CA Final IBS Paper Review and MCQ Solutions for Jan 2026 Exam

CA Final IBS January 2026 paper was notably challenging, especially the MCQs, covering Company Law, Auditing, Financial Management, GST, FCRA, FEMA, and Income Tax. Key topics included compliance for director appointments, EQCR roles, resource allocation, financial instruments, GST rates, and SPOM, with an increased weightage of 41 marks emphasizing its importance for future attempts.

Case studies tested practical application of laws, strategic finance, taxation, and auditing standards. Ambiguous questions may attract grace marks, while a thorough understanding of compliance, capital allocation, and related-party rules proved essential for scoring well.

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CA Final IBS Paper Review

The January 2026 IBS paper was more difficult than previous attempts, with MCQs requiring extensive conceptual verification. While a descriptive attempt of 40-50 marks was considered good, grace marks are anticipated due to the paper's difficulty and an ambiguous question. Subject-wise, SPOM (Strategic Performance & Operations Management) showed a significant increase in weightage (41 marks), highlighting its growing importance.

CA Final IBS Subject-wise Weightage Analysis

The overall weightage of the paper followed a largely expected pattern.

From Group 1, around 49 marks were asked:

• Financial Reporting (FR): 17 marks

• Advanced Financial Management (AFM): 18 marks

• Audit: 14 marks

From Group 2, approximately 35 marks were covered:

• Direct Tax (DT): 15 marks

• Indirect Tax (IDT): 20 marks

In addition, the weightage of SPOM has been consistently increasing:

• Earlier attempts: around 35 marks

• This attempt: approximately 41 marks

This clearly indicates that SPOM should not be ignored for the May 2026 attempt.

Case Study 1: MCQ Analysis

This case study tests conceptual clarity and practical application of the relevant provisions.

MCQ 1.1: Compliance for Appointment of Directors

Topic: Appointment of directors beyond statutory/AoA limits under the Companies Act.

Scenario: RSL, with 14 directors, plans to appoint two more, exceeding the maximum of 15 allowed by its AoA and the Companies Act without a special resolution.

Required Compliance Steps:

1. Amend its Articles of Association (AoA) via a special resolution to allow more than 15 directors.

2. Pass another special resolution to approve the appointment of directors beyond the statutory limit of 15.

Analysis of Options:

• Incorrect: Option 1 (AoA amendment via ordinary resolution) and Option 4 (ordinary resolution and ROC approval).

• Incomplete: Option 3 (only mentioning a special resolution) is incomplete without the prior AoA amendment.

The question asked for incorrect compliances; thus, points 1, 3, and 4 are considered incorrect.

MCQ 1.2: Permitted Actions for an Engagement Quality Control Reviewer (EQCR)

Topic: The role and limitations of an EQCR in an audit engagement.

An EQCR provides objective evaluation. Permitted Actions include reviewing the audit plan, consulting with the engagement partner, and reviewing consultations undertaken. The EQCR must avoid participation in the engagement and making decisions for the engagement team.

Conclusion: The statement suggesting the EQCR can "participate in the engagement and make decisions" is incorrect. Therefore, the correct actions are reviewing the plan, consulting with the partner, and reviewing consultations undertaken.

MCQ 1.3: Limiting Factors in Resource Allocation

Topic: Identifying primary constraints in strategic financial decision-making.

From a Strategic Financial Management perspective, the principal limiting factor in undertaking profitable investments is the availability of capital. Other factors like the mode of financing, investment opportunities, or future earning potential are not primary limitations on capital supply.

Conclusion: Capital Availability is the sole limiting factor among the choices. The question asks what are not considered limiting factors.

MCQ 1.4: Fair Value of Equity Component in a Compound Financial Instrument

Topic: Bifurcation of compound financial instruments (Ind AS).

Scenario: RSL issued optionally convertible preference shares with a ₹100 face value and a 5% non-cumulative dividend. The market interest rate for similar instruments without conversion is 8%.

Analysis:

• A non-cumulative dividend means the dividend is payable at the issuer's discretion; thus, it is treated as an equity instrument under Ind AS.

• The only liability is the redemption obligation.

