MH SET Paper 2 Mock Test - 10 (Commerce) - MAHA TET MCQ

An income earned which is not subject to income tax is called exempt income. As per Section 10 of the Income Tax Act, 1961, there are certain types of income that will be subjected to Income tax within a financial year, provided that they meet certain conditions and guidelines. 

Key Points

Income Exempt from Tax as per Section 10

Mentioned below is the list of a few incomes exempt from tax specific to Section 10:

1. Agriculture Income [Section 10(1)]
2. Amount received out of family income, Hindu Undivided Family (H.U.F.) [Section 10(2)]
3. Share of profit, [Section 10(2A)]
4. Interest paid to Non-Resident [Section 10(4)(i)]
5. Leave Travel Concession or Assistance [Section 10(5)]
6. Remuneration or Salary received by an individual who is not a citizen of India [Section 10(6)] a. Remuneration [U/s 10(6)(ii)] b. Remuneration received as an employee of foreign enterprise [U/s 10(6)(vi)] c. Employment on a foreign ship [U/s 10(6)(viii)] d. Remuneration received by an employee of foreign government [U/s 10(6)(xi)]
7. Tax paid by Government or Indian concern on Income of a Foreign Company [Section 10(6A), (6B), (6BB) and (6C)]
8. Perquisites/Allowances paid by Government to its Employees serving outside India [Section 10(7)]
9. Retirement Compensation from a Public Sector Company or any other Company [Section 10(10C)]
10. Amount received under a Life Insurance Policy [Section 10(10D)]
11. Statutory Provident Fund [Section 10(11)]
12. Recognized Provident Fund [Section 10(12)]
13. Superannuation Fund [Section 10(13)]
14. House Rent Allowance-HRA [Section 10(13A)]
15. Income of Scientific Research Association [Section 10(21)]
16. Income of a News Agency [Section 10(22B)]
17. Income of some Professional Institutions [Section 10(23A)]
18. Income of Mutual Fund [Section 10(23D)]
19. Exemption of income of a securitization trust [Section 10(23DA)j [w.e.f. A.Y. 2014-15]
20. Income of Investor Protection Fund [Section 10(23EA)]
21. Exemption of income of investor protection fund of depository [Section 10(23ED)] [w.e.f. A.Y. 2014-15]
22. Exemption for Certain Incomes of a Venture Capital Company or Venture Capital Fund from Certain Specified Business or Industries [Section 10 (23FB)]
23. Income of Registered Trade Unions [Section 10(24)]
24. Exemption of income to a shareholder on buyback of shares of unlisted company [Section 10 (34A) [w.e.f. A.Y. 2014-15]
25. Exemption of income from Units [Section 10(35)]
26. Exemption of income from Securitization Trust [Section 10(35A)] [w.e.f A.Y. 2014-15]
27. Long Capital gain (Below Rs. 1 Lakh)arising from sale of shares and units [Section 10(38)]

Important Point

1. According to the Income Tax Act, rental income of a property is taxed under Section 24 in the hands of the owner, under the head 'income from house property'.

2. LATEST NEWS Budget 2020

No Dividend Distribution Tax (DDT) to be paid by Companies from FY 2020-21. Hence the dividend income will become taxable in the hands of taxpayers irrespective of the amount received at applicable income tax slab rates.

Therefore, option 1 is the correct answer.

The correct answer is ​(A) - (IV), (B) - (II), (C) - (I), (D) - (III)

Key Points

Net Stable Funding Ratio

• The net stable funding ratio is a liquidity standard requiring banks to hold enough stable funding to cover the duration of their long-term assets.
• Banks must maintain a ratio of 100% to satisfy the requirement.
• The Net Stable Funding Ratio (NSFR) and Liquidity Coverage Ratio (LCR) are significant components of the Basel III reforms.

Innovative Perpetual Debt Instrument

• Tier I Capital consists mainly of share capital and disclosed reserves. Since this capital is fully available to cover the core losses, it is also called Core Capital. For this reason, this is considered the highest quality capital.
• IPDIs issued as Tier I cannot exceed 15 percent of total capital.
• This limitation is based on the Tier I capital amount as of March 31 of the previous year along with deductions of intangible assets before investment deductions.

