Standards on Auditing - Practical Approach

1. SA - 200 (Overall Objectives of an Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing) - We should see to it that all the relevant laws, standards and regulations relating to that company are getting complied while preparation of financial statements. The audit evidence for the same are to be collected and documented. None of the audit procedures applied should hamper the independence of the auditor. 

2. SA - 210 (Agreeing the Terms of Audit Engagements) - The auditor before the start of the audit should collect engagement letter from the management which specify the scope of audit and describe the auditor's and management responsibility.

3. SA - 220 (Quality Control for an Audit of Financial Statements) - The engagement leader should keep control on the overall performance of the audit. The engagement leader should see that professional ethics and standards are taken care of while performing the audit.

4. SA - 230 (Audit Documentation) - Documentation of each audit procedure conducted and the audit working papers provided by the clients should be maintained either in hard or soft form.

5. SA - 240 (The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements) - It is expected that the auditor should use professional skepticism (questioning mind) in conduct of audit. This means he should not blindly accept whatever information is provided by management. The auditor for assurance should obtain management representation letter (MRL). If any kind of fraud is identified during the audit it should be reported. 

6. SA - 250 (Consideration of Laws & Regulations in an Audit of Financial Statements) - The auditor should verify the measures that are being taken by the staff of the entity under review for complying with relevant laws and regulations. The internal controls of the entity can also be verified so as to ensure the check points relating to such applicable laws.

7. SA - 260 (Communication with Those Charged with Governance) - The auditor should see to it that all audit observations which required attention of the top management should be communicated to them.

8. SA - 265 (Communicating Deficiencies in Internal Control to Those Charged with Governance) - The deficiencies noted in Internal Financial Control (IFC) testing should be informed to higher authorities of the entity as well as to those who are actually involved in carrying out that particular process.

9. SA - 299 (Responsibility of Joint Auditors) - In case of joint audit we need to properly communicate about the scope of work of each joint auditor. There should be proper communication and reliance on each of the auditor's work. Joint responsibility should be signed and confirmed by each of the joint auditor.

10. SA - 300 (Planning an Audit of Financial Statements) - All the details relating to the business under audit should be taken into consideration and the audit plan should be developed accordingly. The audit plan should be documented.

11. SA - 315 (Identifying and Assessing the Risks of Material Misstatements through Understanding the Entity and its Environment) - The auditor should after gaining the knowledge about the business and having a discussion with the management of the organisation under review should set the materiality level for the purpose of the audit assignment. This involves assessing the probable areas where there are chances of occurrence of errors.

12. SA - 320 (Materiality in Planning & Performing an Audit) - The auditor should for the purpose of audit assignment decide what can be material transaction for the entity. This may include deciding the value and volume of vouchers that are to be worked. 

13. SA - 330 (The Auditor's Responses to Assessed Risks) - On the basis of risks identified in SA - 315, the auditor should decide in what way it should be presented in the report and the course of action to be taken on it.

14. SA - 402 (Audit Considerations Relating to an Entity Using a Service Organisation) - This SA is applicable where the organisation under review is using the services of other organisations for such items those are having an impact on the financial statements of the entity.

15. SA - 450 (Evaluation of Misstatements Identified during the Audit) - If any kind of errors are identified in the financial statements during audit then proper call should be taken regarding the same on the basis of the materiality of the amount which is misstated.

16. SA - 500 (Audit Evidence) - The audit evidence obtained should form the basis of the points reported in the financial statements and the audit report.

17. SA - 501 (Audit Evidence - Specific Considerations for Selected Items) - This SA is applicable on specific items like inventory, litigation and claims and presentation and disclosure of segment information.

18. SA - 505 (External Confirmation) - This SA is to be considered when the auditor is to obtain external confirmations as audit evidence. The design and performance is mentioned in the standard.

19. SA - 510 (Initial Audit Engagements - Opening Balances) - As per this SA when we are doing the audit for the first time, we need to verify whether the financials and the accounting policies mentioned are not contradicting with each other. While starting the audit of a new financial year we are supposed to verify the opening balances.          

20. SA - 520 (Analytical Procedures) - Financial analytical procedures include use of ratios, analysing prior period items, checking relevance of budgets and forecasts etc.

21. SA - 530 (Audit Sampling) - Audit sampling is dependent on the materiality level set while doing the audit of a particular organisation. Sampling refers to the selecting data for the purpose of vouching and verification.

22. SA - 540 (Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures) - This SA is to be referred when there is use of accounting estimates in the preparation of financial statements. The auditors responsibilities relating to the same are stated in this SA.

23. SA - 550 (Related Parties) - Firstly the related parties of the entity are to be identified. Then the transactions pertaining to them are to be identified and reported as per the accounting standard.

24. SA - 560 (Subsequent Events) - The events occurring after the balance sheet date are to be identified and appropriate actions and reporting is to be done accordingly.

25. SA - 570 (Going Concern) - We need to identify if there are any items which have occurred that affect the continuity of the business. If so the same have to be reported.

26. SA - 580 (Written Representations) - The written representation is a kind of confirmation obtained from the management regarding the overall transactions of the entity. This SA is to be considered for the preparation of written representation.

27. SA - 600 (Using the Work of Another Auditor) - This SA is regarding the approach of the engagement leader as well as engagement partner when he is using and relying on the work done by his subordinate or another auditor.

28. SA - 610 (Using the Work of Internal Auditors) - This SA is applicable when the statutory auditor is using the work of internal auditor for the purpose of audit.

29. SA - 620 (Using the Work of an Auditor's Expert) - This SA becomes relevant when the expertise of other party is to be used and obtained for the purpose of obtaining audit evidence.

30. SA - 700 (Forming an Opinion and Reporting on Financial Statements) - The auditor can give the following types of opinion:
a) Unqualified Opinion
b) Qualified Opinion
c) Modified Opinion
d) Disclaimer of Opinion
This SA is to be referred while giving any of th opinion mentioned above.

31. SA - 701 (Communicating Key Audit matters in the Independent Auditor's Report) - The points that are mentioned in the audit report are to be discussed with the auditee's top management and their respective staff.   

32. SA - 705 (Modifications to the Opinion in the Independent Auditor's Report) - When the auditor feels that modification of the opinion given in the previous report is required, then this SA becomes relevant and is to be referred.

33. SA - 706 (Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report) - When there are circumstances when qualified or disclaimer of opinion is not required but emphasis is to be given on certain items then emphasis on matter paragraph is used while reporting. This SA then becomes relevant in such circumstances.

