INCOME TAX

Problem:1
Following is the Trading and Profit and Loss A/c of Manjunath Enterprises for the year ended
31st March 2019.
Particulars Amount Particulars Amount
Rs. Rs.
To opening stock 1,24,000 By Sales 33,30,000
To Purchases 7,28,000 By Closing Stock 1,36,000
To Carriage 78,800
To Wages 52,000
To Mfg. Expenses 63,000
To G/p 24,20,200
34,66,000 34,66,000
To Salaries 2,28,000 By G/p 24,20,200
To Int. on capital 1,72,000 By Rent from house property 44,000
To Drawings 1,10,000 By Dividend from Tata 10,600
To Rent and taxes 1,54,000 Chemicals
To Donation 25,000 By Bad debts recovered 15,000
To Repairs 61,000 By Int. on debentures of M & M 18,000
To Depreciation 73,000 Ltd.
To General exps. 24,000 By Misc.income 8,000
To Legal charges 6,000 By Gifts from relatives 70,400
To IT appeal exps. 10,000
To Audit fees 5,000
To LI premium 46,900
To Fire insurance
Premium for goods 23,300
To Daughter’s college fees 30,000
To Travelling exps. 18,000
To Net profit 16,00,000
25,86,200 25,86,200

Problem:2
Sri Dhoni is the owner of a business. His profit and loss account for the year ending
31-3-2019 was as follows:
Partriculars Rs. Particulars Rs.
To Salaries 5,000 By G/P 55,000
To Rent rates and taxes 2,900 By Interest on investment 5,000
To Printing and stationery 750 By Rent received 6,000
To Personal expenses 3,000
To Commission 2,000
To Discount on allowance 450
To Provision for bad debts 1,200
To Postage and telegram 270
To Law charges 450
To Advertisement 1,550
To Gifts and presents 150
To Fire insurance premium on 500
Stock
To Sales tax 1,250 By Winning from lottery 10,000
To Repair and renewal 480
(not for business)
To Loss on sale of machinery 1,800
(used for private purpose)
To Life insurance premium 1,700
To Wealth tax 740
To Interest on capital 730
To Audit fee 300
To Interest on bank loan 1,380
To Provision for depreciation 2,500
To Provision for income tax 3,900
To Net profit 43,000
Total 76,000 Total 76,000

