Chapter 9: Accounts of Companies and CSR - Test 1: answer key

Question 1 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. Anekta Garments Ltd. (AGL), whose registered office is in Mumbai, operates a manufacturing unit in Indore and a branch in Singapore. At a Board meeting held on 8 July 2026, the directors resolved that all or any of the company's books of account and relevant papers could be kept at a records centre in Indore; the minutes contain its full address. AGL sent Form AOC-5 to the Registrar on 17 July 2026. The Singapore branch maintains proper books for its local transactions and sends summarised returns to Mumbai at the end of every quarter. AGL also uses a cloud accounting platform supplied by a service provider based in Singapore. Its finance team in India can access the records at all times and retrieve legible printouts. However, the only automatic backups are stored on servers physically located in Singapore. The software records each transaction and maintains an edit history, but an administrator can switch off the audit-trail feature. The edit history also does not consistently record the date of each alteration. At the time of filing its annual financial statements, AGL has not furnished the Registrar with the cloud provider's name, IP address, location, cloud address, or details of the person in India who controls the records. The CFO argues that Indian access is sufficient and that the Board's decision cures all other technical defects. The audit committee has asked for a compliance assessment under Section 128 and the Companies (Accounts) Rules, 2014.

The Board resolved on 8 July 2026 to keep all or any of the books at the Indore records centre. The company filed Form AOC-5 on 17 July 2026. Which assessment is correct?

1. The move is invalid because books must remain at the registered office in Mumbai.
2. The move is valid, and the Board's resolution alone removes any filing obligation.
3. Indore is permitted, but Form AOC-5 was due within seven days and is late. (correct answer)
4. Indore is permitted, but the notice may be filed within thirty days of resolution.

Answer: C — Indore is permitted, but Form AOC-5 was due within seven days and is late.

Explanation. Section 128(1) permits all or any books to be kept at another place in India as the Board decides. The company must file written notice in Form AOC-5, giving the full address, within seven days of the decision under Rule 2A. Counting seven days after 8 July gives 15 July 2026; filing on 17 July is late. The defect is not Indore's location, because it is within India.

Where it goes wrong. Treating the registered office as the only permissible place, or confusing seven days with thirty days.

Authority. Section 128(1), Companies Act, 2013; Rule 2A, Companies (Accounts) Rules, 2014

Question 2 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

The CFO proposes recording sales only when customers pay and expenses only when suppliers are paid. Which accounting treatment is required for AGL's books?

1. Record revenue and expenses as earned or incurred, using debits and credits for each transaction. (correct answer)
2. Record revenue and expenses only when cash is received or paid, using double entry.
3. Use accrual accounting for revenue but single entry for branch transactions if reconciled.
4. Use cash accounting if the Board approves it and the statements still appear fair.

Answer: A — Record revenue and expenses as earned or incurred, using debits and credits for each transaction.

Explanation. Section 128(1) requires books to give a true and fair view and to be kept on the accrual basis and according to the double-entry system. Revenue is recorded when earned and an expense when incurred, not merely when cash changes hands; every transaction has a dual debit-credit aspect. Cash accounting is not made permissible merely by Board approval or by later reconciliation.

Where it goes wrong. Confusing accrual accounting with cash accounting and assuming a Board resolution can waive the statutory method.

Authority. Section 128(1), Companies Act, 2013

Question 3 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

AGL's electronic books are accessible in India, but the software's audit trail can be disabled and backups remain only on Singapore servers. What changes are required?

1. The arrangement complies because Indian access exists, and weekly overseas backups are sufficient.
2. The arrangement complies if the software logs only altered transactions and permits admin override.
3. The arrangement fails because electronic books cannot be held through a cloud provider.
4. The arrangement fails unless audit trail is non-disableable and daily backups sit on India-based servers. (correct answer)

Answer: D — The arrangement fails unless audit trail is non-disableable and daily backups sit on India-based servers.

Explanation. Rule 3(1) requires electronic books to remain accessible in India at all times. Its proviso requires accounting software to record an audit trail of every transaction, create an edit log of each change with the date of change, and ensure the trail cannot be disabled. Rule 3(5) requires daily backups on servers physically located in India. Indian access alone does not cure disableable logs or offshore-only backups.

Where it goes wrong. Assuming that access from India permits backups to remain abroad or that an administrator may switch off the audit trail.

Authority. Rule 3(1), Companies (Accounts) Rules, 2014; Rule 3(2) to Rule 3(5), Companies (Accounts) Rules, 2014

Question 4 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

AGL's cloud service provider is located outside India. Which information must AGL intimate to the Registrar in connection with its annual filing of financial statements?

1. Only the provider's name and cloud address are required, without its IP or location.
2. The company must annually intimate provider details, cloud address and India-control person's particulars. (correct answer)
3. Details are due within seven days of Board approval, even before filing statements.
4. No details are needed if records remain accessible in India throughout the financial year.

Answer: B — The company must annually intimate provider details, cloud address and India-control person's particulars.

