ASSESSMENT OF FIRMS

1 ASSESSMENT OF FIRMS

STUDY NOTES

Step 1: Calculate Book Profit as per the Format given below: Step 2: Computation of Total Income of the Firm as per the Format given below: Computation of income under each head Set-off or carry forward and set-off of losses Computation of Gross Total Income. Deductions from Gross Total Income for firm are 80G, 80GGA, 80GGC, 80IA, 80IAB, 80IB, 80IC, 80ID, 80IE and 80JJA. Step 3: Calculate Tax Liability Step 4: Calculate Balance = (Total Income Tax liability) Distributable among partners in profit sharing ratio Computation of Book-profits Rs. Net profit as per Profit & Loss Account Add: Inadmissible items: Add: Expenses not deductible Remuneration to working partners to be treated separately Remuneration not in accordance with partnership deed Remuneration in excess of partnership deed Remuneration to partners, if debited to P/L A/c Interest to partners capital in excess of 12% p.a. Commission to sleeping partner not to be allowed Income tax paid Purchase of computers or Assets Advance tax Donation to National Defence Fund Depreciation Bad debts Bad debts reserve Charity and donations Personal expenses Undervaluation of closing stock General Reserve Less: Expenses deductible but not charged to profit/loss account Less: Income not related to business or profession Less: Income from all other sources Cr. To P/L A/c Income from House property Capital Gain Bank Interest being income from other sources Dividend from Indian companies Interest on securities Depreciation on computers not included in debits: Bad debts allowed by department Undervaluation of opening stock Donation to trade association (business expenditure) Book Profits / Loss of the Firm Rs.

SUBRAMANIAM C. M.COM. L.L.B. PGDBM.

H.O.D COMMERCE DEPT.

ASSESSMENT OF FIRMS

STUDY NOTES

Computation of Total Income of the Firm Rs. Book Profits / Loss of the Firm Less: Remuneration to working partners Whichever is less, is deductible (a) Actual remuneration (Salary + Bonus + Commission) W.E.LESS (b) Statutory limit u/s 40(b) In Case of Profit 150000 or 90 % of first Rs. 300000 of Book Profit W.E HIGHER 60 % of Balance of Book Profit In Case of Loss Rs. 150000 deductable Business profit or Loss Add: Income from all other sources Income from House property Capital Gain Bank Interest being income from other sources Interest on securities Aggregate income Set-off or carry forward and set-off of losses Less: Carried forward business loss Less: Carried forward depreciation Gross Total Income Less: Deductions u/ss 80C to 80U Total Income Less: Tax Payable by Firm Balance Distributable among partners in profit sharing ratio Computation of Tax: i. ii. iii. iv. Short Term Capital Gains 15% Long Term Capital Gains 20% Winnings from lotteries, card games, crossword puzzles, horse races 30% Other Income 30% Rs.

Surcharge: - No Surcharge Education cess:- @ 3%of the amount of income tax. Note:- Brought forward unabsorbed business loss is not deductable to arrive at the book profit. Non -business incomes and their concerned non -business expenses are not included in computing book profit.

SUBRAMANIAM C. M.COM. L.L.B. PGDBM.

H.O.D COMMERCE DEPT.