Other information:
(a) Actual bad debts were Rs.500
(b) Actual amount of income tax paid during the year Rs.4000
(c) Allowable depreciation as per IT. Rules Rs.1,500
(d) Advertisement expenses include Rs.450 spent on special advertisement campaign to open
a new shop.
(e) He carried out the business in a rented house, 40% of which is used for his residence
(f) Rent, rates and taxes include Rs.2,400 paid as rent of the property during the year.
Compute his taxable income from business for the AY 2019-20.
Problem:3
Shri Govinda (age 55 years), a Resident of Mumbai submits the following Profit and Loss
account for the year ending 31st March 2019
Particulars Rs. Particulars Rs.
To Opening stock 1,10,000 By Sales 36,00,000
To Purchases 14,00,000 By Closing sales 2,20,000
To Wages 3,00,000
To G/P 20,10,000
38,20,000 38,20,000
To Advertisement 2,00,000 By Gross profit b/d 20,10,000
To Salary to staff 6,60,000 By Rent 2,40,000
To Govinda’s salary 1,20,000 By Commission 1,50,000
To Audit fees 60,000 By Bad debts recovered 70,000
To Bad debts 40,000 (earlier disallowed)
To Reserve for bad debts 50,000 By Dividend on SRM Ltd, 30,000
To General expenses 2,50,000 Shares (gross)
To Municipal tax 24,000
To Fire insurance premium on 26,000
 Goods
To Depreciation 78,000
To Patent rights 1,60,000
To Staff welfare funds 40,000
To Emloyees R.P.F 50,000
To Sales tax 1,90,000
To Donation to NDF 1,00,000
To Premium on Govinda’s Life 36,000
Insurance
To Net profit 4,16,000
Total 25,00,000 Total 25,00,000
Other information:
(a) Opening stock and closing stock were over valued by 10%
(b) Advertisement includes Rs.1,00,000 being cost of permanent sign board
(c) Business income of Rs.70,000 was not recorded in the P&L A/c
(d) General expenses include Rs.50,000 paid for securing business orders and Rs.60,000 spent on
Govinda’s birthday
(e) Depreciation allowable on all assets including permanent sign board but excluding patent
rights as per IT Rules was Rs.90,000
(f) Patents rights were acquired on 11-10-2014 on which depreciation allowable at 25%
Compute taxable income from business of the AY 2019-20
Problem:4
Mr. Vinay Kumar is the running cloth business. He has prepared the following profit and loss
account for the year ended 31.03.19. You are required to compute his income from business and
his gross total income for the AY 2019-20
Rs. Rs.
To Trade expenses 450 By Gross profit 2,19,400
To Establishment charges 2,200 By Dividend (Net) 3,140
To Rent, rates and taxes 1,400 By Interest on Non-Govt.
To Household expenses 1,850 By Securities (net) non-listed 3,600
To Discount allowed 200
To Income tax 700
To Advertisement 450
To Postage and telegram 100
To Gifts to relatives 125
To Fire insurance premium 250
To Donation, to Prime Minister’s 800
To National Relief Fund
To Repairs 1,600
To Life insurance premium 850
To Wealth tax 600
To Interest on capital 400
To Audit fees 250
To Net profit 2,13,915
2,26,140 2,26,140
Problem:5
Dr. Kuvempu has prepared the following Profit and Loss Account for the year ending
31.03.2019.
Rs. Rs.
To Salary 48,000 By Gross profit b/d 2,37,300
To Advertisement 24,000 By Rental income 1,65,000
To Sundry expenses 54,000 By Dividends from an Indian
To Interest on own capital 12,000 Company 24,000
Fire insurance (Rs.10,000 relates By Winnings from lottery 1,15,000
to House Property) 30,000 (Gross)
To Income Tax and Wealth Tax 27,000 By Interest on Non-Government 1,92,000
To House-Hold expenses 42,500 securities
To Bad debts 11,000
To Provision for bad debts 10,500
To Repairs to House Property 10,000
To Municipal taxes of House
property 36,000
To Insurance premium on own
life 6,000
To Donation to a political party 12,000
To Depreciation (allowable) 23,800
To Net profit c/d 3,86,000
7,33,300 7,33,300
Dr. Kuvempu owns a house property having 3 units, out of which unit-1 having 25% carpet
area is used for own business purpose. Determine the income under the head ‘Profits and gains
of business and profession’ of Dr. Kuvempu for the AY. 2017-18.
Problem:6
Following is the P&L of Mr. Shivaji, a merchant, for the year ending 31st March 2019.
Paticulars Rs. Particulars Rs.
To Rent 60,000 By Gross Profit 5,23,000
To Rates 6,000 By Interest from Debtors 28,000
To Salary of Staff 54,000 By Rent from Property 24,000
To Diwali Pooja Expenses 2,000 By Sundry Income 16,000
To Interest on Loan 1,25,000 By Commission 37,000
To Sundry Expenses 55,000 By Bad debts recovered 10,000
To Bad Debts 6,000 ( Disallowed earlier)
To Charity 1,000
To Reserve for Bad Debts 2,000
To Entertainment 8,500
To Lost by theft 14,500
To Sales tax penalty 10,000
To Net Profit 2,94,500
6,38,000 6,38,000
Additional Information:
(a) Salary to staff includes Salary of Rs. 24,000 of a son, who is a B.Com student and who
 casually helps in business and proprietor salary Rs.1,000 p.m.
(b) Rent include Rs.12,000 of a shop belonging to assessee himself.
(c) A Loan of Rs.60,000 at 15% p.a. is taken from his wife out of funds advanced by him and
interest is included in Interest on Loan.
(d) Sundry Expenses include Rs.9,000 being expenses incurred on Pilgrimage to Haridwar.
(e) Entertainment includes Rs.1,500 spent on tea of some guest of a local MLA.
(f) He earned Rs.40,000 in gold smuggling and not shown in the books.
(g) Rates include Rs.4,000 for property Let out.
(h) Loss by theft took place when somebody pretending to be a customer stolen a necklace
Worth Rs.6,000 in his shop, Rs.8,000 were stolen from his house.
(i) Sales tax paid and depreciation not taken to P&L A/c Rs.8,000 and Rs.5,000 respectively.
Compute Taxable Income from Business.
Problem:7
Mr. Prabhu presents you the Trading and P&L A/c for the Previous year 31/03/2017. You
are required to compute the business income for AY 2019-20.
Particulars Rs. Particulars Rs.
To Opening stock 85,000 By Sales 3,94,000
To Purchases 2,40,000 By Closing Stock 1,10,000
To Wages 35,000
To Carriage Inward 12,000
To Gross profit 1,32,000
5,04,000 5,04,000
To Staff Salary 18,750 By Gross profit 1,32,000
To Office Rent 12,000 By Interest on Debenture 17,800
To Audit fee 5,500 By Bad Debts Recovered
To Income Tax 32,000 (Previously Allowed) 5,200
To Car expenses 15,000 By Sundry Income 2,650
To Y2K expenses 40,000 By Rent from House Property 90,000
2,500
To Donation
18,650
To General expenses 16,000
To Sales Tax Provision 30,000
To Technical Knowhow
Purchased during year
To Interest on Capital 16,000
To Depreciation 18,000
To Provision for Bad Debts 6,500
To Net profit 16,750

