Page 182 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
Chapter 05

84 (SM23)
Sunsteel Ltd. is a company engaged in the manufacture of variety of stainless steel household items
ranging from hot pot, pressure cooker, cutlery set, bottles, to serving trays. The company has its
corporate office in Delhi and its plant in Raigarh, a city in the state of Chhattisgarh. The company is
planning to expand its manufacturing activities by setting up two new plants in the Raipur district of the
state. For this purpose, the company also raised funds by making a follow-on public offer during the
financial year 2022-23. R K Maheshwari & Associates are the statutory auditors of the company since
the year 2020-21. The engagement team consisted of 5 members, with CA Raman as the engagement
partner, CA Madhu as the senior associate and three articled trainees namely, Aman, Chetanya and
Depesh.

The company raised fresh capital of ₹ 5 Cr during the FY 2022-23. The shares with the nominal value of
₹ 10 per share were issued at a premium of ₹ 5 per share.

The company has the Reserves and Surplus totalling to ₹ 2 Cr, comprising of securities premium and
general reserve.

CA Raman directed CA Madhu to verify the issue of the share capital in detail giving special consideration
to the utilization of the securities premium amount.

The audit engagement team discussed with the management about the performance of the company
during the year under consideration. To this, the management told the engagement team that the
company is performing very well and the company has doubled its revenue during the year as compared
to the last year. The management of the company also told the auditors that during the year the
company has made majority of its sales on credit basis to its customers.

CA Raman directed Mr. Aman to send balance confirmation requests to debtors having balance in excess
of ₹ 1 lakh.

During the course of audit, CA Raman, Chetanya and Depesh also visited the power plants in Raigarh to
get a detailed understanding of the manufacturing process. The team performed analytical procedures
to obtain audit evidence with respect to the overall reasonableness of purchase quantity and price of
inventory. More specifically, Chetanya collected the reports from the management for composition of
stock i.e. raw materials as a percentage of total stock and compared the same with the data of the
previous year. CA Raman and Chetanya thereafter, discussed the reasons for the variations with the
management.
Also, while considering the presentation and disclosure requirements as per Schedule III to the
Companies Act, CA Madhu discussed with CA Raman the disclosure with respect to the following
account balances:

• Current maturities to long term borrowings
• Long term maturities of finance lease obligations
• Interest accrued but not due on borrowings
• Interest accrued and due on borrowings
I. Which of the following is not correct with respect to shares issued at premium and securities
premium account in terms of Section 52 of the Companies Act, 2013?

(a) Where a company issue shares at a premium, whether for cash or otherwise, a sum equal to
the aggregate amount of the premium received on those shares shall be transferred to a
securities premium account.
(b) The securities premium account can be applied by the company in paying up unissued equity
shares of the company to be issued to members of the company as fully paid bonus shares.
(c) The securities premium account cannot be applied by the company in writing off the
expenses of or the commission paid or discount allowed on any issue of equity shares of the
company.

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