B.Com (Hons.

) IInd Year
Section A and H Asha Rani

Questions of Profit and Gains from Business and Profession Chapter

Question 1.Ms.Jyoti (age 40 years, a resident individual) furnishes the following information
for the PY 2018-19.
Purchases 2,00,000 Sales 15,72,000
Salary ,bonus and Commission 4,40,000 Bad debt recoverd allowed in earlier 2,000
years
Household expenditure 2,500 Interst on debenture of RIL company 25,000
Advertisement 1,30,000` Refund on income tax 1000
Income tax 19,000 STCG on sale of investment 31,000
Donation to National Defence fund 2,500 Gift received from father 22,000
Life insurance premium on the life 2,000
of assessee
Gift to customer 1,50,000
Provision for bad debts 2,000
Depreciation 32,000
Contribution to National Laboratory 1,00,000
for applied scientific research
Employers contribution to RPF 20,000
Net profit 5,53,000
Total 16,53,000 16,53,000
Additional Information:
(i) Salary, bonus and commission includes:
(1) Salary to proprietor Rs. 50,000
(2) Bonus paid to employees on 2.11.2018: Rs.30,000
(3) Salary paid to brother in law: Rs.20,000;5000 found excessive.
(ii) Advertising expenses includes a bill od Rs.40,000 which is paid through bearer cheque.
(iii) Depreciation u/s 32 is Rs.40,000.
Compute the taxable income for the AY 2019-20.
Question:2. X owns a block of plant and machinery consisting of 3 machines M1, M2 and M3. The
following information is available in respect of this block.
1. Rate of Depreciation @ 15%.
2. Written down value of block on 1.4.2018.-Rs.5,00,000.
3. A new machine was acquired for Rs. 9,00,000 on 18.4.2018 and put to use on 12.12.2018.
4. Machine M1 was sold to a scrap dealer for RS.50,000 on 31.12.2018.
5. Machine M2 and M3 were sold for Rs.18,00,000 on 10.2.2019.
Compute amount of depreciation available for the previous year 2018-19 and W.D.V on 1.4.2019
and capital gain/loss if any. Ignore additional depreciation.
Expenditure Amount Income Amount
To staff salary 4,30,000 By Fee Receipt 12,63,000
To consumables 8,000 By Dividend from Indian companies 15,000
To Depreciation 91,000 By wining from lotteries (net of TDS of 28,000
Rs. 12,000)
To medicines consumed 3,69,000
To administrative expenses 1,51,000
To Donation to PMNRF 5,000
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Section A and H Asha Rani

To excess of income over 2,51,000

expenditure
13.06.600 13,06,600
Question 3. Dr. Chadha is running a clinic. His income and expenditure account for the year
ending 31-03-2017 is given below. Compute his total income for the A/Y 2017-18.

Other information:

1) Medicines consumed include medicine of (Cost) Rs.25,000 used for his family.
2) Fee receipt include Rs.20,000 honorarium for valuing medical examination
answer book.
3) He received Rs.8000 p.m. as salary from a City Care Centre. This has not been
included in the Fee Receipt credited to income and expenditure account.
4) He has paid premium of Rs.45,000 for a LIC Policy for his Life, which was taken
on 1.08.2013 (sum assured Rs.4,00,000).
5) He had paid Rs.4,000 for purchase of lottery tickets, which has not been debited to
income and expenditure account.
6) Depreciation in respect of all the assets has been ascertained at Rs.50,000 as per I T
Rules, 1962.
7) He deposited Rs. 1,50,000 in PPF.
8) Donation to PMNRF has been made by a crossed cheque.

Question -4. From the Profit and Loss account of X (age: 31 years, resident) for the year
ending march 31, 2017, ascertain his total income and tax liability for the AY 2017-18:
Rs. Rs.
General expenses 13,400 Gross profits 4,15,500
Bad debts 22,000 Commission 8,600
Advance tax 5,000 Brokerage 37,000
Salary to staff 600 Sundry receipts 2,500
Salary to X 48,000 Bad debts recovered 11,000
(earlier allowed as
deduction)
Interest on overdraft 4,000
Interest on load to Mrs. X 42,000 Interest on debentures
(i.e. net amount Rs. 25,000
22,500 + TDS Rs. 2,500)
Interest on capital of X 23,000 Interest on depoits with 13,000
a company ( non-trade)
(net interest
Rs.11,700+TDS Rs.1,300)
Depreciation 48,000
Advertisement expenditure 7,000
Contribution to Employees 13,000
Net profit 2,60,600
5,12,600 5,12,600