Explanation. Rule 3(6) requires annual intimation to the Registrar at the time of filing financial statements. The information includes the service provider's name, IP address, location where applicable, cloud address, and, where the provider is outside India, the name and address of the person in India who controls the books. Indian accessibility under Rule 3(1) is a separate requirement, not a substitute for this disclosure.

Where it goes wrong. Confusing the seven-day AOC-5 notice for a change of place with the annual service-provider disclosure.

Authority. Rule 3(6), Companies (Accounts) Rules, 2014

Question 5 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

Scenario. Zenith Agro Tech Pvt. Ltd. (ZAPL), incorporated on 1 June 2022, keeps its principal books and vouchers at its registered office in Pune. During August 2026, director Neha requested to inspect the company's Indian books during business hours. The CFO refused, claiming that a Board resolution was needed before any director could inspect records and that Neha should instead appoint an attorney. The company also has financial information relating to its operations in Singapore and a wholly owned subsidiary there. On 3 August 2026, Neha's lawyer sent a written request describing the overseas information and the relevant period. On 10 August 2026, Neha herself sent a separate written request containing the same particulars. Neha additionally asked an external consultant, acting under her power of attorney, to inspect the subsidiary's books. The Board has not passed any resolution authorising such inspection. The CFO says overseas information can be produced only within seven days, while subsidiary records are open to every director automatically. ZAPL has retained books and relevant vouchers from its incorporation, but the finance team proposes to destroy the first year's records because the company has not yet completed eight years. Meanwhile, an investigation under Chapter XIV has been ordered and the Central Government has directed the company to preserve specified books for eleven years. The Board has asked the CFO to identify the distinct inspection rights, request procedure, retention period and responsible persons under Section 128.

Neha seeks to inspect ZAPL's own books maintained in India during business hours. The CFO insists on prior Board approval and proposes that only her attorney should attend. Which position is correct?

1. Inspection is allowed only after the Board approves the director's written application.
2. Inspection is available only to the Managing Director and Chief Financial Officer.
3. The director may inspect only after appointing an auditor as an authorised representative.
4. Any director may inspect the company's Indian books during business hours, with reasonable assistance. (correct answer)

Answer: D — Any director may inspect the company's Indian books during business hours, with reasonable assistance.

Explanation. Section 128(3) allows any director to inspect the company's books of account and other books and papers maintained within India during business hours. Under Section 128(4), officers and employees must provide the person inspecting with all assistance the company may reasonably be expected to give. The Board-resolution restriction concerns inspection of subsidiary-company books, not the director's own company's Indian records.

Where it goes wrong. Importing the Board-resolution condition for subsidiary records into a director's ordinary inspection right.

Authority. Section 128(3) and Section 128(4), Companies Act, 2013

Question 6 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Neha herself sends the detailed written request for Singapore financial information on 10 August 2026. By when must ZAPL produce it, and who must make the request?

1. The attorney's 3 August request is sufficient, and production is due within seven days.
2. Neha must request it personally, and ZAPL must produce it within fifteen days of receipt. (correct answer)
3. Any director or agent may request it, and production is due within thirty days.
4. The Board must approve the request, and production is due within fifteen working days.

Answer: B — Neha must request it personally, and ZAPL must produce it within fifteen days of receipt.

Explanation. For financial information maintained outside India, Rule 4(2) requires the director's written request to set out the full details of the information and the period sought. Rule 4(3) requires production within fifteen days of receipt. The study material specifies that the director must seek the information personally, not through a power-of-attorney holder, agent or representative. Neha's 10 August request therefore starts the fifteen-day period.

Where it goes wrong. Applying the ordinary domestic inspection route to overseas information, or allowing an agent to make the request.

Authority. Rule 4(2) and Rule 4(3), Companies (Accounts) Rules, 2014

Question 7 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

Neha's consultant seeks to inspect the Singapore subsidiary's books under a power of attorney. No Board resolution has been passed. What is the legal position?

1. Inspection of subsidiary books is permitted only when authorised by a Board resolution. (correct answer)
2. Every director can inspect all subsidiary books automatically because the entities are related.
3. A power of attorney is sufficient even when the Board has not authorised inspection.
4. Only the Registrar can inspect subsidiary books, regardless of any Board resolution.

Answer: A — Inspection of subsidiary books is permitted only when authorised by a Board resolution.

Explanation. The proviso to Section 128(3) provides that a person may inspect the books of account of a subsidiary only when authorised by a resolution of the Board of Directors. A director's right to inspect the parent company's own books does not automatically extend to the subsidiary. A power of attorney cannot replace the required Board authorisation.

Where it goes wrong. Assuming that a director's inspection entitlement in the parent automatically covers its subsidiary.

Authority. Proviso to Section 128(3), Companies Act, 2013

Question 8 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

ZAPL was incorporated in June 2022 and proposes to destroy its first-year books. An investigation has also led the Central Government to direct eleven-year retention of specified records. Which advice is correct?

1. The company may destroy early records because the eight-year period has not yet begun.
2. Only statutory financial statements must be retained; vouchers may be destroyed after three years.
3. All records since incorporation and relevant vouchers must be retained, subject to the longer direction. (correct answer)
4. The Central Government can extend retention only to ten years, not beyond that period.