• Calculation:

1. Liability component (PV of redemption amount): ₹100 × PV factor @8% for the final year = ₹100 × 0.5403 = ₹54.03.

2. Equity component: Total Proceeds (₹100) - Fair Value of Liability (₹54.03) = ₹45.97.

Conclusion: The question is ambiguous as ₹45.97 was not an option, suggesting a potential grace mark.

MCQ 1.5: GST Rate and Place of Supply

Topic: Application of GST laws for rate change and "bill to, ship to" transactions.

Scenario:

1. GST Rate: Service completed (July 20), advance received (July 15), invoice (August 2). Rate changed from 12% to 18% on July 21.

2. Place of Supply (POS): Unregistered FG Industries in Rohtak, Haryana, orders from RSL via Tricon, instructing delivery to VC Industries in Jalandhar, Punjab. RSL's invoice records Jalandhar as delivery address.

Analysis:

• GST Rate: Since the provision of service (July 20) and receipt of payment (July 15) both occurred before the rate change (July 21), the old GST rate of 12% applies.

• Place of Supply: In a "bill to, ship to" model, the POS is the delivery address recorded on the invoice, which is Jalandhar, Punjab.

Conclusion: The correct GST rate is 12%, and the Place of Supply is Jalandhar, Punjab.

Case Study 2: MCQ Analysis

This case study evaluates concept understanding through application-based MCQs.

MCQ 2.1: Matching Issues with Corrective Measures (SPOM)

Topic: Operations management concepts (JIT, Value Stream, Visual Management).

Analysis of Matches:

• Correct Matches: Value Stream System (improves adaptability by eliminating non-value-added activities), Visual Management (saves search time), Standardization.

• Incorrect Match: Just-in-Time (JIT) is primarily for eliminating waste (inventory, waiting time), not directly solving quality problems.

Conclusion: The question asked for correct matches; thus, the option including Value Stream, Visual Management, and Standardization is correct.

MCQ 2.2: Acquisition of Control through a Forward Contract

Topic: Date of obtaining control under Ind AS 110 (Consolidated Financial Statements) and Ind AS 109 (Financial Instruments).

Scenario: XYZ (45% stake in PQR) enters a forward contract for an additional 12% from B Ltd., with settlement in two years. Crucially, B Ltd. must exercise the voting rights of the 12% shares as per XYZ's instructions from the contract date.

Analysis:

• XYZ gains control from the contract date (July 1) as it can direct the voting rights of 12% shares, increasing its effective control to 57%.

• PQR becomes a subsidiary and must be consolidated from July 1.

• Contracts leading to gaining control (under Ind AS 103) are generally excluded from Ind AS 109.

Conclusion: Control is obtained, consolidation is required, and the contract is not subject to Ind AS 109.

MCQ 2.3: Financing and Hedging Decisions

Topic: Comparing financing options and characteristics of hedging instruments (forwards vs. futures).

Scenario:

• Borrowing: XYZ (fixed 5.5%, floating 5.6%); JBS (floating 6.15%, fixed 6.5%).

• Hedging: XYZ uses forward contracts; JBS uses currency futures.

Analysis:

• Borrowing: XYZ chooses fixed 5.5%; JBS chooses floating 6.15%.

• Forward vs. Future Contracts:

Conclusion: XYZ borrows fixed, JBS borrows floating. Cost of forward is spread, cost of future is brokerage.

MCQ 2.4: Eligibility for Appointment as Director

Topic: Limits on directorships under the Companies Act and SEBI (LODR) Regulations.

Scenario: Mr. Suresh is proposed as a Whole-Time Director for XYZ (a listed entity).

• Current directorships: 1 Dormant, 8 Public (7 listed, 1 unlisted), 11 Private.

Comparative Analysis of Legal Provisions:

Evaluation of Mr. Suresh's Eligibility:

1. Companies Act: Total 20 directorships. Excluding 1 dormant, he holds 19. He is eligible.

2. SEBI (LODR): He holds directorships in 7 listed entities. Appointing him to another listed entity (XYZ) would make it 8, which violates the SEBI limit of seven.

Final Determination: Mr. Suresh is ineligible due to SEBI (LODR) regulations.

Question 2.5: Procedures for a Review of Interim Financial Statements

Topic: Distinction between a financial statement review and audit procedures.

