Small Company Two Transaction - Professionals - General - TIK Share
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Small Company Two Transaction


SANJAY KUMAR GANNA

2014-01-08

Transactions and Details:

  1. A company DRL private Limited was formed with Two shareholder cum Director Mr D(50%) and Mr R(50%)
  2. Authorised and Paid up capital Rs. 10,00,000.
  3. Company has taken Cash Credit from the Bank for Limit of Rs. 50,00,000 on 02.05.2013 at rate of 13.50% and withdrawn Rs. 45,00,000
  4. Company has given advances to Mr D for Rs. 45,00,000 on 05.05.2013 at rate of 13.50%
  5. The Company’s net loss for the period was Rs. 1012 i.e. Bank Charges
  6. Interest received was shown as Income and Interest paid to Bank shown as Expenditure.

 Now Comment on the Below points: 

  1. Appicability of AS-18.
  2. Disclosure as per Accounting statndard 18 and SA-550 and where
  3. Section 2(22)(e) of Income Tax Act
  4. CARO Applicabilty and Disclosures required there on.
  5. Auditro Report require any comment or Disclosure

 Small company Two Transaction during the year, but have attracted so many Provisions.

Please comment.

MANOJ SHARMA

2014-01-10

Dear Sanjay First of all Good question asked by you. regarding your points....

1. Applicability of AS 18 (Related party transactions)

if mr D is related with directors of company, there is need to disclose all the facts. hence AS 18 is applicable for the said company.

 

2. Diclosure as per AS 18 and SA - 550 and where

Disclosure as per Accounting statndard 18 and SA-550 and where - See more at: http://www.tikshare.com/forum/showPost/410/Small-Company-Two-Transaction#replySection

in the directors report of the company.

Reply

MANOJ SHARMA

2014-01-10

& also in the notes to accounts of financials i.e revised schedule VI.

 

3. Section 2(22)(e) of Income Tax Act.

section 2(22)(e) of income tax act says about deemed dividend & attracts dividend distribution tax, the same is applicable only when company has heavy reserve & given loan to its related party.

since as per your question it seems that comany dont have reserve & incurred loss, point no. 3 of your doubt is not applicable.

 

4. Applicability of CARO

caro is applicable for DRL pvt Ltd. once applicability of caro is ascertained all the required disclosures to be made as follows,

SL. NO.

REQUIREMENTS

REPLIES

1

FIXED ASSETS

A. Records:

  1. Please state whether your company is maintaining Fixed Asset Register showing full particulars, including quantitative details and situation of fixed assets.
  2. If yes, please state whether the above register is up to date and the figures of Gross Block, Depreciation Charged, and Net Block have been tallied with General Ledger
  3. Please furnish a copy of the reconciliation statement, if any, as on 31st March, 2012

 

The company is maintaining Fixed Assets register.

 

 

Yes.

 

 

 

Not Applicable

 

B. Physical Verification:

  1. Please state the policy and programme in place to physically verify the fixed assets, if so does the policy and programme ensures to cover all the assets in a financial year
  2. Please state whether these fixed assets have been physically verified by the management during the year 2011-12. Please also furnish the following particulars/records:
    1. Physical verification instructions, if any, given
    2. Physical verification statements
      1. Statements of comparison and reconciliation of physical balances with Fixed Asset Register/Records
      2. Whether any material discrepancies were noticed on such verification (please furnish the details of excess/shortage in quantity and value).
      3. Please state how the discrepancies have been adjusted in the books of account.

 

 

 

Yes, Once in a Year.

 

 

Yes

 

Yes

 

Yes

 

Yes

 

 

 

Reconciled.

 

 

No material discrepancies noticed

 

 

 

 

C. Disposal:

 

  1. Please furnish the details of fixed assets (quantity and value) disposed off during the year and also their percentage on the total value of the fixed assets.
  2. Please also state whether the above disposal forms substantial portion of the company. Whether complete unit is sold or critical plant is sold
  3. Please state the reasons for disposal of the fixed assets. Please also furnish a copy of the Board Resolution or General Body Resolution passed in this regard

 

As per Dep Sch attached to balance Sheet

 

 

No

 

 

Not applicable

2

INVENTORY

A. Physical Verification:

1. Please state whether there is a  policy and programme in place to carryout physical verification of the inventories, if so does the policy and programme ensures to cover all the inventories at quarterly/ monthly intervals in a financial year

2.  Please state whether the inventories have been physically verified by the management during the year 2010-11 in accordance with the policy and programme. Please also furnish the following particulars/records:

  1.                  I.            Physical verification instructions, if any, given
  2.                II.            Physical verification statements
  3.              III.   Statements of comparison and reconciliation of physical balances with book records
  4.             IV.   Whether any material discrepancies were noticed on such verification (please furnish the details of excess/shortage in quantity and value).
  5.               V.   Please state how the discrepancies have been adjusted in the books of account.