Time Maturity Gap

• Assets Liabilities Management is the process whereby a bank’s total assets and liabilities are controlled and managed simultaneously in an integrated fashion. In the management of the overall balance sheet.
• A maturity gap is a term used to describe a strategy that is designed to assess the relationship between the risk of owning assets and liabilities that generate revenue due to interest rate accruals and the volatility of those holdings.

Risk-Weighted Assets

• Tier II Capital is also known as supplementary capital. It consists of certain reserves and certain types of subordinated debt.
• Any loan which is repayable after other debts have been paid is called subordinated debt. Tier 2 capital also has a ratio.
• This is the formula utilized to describe the capital being held versus what's known as total risk-weighted assets (RWAs).
• Risk-weighted assets are the assets held by the bank that is weighted by its credit risk.

The correct combination is a - (ii), b - (iv), c - (i), d - (iii).

Perfect Competition is a type of market structure where many firms sell similar products – and profits are virtually non-existent due to fierce competition. With that said, it is important to realize that perfect competition is an abstract term used to compare against real-life markets.

One could argue that the U.S. airline industry is an oligopoly, controlled by the four main domestic carriers: American Airlines, Delta Airlines, Southwest Airlines, and United Airlines.

The Railways is a monopoly that has underinvested in capacity and created a systemic shortage. To squeeze the monopoly-induced artificial shortage to jack up fares is unfair.

Key-Points

Tax planning:

• Tax planning is a legal activity that not only covers the various aspects of tax filling but also aims at the need of reducing one's tax liability.
• It is a process of analyzing one's financial situation in the most efficient manner.
• It includes planning one's income following the intent of the law, with the help of various exemptions and deductions.
• Tax planning is an art in which there is logical planning of one's financial affairs in such a manner that it benefits the assessee with all eligible provisions of the taxation law.
• It is an honest approach to applying the provisions that come within the framework of taxation law.
• The best ways of saving tax are saving in PPF account, National Savings Certificate, Fixed Deposit, Mutual Funds, and Provident Funds. 

Tax avoidance:

• Tax avoidance is an act of applying legal methods to reduce tax liability.
• It is an act of using a tax regime in a particular territory for an individual's personal benefits to decrease his tax liability.
• Even if tax avoidance is a legal method, it is not advisable as it could be used to one's own advantage to reduce tax liability.
• Tax avoidance looks to the loophole in the law to serve the purpose by finding new ways to avoid the payment that are within the limits of the law.
• It can be done by adjusting accounts in such a manner that there will be no violation of tax rules.
• Tax avoidance is a lawful activity but still, it could come in the category of crime.

Therefore, both statements (A) and (R) are correct.

Additional Information

Tax evasion:

• Tax evasion is an illegal method used to minimize tax liability through fraudulent activities like a deliberate understatement of taxable income or inflating expenses.
• It is done with the motive of showing fewer profits in order to avoid the tax burden.
• It is an unlawful attempt to reduce an assessee's tax burden and is considered a crime for which the assessee could be punished under the law.
• Tax evasion involves illegal practices such as making false statements, hiding relevant documents, not maintaining complete records of the transactions, overstatement of a tax credit, or presenting personal expenses as business expenses. 

The transfer by a company of one or more of its business divisions to another new set up company is called demerger.

The term 'demerger' simply means one company transferring one or more of its business operations into another company. The company that transfers such business operations is known as the “demerged” company, while the company to which the business is transferred is known as the “resulting” company.

Role-plays are not recommended for top-level positions. Interviews, presentations and group discussions are mandatorily required for top-level positions.

Stakeholders - A stakeholder is a person who has an interest in a business and who has the potential to affect or be impacted by it. The main parties involved in a traditional business are its creditors, employees, customers, and suppliers.

Important PointsCorporate social responsibility -

• Corporate social responsibility (CSR) is a self-policing corporate strategy that enables an organization to be socially accountable to its customers, employees, and stakeholders.
• Corporate social responsibility (CSR) is a company's ongoing commitment to act morally, promote economic growth, and enhance the lives of its employees, their families, the local community, and society as a whole.
• It must fulfil its economic, legal, ethical, and discretionary obligations as a responsible corporate citizen.

The correct answer is Increase in creditors.

Key Points Out of the given options, increase in creditors is not a cash outflow.

