ABC Electronics Limited manufactures and sells various electronic items including ceiling fans. It manufactures and sells 15,00,000 ceiling fans…

ABC Electronics Limited manufactures and sells various electronic items including ceiling fans. It manufactures and sells 15,00,000 ceiling fans annually. A ceiling fan is composed of an electric motor, blades, metal arms, a flywheel, a rotor, and other components. Annually it is purchasing 12,00,000 sets of blades from an outside supplier at 615 per set. The production manager is of the opinion that if all the components are produced at own plant, it is possible to maintain better quality in the finished product. Further he proposed that in-house production of blades with other items will provide more flexibility to increase the annual production of fans by 1,50,000 units. He estimates the cost of manufacturing one set of blades as under: ₹ per set Direct material 380 Direct labour 60 Factory overheads (65% variable) 180 The proposal of production manager was forwarded to marketing manager for his remarks. He pointed out that to market the additional units, the overall unit price of ceiling fan should be reduced by 2% and variable marketing cost will increase by 4% per unit and additionally 36 lakh should be incurred for advertisement. The present average selling price and average variable cost (including cost of blades purchased from outside supplier) per ceiling fan are - 3,500 and - 3,200 respectively. Mr. Kushal, Director (finance) has asked CA Harsh, Chief Management Accountant of the company to prepare a report on the viability of the proposal. The demand for electronic goods has been increasing in India. Hence, the management wants to increase the annual manufacturing capacity. Due to increased production requirements, ABC Electronics Ltd. also bought additional indigenous machinery for the production line and sold some old machinery. All assets were purchased by account payee cheque. Below are the details of plant and machinery. S. No. Particulars ₹ 1. Opening WDV for plant and machinery on 01.04.2024 (eligible for depreciation @15%) 12,60,00,000 2. New plant and machinery purchased on 30.07.2024 and put to use on 30.09.2024 (excluding IGST @18%) 1,50,00,000 3. New plant and machinery purchased on 15.09.2024 and put to use on 05.10.2024 (excluding IGST @18%) 1,20,00,000 4. Sale of old plant and machinery on 10.10.2024 75,00,000 Company has strength of around 600 employees and is registered under the Factories Act, 1948. A provident fund trust (a private trust) has been created as per the norms of respective law. The company transfers employer and employee contribution to the trust and it is managed by the trustees. The company is responsible for providing principal amount along with a specified rate of return. Accountant of the Company has considered it as defined contribution plan and accordingly accounted for in the books of accounts. ABC Electronics Limited imported automatic machine from USA for upgrading its production facilities. The events relating to its entry into India and the discharge and onward movement are as follows: Date Event Exchange Rate in ₹ (notified by CBIC) 20 th January, 2025 Vessel enters the Indian territorial waters 80 22 nd January, 2025 Bill of entry filed for warehousing of goods 82 23 rd January, 2025 Entry inward granted to the vessel 84 30 th March, 2025 Bill of entry presented for home consumption 85 The rate of custom duty was 25% as on the date of presentation of bill of entry for warehousing of goods and it was reduced to 15% w.e.f. 2nd February, 2025. The details of such import transactions are as follows: S. No. Particulars Amount 1. Cost of machine US$ 40,000 2. Transportation charges from the factory of exporter to the port for shipment & handling charges for loading of machine in the ship US$ 1,000 3. Commission paid (not the buying commission) to the local agent of exporter 1,50,000 4. License fee relating to imported goods payable by buyer as a condition of sale 10% of the price of machine 5. Actual insurance ascertainable charges paid are not ascertainable - 6. Freight charges from USA to India US$ 4,000 7. Lighterage charges paid by company at Indian Port 28,800 8. Unloading and handling charges paid at the Indian Port 10,000 9. Warehouse charges paid in India 60,000 10. Integrated Tax is 18% and Social Welfare Cess is 10% and GST Compensation Cess is NIL During the year, in a board meeting, proposal was raised to implement a new digital system to streamline both accounting and production processes, aiming to enhance overall efficiency. To lead this initiative, Mr. Amit, an experienced IT professional, had been appointed as the IT Manager. While he acknowledged the significant benefits that new technologies can bring, he was also aware of the potential risks that they may pose. After carefully assessing the technological risks associated with the implementation of the new system, Mr. Amit ensured that the necessary controls are put in place to mitigate these risks. As a result, the digital system was successfully implemented. NGH & Co., Chartered Accountants, is the statutory auditor of the company. CA. N, Partner at NGH & Co., regularly holds meetings with Mr. Kushal and other members of the Accounts Department. In a meeting held at the company's office regarding audit planning, Mr. Kushal informed CA. N about the full digitization of both the Accounting and Production processes. Once the formal audit discussions concluded, Mr. Kushal and CA. N engaged in a general conversation. During this discussion, Mr. Kushal informed that on 31st December, 2024, he had received an i-Phone worth - 1,20,000 as a gift from his brother Suresh, who is a British national. Additionally, Mr. Kushal mentioned that on 31st January, 2025, he also received a foreign remittance of 9,00,000 as a gift from Suresh for the purpose of purchasing property in his name. Suresh had gone out of India in the year 2005 and is permanently settled in UK. Kushal raised another query from CA. N that Suresh holds agricultural land inherited from his parents and is considering selling it. He wants to repatriate the entire proceeds out of India. Kushal informed that he has advised Suresh to use the proceeds either to purchase another piece of agricultural land or buy a residential flat in Jaipur. Multiple Choice Questions: [Please provide the correct option to the following questions]