Other information:

1) The amount of depreciation allowable is Rs. 37,300 as per the income-tax rules. It includes
depreciation on permanent sign board.
2) Advertisement expenditure includes Rs. 3,000, being cost of permanent sign board fixed
on office premises.
B.Com (Hons.) IInd Year
Section A and H Asha Rani

3) Income of Rs. 4,500, accrued during the previous year, is not recorded in the Profit and
Loss Account.
4) X pays Rs. 6,000 as premium on own life insurance policy of Rs. 70,000.
5) General expenses include (a) Rs. 500 given to Mrs. X for arranging a party in honour of a
friend who has recently come from Canada (b) Rs. 1,000 being contribution to a political
party.
6) Loan was taken from Mrs. X for payment of arrears of income-tax.

Question 5. X (age: 24 years), a resident individual, furnishes the following information for
AY 2017-18:

Profit and Loss Account for the year ending March 31, 2017
Rs. Rs.
Office expenses 11,000 Gross profits 8.78,000
Telephone under OYT scheme 8,000 Sundry receipts 8,000
Salary to staff 42,000
Depreciation 28,000
Travelling expenses 43,000
Loss of cash by an employee 5,000
through embezzlement
Amount transferred to special 7,500
reserve account
Expenditure on the occasion of 7,100
Diwali
Interest and legal expenses 44,000
Sundry expenses 8,500
Net profit 6,81,900
8,86,000 8,86,000
Other information:

1) Salary to staff includes payment of Rs. 12,000 out of India on which tax has not been
deducted at source nor paid to the Govt.
2) Depreciated value of plant and machinery on April 1, 2016 is Rs. 1,10,000 (rate of
depreciation: 15%).
• A plant whose written down value on April 1, 2016 is Rs. 17,440 is sold during the
previous year for Rs. 11,000.
• A machinery (cost price Rs. 20,000) whose written down value on April 1, 2016 is Rs.
2,350 is sold during the previous year for Rs. 15,000.
During the year, X purchases a new equipment for office for Rs. 1,22,670 which is eligible
for depreciation at the rate of 15%. The plant is installed and put to use on May 15, 2016.
3) Travelling expenses include Rs. 10,000 being hotel expenditure of an employee in respect
of an official visit to Mumbai for 5 days.
4) Expenditure on the occasion of Diwali includes a gift of Rs. 2,000 to Mrs. X
5) Interest includes a payment of Rs. 3,000 out of India on which tax has not been deducted.

6) Sundry expenses include expenditure of Rs. 1,000 on maintenance of guest house in Delhi
for the purpose of carrying on the business and Rs. 4,000 being employer’s contribution
towards ESI out of which Rs. 600 is paid after the due date of submission of return of
income. Determine the taxable income and tax liability of X for AY 2017-18 assuming that
sundry receipts include Rs. 5,000, being amount of endowment insurance policy received
from the Life Insurance Corporation of India at the time of maturity of the policy (i.e.
December 5, 2016) [amount of insurance last paid on June 5, 2016: Rs. 400]
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Section A and H Asha Rani

Besides, X has FD bank interest of Rs. 2,40,000 (not given above) and he deposits Rs.
1,30,000 in PPF account of Mrs. X on March 31, 2017.

Question 6. X (age: 26 years), a leading tax consultant, who maintains books of account on cash
basis furnishes the following particulars of income and expenditure for AY 2017-18:

Receipt and Payment Account for the year ending March 31, 2017
Rs. Rs.
Balance brought down 12,400 Purchase of typewriter 6,000
Fees from clients: Car expenses 18,000
of 2016-17 7,30,500 Office expenses 40,000
of 2017-18 1,11,500 Salary to staff:
of 2018-19 1,13,000 of 2016-17 32,000
Presents from clients 24,000 of 2017-18 11,000
Interest-free loan from a client 2,38,000 Expenditure in respect of let
for purchase of a car out property [municipal tax:
6,000
Winnings from lottery 46,000 Rs. 2,000, repairs: Rs. 1,000,
Rent of a let out property 60,000 insurance: Rs. 3,000]
Interest from UTI (received on Car purchased on Dec. 10, 2016 2,40,000
12,000
Sep. 11, 2016) Repairs of office 12,000
Share of income from a firm 15,000 Interest on loan 10,000
Income-tax payment 2,000
Life insurance premium 2,08,000
Balance carried down 7,77,400
13,62,400 13,62,400