Here's why:

• Increase in prepaid expenses: This indicates the payment of cash in advance for future expenses. For example, if you pay insurance premium for the next year in advance, it represents a cash outflow.
• Increase in debtors: This signifies goods or services sold on credit, leading to a receivable for the business. Since no cash is paid out at this point, it does not constitute a cash outflow.
• Increase in stock: This signifies the purchase of inventory, which usually requires payment in cash. Therefore, it represents a cash outflow.
• Increase in creditors: This represents goods or services purchased on credit, where the business owes payment to the supplier. Since no cash is paid out immediately, it does not represent a cash outflow.

Therefore, the correct answer is increase in creditors.

Accounting standards are the written statements consisting of rules and guidelines, issued by the accounting institutions, for the preparation of uniform and consistent financial statements and also for other disclosures affecting the different users of accounting information. Accounting standards lay down the terms and conditions of accounting policies and practices by way of codes, guidelines, and adjustments for making the interpretation of the items appearing in the financial statements easy and even their treatment in the books of account. Accounting standards relate to all aspects of an entity's finances including assets, liabilities, revenue, expenditures, and equity. Specific examples of an accounting standard include revenue recognition, asset classification, allowable methods for depreciation, what is considered depreciable, lease classifications, and outstanding share measurement.

The correct answer is 1, 2 and 4 only.

Key Points

• The Consumer Protection Act, 2019:
  • The Consumer Protection Act, 2019 (CPA-2019), which has replaced the Consumer Protection Act, 1986, aims to be more holistic and stringent in protecting the interest of the consumers and to establish authorities for timely and effective administration and settlement of the consumers' disputes. To achieve the aforesaid purpose, the CPA-2019 establishes the following:
  • The Central Consumer Protection Authority (CCPA), referred to as the Central Authority. Hence, statement 1 is correct.
  • The Central Consumer Protection Council, at the national, state, and district levels, is referred to as the National, State, and District Commissions. Hence, statement 2 is correct.
  • The Consumer Disputes Redressal Commission, at the national, state, and district levels. Hence, statement 4 is correct.
  • The Consumer Mediation Cell, to be attached to each of the District Commissions and the State Commissions. Hence, statement 3 is incorrect.

Snowballl sampling is not an example of probability sampling.

Snowball Sampling is also called network or chain referral sampling.

• To start with, the researcher identifies a small number of respondents having a set of characteristics of interest to the researcher.
• After collecting the required data from those respondents, the same respondents are asked to identify others having the same characteristics set.
• E.g., collecting data from drug addicts, rape victims, etc.

Smooth frequency curve can be drawn through various points of the polygon.

The histogram is two dimensional. Bar diagram is one dimensional. Ogives determine and portray the number of proportions of cases.

Balance of payment:

1. The balance of payments of a country is the difference between all money flowing into the country in a particular period of time (e.g., a quarter or a year) and the outflow of money to the rest of the world.
2. These financial transactions are made by individuals, firms, and government bodies to compare receipts and payments arising out of the trade of goods and services.
3. The balance of payments consists of three components: the current account, the capital account, and the financial account.
4. The current account reflects a country's net income, while the capital account reflects the net change in ownership of national assets.

Key Points

Therefore, In the balance of payment account, the transfer payments are included in Current Account.

Identifying the target market is the most important retail marketing decision that a retailer has to make. The target market indicates the market where the retailer can sell maximum products, where demand for customers is high and desired profits can be earned.

The scheduled commercial banks are those banks that are included in the second schedule of the RBI Act 1934.

• It carries out the normal business of banking such as accepting deposits, giving out loans and other banking services.
• The major difference between Scheduled Commercial Banks and Scheduled Cooperative Banks is their holding pattern since cooperatives are registered under the Cooperative Societies Act as cooperative credit institutions.
• Scheduled Commercial Banks can be further divided into four groups:
  • Public Sector Banks: This includes:
    • SBI & Associates
    • Nationalized Banks
    • Other Public Sector Banks
  • Private Banks
  • Foreign Banks
  • Regional Rural Banks

Thus, it is clear that In India a scheduled commercial bank is one that is included in the II schedule of the Reserve bank of India Act.

