Latest Fashions Limited, Chennai is a listed company which is engaged in manufacturing of yarn, knitted cloth, male garments, female garments and…

Latest Fashions Limited, Chennai is a listed company which is engaged in manufacturing of yarn, knitted cloth, male garments, female garments and customer specific products. The consolidated financial statements prepared consisted of financial statements of the company and financial information of 6 subsidiaries audited by other auditors. 2 out of 6 subsidiaries are located outside India whose financial statements have been prepared in accordance with accounting principles generally accepted in their respective countries and have been audited by other auditors under generally accepted auditing standards applicable in their respective countries. These financial statements, financial information and auditors reports of subsidiaries were furnished by management of Latest Fashions Limited. As on 31st March, 2025 in respect of 6 subsidiaries the total assets were - 2,500 crores; total revenue for the financial year 2024-25 was - 1,500 crores and net cash outflows were 15 crores. It mobilized funds by issue of shares in the financial year 2022-23. As on 31st March, 2025 its book value was 150for each equity share of the face value of 10 each. Its return on equity is 15% and it retained 60% of its earnings. Its opportunity cost of capital is 18%. Company has manufacturing facilities at various locations in India such as Delhi, Agra, Kota, Cochin and Raipur. The following are the details of segments of products reported by Latest Fashions Limited in different geographical locations: Segment External Revenue Profit Assets ₹ in crores Yarn Reported as Segment 2,500 900 800 Knitted Cloth Reported as Segment 2,300 150 600 Male Garments Reported as Segment 900 (100) 200 Others 2,300 50 100 8,000 1,000 1,700 Besides this, no other information related to customers has been reported in the financial statements. The knitted cloth segment has been operating for 12 years and has consistently produced profits whereas the male garments segment which was commenced in April, 2018 has been consistently incurring losses but has a proportionate share of goodwill of 5 Crores out of the total goodwill of 20 Crores appearing in the financial statements of the company. It was decided by the Board of Directors of Latest Fashions Limited that by way of demerger, the male garments segment would be demerged with Men's Fashion Ltd., a new company. Necessary legal formalities were carried out in this regard both under the Companies Act, 2013 and under the Income-tax Act, 1961. The demerger was made in April 2025. The male garments segment along with its movable assets and liabilities (with net book value of 20 Crores) were demerged for a consideration of 50 crores to Men's Fashion Ltd., a new company, who allotted 25 lakh equity shares of 100 each at a premium of 100 per share to the shareholders of Latest Fashions Limited in full settlement of the consideration, in proportion to their shareholdings. For the month of January, 2025 Latest Fashions Limited gives the following information of GST paid on purchases made / input services availed by it S. No. Particulars GST paid ₹ (i) Capital goods (out of 6 items, invoice for 1 item was missing and GST paid on that item was - 10,000) 90,000 (ii) Inputs consisting of 5 equal lots, of which 3 lots were received during the month. 75,000 (iii) Travel benefits extended to employees on vacation under statutory obligation as employer. 1,10,000 (iv) Purchased machinery for manufacturing process worth 10 lakhs and claimed depreciation under the Income-tax Act, 1961 on 11,80,000 (including GST). 1,80,000 (v) Repair services for factory buildings debited to profit and loss account. 70,000 One of the Directors, Mr. Rohit, has approached the legal department of the Company to seek its opinion on the issue of payment of insurance premium to the insurance company. He explains that his elder brother Mohit, a non- resident Indian, has an Insurance Plan with a prominent Indian Insurance Company. Due to some impending financial difficulties, Mohit requested his brother Rohit, a resident Indian, to make payment of few subsequent installments of Insurance premium on his behalf. Though, Rohit said yes but being a director of a company and having some awareness about laws, he was not sure whether the payment is permitted or not. In his view, there is no restriction under any law for transactions with relatives and also no need to take any approval from any authority and also the premium amount per year is less than - 10.00 Lakh. Rohit also sought guidance about the taxability of some transactions done in his personal capacity. He sold 3 acres of agriculture land within the city limits of Chandigarh which he had purchased on 1st December, 2003 for 36,60,000. Title of the agriculture land was transferred on 20th August, 2024 for 1,90,00,000. On 31st August, 2024, he purchased another agriculture land situated in a remote village having population of 9,000 people for 80,00,000. The nearest town was 30 kilometers from the agriculture land. On 28th February, 2025, he sold the agriculture land purchased on 31st August, 2024 for 90,00,000. He has received - 9,00,000 on 1st December, 2024 on account of buyback of 6,000 shares held by him of X Ltd. These shares were purchased by him on 1st June, 2014 at 25 per share. During the course of audit of Latest Fashions Limited, it was noticed that a cyber-attack took place on the data in which files were encrypted through malicious links delivered via email and computers got locked. The hacker then demanded booty for decryption of files which was to be paid in bitcoins. Auditor immediately started looking into cyber security risks of the company. He is making inquiries regarding processes and controls relating to privileged account access, patch management program, vendor risk management program. He has also performed external network penetration testing. 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