Answer: C — All records since incorporation and relevant vouchers must be retained, subject to the longer direction.

Explanation. Section 128(5) requires books of account together with vouchers relevant to entries to be preserved in good order for at least eight years immediately preceding the relevant financial year. Where a company was incorporated less than eight years earlier, it must preserve the entire period before that financial year. If an investigation is ordered, the Central Government may direct retention for a longer period; the eleven-year direction therefore applies.

Where it goes wrong. Ignoring the special rule for companies incorporated less than eight years earlier or treating eight years as an absolute maximum.

Authority. Section 128(5), Companies Act, 2013

Question 9 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

Scenario. Aarunya Energy Ltd. is a public company whose CSR obligations are being assessed for FY 2026-27. In FY 2025-26, its net worth was ₹480 crore and turnover was ₹1,040 crore. Its Section 198 net profits for the three immediately preceding financial years were: FY 2023-24, ₹54 crore (including ₹4 crore from an overseas branch and ₹2 crore dividend from an Indian company covered by Section 135); FY 2024-25, ₹60 crore (including ₹5 crore and ₹3 crore, respectively); and FY 2025-26, ₹56 crore (including ₹4 crore and ₹2 crore, respectively). The Board confirms that Aarunya is required to appoint independent directors under Section 149(4). Aarunya has constituted a CSR Committee with two directors, one of whom is an independent director. The Committee recommends that the company continue with this composition because its annual CSR plan will be manageable. It has calculated the required CSR spending using unadjusted Section 198 figures. Among the projects proposed for the year is a scholarship scheme restricted to children of current employees; the scheme would be operated around the company's plant and would be administered by a local charitable trust. The Board is considering whether the company is covered, what net profits should be used for computing the spending obligation, whether the Committee's composition is sufficient, and whether the employee-linked scholarship can be booked as CSR expenditure.

Aarunya's net worth is below ₹500 crore, but its FY 2025-26 turnover is ₹1,040 crore and its adjusted Section 198 net profit is ₹50 crore. Is it covered by Section 135 for FY 2026-27?

1. Yes, because any one threshold in the immediately preceding financial year is sufficient. (correct answer)
2. No, because net worth, turnover and net profit must all cross their respective thresholds.
3. No, because average profits over three years must independently exceed ₹5 crore.
4. Yes, but only if the company reports profits in all three preceding financial years.

Answer: A — Yes, because any one threshold in the immediately preceding financial year is sufficient.

Explanation. Section 135(1) applies where, during the immediately preceding financial year, a company meets any one of the specified limits: net worth of ₹500 crore, turnover of ₹1,000 crore, or net profit of ₹5 crore. Aarunya's turnover and adjusted net profit exceed their respective limits; its lower net worth does not prevent coverage. The three-year average is relevant to calculating the spending obligation, not the initial coverage test.

Where it goes wrong. Mistaking the three alternative eligibility thresholds for cumulative conditions or confusing them with the three-year spending average.

Authority. Section 135(1), Companies Act, 2013; Rule 3(1), Companies (Corporate Social Responsibility Policy) Rules, 2014

Question 10 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Compute Aarunya's minimum CSR expenditure for FY 2026-27. For each year, exclude overseas-branch profits and dividends received from an Indian company covered by and complying with Section 135.

1. ₹1.13 crore, being two per cent of the average unadjusted Section 198 profits.
2. ₹1.12 crore, being two per cent of the FY 2025-26 unadjusted profit of ₹56 crore.
3. ₹1.04 crore, being two per cent of the FY 2024-25 adjusted profit of ₹52 crore.
4. ₹1.00 crore, being two per cent of the average adjusted profit of ₹50 crore. (correct answer)

Answer: D — ₹1.00 crore, being two per cent of the average adjusted profit of ₹50 crore.

Explanation. Section 135(5) requires spending of at least 2% of average net profits for the three immediately preceding financial years. Rule 2(h) excludes overseas-branch profits and dividends from Indian companies covered by and complying with Section 135. Adjusted profits are ₹48 crore, ₹52 crore and ₹50 crore; their average is ₹50 crore. Two per cent of ₹50 crore is ₹1 crore. Using the unadjusted figures overstates the obligation.

Where it goes wrong. Using gross Section 198 profits without removing the two categories expressly excluded by Rule 2(h).

Authority. Section 135(5), Companies Act, 2013; Rule 2(h), Companies (Corporate Social Responsibility Policy) Rules, 2014

Question 11 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Aarunya is required to appoint independent directors under Section 149(4). Its CSR Committee has only two members, including one independent director. What composition is required?

1. Two directors, provided one is independent and the Board approves the arrangement.
2. Three or more directors, of whom at least one must be an independent director. (correct answer)
3. Two directors for every public company, whether or not it appoints independent directors.
4. Four directors, including at least two independent directors, must be appointed to the Committee.

Answer: B — Three or more directors, of whom at least one must be an independent director.