34. SA - 710 (Comparative Information - Corresponding Figures and Comparative Financial Statements) - When conducting the audit of current financial year we are supposed to report the figures of the previous financial year as well so we need to check those figures as well whether those are true and correct.

35. SA - 720 (The Auditor's Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements) - This SA becomes applicable when there is any other information disclosed in the financial statements.

36. SA - 800 (Special Considerations - Audit of Financial Statements Prepared in Accordance with Special Purpose Frameworks) - The special frameworks applicable to the entity are to be identified if any and the care is to be taken if those are correctly followed.

37. SA - 805 (Special Considerations - Audit of Single Financial Statements and specific elements, Accounts or Items of a Financial Statements) - This SA is relevant only when there are any such specific assignments as mentioned in this SA. The approach of the auditor pertaining to the same is mentioned in the SA.

38. SA - 810 (Engagements to report on Summary Financial Statements) - This SA is relevant when the auditor is conducting the audit of summary financial statements which are less detailed than the normal financials. 

39. SRE - 2400 (Engagements To Review Financial Statements) - The purpose of this SRE is to provide guidance on practitioners professional responsibilities when a practitioner, who is not the auditor of an entity, undertakes an engagement to review financial statements and on the form and content of the report that the practitioner issues in connection with such review. The objective of review of financial statements is to enable the practitioner to state whether on the basis of procedures anything has come to practitioner's attention that causes the practitioner to believe that the financial statements are not prepared, in all material respects, in accordance with the applicable financial reporting framework.

40. SRE - 2410 (Review of Interim Financial Information Performed by the Independent Auditor of the Entity) - The purpose of this SRE is to provide guidance on the auditor's professional responsibilities when the auditor undertakes an engagement to review interim financial information of an audit client.

41. SAE - 3400 (The Examination of Prospective Financial Information) - The term prospective financial information means statements prepared on the basis of future assumptions and best judgment estimates of the management. The auditor has to verify whether the management has made reasonable and consistent assumptions with the purpose of information required.

42. SAE - 3402 (Assurance Reports On Controls At A Service Organisation) - This standard deals with assurance engagements undertaken by a professional accountant in public practice to provide a report for use by user entities and their auditors on the control at a service organisation that provides service to user entities that is likely to be relevant to user entities internal control as it relates to financial reporting.

43. SAE - 3420 (Assurance Engagements to Report on the Compilation of Pro Forma Financial Information included in a Prospectus) - The objective of the practitioner are to obtain reasonable assurance about whether the pro forma financial information has been compiled in all material respects by the responsible party on the basis of applicable criteria and to report in accordance with the practitioner's findings.

44. SRS - 4400 (Engagements to Perform Agreed Upon Procedures Regarding Financial Information) - The objective is for the auditor to carry out procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings.

45. SRS - 4410 (Engagements to Compile Financial Information) - This deals with practitioners responsibilities when engaged to assist the management with the preparation and presentation of historical financial information without obtaining any assurance on that information, and to report on the engagement.  

Source - The Chartered Accountant Journal

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Best Investment Opportunities in 2019

There are numerous opportunities available for investment in 2019 to make your money grow by using the tools of compounding and time value of money.

Why Investment in Necessary?
Everyone in today's world want to earn more and save more to secure the future of their families and to make the best use of time to make more money with less span of time. 
Investment is necessary because it helps to earn more by investing the idle money kept in your home in the form of cash or the money kept in your saving bank account in which the interest rates are 4-6%.

Where to Invest?
Following are the ways to invest the idle money kept by you and to earn more income :-

a) National Pension Scheme (NPS) - NPS is a Government Scheme aimed to help individuals with a steady income after retirement. It was initially launched for only Central Government employees, but later was opened up for all individuals.
There are 2 kinds of accounts under NPS, these are – Tier 1 account and Tier 2 account.

Tier 1 account is an account wherein the money in the account cannot be withdrawn till the person reaches the age of 60.

However, partial withdrawal is allowed (even before 60 years) from this account in specific cases. Such cases include critical illness, children’s education, wedding expenses, buying or constructing a house.

This account is compulsory for all central government employees. Under this account, they are required to contribute 10% of their basic monthly salary along with DA and DP.

The minimum amount that is required to be invested in this account is Rs 6000 in a year.

An investor who invests in the NPS Tier 1 account has tax benefits of up to Rs 2 lakh per annum under Chapter VI-A of Income Tax Act..

Deduction amounting to Rs 1.5 lakh under the NPS is covered under the overall ceiling of section 80C of the Income-tax Act, 1961.

Moreover, the investor is also eligible to get an additional tax deduction of Rs 50,000 under section 80CCD(1B).

On the other hand, the Tier II NPS account is more like a savings account and there is no restriction on withdrawal of money, at any point in time whatsoever.

The subscribers of this account are free to withdraw their money as and when they require.

In this, the minimum amount to open the account is Rs 1000 and the minimum balance required at the end of the year is Rs 2000.

However, there are no tax benefits for Tier II. Be it at the time of contribution or at the time of withdrawal.

You can register and contribute through the below mentioned link.

https://enps.nsdl.com/eNPS/NationalPensionSystem.html

b) Mutual Funds - Mutual Funds refers to a pool of money collected from investors who aim at saving and making money through investment. The money so collected is invested in various asset classes like debt funds, equity oriented funds, tax saving funds, money market funds etc.

Types of Mutual Funds based on Asset Class
i) Equity Oriented Funds (EOF) - refers to the fund under the scheme of mutual fund and
a) in case where the fund invested in the units of another fund which is traded on a recognised stock exchange - 
- a minimum of 90% of the total proceeds of such fund is invested in the units of such other fund and
- such other fund also invests a minimum of 90% of its total proceeds in the equity shares of domestic companies listed on a recognised stock exchange.
b) in any other case a minimum of 65% of total proceeds collected from investors are invested in equity shares of a domestic company. EOF are more risker than other funds and provide higher returns if compared to other category of funds. 

ii) Debt Oriented Funds (DOF) - refers to the funds where the proceeds collected are invested in a fixed interest bearing instruments like debentures, fixed income assets, government securities etc. DOF are less risker than EOF and provide lower return as compared to EOF but it provides better return than fixed deposit in a bank.

iii) Money Market Funds - These funds are invested in liquid instruments like commercial paper, treasury bills etc. They are considered quite safe investment option as you get immediate yet moderate return on your investment. 

iv) Hybrid or Balanced Funds - These type of funds are invested in different asset classes. These are time when the proportion of debt is lower than equity. These funds typically invest in mix of stocks and bonds.

v) Index Funds - Indexed funds track the indexes like Nifty 50 on NSE, Sensex on BSE and it has same stocks in its portfolio and in same proportion. As stocks come in and out of the indexes, similarly the fund managers changes the portfolio of index funds and in same proportion.

vi) Tax Saving Funds -  Tax Saving funds are mutual funds that has the benefit of tax saving under sec 80 C of Income Tax Act. Most of the tax saving funds are Equity Linked Saving Scheme (ELSS) and make investment in equity markets.

