully. The audit firm Mittal & Co. has relied on management representation in this regard. MNO had acquired a building at Mumbai for its administrative purposes and has held it as owner occupied property and shown as property, plant and equipment (PPE) up to the financial year ended 31st March 2023. In April 2023, as it relocated to its own newly constructed building at Thane, it leased out the building located at Mumbai to a third party. The Board of directors of the company are in a dilemma as to how the let-out building at Mumbai should be classified for the year ended 31st March 2024.