Explanation. Section 135(1), read with Rule 5(1), ordinarily requires a CSR Committee of three or more directors, at least one of whom is an independent director. The two-director composition is a specified exception for a covered company not required to appoint an independent director under Section 149(4), among other special cases. Aarunya does appoint independent directors, so its present two-member committee is insufficient.

Where it goes wrong. Applying the two-member exception even though the company is required to appoint an independent director.

Authority. Section 135(1), Companies Act, 2013; Rule 5(1), Companies (Corporate Social Responsibility Policy) Rules, 2014

Question 12 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

The proposed scholarship is limited to children of Aarunya's current employees, although it supports education and is administered by a local charitable trust. Can the expenditure qualify as CSR?

1. Yes, because education is listed in Schedule VII and the project is located locally.
2. Yes, provided the trust has a CSR Registration Number and reports the expenditure.
3. No, because activities benefitting employees are excluded from CSR under the Rules. (correct answer)
4. No, unless the company spends more than five per cent on the scholarship scheme.

Answer: C — No, because activities benefitting employees are excluded from CSR under the Rules.

Explanation. Rule 2(d)(iv) excludes activities benefitting employees of the company, as defined by the Code on Wages, from CSR. The scholarship's educational character, local location and use of a charitable trust do not overcome the employee-benefit exclusion. Local-area preference under Section 135(5) guides where CSR is spent; it does not convert an excluded activity into eligible CSR expenditure.

Where it goes wrong. Assuming that an activity listed in Schedule VII automatically qualifies even when it falls within an express exclusion.

Authority. Rule 2(d)(iv), Companies (Corporate Social Responsibility Policy) Rules, 2014

Question 13 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. Vayu Renewables Ltd. has a CSR obligation of ₹1.20 crore for FY 2025-26. It spent ₹78 lakh during the year, leaving ₹42 lakh unspent. The unspent amount consists of ₹27 lakh earmarked for a societal welfare solar-school project and ₹15 lakh relating to a completed societal welfare sanitation project that was not an ongoing project. The solar-school project began in August 2025 and was initially scheduled to finish by June 2026. Owing to exceptional monsoon delays, the Board extended its duration to December 2026, recording reasonable justification for extending the project beyond one year. Vayu also had an average CSR obligation of ₹12 crore in the three immediately preceding financial years. A separate CSR project with an outlay of ₹1.25 crore was completed on 30 June 2024. The Board has scheduled an impact assessment of that project for August 2026. The company has appointed an independent agency, but the CFO says an internal review would be sufficient. The Board's finance note states that failure to transfer the ₹42 lakh to the proper destinations could attract penalties. The directors need to determine the classification of the solar-school project, the respective transfer deadlines, the impact-assessment rule and the company/officer penalties if the amount is not transferred. The CSR Committee had recommended the project-wise allocations before the Board approved the annual action plan. At a Board meeting on 10 April 2026, the Board's Report is being finalised, and the finance team has separately identified the amount attributable to each project. The company has not yet made either transfer and seeks advice before the statutory deadlines expire.

How must Vayu transfer the ₹42 lakh unspent CSR amount for FY 2025-26, distinguishing the solar-school project from the sanitation drive?

1. Transfer the entire ₹42 lakh to the Unspent CSR Account within thirty days from the financial year-end date.
2. Transfer ₹27 lakh to Unspent CSR Account by 30 April; transfer ₹15 lakh to a Schedule VII fund by 30 September. (correct answer)
3. Transfer ₹27 lakh to a Schedule VII fund by 30 September; transfer ₹15 lakh to Unspent CSR Account by 30 April.
4. Retain both portions with the company until the next AGM, provided the Board's Report explains the reasons.

Answer: B — Transfer ₹27 lakh to Unspent CSR Account by 30 April; transfer ₹15 lakh to a Schedule VII fund by 30 September.

Explanation. Section 135(6) read with Section 135(5) distinguishes unspent amounts for ongoing and non-ongoing projects. The ₹27 lakh attributable to the ongoing solar-school project must go to the Unspent CSR Account within thirty days from 31 March 2026, i.e. by 30 April 2026. The ₹15 lakh for a non-ongoing project must go to a Schedule VII fund within six months after year-end, i.e. by 30 September 2026. Reasons must also be disclosed in the Board's Report.

Where it goes wrong. Swapping the two destinations or applying the thirty-day deadline to every type of unspent amount.

Authority. Section 135(5) and Section 135(6), Companies Act, 2013

Question 14 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

The solar-school project was initially expected to finish within one year but the Board extended it beyond one year because of documented monsoon delays. How is it classified?

1. It remains a non-ongoing project because its first approval mentioned a completion period below one year.
2. It becomes an ongoing project only if the Central Government approves the extension in writing.
3. It qualifies as an ongoing project because the Board extended its duration beyond one year with reasonable justification. (correct answer)
4. It qualifies as an ongoing project only if the extended duration exceeds three financial years.

Answer: C — It qualifies as an ongoing project because the Board extended its duration beyond one year with reasonable justification.