Taxation of Mutual Funds
i) As per sec 111A of Income Tax Act, tax on short term capital gains (STCG) on sale of equity oriented fund (EOF) on which STT is chargeable is at the rate of 15%. In the case of Individual and HUF, the short term capital gain shall be reduced by the unexhausted basic exemption limit and the balance shall be taxed at 15%. For STCG, period of holding of EOF is 12 months or less and debt oriented fund is 36 months or less.

ii) As per sec 112A of Income Tax Act, tax on long term capital gains (LTCG) on transfer of units of equity oriented fund shall be liable to tax at the rate of 10% on such capital gain, if STT has been paid on acquisition of such units. In the case of Individual and HUF, the short term capital gain shall be reduced by the unexhausted basic exemption limit and the balance shall be taxed at 10%. For LTCG, period of holding of EOF is more than 12 months and debt oriented fund is  more than 36 months.

c) National Saving Certificate (NSC) 
- NSC is a type of investment which can be made in a post office in india and it gives rate of interest higher than fixed deposit in a bank and it is a fixed income investment.
- Currently NSC VIII issue is open for investment. 
- Any person can invest upto Rs 1.5 lakhs to claim the benefit of deduction under section 80C of Income Tax Act. 
- Maturity period of NSC is 5 years and 6 years. 
- Interest on NSC is taxable under income from other sources. 
- Banks and NBFC's accept NSC as a collateral for secured loans.
- NSC are currently issued in the denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000, Rs 10,000.
- Premature withdrawal of NSC is permitted in following cases only:-
i) On the death of NSC holder.
ii) On forfeiture by pledgee who is a Gazetted Government Officer.  
iii) On the order of court for premature withdrawal of NSC.


d) Public Provident Fund (PPF) - If you go by its name it is a provident fund just like employee provident fund (EPF), recognised provident fund (RPF), government provident fund (GPF) but the only difference is that it is for general public. If you are doing business then you can also open the PPF account and start investing unlike the other provident funds which are only open when you are employee of an organisation whether government or private.
- PPF account can be open with any bank or post office.
- PPF account has a minimum tenure of 15 years and if the account holder wants to withdraw the funds before 15 years, then he/she can do so after completion of 6 years from the date of opening of PPF account.    
- Amount deposited in PPF account can be claimed as a deduction under section 80C of Income Tax Act and the interest received on PPF is also exempt.
- Maximum amount deposited in a PPF account is Rs 1.5 lakhs.

e) Share Market - Anyone can invest in share market through mutual funds or directly in share market by opening a DEMAT account with any of the stock brokers registered with SEBI.
- Share market is basically you are investing in the companies listed on National Stock Exchange (NSE) or Bombay Stock Exchange (BSE).
- Investment in companies depend upon various factors like management of the company, whether you are able to understand the business of the company, return on equity, return on capital employed, how much company is dependent on long term debt for the operations of the company?, what is the future of business the company is currently doing?   

f) Bonds - The main difference between the bondholders and shareholders are that bondholders are lenders of the company whereas shareholders are owners of the company. Following are the type of bonds that you can invest in India:-

i) Government Bonds - These type of bonds are issued by Reserve Bank of India (RBI) on behalf of Government of India (GOI) to raise money for the development of the country and to meet fiscal deficit and offer fixed rate of interest on them. Government bonds are considered as a viable investment by corporates, banks as well as financial institutions, however now it is suitable for individual investors also. Various types of government bonds are treasury bills, cash management bills, dated government securities, 

ii) Corporate Bonds - These types of bonds are basically issued by companies in india to raise money for daily operation or future expansion. Companies can either raise money through equity or debt. Bonds are quite economical than bank loans for companies as they have to lower rate of interest on bonds as compared to bank loans. Corporate bonds are basically risker than government bonds, so the rate of interest is higher than government bonds. 

iii) Zero Coupon Bonds - These bonds are basically issued by the companies in india. These are different from corporate bonds because in this no interest is paid at the time of maturity as bonds are issued at discount, so the investor earns the difference between the issue price and maturity value over the period of bond.

iv) Gold Bonds - In 2018 Sovereign Gold Bond (SGB) Scheme was introduced by RBI. Their value is denominated in multiples of gold grams. They are more basically more beneficial than physical gold because in this there is no risk to store the gold and the RBI also provides fixed rate of interest on the value bonds as in case of physical gold, there is no assurance of getting fixed return as the value of gold is keep fluctuating based on different scenarios in the world. 
- Person resident in India as defined under Foreign Exchange Management Act (FEMA), 1999 are eligible to invest in SGB.
- Eligible investors include individuals, HUFs, trusts, universities and charitable institutions.
- Minimum investment is 1 gram and maximum investment is 4 kg for individuals, HUFs and 20 kg for trusts, universities and charitable institutions.
- The bonds bear the rate of interest of 2.50% per annum on the amount of initial investment.


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25 Amendments in Income Tax Act applicable for FY 2018-19

1) Standard deduction to salaried individuals and pensioners (Section 16)

Transport allowance and Medical Reimbursement are two tax deductions which almost every salaried taxpayer easily claims. The Finance Act, 2018 eliminated these two tax benefits. The tax benefit from transport allowance is Rs 19,200 p.a. (Rs 1,600 p.m.), while from reimbursement of medical expenses, it is Rs 15,000 p.a. At first, it may appear to be a loss of Rs 34,200 to you (Rs 19,200 + Rs 15,000). But, you don’t need to worry as a standard deduction of Rs 40,000 has been brought in their place. This is, in fact, a good news for you since the overall tax benefit has increased by Rs 5,800 (Rs 40,000 – Rs 34,200).