 

 

 

Yes

 

 

 

 

 

 

 

 

 

 

Yes

Yes

 

Reconciled

 

No Discrepancies

 

 

Not Applicable

 

B. Please state the procedures of physical verification of inventory followed by the management (Please furnish a copy of the procedural instructions, if any issued by the Management in this regard)

Yes

 

C. Please state the records of inventory maintained by the company.

(Inventory includes: Raw Materials, Consumables

Work-in-Progress, Finished Goods)

 

As per annexure attached to Form 3CD

3

LOANS

  1. Please state whether the company has granted or taken loans, secured or unsecured to or from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act (In which directors are interested).

If so, please furnish following details in this regard:

  1.       i.        List of Companies, firms and/or other parties in which directors are interested
  2.      ii.        Particulars of loans given, recovered in full or in part, rate of interest, term of loan and other terms
  3.    iii.        Particulars of loans borrowed from the above parties, repaid in full or in part, rate of interest, term of loan and other terms
  4.    iv.        Particulars of over dues towards principal and / or interest as at 31st march, 2012
  5.     v.        Please state the steps taken by the Management for recovery/payment of the principal and interest wherever the overdue amount is more than one lakh rupees (please furnish full details).

As per annexure attached to Form 3CD

 

4

INTERNAL CONTROL

Is there an adequate internal control procedure commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods (Please furnish the detailed procedures followed for the purchase of materials and fixed assets and also for the sale of the products). 

 

Is there any continuing failure to correct major weaknesses in internal control.

(i) Obtain approved management policy of the company for purchase of material and fixed assets and sale of goods .

(ii). List out major deviations from policy and get it approved by management/board.

(iii). Check Compliance of major weakness reported / observed in earlier years.

 

 

 

 

 

Yes

 

 

 

 

No

 

 

 

 

5

ENTRY OF TRANSACTIONS IN THE REGISTER IN PURSUANCE OF SECTION 301 OF THE COMPANIES ACT

 

Whether the transactions are entered in the register.

 

Whether each of the transactions have been made at prices, which are reasonable, having regard the prevailing market prices at he relevant time.

 

 (This information is required only in case of transactions exceeding the value of five lakh rupees in respect of any party and in any one financial year).

 

 

YES

6

ACCEPTANCE OF DEPOSITS FROM THE PUBLIC

 

In case the company has accepted deposits from the public, whether the directives issued by the Reserve Bank of India and the provisions of sections 58A & 58AA of the Act and the rules framed thereunder, where applicable, have been complied with.

 

Are there any contraventions.

 

If an order has been passed by Company Law Board, whether the same has been complied with or not.

Not Applicable

7

INTERNAL AUDIT SYSTEM

 

In the case of listed companies and/or other companies having a paid-up capital and reserves exceeding Rs.50 lakhs as at the commencement of the financial year concerned or having an average annual turnover exceeding five crore rupees for a period of three consecutive financial years immediately preceding the financial year concerned,

 

Whether the company has an Internal Audit system commensurate with its size and nature of its business.

 

(i)        Obtain internal audit programme, scope of audit, coverage.

(ii)       Obtain internal audit report and management reply on it.

 

NO internal audit system

8

COST RECORDS

Whether maintenance of cost records has been prescribed by the Central Govt. under clause (d) of subsection (1) of section 209 of the Companies Act.

 

Whether the company is engaged in production, processing, manufacturing or mining activities as defined in Cost Accounting Records Rules, 2011.

 

Whether the aggregate value of net worth as on the last date of the immediately preceding financial year exceeds five crore of rupees or

 

Whether the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crore of rupees.