Explanation. Rule 2(i) includes a project initially not approved as a multi-year project but whose duration is extended beyond one year by the Board on reasonable justification. The solar-school project began with a sub-one-year timeline but was extended to December 2026 after documented monsoon delays. It therefore qualifies as ongoing for the unspent-amount rule; the original June 2026 completion estimate does not freeze its classification.

Where it goes wrong. Overlooking the specific rule for a project initially approved for one year or less and later extended by the Board.

Authority. Rule 2(i), Companies (Corporate Social Responsibility Policy) Rules, 2014

Question 15 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Vayu's average CSR obligation was ₹12 crore in the three immediately preceding financial years. Its separate ₹1.25 crore project was completed on 30 June 2024, and an impact study is planned for August 2026. What is required?

1. An internal finance review is sufficient because the project was completed more than one year ago.
2. An independent impact study is required only for projects with an outlay exceeding ₹10 crore.
3. An independent impact study is required only if the company has spent ₹10 crore in the current year.
4. An independent agency must assess the project because the average obligation and project-outlay thresholds are met. (correct answer)

Answer: D — An independent agency must assess the project because the average obligation and project-outlay thresholds are met.

Explanation. Rule 8(3) requires impact assessment through an independent agency where the average CSR obligation is ₹10 crore or more in the three immediately preceding financial years and a project has an outlay of at least ₹1 crore and was completed at least one year before the study. Vayu satisfies the ₹12 crore obligation, ₹1.25 crore outlay and completion-timing tests. An internal CFO review is not a substitute.

Where it goes wrong. Applying the ₹10 crore threshold to the individual project's outlay or to current-year spending rather than to the average CSR obligation.

Authority. Rule 8(3), Companies (Corporate Social Responsibility Policy) Rules, 2014

Question 16 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Assuming Vayu fails to transfer the entire ₹42 lakh to the proper destinations, what penalties may be imposed under Section 135(7) on the company and an officer in default, respectively?

1. ₹84 lakh on the company and up to ₹2 lakh on the officer in default. (correct answer)
2. ₹1 crore on the company and ₹4.2 lakh on the officer in default in every case.
3. ₹42 lakh on the company and a fixed ₹50,000 fine on each officer in default.
4. ₹2 lakh on the company and ₹84 lakh on the officer in default.

Answer: A — ₹84 lakh on the company and up to ₹2 lakh on the officer in default.

Explanation. Under Section 135(7), the company's penalty is twice the amount required to be transferred or ₹1 crore, whichever is less. On ₹42 lakh, this is ₹84 lakh. Every officer in default faces one-tenth of that transfer amount or ₹2 lakh, whichever is less; one-tenth is ₹4.2 lakh, so the applicable cap is ₹2 lakh. These are statutory monetary penalties.

Where it goes wrong. Applying the one-crore cap to the officer, or treating one-tenth of the default amount as the officer's uncapped penalty.

Authority. Section 135(7), Companies Act, 2013

Question 17 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

Scenario. Keshav Foods Ltd. operates a branch in Nairobi. The branch keeps books for its own transactions at that office, while the head office maintains the main books in Delhi. The local finance team emails transaction-level data every month and sends a consolidated summary at each quarter end. The Board's auditor asks whether Section 128 permits this arrangement and what must happen to the summaries. Which position is correct? The company wants its accounting policy to be consistent for every overseas branch and to ensure that directors can review the summaries at the registered office.

Keshav Foods Ltd. operates a branch in Nairobi. The branch keeps books for its own transactions at that office, while the head office maintains the main books in Delhi. The local finance team emails transaction-level data every month and sends a consolidated summary at each quarter end. The Board's auditor asks whether Section 128 permits this arrangement and what must happen to the summaries. Which position is correct? The company wants its accounting policy to be consistent for every overseas branch and to ensure that directors can review the summaries at the registered office.

1. Branch books must be moved to Delhi; no local books may be maintained abroad.
2. Monthly summaries alone satisfy the requirement, so no quarterly return needs to be retained.
3. Local branch books may be kept there, with quarterly summaries sent and retained at registered office. (correct answer)
4. A foreign branch may keep books locally only if the Registrar approves every quarter.

Answer: C — Local branch books may be kept there, with quarterly summaries sent and retained at registered office.

Explanation. Section 128(2) allows branch books to be kept at the branch office if proper books relating to its transactions are maintained there and summarised returns are sent to the company. Under Rule 4(1), summaries of books maintained outside India must be sent to the registered office at quarterly intervals and retained there for directors' inspection. Monthly transaction data does not remove the quarterly requirement.

Where it goes wrong. Assuming that all foreign-branch books must be physically transferred to India or that monthly data replaces the quarterly summary requirement.

Authority. Section 128(2), Companies Act, 2013; Rule 4(1), Companies (Accounts) Rules, 2014

Question 18 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

Scenario. Meridian Pumps Ltd. is preparing books for FY 2026-27. Its auditor asks management to identify the minimum set of earlier records that must remain preserved under Section 128(5), assuming no special investigation order or other applicable retention law. The company has been operating since 2012 and keeps vouchers with relevant journal entries. Which records fall outside the ordinary eight-year minimum and may therefore be disposed of? The auditor also confirms that no investigation has been ordered and that the company's internal policy does not require longer preservation.