This tax benefit has also been extended to the pensioners. Pensioners were not allowed any tax benefit of transport allowance and medical reimbursement. Therefore, they can gain Rs 40,000 as tax-free income.

2) Enhanced deduction under section 80D

You must be familiar with this deduction under section 80D that you can claim when you pay a premium for medical insurance giving coverage to you or your family. The tax deduction currently allowed is up to Rs 30,000 of the insurance covers you, your spouse or your children. You can get additional deduction of Rs 30,000 on premium paid if you have a medical cover for your parents aged 60 years and above. If they are aged below 60 years, then the tax deduction cannot exceed Rs 25,000.

However, if anyone of you, your spouse or your parents is not covered under any insurance policy, then you can claim a tax deduction up to Rs 30,000 for the medical expenses incurred on them. Union budget 2018 has extended this benefit to senior citizens as well and increased the deduction limit from Rs 30,000 to Rs 50,000.

3) Increase in the deduction limit under section 80DDB

The tax deduction given to taxpayers for expenses incurred on treatment of his own or any family member’s critical illness has also been raised. Currently, the tax deduction is Rs 80,000 for super senior citizen, Rs 60,000 for senior citizen and Rs 40,000 in any other case.

The upper limit of deduction has been increased to Rs 1,00,000 for both senior as well as super senior citizens but the limit remains the same for the taxpayers up to 60 years of age.

4) Increase in exemption limit on bank interest for senior citizens

In the AY 2019-20, senior citizens will be able to claim deduction up to Rs 50,000 on interest earned from bank deposits, post offices or co-operative banks as per the provisions of a new section 80TTB of the Income Tax Act, 1961. Any senior citizen who claims the tax deduction under section 80TTB will not be allowed to claim the benefits of section 80TTA from AY 2019-20. Section 194A has also been amended to disallow banks from deducting tax from payment of interest up to Rs 50,000 made to a senior citizen.

5) Enhanced tax benefit on gratuity [Section 10(10)]

The tax exemption allowed on gratuity has also been increased in the Union budget 2018. The taxpayers currently get a tax exemption of Rs 10 lakh which will be raised to Rs 20 lakh. The taxpayers receiving gratuity on or after 1st April 2018 will be able to enjoy the increased tax benefit on gratuity.

6) NPS withdrawal exemption extended to non-employees

Employees investing in NPS get exemption up to 40% of the total accumulated balance in their NPS account at the time of withdrawal when they opt out or close the scheme. The budget 2018 has extended this tax benefit to everyone investing in NPS.

7) Long Term Capital Gains(Sec 112A) 
    
LTCG on transfer of Equity Share in a company, unit of an equity oriented fund and unit of business trust is 10% if LTCG is more than Rs 1 lakhs. If LTCG is upto Rs 1 lakhs then it is exempt.

8) Health & Education Cess @ 4%

From Finance Act 2018, Health & Education Cess @ 4% is charged on Net Income Tax Payable in place of Education & Secondary Higher Education Cess of 3%.

9) Rate of Tax in case of Companies 

  In case of turnover is more than Rs 50 crores in FY 2015-16 and Rs 250 crores or less in FY 2016-17, then rate of tax is increased to 30% from 25%.  
In case of turnover is less than Rs 50 crores in FY 2015-16 and more than Rs 250 crores in FY 2016-17, then rate of tax is increased to 30% from 25%.

10) Amendment in Sec 80 DDB

     Sec 80 DDB provides deduction to a resident individual and HUF for medical treatment or specified disease of dependent amounting to Rs 60,000/- in case of Senior Citizen (60 years or more) and Rs 80,000/- (80 years or more) in case of Very Senior Citizen. From Finance Act 2018, the deduction which can be allowed under this section increased to Rs 1,00,000/- in case of any type of Senior Citizen.

11) Applicability of Section 40A(3), 40A(3A) and 40(a)(ia) in case of Trusts

      From Finance Act 2018, section 40A(3), 40A(3A) and 40(a)(ia) is applicable to religious or charitable trusts.

Accordingly, no deduction is allowable for any expenditure:
a) In case of expenditure exceeding Rs 10,000/- made to a person in a day in cash as per sec 40(A)(3).
b) In case of payment of outstanding Balance exceeding Rs 10,000/- to a person in a day by cash mode as per sec 40(A)(3A).
c) 30% of the amount of expense will be disallowed in case such trust do not deduct any TDS on payments being made to residents as per sec 40(a)(ia).

12) Amendment under presumptive taxation in case of Goods Carriage - Section 44 AE

Section 44 AE of the Act provides a presumptive taxation scheme for the transporters having upto 10 vehicles at any time during the previous year. It provides that such transporters have an option to pay tax on presumptive basis by declaring income @ Rs 7,500/- per month or part thereof per vehicle.
As per Finance Act 2018, vehicles having more than 12 MT gross weight, then instead of Rs 7,500 per month per vehicle, Rs 1,000 per tonne capacity per month per vehicle shall be deemed as Income.

13) Deduction under Sec 80-IAC of the Income Tax Act

Section 80-IAC of the Income Tax Act provides that 100% deduction of profits to start-ups for 3 consecutive years out of 7 years if it is incorporated between 01/04/2016 to 31/03/2018 and the turnover is upto Rs 25 crores per year between 01/04/2016 to 31/03/2021.

As per Finance Act 2018, startups incorporated between 01/04/2019 to 31/03/2021 can also avail the benefit of this section.  


14) Mandatory Quoting of PAN in certain cases

From Finance Act 2018, Section 139A of the Act provides that 
a) PAN is mandatory for such non-individual entities which enters into financial transaction valuing more than Rs 2,50,000/-.
b) PAN is also mandatory for the authorized signatories like managing director, director, partner, trustee, author, founder, karta, chief executive officer, principal officer of such entities irrespective of their financial transactions and income.

15) Trading in Agricultural Commodities

a) Amendment has been made in Sec 43(5) of the Act in order to provide that trading in agricultural commodities is now considered as non-speculative transaction, previously it was considered as speculative transaction.
b) After the Amendment, loss from trading in agricultural commodities can also be set off from other non-speculative business losses.
c) Further, such losses can now be carried forward for 8 Assessment Years instead of 4 Assessment Years.