2,47,650 2,47,650
Additional Information:
(a) Opening Stock is undervalued by 15%
(b) Closing Stock is overvalued by 10%
(c) Purchases includes a cash payment of Rs.30,000 towards purchase of raw materials.
(d) 20% of car expenses are attributable to the use of car for personal purposes.
(e) Out of the Income Tax provision and Sales Tax provision, Income Tax of Rs.6,250 and Sales
Tax of Rs.1,250 were paid before filing the return of Income.
Problem:8
From the P&L A/c of Mr. Ramesh for the year ending 31/03/2017. Compute the Income
from business for the AY 2019-20.

Particulars Rs. Particulars Rs.

To Office Expenses 40,000 By Gross Profit b/d 6,40,000
To General Expenses 16,000 By Interest on Govt. Securities 11,200
To Interest on Bank Loan 4,000 By Discount received 16,000
To Audit Fees 4,000 By Bad Debts recovered (not 800
To Interest on Capital 12,000 written of earlier year)
To Rent 20,000 By Sundry receipts 16,000
To Income Tax 16,000 By Dividends 16,000
To Charity 8,000
To Legal Expenses 4,000
To Compensation to Retrenched 20,000
Employee
To Extension of building 36,000
To Sales Tax 8,000
To Net Profit 5,12,000
7,00,000 7,00,000
Other Information:
(a) General Expenses included Rs.8,000 towards purchase of Computer
(b) Legal expenses include Rs.1,600 penalty by Customs Authority
(c) Rent include Rs.8,000 paid as rent of House in which assessee lives
(d) Depreciation allowed Rs.12,000 as per Income Tax rules (excluding depreciation on
Computer purchased).
Problem:9
From the below given P&L A/c and additional information of Mr. David. Compute his
taxable business income for AY 2019-20.
Profit and Loss A/c of year ending 31/03/2019
Particulars Rs. Particulars Rs.
To Opening Stock 40,000 By Sales 5,00,000
To Purchase 2,20,000 By Closing Stock 50,000
To Wages 15,000
To Freight 10,000
To Gross profit 2,65,000
5,50,000 5,50,000
To Establishment Expenses 15,000 By Gross Profit 2,65,000
To Salaries 25,000 By Dividend on shares (Gross) 6,000
To Rent and Taxes 12,000 By Rent from House Property 15,000
To Income Tax 10,000 By Refund of Income Tax 2,000
To Household expenses 14,000 By Interest on Govt. Securities 1,000
To Reserve for Bad Debts 5,000 By Bad Debts recovered 5,000
To Advertisement 15,000 (allowed earlier)
To Donation 6,000 By Profit of Sale of Machinery 3,000
To Sales Tax 20,000 By Miscellaneous Icome 9,000
To Provision for Income Tax 8,000
To Carriage Outward 11,000
To Drawings 4,000
To General Expenses 16,000
To Interest on Capital 9,000
To Bad Debts 7,000
To Repairs 8,000
To Taxes and Insurances 2,500
To Car Expenses 11,000
To Audit Fees 12,000
To Depreciation 20,500
To Net Profit 75,000