 

Not Applicable

9

DEPOSITING OF STATUTORY DUES

 

  1. Whether the company has been regular in depositing the UNDISPUTED statutory dues including:

I)                    Provident fund

II)                  Investor education & protection fund

III)                Employees’ state insurance

IV)               Income tax

V)                 Sales tax

VI)               Wealth tax

VII)             Customs duty

VIII)           Excise duty

IX)                Cess and

X)                  Any other statutory dues

 

  1. If not, please furnish the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the date they become payable.

 

  1. In case dues of sales tax/ income-tax/customs duty/wealth tax/excise duty/ cess have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending may please be furnished.

 

(P.S. A mere representation to the Department shall not constitute the dispute)

 

 

 

 

Not Applicable

10

CASH LOSSES

 

  1. Whether the company has been registered for a period not less than five years.
  2. If so, please confirm (with details) whether the accumulated losses at the end of each financial year are not less than fifty percent of its net worth
  3. Whether the company has incurred cash losses in such financial year immediately preceding such financial year also.

  

Not Applicable

11

REPAYMENT OF DUES

 

Whether the company has defaulted in repayment of dues to

i)                    Financial institutions

ii)                   Banks

iii)                 Debenture Holders

If yes, the period and amount of default to be furnished.

 

No

12

MAINTENANCE OF DOCUMENTS AND RECORDS

 

Whether adequate documents and records are maintained in cases where the company has granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

 

Please list out the documents and records maintained.

Not Applicable

 

 

13

PROVISIONS AS APPLICABLE TO CHIT FUND

 

Whether the provisions of any special statute applicable to chit fund have been duly complied with.

 

In respect of Nidhi/Mutual Benefit Fund/ Societies,

i)                    Whether the net owned-funds to deposit liability ratio is more than 1:20 as on the date of balance sheet.

ii)                   Whether the company has complied with the prudential norms on income recognition and provisioning against substandard/default/loss assets

iii)                 Whether the company has adequate procedures for appraisal of credit proposals/requests, assessment of credit needs and repayment capacity of the borrowers.

iv)                 Whether the repayment schedule of various loans granted by the Nidhi is based on the repayment capacity of the borrower and would be conducive to recovery of the loan amount.

 

Not Applicable

14

DEALING OR TRADING IN SHARES ETC.

 

  1. Whether the company is dealing or trading in shares, securities, debentures and other investments.
  2. If so, whether proper records have been maintained of the transactions and contracts and whether timely entries have been made therein.
  3. Whether the shares, securities, debentures and other investments have been held by the company in its own name except to the extent of the exemption, if any, granted under section 49 of the Companies Act.

 

Not Applicable

15

GUARANTEE FOR LOANS TAKEN BY OTHERS

 

Whether the company has given any guarantee for loans taken by others from banks or financial institutions, the terms and conditions whereof are prejudicial to the interests of the company.

Not Applicable

16

TERM LOANS

 

Whether the term loans were applied for the purpose for which the loans were obtained.

 

(i)Obtain Loan agreement and check utilization.

(ii)Obtain cash flow statement and check utilization of short term as well as long term funds.

Yes

17

USAGE OF FUNDS

 

  1. Whether the funds raised on short-term basis have been used for long-term investment.
  2. If yes, please furnish the nature and amount with details

No

18

PREFERENTIAL ALLOTMENT OF SHARES

 

  1. Whether the company has made any preferential allotment of shares to parties and companies covered in the Register maintained under section 301 of the Companies Act.
  2. If so, whether the price at which shares have been issued is prejudicial to the interest of the company.

Not Applicable

19

CREATION OF SECURITIES FOR DEBENTURES

 

Whether securities have been created in respect of debentures issued.

 

Not Applicable

20

END USE OF MONEY RAISED BY PUBLIC ISSUE

To furnish the details of end use of money raised by Public Issues.

Not Applicable

21

FRAUDS

  1. To furnish the details of frauds noticed or reported during the year.
  2. Nature of fraud and the amounts involved may please be furnished.
  3. Obtain management certificate on it.

No fraud Noticed/Reported

2. Diclosure as per AS 18 and SA - 550 and where

Reply

Mukesh Jain CA

2014-01-11

Sec 2(22)(e) gets applied since the loan is not been made in the ordinary course of the business. Hence it can be taxed in the hands of the share holder as he is having substantial interest. However it is taxable to the extent of accumulated profits.

Reply

Mukesh Jain CA

2014-01-11

To add on more to it, accumulated profits includes all the profits up to the date of distribution of loan. Further it can also include general reserve, development rebate reserve, development allowance, investment allowance reserve etc.

Reply