16) Prosecution relating to failure to furnish Return of Income

Section 276CC of the Act provides that in case assessee fails to furnish Return of Income upto the end of assessment year, then he shall be liable to following:
a) Imprisonment of 6 months to 7 years with fine, if tax evaded exceeds Rs 25 lakhs.
b) Imprisonment of 3 months to 2 years with fine, if tax evaded is upto Rs 25 lakhs.
The above provisions are not applicable if tax amount is less than Rs 3,000/-.
As per Finance Act 2018, limit of Rs 3,000/- is not applicable to a Company in order to mandate all companies to file Return of Income.

17) Amendment in Section 54 EC (Exemption related to Long Term Capital Gains)

a) Long term capital asset for making any investment under this section means -
i) on or after 01/04/2007 but before 01/04/2018 means any bond issued by NHAI, RECL, redeemable after 3 years and issued on or after 01/04/2007 but before 01/04/2018.
ii) on or after 01/04/2018, means any bond issued by NHAI, RECL redeemable after 5 years and issued on or after 01/04/2018.

b) Long term capital asset means land or building or both.

18) Amendment in Section 43

Explanation 1A - Where a capital asset referred to in clause (via) of section 28 (where inventory is converted or treated as capital asset) is used for the purposes of business or profession, the actual cost of such asset to the assessee shall be the fair market value which has been taken into account for the purposes of the said clause.

19) New Section Inserted Sec 43 AA

 1) Subject to the provisions of section 43A, any gain or loss arising on account of any change in foreign exchange rates shall be treated as income or loss, as the case may be, and such gain or loss shall be computed in accordance with the income computation and disclosure standards (ICDS) notified under sub-section (2) of section 145. 

2) For the purposes of sub-section (1), gain or loss arising on account of the effects of change in foreign exchange rates shall be in respect of all foreign currency transactions, including those relating to— 
(i) monetary items and non-monetary items; 
(ii) translation of financial statements of foreign operations; 
(iii) forward exchange contracts; 
(iv) foreign currency translation reserves.”.

20) Sec - 43CA(Special provision for full value of consideration for transfer of assets other than capital assets in certain cases)

Following proviso shall be inserted in sub-section (1) by Finance Act 2018:
Provided that where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed 105% of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration.

21) Amendment in Section 47

Following clause (viiab) shall be inserted
any transfer of a capital asset, being-
a) bond or Global Depository Receipt referred to in sec 115AC (1), or
b) rupee denominated bond of an Indian company, or
c) derivative,
made by a non-resident on a recognised stock exchange located in any International Financial Services Centre (IFSC) and where the consideration for such transaction is paid or payable in foreign currency.

22) Amendment in Section 49(Cost with reference to certain mode of acquisition)

Where the capital gain arises from the transfer of a capital asset referred to in clause (via) of section 28, the cost of acquisition of such asset shall be deemed to be the fair market value which has been taken into account for the purposes of the said clause.

23) Amendment in Section 80 JJA (Deductions in respect of employment of new employees) 

Provided that in the case of an assessee who is engaged in the business of manufacturing of apparel [or footwear or leather products], the provisions of sub-clause (c) shall have effect as if for the words "240 days", the words "150 days" had been substituted.

Provided further that where an employee is employed during the previous year for a period of less than 240 days or 150 days, as the case may be, but is employed for a period of 240 days or 150 days, as the case may be, in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year and the provisions of this section shall apply accordingly.

24) Amendment in Sec 115 JB (Minimum Alternate Tax) 

(a) in Explanation 1,— 
(A) after clause (iig), the following clause shall be inserted, namely:–– 
‘(iih) the aggregate amount of unabsorbed depreciation and loss brought forward in case of a company against whom an application for corporate insolvency resolution process has been admitted by the Adjudicating Authority under section 7 or section 9 or section 10 of the Insolvency and Bankruptcy Code, 2016.

25) Substitution of new sections 145A & 145B in place of section 145A

Section 145A For the purpose of determining the income chargeable under the head “Profits and gains of business or profession”,–– 

(i) the valuation of inventory shall be made at lower of actual cost or net realisable value computed in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145; 
(ii) the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation; 
(iii) the inventory being securities not listed on a recognised stock exchange, or listed but not quoted on a recognised stock exchange with regularity from time to time, shall be valued at actual cost initially recognised in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145; 
(iv) the inventory being securities other than those referred to in clause (iii), shall be valued at lower of actual cost or net realisable value in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145: 

Provided that the inventory being securities held by a scheduled bank or public financial institution shall be valued in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145 after taking into account the extant guidelines issued by the Reserve Bank of India in this regard: 
Provided further that the comparison of actual cost and net realisable value of securities shall be made category-wise.

Section 145B

(1) Notwithstanding anything to the contrary contained in section 145, the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the previous year in which it is received.

(2) Any claim for escalation of price in a contract or export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved.

(3) The income referred to in sub-clause (xviii) of clause (24) of section 2 shall be deemed to be the income of the previous year in which it is received, if not charged to income-tax in any earlier previous year.’

Do Read - 
1. How to Determine Residential Status under Income Tax Act
2. Classification of Financial Markets


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Various Limits under Companies Act 2013

1. CSR Applicability (Sec 135)
a) Applicable to all companies included public, private, foreign, government companies having:
Turnover more than or equal to Rs 1,000 crore or
Net Worth more than or equal to Rs 500 crore or
Net Profit more than or equal to Rs 5 crore during any Financial Year.

b) At least more than or equal to 2% of average net profits of last 3 years must be spend on CSR activities.

2. Internal Audit (Sec 138)
a) Mandatory for Listed Companies.
b) Unlisted Public Companies has to appoint the Internal Auditor if:
Turnover more than or equal to Rs 200 crores or
Outstanding Loans or Borrowings from Banks or Public Financial Institutions more than or equal to Rs 100 crores or
Paid up Share Capital more than or equal to Rs 50 crores or
Outstanding Deposits more than or equal to Rs 25 crores.
c) Private Companies has to appoint Internal Auditor if:
Turnover more than or equal to Rs 200 crores or
Outstanding Loans or Borrowings from Banks or Public Financial Institutions more than or equal to Rs 100 crores. 

3. CARO (Companies Auditor Report Order), 2016 Applicability
a) Applicable to Foreign Companies also.
b) Not Applicable to 
Banking Company, 
Insurance Company, 
Section 8 Company,
One Person Company (OPC),  
Small Company,
Private Company if:
i) Its not subsidiary or holding of a Public Companies and
ii) Paid up Share Capital and Reserve & Surplus is equal to or less than Rs 1 crore as on Balance Sheet Date and
iii) Outstanding loans from Banks or Financial Institutions is equal to or less than Rs 1 crore at any point of time during the financial year and
iv) Total Revenue (including Revenue from Discontinuing Operations) is equal to or less than Rs 10 crores during the financial year.