Meridian Pumps Ltd. is preparing books for FY 2026-27. Its auditor asks management to identify the minimum set of earlier records that must remain preserved under Section 128(5), assuming no special investigation order or other applicable retention law. The company has been operating since 2012 and keeps vouchers with relevant journal entries. Which records fall outside the ordinary eight-year minimum and may therefore be disposed of? The auditor also confirms that no investigation has been ordered and that the company's internal policy does not require longer preservation.

1. Records for FY 2017-18 and earlier, because the eight preceding years are FY 2018-19 through FY 2025-26. (correct answer)
2. Records for FY 2020-21 and earlier, because the Act requires only six immediately preceding financial years.
3. All vouchers may be destroyed after audit because only final statutory financial statements must be preserved.
4. Every company must retain every accounting record permanently, even after eight years and without any order.

Answer: A — Records for FY 2017-18 and earlier, because the eight preceding years are FY 2018-19 through FY 2025-26.

Explanation. Section 128(5) requires preservation for not less than eight years immediately preceding the relevant financial year, together with vouchers relevant to entries. For FY 2026-27, those eight preceding years are FY 2018-19 through FY 2025-26. FY 2017-18 falls outside that particular minimum period, assuming no investigation-related direction or other applicable retention law. The period is not measured separately from each transaction date.

Where it goes wrong. Counting eight years back from the date of each entry instead of identifying the eight financial years immediately preceding the relevant financial year.

Authority. Section 128(5), Companies Act, 2013

Question 19 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. Pranav Textiles Ltd. assigned its financial controller responsibility for Section 128 compliance by Board resolution, although the company also has a CFO and a Managing Director. An investigation finds that all three failed to secure proper books. The controller says only the CFO can face consequences. What is the penalty framework for persons who are duty-bound to comply and contravene Section 128? The Board has separately recorded that the controller, CFO and Managing Director were each assigned specific compliance responsibilities in writing.

Pranav Textiles Ltd. assigned its financial controller responsibility for Section 128 compliance by Board resolution, although the company also has a CFO and a Managing Director. An investigation finds that all three failed to secure proper books. The controller says only the CFO can face consequences. What is the penalty framework for persons who are duty-bound to comply and contravene Section 128? The Board has separately recorded that the controller, CFO and Managing Director were each assigned specific compliance responsibilities in writing.

1. Only the company pays a fixed penalty of ₹1 lakh; no officer is named.
2. Each duty-bound listed officer may face a fine from ₹50,000 up to ₹5 lakh. (correct answer)
3. Only the Managing Director is liable, with imprisonment and a penalty decided by the auditor.
4. The CFO alone is liable to a penalty capped at ₹2 lakh under Section 128.

Answer: B — Each duty-bound listed officer may face a fine from ₹50,000 up to ₹5 lakh.

Explanation. Section 128(6) applies to the Managing Director, the Whole-Time Director in charge of finance, the Chief Financial Officer, and any other person charged by the Board with the duty of complying with Section 128, where that person is duty-bound and contravenes the section. The prescribed fine is not less than ₹50,000 and may extend to ₹5 lakh. Liability is not confined to the CFO alone.

Where it goes wrong. Ignoring the Board-designated person category or importing the penalty limits of a different provision.

Authority. Section 128(6), Companies Act, 2013

Question 20 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. BluePeak Ltd. adopts accounting software for FY 2026-27. It records every transaction and stores an edit log, but the log records only the date on which the monthly batch is approved; an administrator can temporarily disable the audit trail to correct errors. The vendor offers a separate manual spreadsheet of corrections. Which statutory requirement must the company insist on before continuing to use the software? The company wants to know whether an externally maintained spreadsheet can cure these software deficiencies before the next audit cycle.

BluePeak Ltd. adopts accounting software for FY 2026-27. It records every transaction and stores an edit log, but the log records only the date on which the monthly batch is approved; an administrator can temporarily disable the audit trail to correct errors. The vendor offers a separate manual spreadsheet of corrections. Which statutory requirement must the company insist on before continuing to use the software? The company wants to know whether an externally maintained spreadsheet can cure these software deficiencies before the next audit cycle.

1. The software must archive transaction data only quarterly; the Rules do not require dated edit logs.
2. The company may disable audit logs temporarily where the CFO signs a written correction memorandum.
3. The audit trail need record only material adjustments made by senior employees during each quarter.
4. The software must capture every transaction, dated changes, and an audit trail that cannot be disabled. (correct answer)

Answer: D — The software must capture every transaction, dated changes, and an audit trail that cannot be disabled.

Explanation. The proviso to Rule 3(1) applies to companies using accounting software for financial years commencing on or after 1 April 2023. The software must record an audit trail of each and every transaction, create an edit log of each change with the date of change, and ensure the audit trail cannot be disabled. A manual spreadsheet or CFO approval cannot replace these built-in features.

