Surgical Equipments Limited based in Delhi is engaged in manufacturing of medical surgical instruments. Products of the company are for use by…

Surgical Equipments Limited based in Delhi is engaged in manufacturing of medical surgical instruments. Products of the company are for use by particular segment of the society who requires a product with good features and at competitive prices. Company has been in the line of business for more than a decade and has paid-up capital of 40 crores and turnover exceeding 400 crores. Company has presented complete set of financial results for 2 financial years (31.03.2025, 31.03.2024) along with a statement of profit or loss for the financial year ended on 31.03.2023. During the year Surgical Equipments Limited acquired Medicines Limited. The scheme of merger / acquisition is that the shares will be issued on one-to-one basis to the shareholders of Medicines Limited. The exchange ratio is based on the market prices of the shares of two companies. The following financial data is provided to you: Particulars Surgical Equipments Limited Medicines Limited Earnings before taxes (₹) 25,00,000 18,50,000 No. of equity shares (paid up) 8,00,000 4,00,000 PE ratio 14 times 10 times Effective Tax rate applicable is 25%. For paying purchase consideration, borrowing from existing bankers was made in the form of Term Loan which was to be paid in 36 monthly installments starting after the period of twelve months. One of the conditions of the borrowing was to get the Insurance Cover for full amount of assets which was not fulfilled by the Company as on the date of Balance Sheet. Till the approval of financial statements, no waiver has been given by the banker. The same loan has been classified as Non-Current in the financial statements. Surgical Equipments Limited is engaged in manufacture of 3 products viz. X, Y and Z. All the products have the same market demand. However, the key factor is the availability of machines for manufacturing the product since the same set of machines are used for manufacturing them. The management of Surgical Equipments Limited wants to rank the products based on the rate at which company is making money. This will be used to plan the production schedule for the months taking note of the bottleneck constraint. The following details are furnished regarding the products: Particulars Product X Product Y Product Z Selling price - per unit (₹) 50 60 80 Material and other variable cost - per unit (₹) 30 40 50 Fixed Cost per unit (₹) 6 7 8 Time required for manufacture - per unit 20 minutes 30 minutes 40 minutes The factory cost is 0.50 per minute. One of the Machine named as 'Treble' has been sold during the year as no future economic benefits from its use were expected. Gain arising on disposal has been included in Other Comprehensive Income appearing in the financial statements. Surgical Equipments Limited has supplied products to various customers both directly and through dealers. It permitted the customers the benefit of warranty claims if supported by adequate records like bills, delivery challans, remittance details etc., and replaced defective parts by supplying to them directly. In the month of January, 2025, it supplied some parts valuing - 3,00,000 to its corporate customer in Mumbai. There would be no revenue accrual to Surgical Equipments Limited for the supply made. The management is of the view that since the movement of goods is caused due to reasons other than supply, e-way bill is not mandatorily required to be generated in this case. Also, the accounts of Surgical Equipments Limited were checked by GST Department officials for the financial year 2018-19 and the appeal preferred by it, is pending before the GST appellate authority. Surgical Equipments Limited wants to make Overseas Direct Investment (ODI) in financial services activity in UK. It wants to know the way by which it can subscribe to share capital and the limits on investment vis a vis its profits. It also wants to implement a business model as suggested by Christensen & Kaggerman for the financial services activity proposed by way of ODI in UK. Secretarial department of Surgical Equipments Limited while submitting shareholders data to regulatory authorities observed that a particular name HVB is appearing in the name of many non-individual shareholders. In the meantime, HVB group made an offer of acquisition to the Board of Directors of Surgical Equipments Limited which was rejected by it. HVB did not stop there and approached the shareholders of Surgical Equipments Limited through a public announcement. Immediately a meeting was called and the matter discussed. Management decided to appoint a consultant who could advise the company about various tactics to defend itself. Vikas Sharma is managing director of Surgical Equipments Limited. His wife Kavita is engaged in purchase and sale of shares through a depository and has been admitting the income under the head "Profits and gains of business or profession". During the financial year her total purchase of shares was - 8.80 crores and total sales was - 8.90 crores with opening stock of 20 lakhs and closing stock of 10 lakhs. Payments/receipts with depository were through online banking only. Kavita employed 3 persons to manage her share trading activity for whom she paid salary and bonus of 4,50,000 (in aggregate) and paid - 20,000 each to 4 different consultants for guidance in purchase and sale of shares. Payments to staff and consultants were made by cash without violating section 40A(3) of the Income-tax Act, 1961. Assume Kavita does not have any other business or source of income for the financial year 2024-25. Multiple Choice Questions: [Provide the correct option to the following questions]