4. Secretarial Audit [Sec 204(1)] 
a) Every Listed Company
b) Every Public Company having a paid up share capital more than or equal to Rs 50 crores or
c) Every Public Company having a turnover more than or equal to Rs 250 crores.

5. Term of Auditor [Sec 139(2)]
a) This section provides that listed companies and other class of companies prescribed except one person companies and small companies shall not appoint or re-appoint -
i) an individual as auditor for more than one term of 5 consecutive years. and 
ii) an audit firm as auditor for more than two terms of 5 consecutive years.

b) Rule 5 of Companies (Audit & Auditors Rules), 2014 has prescribed the following class of companies for the purpose of section 139(2) :
i) all unlisted public companies having paid up share capital of Rs 10 crore or more,
ii) all private limited companies having paid up share capital of Rs 20 crore or more,
iii) all companies having paid up share capital of below threshold limit mentioned in (ii) & (iii) above, but having borrowings from financial institutions, banks or public deposits of Rs 50 crores or more.

6. Number of Directors [Sec 149]
a) Minimum No. of Directors
i) Private Companies - 2
ii) Public Companies - 3
iii) One Person Company (OPC) - 1

b) Maximum No. of Directors - 15
If the company wants to appoint more than 15 Directors, then they can do so by passing Special Resolution.

7. Meetings of Board [Sec 173]
a) Frequency of Board Meetings 
i) First Board Meeting - Every company shall hold the first meeting of the Board of Directors within 30 days of the date of its incorporation.
ii) Subsequent Board Meeting - Every company shall hold minimum 4 meetings every year provided that the gap between 2 consecutive board meetings shall not more than 120 days.
iii) Exceptions 
- A dormant company, OPC, small company shall be deemed to have complied with the provisions of sec 173 if at least 1 meeting of the Board of Directors have been conducted in each half of a calender year and the gap between 2 meetings is not less than 90 days.

8. Audit Committee [Sec 177]
Audit Committee shall be constituted by the BOD of 
a) every listed company,
b) all public companies with paid up share capital of Rs 10 crores or more,
c) all public companies having turnover of Rs 100 crores or more,
d) all public companies having in aggregate, outstanding loans/ borrowings/ debentures/ deposits exceeding Rs 50 crores or more.

9. Vigil Mechanism [Sec 177(9)]
a) Every listed company,
b) Companies which accept deposits from public,
c) Companies which have borrowed money from banks and public financial institutions in excess of Rs 50 crores.

10. Nomination & Remuneration Committee [Sec 178]
a) Every listed company
b) Unlisted public company with paid up share capital of Rs 10 crore or more or
c) Unlisted public company having turnover of Rs 100 crore or more or
d) Unlisted public company having in aggregate outstanding loans or borrowings or debentures or deposits exceeding Rs 50 crores or more.

11. Company to Contribute to bona fide and charitable funds etc [ Sec 181]
Prior permission of the company in general meeting is required for such contribution in case any amount in aggregate of which, in any financial year, exceed 5 percent, of its average net profits for the 3 immediately preceding financial year.

12. XBRL [General Circular No. 16/2012 Dated 06.07.2014]
a) Applicable to
i) All Companies listed with stock exchanges in India.
ii) Subsidiaries of any company listed with stock exchanges in India.
iii) All Companies having paid up share capital of Rs 5 crores and above
iv) All Companies having turnover of Rs 100 crores and above

b) Not Applicable to
i) Banking Companies 
ii) Insurance Companies
iii) Power Companies 
iv) Non-Banking Financial Companies
v) Housing Finance Companies

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All About Startups in India - Benefits, Registration etc

Benefits for Recognized Startups under the Startups India Scheme
1. Self Certification - The Startups may self certify compliance in respect of following 6 Labour Laws:
a) Other Constructions Workers (Regulation of Employment & Conditions of Service) Act, 1996
b) The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979
c) The Payment of Gratuity Act, 1972
d) The Contract Labour (Regulation & Abolition) Act, 1970
e) The Employees Provident Funds and Miscellaneous Provisions Act, 1952
f) The Employees State Insurance Act, 1948
In order to self certify compliance, you may log on to "Shram Suvidha Portal" - https://shramsuvidha.gov.in/startUp.action

2. Tax Exemption - The Inter Ministerial Board setup shall validate Startups for the following 2 exemptions:
a) Income Tax Exemption on profits under sec 80- IAC of Income Tax Act - Provided following conditions are satisfied:
i) A private limited company or limited liability partnership,
ii) Incorporated on or after 1st April 2016 but before 1st April 2021 and
iii) Products or services or processes are undifferentiated, have potential for commercialization and have significant incremental value for customers or workflow.
The deduction is for any 3 years out of 7 years from the year of incorporation of startup.    

b) Income Tax Exemption on Investments above fair market value received under section 56 of Income Tax Act
A DIPP (Department of Industrial Policy and Promotion) recognised startup being a private limited company shall be eligible to apply to the Inter-Ministerial Board for exemption from the Income Tax on investments above fair market value by angel investors.
Provided following conditions are satisfied:
i) The aggregate amount of paid up share capital and share premium of the Startup after the proposed issue of shares does not exceed 10 crore rupees,
ii) The investor/proposed investor, who proposed to subscribe to the issue of shares of the Startup has - 
a) The average returned income of Rs 25 lakhs or more for the preceding 3 financial years, or
b) The net worth of Rs 2 crore or more as on the last date of the preceding financial year.
c) The startup has obtained a report from merchant banker specifying the fair market value of shares.

3. Easy winding up of Company - Startups can be windup within 90 days on a fast track basis under Insolvency and Bankruptcy Code,2016. Link - http://www.mca.gov.in/MinistryV2/closecompany.html

4. Startup Patent Application and IPR (Intellectual Property Rights) Protection - Fast track process and upto 80 % rebate in filing patents.

5. Easier Public Procurement Norms - Exemption on EMD(Earnest Money Deposit) for filing government tenders and minimum requirements. Get listed on GeM (Government e-Marketplace) as seller. Link - https://gem.gov.in

6. SIDBI (Small Industries Development Bank of India) Fund of Funds - Funds for investment into startups through AlF (Alternative Investment Funds). Link - https://venturefund.sidbi.in/Home.php

Startup India Scheme - In this scheme, Government of India has provided a fund of Rs 2500 crore for startups as well as a credit guarantee fund of Rs 500 crore rupees.