The foreign exchange market (forex, FX, or currency market) is a global decentralized market for the trading of currencies. This includes all aspects of buying, selling, and exchanging currencies at current or determined prices. In terms of volume of trading, it is by far the largest market in the world, followed by the Credit market. The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market does not determine the relative values of different currencies but sets the current market price of the value of one currency as demanded against another. The foreign exchange market works through financial institutions, and it operates on several levels.

Philip Kotler propounded mega-marketing. Mega marketing refers to the marketing activities needed to manage the elements of the firm’s external environment and try to control those factors. The marketing tools needed involves the additional use of public relations and power. 

Break-even point should be achieved by a business firm at the earliest.

The break-even point (BEP) in economics, business and specifically cost accounting is the point at which total cost and total revenue are equal, i.e. "even". There is no net loss or gain, though opportunity costs have been paid and capital has received the expected return.

The correct answer is Dividing a broad market into subgroups of consumers with common needs.

 Key Points

As per the passage, "Initially, 'Segmentation' involves breaking down a broad target market into subsets of consumers with common needs or characteristics."

Employee benefits refer to all forms of compensation (cash/non-cash) paid by an employer to an employee apart from salary/wages for the service provided to the employer. Offering employee benefits are essential to attract and retain talent for the company.
Key Points

IND AS 19 prescribes the accounting treatment and disclosure w.r.t. employee benefits. Employee benefits provided by the employer during an accounting period has to be recognized as either:

1. Liability – when will the employee benefits be paid – in the future (or)
2. Expense – when the employer consumes the benefit arising from the employee’s service

Different Employee Benefits Under AS-19:

1. Short-term employee benefits – There are those which are expected to be fully paid before 12 months after the end of the accounting period in which the employee rendered service.
2. Other long-term employee benefits – There are those which are not expected to be fully paid within 12 months after the end of the accounting period.
3. Termination benefits -These are those which are paid to an employee who is terminated from service due to the employer’s decision.
4. Post Employment benefits – These are those employee benefits which are paid after the completion of employment.

Additional Information

Employee benefits provided by the employer during an accounting period are recognized as per Indian AS-19.

The correct answer is the market price

Key Points

• Commodity valuation is the process of deriving the intrinsic value (actual worth of an asset) of a commodity under favorable market conditions.
• Commodity valuation follows the classical economic principle of arriving at a price by studying the intersection of the demand and supply curves of a good, which is also called the break-even point.
• Therefore, all goods and services are valued at market price, inclusive of all taxes, at least in principle.
• Since commodity markets rely largely on demand and supply patterns, anticipating future price movements of said commodities is the only way an investor can profit off of speculation.

Companies shall follow Ind AS either Voluntarily or Mandatorily. Once a company follows Ind AS, either mandatorily or voluntarily, it can't revert back to the old method of Accounting.

Mandatory applicability of IND AS to all companies from 1st April 2016, provided: It is a listed or unlisted company. Its Net worth is greater than or equal to Rs. 500 crore.

According to the given passage,

A tax is an amount of money that governments require to be paid to support the government. Taxes have been around for a long time. In fact, there is a very old saying that in this world nothing is certain but death and taxes.

Thus, we can conclude that, taxes are the money that goes to support the government.

According to the given passage,

During the Colonial Period settlers went to new lands and these lands became new sources of taxes. Taxes were especially needed to pay for wars. In 1779, the first income tax, a tax on employment income, was used by Great Britain to pay for wars against Napoleon.

Thus, we can conclude that, in 1779 the first income tax imposed by Great Britain.

According to the given passage,

The American Revolution was in part caused by what the colonists in America considered unfair taxation. The colonists had to pay taxes to England but were not represented in the English government. Their battle cry was, 'No taxation without representation.'

Thus, we can conclude that, 'No taxation without representation' was the battle cry of the American Revolution.

According to the given passage,

Nobles revolted against King John in 1215 because he asked for payment of new taxes, made current taxes greater, and tried to tax people to pay for a war effort. King John's leadership was not trusted by the people who felt they had no obligation to pay to support this war.

Thus, we can conclude that, the nobles revolted against King John because he made them pay taxes they hated.

The industry refers to a group of firms/companies that does related primary activities for their business.

When the number of firms in an area increases then those firms enjoy some of the benefits like availability of raw materials, transport, and communication, research and invention, etc. and they also receive financial assistance from banking and non-banking institutions. Here we can conclude that the concentration of all firms in the industry leads to economies of concentration.