INCOME FROM BUSINESS

An Assignment On

Income from Business

Saroj Gurung

Eight Semester

LC0001600040

Nepal Business College

Author Note

This assignment was prepared for Taxation and Auditing, BBA 3866
Department of Taxation , taught by Mr. Vijay Rauniyar.

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INCOME FROM BUSINESS

Q. The profit and loss account of Bashuling Sugar Mill Pvt Ltd is as under:

Particulars Amount in Rs Particulars Amount in Rs

To Opening Stock 110,000 By Sales 630,000
To Purchase 350,000 By Closing Stock 220,000
To Carriage 33,000
To Wages 26,000
To Custom Duty 37,000
To Gross Profit c/d 294,000
0 0
To Salary 27,000 By Gross Profit b/d 294,000
To General Expenses 11,000 By Bad Debt 25,000
Recovered
To Legal Expenses 8,000 By Sundry Income 32,000
To Telephone and 6,000 By Commission 23,000
Communication Income
To Interest on Loan 4,300
To Fire Insurance 3,200
Premium
To Repair Expenses 4,400
To Tax paid in 6,700
advance
To Commission paid 4,000
To Advertisement 12,000
To Bad debt 25,000
To Donation to VDC 42,000
To Research & 35,000
Development
To Pollution Control 31,000
Expenses
To Net Profit c/d 154,400
374,000 374,000

Additional Information

 Both opening and closing stock were overvalued by 10%

 Purchase and carriage include Rs 100,000 and Rs 10,000 respectively incurred for
purchase of plant. It was purchased on 1stAshiwn
 Bad Debt recovered includes 40% not allowed for deduction previously
 Legal Expenses include Rs 5,000 for legal prosecution against IRD
 Bad Debt expense is approved to the extent of Rs 12,000 only for deduction
 Unrecovered Business Loss of previous year is Rs 140,000

SOLUTION

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 INCOME FROM BUSINESS

Calculation of assessable income from Business of Banshuling Sugar Mill Pvt. Ltd

Particulars Amount Amount

Income
Sales 630,000
Commission received 23000
Sundry income 32000
Bad debt recovered (60% of 25000) 15,000
Gross Income 7000,00
Less : Allowable deduction
Cost of Trading stock (W/N 1) 2,36,000
Salary 27000
General expenses 11,000
Legal expenses (W/N 2) 3,000
Depreciation (W/N 3) 16500
Telephone and communication 6,000
Interest on loan 4,300
Fire insurance premium 3,200
Repair expenses 4,400
Commission paid 4,000
Advertisement expenses 12,000
Bad debt 12,000
339400 339400
Assessable income from Business 360600
Before losses
Less: previous year loss (1,40,000)
Adjusted taxable income 220600
Less : Pollution control cost
 50% of adjusted taxable
income excluding pollution
control cost, research and
development and donation
i.e 50% of 220600 = 110300
 Actual = 31,000( Whichever (31,000)
is lower )
Less : Research and Development
 50% of Adjusted taxable
income excluding pollution
control cost Research and
Development and Donation
i.e 50% of 220600=110300
 Actual = 35000( Whichever is ( 35,000)
lower )
Assessable Income from Business 154600

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 INCOME FROM BUSINESS

Calculation of Taxable income

Particulars Amount Amount

Net assessable income from Business 154600
Net assessable income from Employment -
Net assessable income from Investment -
Total assessable income 154600 154600
Less : Donation
 5% of assessable income
(0.05*154600) = 7730 7730
 Actual (42000)
 1,00,000 ( Whichever is lower )
Taxable income 146870

Calculation of Tax liability

For entity

Tax liability = 25% of taxable income

= 0.25*146870

= 36718

Less: Advance Tax = 6,700

Tax Payable = 36718-6700

= 22,674

Hence, Tax liability of Banshuling sugar mill Pvt. Ltd = Rs. 22,647

Working Note

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INCOME FROM BUSINESS

I. Calculation of Cost of Trading Stock

Opening stock ( 1100000/110%) 10,00000

Add:
Purchase (3, 50,000-100,000) 250,000
Carriage on purchase (33000-10000) 23000
Custom duty 37000
Wages 26000
Less:
Cost of trading stock (220,000/110%) 20,0000

236000

II. Calculation of legal fees

Legal fees 8000

Legal prosecution against IRD 5000

Total legal fees ( 8000-5000) 3000

III. CALCULATION OF DEPRECATION

COST = 100000+10000

= 1,10,000

Rate of Deprecation = 15%

Deprecation = 15% of 1,10,000

= 16,500

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