Additional Information:
(a) Salaries include Rs.6,000 paid to a domestic servant
(b) Purchases include two payments of Rs.30,000 and Rs.10,000 paid in cash to a supplier
(c) Opening stock is valued is 10% above the cost
(d) Allowable depreciation is Rs.22,500
(e) 60% of Car expenses are for business purposes
Problem:10
Mr. Sairam, a trader furnishes the following informations:
P&L A/c for year ending 31/03/2019
Particulars Rs. Particulars Rs.
To General expenses 4,80,000 By Gross profit 22,00,000
To Salary to Staff 2,40,000 By Commission 40,000
To Salary to Sairam 1,20,000 By Bad Debts recovered
To Interest on Capital 60,000 (earlier allowed) 60,000
To Interest on overdraft 40,000 By Interest on listed Debentures 1,00,000
To Extension of Building 1,50,000
To Interest on Loan 40,000
To Depreciation 1,20,000
To Travelling expenses 80,000
To Audit Fees 72,000
To Fire insurance 78,000
To Bonus to Staff 1,00,000
To Contribution to RPF 1,22,000
To Advertisement 2,00,000
To Reserve for Bad Debts 60,000
To Bad Debts written of 90,000
To Net Profit 3,48,000
24,00,000 24,00,000
Other Information:
(a) Depreciation allowable as per IT rule Rs.1,40,000
(b) Advertisement include Rs.50,000 being cost of Permanent Sign board
(c) Income of Rs.60,000 accrued during the previous year not entered in P/L A/c
(d) Loan was taken to pay Income Tax arrears
(e) Rs.40,000 paid as damages for failure to full fill a contract on time is included in general
Expenses.
Problem:11
The following is the profit and loss a/c of Mr. Anilkumar. Compute his business income for
the AY 2019-20.
Particulars Rs. Particulars Rs.
To Office salaries 30,000 By Gross profit 1,60,000
To General expenses 14,000 By Profit on sale of car 30,000
To Bad Debts 2,000 By Recovery of bad debts 10,000
To Advertisement expenses 7,400 By Interest on govt. Securities 7,000
To Fire insurance premium 2,000 By Dividends 7,000
To Depreciation 10,000 By Gifts 10,000
To Reserve for bad debts 6,000
To Donation to school 5,000
To Car expenses 4,000
To Net profit 1,43,600
2,24,000 2,24,000
Adjustments:
(a) General expenses include a sum of Rs.5,000 as compensation paid to a Accountant who has
to be removed from service in the interest of the business, Rs.6,000 as contribution paid to
govt. For laying electric cables for the company’s Plant.
(b) Depreciation as regards the relevant block of assets under the Income Tax Act -7,000.
(c) In the earlier year, the Assessing Officer had refused to allow deduction for the bad debts of
Rs.5,000 now recovered.
(d) Car expenses include Rs.1,000 attributable to the use of personal work.