Determine the taxable income and tax liability of X for the AY 2017-18 if Car is partly used
for official purposes (40%) and partly for private purposes (60%).
Question:7. C (age: 48 years), a tax consultant, who maintains books of account on cash
basis, furnishes the following particulars of his income for the previous year ending March
31, 2017:

Receipt and Payment Account for the year ending March 31, 2017
Receipts Amount (Rs.) Payments Amount (Rs.)
Balance brought down 3,60,000 Purchase of furniture 28,000
Fees from clients: Car expenses 1,22,500
- of 2016-17 10,60,000
- of 2017-18 45,000
Presents from clients 20,000 Office expenses 10,000
Loan from PPF 2,50,000 Salary to staff 4,41,000
Office rent 20,000
Income-tax penalty 1,500
Contribution to public 20,000
provident fund

Purchase of notified bonds of 6,000

infrastructure company

Balance carried down 10,86,000

17,35,000 17,35,000
B.Com (Hons.) IInd Year
Section A and H Asha Rani

Other information:
1. Depreciation on furniture is admissible @ 10% p.a. Depreciation on car is
Rs. 1,35,000.
2. 20 percent of car expenses are attributable towards use of car for personal
purposes.
3. Fees due but outstanding is Rs. 4,50,000.
4. Income from other sources is Rs. 3,70,000.
5. He purchased a computer for Rs. 50,000 on March 10, 2016. It is, however, put to
use on December 3, 2016 (rate of depreciation: 60 percent).
Determine the taxable income and tax liability of C for the assessment year 2017-18.

Question:8. R, a businessman submits the following profit and loss account for the year
ended March 31, 2017:

Particulars Amount (Rs.) Particulars Amount (Rs.)

Salaries 75,000 Gross profit 6,50,000
Travelling expenses 1,25,800 Interest on 8,500
company
Rent and taxes 3,000 Discount received 1,500
Interest on capital 5,000
Administrative charges 25,000
Depreciation 25,000
Income tax 50,000
Net profit 3,51,200
6,60,000 6,60,000

1. Salaries include a payment of Rs. 24,000 to Mrs. R, who is acting as supervisor of

the quality control department. She does not have any other income during this
year. Till February 2016, she was employed in ‘S’ Ltd. in a similar post for 10
years and was drawing a monthly salary of Rs. 1,500.
2. R had gone on a foreign tour in connection with business. The journey was for
15 days in which he spent 3 days on visiting tourist spots. Total expenses incurred
which were within RBI norms also, in respect of this foreign tour was Rs. 75,000.
3. Administrative charges include expenses in respect of donation of Rs. 1,000 to
the trade association for the purposes of advertisement in souvenir published by
it.
4. Depreciation allowance as per Income-tax Rules, 1962 is Rs. 45,000.
5. R raised a loan from LIC of India on the security of his life insurance policy and
used the same for the payment of expenses relating to repairs of machinery.
Interest of Rs. 2,500 in respect of this loan was paid out of his drawings.
From the above particulars, compute the total income and tax liability of R for the
assessment year 2017-18.
B.Com (Hons.) IInd Year
Section A and H Asha Rani

Question:9.The following is the profit and loss account of Mr. A for the year ended March 31,
2017. You are required to ascertain his income from business for the year ended on that date:

Particulars Amount Particulars Amount

Salaries 15,600 Gross profit 71,344
Sundry expenses 2,400 Discount 1,502
Reserve for bad debts 6,000 Commission 2,410
Insurance 900 Sundry receipts 104
Advertising 5,000 Profit on sale of Import license 40,000
Income tax 4,750
Loss on sale of car 2,400
Interest on capital 2,000
Interest on bank loan 3,100
Charity 300
Taxation reserve 6,000
Life insurance premium (self) 1,100
Loss of a part of building 3,000
by fire (uninsured)
Depreciation on building 2,000
Depreciation on furniture 400
Difference in trial balance 210
Net profit of the year 60,200
1,15,360 1,15,360
The motor car was used equally for business purposes and the proprietor’s private purposes.
Bank loan is taken for business purposes. The amount of depreciation allowable according to
income tax rules, in respect of building and furniture was Rs. 1,600 and Rs. 300 respectively.
Included in the advertising expenses is a sum of Rs. 2,000 spent on a special advertising
campaign undertaken during the year in respect of a product of the company placed recently
in the market. Salaries include Rs. 6,000 being the amount drawn by Mr. A during the year
against profit.