A review is a limited assurance engagement. Appropriate procedures include obtaining an understanding of the entity and its internal control, performing inquiries, and obtaining written representations from management. Procedures not performed in a review include corroborating evidence for significant matters and in-depth internal control assessment.

Case Study 3: FCRA, Bond Analysis, ODI, and GST

This case study is designed to assess interpretation of law and concept application.

Question 3.1: Compliance with Foreign Contribution (Regulation) Act (FCRA)

Topic: FCRA compliance for trusts.

Analysis of Statements:

• Annual Return (Form FC-4): Must be filed within nine months of financial year-end. Filing on Jan 15, 2025, for FY ending March 31, 2024 (due Dec 31, 2024), is after the due date.

• Receipt of Foreign Contribution: Must be received in a designated FCRA account at the specified SBI branch in New Delhi. This was compliant.

• Books of Account: Separate records for foreign contributions are mandatory. Failure to maintain them is non-compliance.

• Certification of Annual Return: Any Chartered Accountant can certify; they are not required to be the statutory auditor. This was permissible.

Result: Statements 1 and 3 are incorrect.

Question 3.2: Analysis of Bond Risk and Price Behavior

Topic: Interest rate risk and bond price movement.

1. Interest Rate Risk: Primarily a function of a bond's maturity. Longer maturity means higher risk. Bond 1 (2 years maturity) has the lowest interest rate risk.

2. Bond Price Movement Towards Maturity: As maturity approaches, a bond's price converges to its face value.

• Memory Tip: A bond trading at a discount (price < face value) will see its price increase over time. A bond trading at a premium (price > face value) will see its price decrease over time.

• Bond 2 (trading at discount) will see its price increase. Bond 1 (trading at premium) will see its price decrease.

Result: Statements on Bond 1 having lowest risk, Bond 2 price increasing, and Bond 1 price decreasing are correct.

Question 3.3: Overseas Direct Investment (ODI) by a Trust under FEMA

Topic: Rules for trusts making ODI.

Analysis of ODI Provisions for a Trust:

• Permissibility: A registered trust can make ODI if it operates in the hospital or educational sector (EHT is in hospital sector).

• Approval: Requires prior RBI approval, not Central Government approval.

• Governing Document: Trust Deed must explicitly permit the ODI.

• Sector: The foreign entity must be in the same sector as the investing trust.

Evaluation: Statements that ODI is permitted for EHT and the Trust Deed must permit ODI are correct.

Question 3.4: GST Provisions for a Charitable Trust

Topic: Applicability of GST to trust activities.

Analysis of GST Applicability:

1. Residential Yoga Program: Services by Section 12AA/12AB registered entities for residential yoga/meditation programs are exempt from GST.

2. Rental of Community Hall: Renting precincts of a religious place for general public by a charitable/religious trust is exempt if rent is less than ₹10,000 per day. EHT's ₹5,000 daily rent is exempt.

3. RCM on Security Services: Reverse Charge Mechanism (RCM) applies when security services are provided to a registered person. Since EHT is not registered, RCM is not applicable.

Result: Statements claiming RCM is applicable on security services for EHT are incorrect.

Question 3.5: Income Tax Provisions for Trust Registration and Income

Topic: Income Tax Act rules for charitable trusts.

Analysis of Provisions:

1. Renewal of Registration (Section 12AB): Application must be filed at least six months prior to expiry. For registration on April 1, 2021 (expiring March 31, 2026), the due date is October 1, 2025. This statement is correct.

2. Form for Application: Form 10AB does not require CA certification.

3. Treatment of Grant as Corpus: A grant is corpus only with a specific direction from the donor. A "specific purpose" grant (e.g., eye surgery) is not automatically corpus.

Result: Only the first statement is correct.

Case Study 4: Remuneration, Deductions, and Asset Capitalization

This case study focuses on applying core concepts to exam-based MCQs.

Question 4.1: Managerial Remuneration & Stock Options

Topic: Legality of director remuneration and stock options under Companies Act.

1. Remuneration to MD/WTD: For more than one MD/WTD, total managerial remuneration cannot exceed 10% of net profits without a special resolution. The remuneration paid was not within the permissible limit.

2. Stock Options to Independent Directors: Independent Directors are not entitled to receive stock options as it impairs their independence.

Conclusion: Both the executive director remuneration (exceeding limits) and independent director stock options are impermissible.