Startup Registration 
i) The Company must be formed as a private limited company or limited liability partnership.
ii) It should be a new firm or not older than five years and the total turnover of a company does not exceed Rs 25 crores.
iii) The firms should have obtained the approval of DIPP.
iv) To get approval from DIPP, startup should be funded by an Incubation fund, Angel fund or Private Equity fund.
v) The startups should obtain a patron guarantee from the Indian patent and Trademark office.
vi) It must have recommendation letter by an incubation.
vii) The startup must provide innovative schemes or products.
viii) Angel fund, Incubation fund, Accelerators, Private Equity fund, Angel network must be registered with SEBI.

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18 Ratios to Analyse a Company

Meaning - Ratio Analysis is a study of relationship among various financial factors in a business.

Objective - The objective of ratio analysis is to judge the earning capacity, financial soundness and operating efficiency of a business organisation.

Classification 
i) Income Statement Ratios - These ratios are calculated on the basis of the amounts of income statement (Profit & Loss Account) only. Ex - gross profit ratio, net profit ratio, stock turnover ratio etc.

ii) Position Statement Ratios - These ratios are calculated on the basis of the amounts of position statement (Balance Sheet) only. Ex - current ratio, debt equity ratio etc.

iii) Inter-Statement Ratios or composite Ratios - These ratios are based on amounts of income statement as well as position statement. Ex - fixed assets turnover ratio, net profit to capital employed ratio etc.

iv) Liquidity Ratios - These ratios measure the short term solvency i.e the firm's ability to pay current dues.

v) Solvency Ratios - The term solvency implies ability of an enterprise to meet its long term indebtedness and thus solvency ratios convey an enterprises ability to meet its long term obligations.

vi) Activity Ratios - Activity Ratios also termed as Performance or Turnover Ratios, judge how well the facilities at the disposal of enterprise are being utilised. In other words, these ratios measures the effectiveness with which a concern uses resources at its disposal.

1. Current Ratio - Current Ratio is a relationship of current assets to current liabilities and is computed to assess the short-term financial position of the enterprise. It means current ratio is an indicator of the enterprise's ability to meet its short terms provisions since the ratio assumes that current assets can be converted into cash to meet its current liabilities.
A lower ratio indicated that the enterprise may not be able to meet its current liabilities on time and inadequate working capital. On the other hand a high ratio indicates funds are not used efficiently and are lying idle.
Current Ratios is calculated on a particular day not for a particular period.

2. Liquidity Ratio - Liquidity Ratio is a relationship of liquid assets with current liabilities and is computed to assess the short term liquidity of the enterprise in its correct form.
Liquid assets are those assets which are either in the form of cash or cash equivalents or can be converted into cash within a very short period. Liquid assets can be computed by deducting stock and prepaid expenses from current assets. Stock is excluded because it takes some time to be converted into cash and prepaid expenses are also not included because they do not provide cash at all.
This ratio is an indicator of short term debt paying capacity of an enterprise and thus better indicator of liquidity. This ratio is very important for banks and financial institutions but not for manufacturing concerns. The comparison of current ratio and liquidity ratio indicate the degree of inventory held.

3. Debt Equity Ratio - Debt Equity ratio is computed to ascertain the soundness of the long-term financial position of the firm. This ratio expresses a relationship between debt (external equities) and the equity (internal equities). Debt means long term debt i.e debentures, loan from financial institutions. Equity means shareholders funds i.e preference share capital, equity share capital, reserves less losses and fictitious assets like preliminary expenses.
A high debt equity ratio indicates a risky financial position while a lower ration indicates safer financial position. A lower debt equity ratio indicates use of more equity than debt which means a larger margin of safety by creditors and vice versa. 
It also indicates the extent to which the enterprise depends upon outsiders for its existence. 

4. Total Assets to Debt Ratio - Total Assets to Debt Ratio establishes a relationship between total assets and total long term debts.
Total Assets includes fixed as well as current assets. However, it does not include fictitious assets like preliminary expenses, underwriting commission, share issue expenses, debit balance of profit & loss account etc.
Long term Debts refers to debts that will mature after one year. It includes debentures, bonds, loans from financial institutions.
It measures the safety margin available to the providers of long term debts. It measures the extent to which debt is covered by assets. A higher ratio represents higher security to lenders for extending long term loans to the business. On the other hand, a low ratio represents a risky financial position as it means that the business depends heavily on outside loans for its existence.

5. Proprietary Ratio - Proprietary Ratio establishes the relationship between proprietor's funds and total assets. Proprietor's funds means share capital plus reserves and surplus, both of capital and revenue nature. Loss and fictitious assets are to be deducted. This ratio shows the extent to which shareholders own the business. The difference between this ratio and 100 represents the ratio of total liabilities to total assets.
It highlights the general financial position of the enterprise. This ratio is of particular importance to the creditors who can ascertain the proportion of shareholders funds in the total assets employed in the firm.
A high ratio indicates adequate safety for creditors. But a very high ratio indicates improper mix of proprietors funds and loan funds, which results in lower return on investment. A low ratio indicates inadequate or low safety cover for the creditors. It may lead to unwillingness of creditors to extend credit to the enterprise. It is so because in case of liquidation creditors being unsecured are likely to loose their money. 

6. Inventory Turnover Ratio - Inventory Turnover Ratio establishes the relationship between the cost of goods sold during a given period and the average amount of inventory carried during that period. It indicates whether the investment in stock has been efficiently used or not, the purpose being to check whether only the required minimum amount is invested in stocks.
The objective of computing inventory turnover ratio is to ascertain whether investment in stock has been judicious or not i.e that only the required amount is invested  in stock. A high ratio indicates that more sales are being produced by a rupee of investment in stocks. A very high inventory turnover ratio indicates overtrading and it may lead to working capital shortage. A low inventory turnover ratio indicates inefficient use of investment, over investment in stocks, accumulation of stocks at the end of period in anticipation of higher prices or unsaleable goods etc. A reasonable inventory turnover ratio ensures working capital and also enables the business to earn a reasonable margin of profits.