Where it goes wrong. Treating a manual correction spreadsheet or temporary administrator override as a substitute for a non-disableable system audit trail.

Authority. Proviso to Rule 3(1), Companies (Accounts) Rules, 2014

Question 21 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

Scenario. Navchetna Ltd. spends ₹2 crore on CSR during FY 2026-27. Of this, ₹14 lakh relates to general management and administration of the CSR function, while another ₹8 lakh is directly attributable to designing and monitoring a specific approved project. The finance head proposes treating both amounts as administrative overheads. What is the applicable ceiling and treatment? The CFO must therefore segregate general administration costs from costs that are directly attributable to a particular project or programme.

Navchetna Ltd. spends ₹2 crore on CSR during FY 2026-27. Of this, ₹14 lakh relates to general management and administration of the CSR function, while another ₹8 lakh is directly attributable to designing and monitoring a specific approved project. The finance head proposes treating both amounts as administrative overheads. What is the applicable ceiling and treatment? The CFO must therefore segregate general administration costs from costs that are directly attributable to a particular project or programme.

1. The cap is ₹4 lakh, and project-specific costs are also counted within it.
2. The cap is ₹8 lakh, but all monitoring costs must be added to it.
3. There is no cap where the Board approves the annual action plan.
4. The cap is ₹10 lakh; direct costs of designing or monitoring a project are excluded. (correct answer)

Answer: D — The cap is ₹10 lakh; direct costs of designing or monitoring a project are excluded.

Explanation. Rule 2(b) defines administrative overheads as general management and administration expenses of the CSR function, excluding expenses directly incurred for designing, implementing, monitoring or evaluating a particular CSR project. Rule 7(1) caps administrative overheads at 5% of total CSR expenditure. Five per cent of ₹2 crore is ₹10 lakh; the ₹8 lakh project-specific cost is outside this cap.

Where it goes wrong. Including direct project-design or monitoring expenses in the administrative-overhead cap, or applying the five-per-cent limit to the project cost alone.

Authority. Rule 2(b) and Rule 7(1), Companies (Corporate Social Responsibility Policy) Rules, 2014

Question 22 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. Ritvika Engineering Pvt. Ltd. was incorporated on 1 April 2023 and is already covered by Section 135(1) for FY 2025-26 based on a qualifying criterion in FY 2024-25. Its net profits for the immediately preceding completed financial years were ₹4 crore in FY 2023-24 and ₹8 crore in FY 2024-25. As it has not completed three financial years since incorporation, the CFO argues that no spending is due until FY 2026-27. What minimum CSR amount is payable for FY 2025-26?

Ritvika Engineering Pvt. Ltd. was incorporated on 1 April 2023 and is already covered by Section 135(1) for FY 2025-26 based on a qualifying criterion in FY 2024-25. Its net profits for the immediately preceding completed financial years were ₹4 crore in FY 2023-24 and ₹8 crore in FY 2024-25. As it has not completed three financial years since incorporation, the CFO argues that no spending is due until FY 2026-27. What minimum CSR amount is payable for FY 2025-26?

1. ₹8 lakh, being two per cent of the lower profit year alone.
2. ₹12 lakh, being two per cent of the average profit of ₹6 crore. (correct answer)
3. ₹16 lakh, being two per cent of the higher profit year alone.
4. Nil, because a company must complete three financial years before spending.

Answer: B — ₹12 lakh, being two per cent of the average profit of ₹6 crore.

Explanation. Section 135(5) also covers a company that has not completed three financial years since incorporation. Such a company must spend at least 2% of the average net profits made during the immediately preceding financial years available since incorporation. The average of ₹4 crore and ₹8 crore is ₹6 crore; 2% is ₹12 lakh. Not having three completed financial years does not create a spending holiday.

Where it goes wrong. Assuming the three-year average rule means a newly incorporated company has no CSR-spending obligation.

Authority. Section 135(5), Companies Act, 2013

Question 23 · 2 marks · Chapter 9: Accounts of Companies and CSR · medium

Scenario. Navjeevan Ltd. spent ₹30 lakh more than its statutory CSR obligation in FY 2025-26. The excess arose from eligible CSR expenditure actually incurred and did not represent a surplus generated by a CSR project. In October 2026, the Board wishes to adjust this excess against future CSR obligations. Which conditions are necessary for a valid set-off? The company wishes to rely on this adjustment in each of the next three financial years, subject to the statutory conditions.

Navjeevan Ltd. spent ₹30 lakh more than its statutory CSR obligation in FY 2025-26. The excess arose from eligible CSR expenditure actually incurred and did not represent a surplus generated by a CSR project. In October 2026, the Board wishes to adjust this excess against future CSR obligations. Which conditions are necessary for a valid set-off? The company wishes to rely on this adjustment in each of the next three financial years, subject to the statutory conditions.

1. It may set off for up to three immediate succeeding FYs, excluding CSR surplus and passing a Board resolution. (correct answer)
2. It may set off indefinitely if the CSR Committee unanimously recommends it and the Board notes the adjustment.
3. It may set off only in the immediately following financial year, without needing a formal Board resolution.
4. It may set off for five succeeding years, including project surplus, once disclosed in the annual report.