Question 4.2: Investment-Linked Deduction under Section 35AD

Topic: Eligibility for deduction under Income Tax Act, Section 35AD.

Rule: Section 35AD deduction is for capital expenditure in specified businesses only. QBL's Quick Service Restaurant business is not specified. Its "central preparation facility" does not qualify as a cold chain or agricultural produce facility for this section.

Conclusion: QBL is not eligible for Section 35AD deduction; the maximum allowable amount is nil.

Question 4.4: Capitalization of Property, Plant, and Equipment (PPE)

Topic: Accounting treatment for PPE and related costs.

1. Capitalized Cost of New Machinery (M1):

• List Price of M1: ₹6.50 crore

• Add: Architect's Fee (Directly attributable): ₹0.05 crore

• Total Capitalized Cost of M1: ₹6.55 crore

Costs to be Expensed to Profit & Loss:

• Maintenance Cost, Initial Operating Loss.

• Machine Servicing Equipment (MSC) with no future economic benefits must be expensed.

2. Analysis of Statements:

• Statement 1 (M1 recognized at ₹6.55 crore) is Correct.

• Statement 2 (MSC classified as inventory) is acceptable in the context that it will ultimately be expensed.

• Statement 3 (Fair value disclosure for PPE is mandatory) is Incorrect (mandatory for Investment Property, not PPE unless revaluation model used).

• Statement 4 (Disclosure of measurement basis is recommendatory) is Incorrect (it's mandatory).

Result: Statements 1 and 2 are deemed correct.

Question 4.5: Input Tax Credit (ITC) under GST

Topic: Eligibility for ITC and RCM applicability under GST.

Core Principle: A person paying tax under the 5% composition scheme for restaurant services is not eligible to claim Input Tax Credit (ITC) on any inputs or input services.

Analysis of Statements:

1. ITC Availability: Statements claiming ITC is available on logistics or machinery purchases are INCORRECT for a composition scheme taxpayer.

2. RCM on Director's Fees: GST on director services to a company is payable under RCM by the company. This statement is CORRECT.

3. Bank Remittance View: QBL's view that bank charges can be deducted from GST challan is INCORRECT; the full gross tax amount must be deposited.

Result: Statements claiming ITC is available and the bank remittance view are incorrect.

Case Study 5: International Trade & Related Party Transactions

This case study examines how theoretical concepts are applied in MCQ-based questions.

Question 5.1: Analysis of Sales and Purchase Transactions

Topic: GST, Foreign Trade Policy (FTP), and Customs Law.

Analysis of Statements:

• Zero-Rated Supply: Supply to an Export Oriented Unit (EOU) is not a zero-rated supply under GST.

• Supply from EOU to Advance Authorization Holder: Under FTP, an EOU can supply goods to an Advance Authorization (AA) holder against an Advance Release Order. This is permissible.

• Bank Guarantee for Job Work: No general requirement for a bank guarantee when sending goods to a job worker.

• Legal Opinion on CVD: The opinion that CVD was not exempt when BCD and IGST were, was deemed incorrect by the lecturer.

Result: Statements regarding EOU supply to AA holder and no bank guarantee for job work are true.

Question 5.2: Related Party Transaction (RPT) Analysis

Topic: SEBI (LODR) Regulations for related party transactions involving material subsidiaries.

Scenario: Pluto Pvt. Ltd. (unlisted, material subsidiary of listed QBL) enters a ₹25 crore RPT with ABC (group company) for dyeing work, representing 19.5% of total expenses.

Key Concepts:

1. Significant Transaction: A transaction value exceeding 10% of total income or expenses of a subsidiary. Pluto's transaction (19.5%) is significant.

2. Reporting (Regulation 24): Management of an unlisted subsidiary must inform the board of directors of the listed parent company about any significant transactions.

Evaluation of Statements:

• Statement 1 (QBL's board must be informed) is Correct.

• Statement 2 (No approval needed as < 20%) is Incorrect (threshold is 10%).

• Statement 3 (Independent director of listed entity on all unlisted subsidiary boards) is Incorrect (only for material subsidiaries).

• Statement 4 (Audit Committee approval required) was stated as Incorrect for this specific transaction.

Conclusion: Statements 2, 3, and 4 are incorrect