7. Debtor Turnover Ratio or Receivables Turnover Ratio -  Debtor Turnover Ratio establishes the relationship between net credit sales and average debtors of the year. While calculating debtor turnover of a company, it is important to remember that doubtful debts are not to be deducted from total debtors, since here is the purpose to calculate number of days for which sales are tied up in debtors and not the realizable value of debtors.
This ratio indicates the number of times the receivables are turned over in a year in relation to sales. It shows how quickly debtors are converted into cash and thus indicates the efficiency of the staff entrusted with collection of amounts due from debtors.  
A high ratio is better since it would indicate that debts are being collected more promptly. Prompt collection of book debts means more available funds which can be put to some other use. A lower ratio would indicate inefficiency in collection and more investment in debtors than required.

8. Creditors or Payables Turnover Ratio - Creditors Turnover Ratio shows the relationship between net credit purchases and total payable or average payable, whereas average payment period or creditors velocity signifies the credit period enjoyed by the enterprise in paying creditors.
Average payment period is calculated by dividing Total or Average Payable by Net Credit Purchases and multiplied by number of months/ days in a year.
The objective of calculating creditors turnover ratio is to establish the the number of times the creditors are turned over in relation to purchases.A high turnover ratio or shorter payment period represents the availability of less credit or early payments. A high ratio also indicates that enterprise is not availing the full credit period. This boosts up the credit worthiness of the firm. A very low turnover ratio or longer payment period implies availability of more credit or delayed payments. Thus, the lower the ratio, the better is the liquidity position of the firm and higher the ratio, the lesser is the liquid position of the firm.  

9. Working Capital Turnover Ratio - This ratio establishes the relationship between working capital and sales. It indicates the number of times a unit invested in working capital  produces sales. This ratio indicates whether working capital has been effectively utilised or not.
The objective of computing the ratio is to ascertain whether or not working capital has been effectively utilised in making sales. In other words, it measures the effective utilisation of working capital. It also shows the number of times a unit is invested in working capital produces sales.

10. Fixed Assets Turnover Ratio - This ratio establishes the relationship between Net Sales and Fixed Assets indicating how efficiently they have been used in achieving the sale.
The objective of computing fixed assets turnover ratio is to establish whether the investment in fixed assets is justified in relation to the sales achieved. A high ratio indicates efficient utilisation of fixed assets. On the other hand, a low ratio indicates inefficient utilisation of fixed assets. If there is a fall in the ratio, it indicates that fixed assets remained idle and therefore, the management should investigate and determine the reason for decline.

11. Gross Profit Ratio - This ratio establishes the relationship between gross profit and nest sales (both cash and credit sales) minus sales returns.
The gross profit is what is revealed by the Trading Account. It results from the difference between net sales and cost of goods sold without taking into account the expenses charged to profit and loss account. A decline in gross profit ratio is a major concern and it may be due to following reasons:
a) The prices of materials may have gone up or wages may have increased and the selling price may not have increased in proportion to it.
b) The selling price may have fallen without there being a relative fall in the prices of material or wages.
c) The closing stock may have taken wrongly or wrongly valued. The gross profit and the gross profit ratio will fall if the stock is undervalued.
d) Misappropriation of goods, so that the firm pays for them but someone else takes them away.
GP Ratio is a reliable guide to the adequacy of selling prices and efficiency of trading activities.
The objective of working gross profit ratio are:
a) To determine the selling prices so that there is adequate gross profit to cover the operating expenses, fixed charges, dividends and building up reserves.
b) To determine, how much the selling price per unit may decline without resulting in losses on operations of the firms.

12. Operating Ratio - The Operating Ratio is computed to establish the relationship between operating costs and net sales. This ratio indicates the proportion that the cost of sales or operating cost bears to sales. Cost of sales includes direct cost of goods sold as well as other operating expenses, administration, selling and distribution expenses which have matching relationship with sales.
Operating Costs = Cost of Goods Sold + Operating Expenses
Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses + Manufacturing Expenses - Closing Stock
Operating Expenses = Administrative Expenses + Selling & Distribution Expenses
This ratio shows the percentage of sales absorbed by the cost of sales and operating expenses. Lower the operating ratio, the better it is because it would leave higher margin to meet interest, dividend etc.

13. Net Profit Ratio - Net Profit Ratio establishes the relationship between net profit and sales. Net profit is computed by deducting all direct costs i.e, cost of goods sold and indirect costs i.e, administrative and marketing expenses, finance charges and making adjustments for non-operating expenses from net sales and adding non-operating incomes.
The Net Profit Ratio is an indicator of overall efficiency of the business. Higher the net profit ratio better the business. This ratio helps in determining the operational efficiency of the business. An increase in the ratio over the previous period shows improvement in the operational efficiency and decline means otherwise.

14. Return on Investment (ROI) or Return on Capital Employed Ratio - Return on Capital Employed establishes the relationship of profit (profit means profit before interest and tax) with capital employed. The net result of operation of a business is either profit or loss. The sources, i.e, funds used by the business to earn this are proprietor's (shareholders) funds and loans. The overall performance of enterprise can be judged by this ratio when compared with the previous periods to judge improvement in performance.
This ratio is computed by dividing the net profit before interest, tax and dividends by capital employed.
Capital Employed can be calculated by any of the following methods:
I. Share Capital (Both Equity and Preference) + Reserves + Long term Loans - Fictitious Assets (like preliminary expenses) - Non Operating Assets like investments
II. Fixed Assets (net of depreciation) + Working Capital
This ratio measures the overall performance of the enterprise. It measures how efficiently the sources entrusted to the business are used. The return on capital employed is a fair measure of the profitability of any concern with the result that the performance of different industries can be compared.

15. Earning Per Share (EPS) - It is the earning of a company attributable to the equity shareholders divided by the number of equity shares.
This ratio helps in evaluating the prevailing market price of share in the light of profit earning capacity. The more the earning per share, better is the performance and prospects of the company.

16. Dividend Per Share (DPS) - DPS is calculated by dividing the profit distributed as equity dividend by the number of equity shares. The objective of computing this ratio is to measure the dividend distributed per equity share.

17. Price Earning Ratio - This Ratio establishes the relationship between the market price of the share and earning per share. It indicates how many times is the market price of share to its earnings.

18. Return on Equity (ROE) - ROE is the amount of net income returned as percentage of shareholder's equity.
Net Income is for the full financial year calculated before dividend paid to equity shareholders but after dividends paid to preference shareholders.
ROE is useful in comparing the profitability of company to that of other companies in the same industry.
It is different from ROCE  as ROE only considers net return on the equity of the company while ROCE considers the return to all stakeholders in the company including equity, preference and debt.

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