Answer: A — It may set off for up to three immediate succeeding FYs, excluding CSR surplus and passing a Board resolution.

Explanation. The second proviso to Section 135(5), read with Rule 7(1), permits excess CSR expenditure to be set off against the requirement for up to the immediate succeeding three financial years. The excess must not include surplus arising from CSR activities, and the Board must pass a resolution authorising the set-off. A CSR Committee recommendation or annual-report disclosure alone does not replace the Board resolution.

Where it goes wrong. Extending the set-off beyond three succeeding years or treating CSR-activity surplus as eligible excess expenditure.

Authority. Second proviso to Section 135(5), Companies Act, 2013; Rule 7(1), Companies (Corporate Social Responsibility Policy) Rules, 2014

Question 24 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. Sarvodaya Trust is a registered public trust, registered under Section 12A and approved under Section 80G and has completed four years of similar social-development projects. It proposes to implement a company's Schedule VII project in FY 2026-27 but has not yet filed Form CSR-1. A director argues that income-tax registration and experience make CSR-1 optional. Which statement correctly states the compliance requirement? The project would be carried out on the trust's own behalf as an implementing entity, rather than by the company directly.

Sarvodaya Trust is a registered public trust, registered under Section 12A and approved under Section 80G and has completed four years of similar social-development projects. It proposes to implement a company's Schedule VII project in FY 2026-27 but has not yet filed Form CSR-1. A director argues that income-tax registration and experience make CSR-1 optional. Which statement correctly states the compliance requirement? The project would be carried out on the trust's own behalf as an implementing entity, rather than by the company directly.

1. The trust may proceed without CSR-1 because four years of work substitutes for registration.
2. Only a Section 8 company can implement CSR, so the trust is ineligible.
3. The trust must electronically file CSR-1; a practising CA, CS or CMA digitally verifies it. (correct answer)
4. CSR-1 is filed by the funding company and authenticated by its statutory auditor only.

Answer: C — The trust must electronically file CSR-1; a practising CA, CS or CMA digitally verifies it.

Explanation. Rule 4(1)(d) permits an eligible charitable trust with the prescribed tax registrations or approval and at least three years' track record in similar activities to act as an implementing agency. Rule 4(2) nevertheless requires the eligible entity intending to undertake CSR activities to register by electronically filing Form CSR-1 with the Registrar. The form is digitally authenticated by a practising CA, CS or CMA and generates a CSR Registration Number. Experience does not make filing optional.

Where it goes wrong. Mistaking eligibility to act as an implementing agency for exemption from the separate CSR-1 registration requirement.

Authority. Rule 4(1)(d) and Rule 4(2), Companies (Corporate Social Responsibility Policy) Rules, 2014

Question 25 · 2 marks · Chapter 9: Accounts of Companies and CSR · hard

Scenario. Prakash Consumer Ltd. is selecting projects for its FY 2026-27 CSR plan. Its proposals are: (i) a multi-year drinking-water project in a village near its factory, (ii) a health camp exclusively for its own employees, (iii) sponsorship of a televised marathon to promote its brand, and (iv) a sports-training programme outside India for foreign nationals. Which proposal is capable of qualifying as CSR under Rule 2(d), assuming the other implementation conditions are met? The Board must distinguish the positive Schedule VII subject from exclusions that apply because of the identity of beneficiaries, promotional purpose or location.

Prakash Consumer Ltd. is selecting projects for its FY 2026-27 CSR plan. Its proposals are: (i) a multi-year drinking-water project in a village near its factory, (ii) a health camp exclusively for its own employees, (iii) sponsorship of a televised marathon to promote its brand, and (iv) a sports-training programme outside India for foreign nationals. Which proposal is capable of qualifying as CSR under Rule 2(d), assuming the other implementation conditions are met? The Board must distinguish the positive Schedule VII subject from exclusions that apply because of the identity of beneficiaries, promotional purpose or location.

1. Only the drinking-water project, because it falls within Schedule VII and no stated exclusion applies. (correct answer)
2. The drinking-water project and employee health camp, because both improve societal welfare welfare.
3. The televised marathon, because publicity is incidental to a charitable sporting event.
4. The overseas sports programme, because any sporting activity qualifies regardless of location.

Answer: A — Only the drinking-water project, because it falls within Schedule VII and no stated exclusion applies.

Explanation. Rule 2(d) excludes activities in the normal course of business, employee-benefit activities, political contributions, marketing sponsorships and activities outside India, subject to a narrow exception for training Indian sports personnel representing a State or Union Territory at national level or India internationally. A drinking-water initiative in an Indian village falls within Schedule VII and is not one of these exclusions. Brand-promotion sponsorship and the other proposals are excluded on the stated facts.

Where it goes wrong. Assuming that a socially useful subject or sporting label overrides the employee-benefit, marketing and territorial exclusions.

Authority. Rule 2(d), Companies (Corporate Social Responsibility Policy) Rules, 2014; Schedule VII, Companies Act, 2013