Income from business-VI semester B.
Com
Problems on Income from business
Problem no 1
Following is the profit and loss account of Mr.Shekar for the year
ending 31-3-2020
Particulars Amount Particulars Amount
To salaries 330000 By Gross profit 500000
To Office expenses 36000 By Bad debts 20000
To sales tax 18000 recovered
To depreciation 28000 By dividends 6000
To legal expenses 16000 By Rent from HP 18000
To income tax 14000 By Commission 20000
To expenses on 24000 By Brokerage 20000
acquisition of patent By sundry receipts 10000
To Repairs 12000 By share of income 6000
To Donations 4000 from HUF
To RDB 6000
To General expenses 24000
To Net Profit 88000
600000 600000
Additional information:
1. Salaries include Rs.12000 paid to the workers employed at home.
2. Legal expenses include Rs.2000 paid to lawyer in connection with
personal case
3. Out of Bad debts recovered only 8000 were allowed for
deductions
Compute the taxable income from business of Mr.Shekar for the AY
2019-20
Prof. Lakshmi V 1
Income from business-VI semester B.Com
Computation of taxable income from business of Mr.Shekar for the AY
2020-21
Particulars Amount Amount
Net Profit as per P/L Account 88000
Add: Disallowed expenses/ Allowable
income
1.Salary paid to domestic workers 12000
2.legal expenses 2000
3. Income tax 14000
4.Patent rights 24000
5.RBD 6000
6.Donations 4000 62000
Less: Disallowed income/Allowable 150000
expenses
1. Depreciation on patent rights 6000
(24000X25/100)
2. Bad debs recovered (20000-8000) 12000
3. Dividends 6000
4. Rent from HP 15000
5. Share of income from HUF 6000 48000
Income From Business 102000
Prof. Lakshmi V 2
Income from business-VI semester B.Com
Problem No:2: Following is the Profit and Loss account of Mr. Shivaji a
merchant for the year ending 31st March 2020
Particulars Amount Particulars Amount
To Rent 60000 By Gross Profit 523000
“ Rates 6000 “ Interest from debtors 28000
“Salary to staff 54000 “ Rent from property 24000
“ Diwali pooja expense 2000 “ Sundry Income 16000
“ Interest on loan 125000 “ Commission 37000
“Sundry expenses 55000 “ Bad debts recovered 10000
“Bad debts 6000 (disallowed earlier)
“Charity 1000
“Entertainment 8500
“RBD 2000
“Loss by theft 14000
“Sales tax penalty 10000
“Net Profit 294500
638000 638000
Additional Information
1. Salary to staff includes salary of Rs.24000 f a son, who is B.Com student
who casually helps in business and proprietor salary is Rs. 1000 pm
2. Rent includes Rs. 12000 of a shop belonging to assessee himself.
3. A loan of Rs. 60000 at 15%pa is taken from his wife out of funds advanced
by him and interest is included in interest on Loan.
4. Sundry expenses include Rs. 9000 being expenses incurred on pilgrimage to
Haridwar
5. Entertainment includes Rs.1500 spent on tea of some guest of a local MLA
6. He earned Rs. 40000 in gold smuggling and not shown in the books.
7. Rates include Rs. 4000 for property let-out
8. Loss by theft took place when somebody pretending to be a customer
stolen necklace worth Rs. 6000in his shop, Rs. 8000 was stolen from his
house.
9. Sales tax paid and depreciation not taken to P/L a/c Rs. 8000 and Rs. 5000
respectively.
Calculate the taxable income from business of Mr. Shivaji.
Prof. Lakshmi V 3
Income from business-VI semester B.Com
Computation of Taxable income from business of Mr. Shivaji for the AY
2019-20
Particulars Amount Amount
Net profit as per Profit and Loss A/C 294500
Add: Disallowed expenses and allowable
incomes
1. Rent to owned shop 12000
2. Rates to let out property 4000
3. Salary to son 24000
4. Salary to proprietor(1000X12) 12000
5. Interest on wife’s loan(60000X15/100) 9000
6. Sundry expenses (Pilgrimage) 9000
7. Charity 1000
8. Entertainment Expenses 1500
9. RBD 2000
10.Theft in house 8000
11. Sales tax penalty 10000
12. Smuggling income 40000 132500
427000
Less: Disallowed income/ Allowable
expenses
1. Rent from property-IFHP 24000
2. Bad debts recovered 10000
3. Sales tax 8000
4. Depreciation 5000 47000
Income form Business of Mr.Shivaji 380000
Prof. Lakshmi V 4
Income from business-VI semester B.Com
Problem no 3
From the following P/L account of Mr. Ramesh for the year ending
31/3/2020 compute the income from business for the AY 2019-20
Particulars Amount Particulars Amount
To office expenses 40000 By Gross profit 640000
“ General expenses 16000 “ Interest on govt 11200
“ Interest on Bank loan 4000 securities
“ Audit fees 4000 “ Discount received 16000
“ Interest on Capital 12000 “ Bad debts 800
“ Rent 20000 recovered(no written
“ Income Tax 16000 off earlier)
“ Charity 8000 “ Sundry receipts 16000
“ Legal Expenses 4000 “ Dividends 16000
“ Compensation to
retrenched employee 20000
“ Extension of building 36000
“ Sales tax 8000
“ Net Profit 512000
700000 700000
Other information:
1. General expenses include Rs. 8000 towards purchase of
computer.
2. Legal expenses include Rs.1600 penalty by custom authority.
3. Rent includes Rs.8000 paid as rent of house where in which
assesse lives.
4. Depreciation allowed Rs.12000 as per Income tax rules (including
depreciation building and excluding depreciation on computer
purchased)
Prof. Lakshmi V 5
Income from business-VI semester B.Com
Computation of taxable income from business of Mr.Ramesh for the
AY 2020-21
Particulars Amount Amount
Net profit as per Profit and Loss A/C 512000
Add: Disallowed expenses/allowed
income
1. General expenses-Purchase of
computer 8000
2. Interest on capital 12000
3. Rent-on residential house 8000
4. Income Tax 16000
5. Charity 8000
6. Legal expenses-penalty from
custom 1600
7. Extension of building 36000 89600
601600
Less: Allowable expenses/ disallowed
income
1. Depreciation on computer at 60% 4800
(8000*60/100)
2. Deprecation as per IT rule 12000
3. Interest on securities 11200
4. Bad debts recovered 800
5. Dividends 16000 44800
Income from business of Mr. Ramesh 556800
Prof. Lakshmi V 6
Income from business-VI semester B.Com
Problem No 4: From the below P/L account and additional information of Mr.
David, Compute his taxable income from business for AY 2019-20
Particulars Amount Particulars Amount
To opening stock 40000 By Sales 500000
“ Purchases 220000 “ Closing Stock 50000
“ Wages 15000
“ Freight 10000
“ Gross profit 265000
550000 550000
To establishment expenses 15000 By Gross profit 265000
“ salaries 5000 “ Dividend on shares 6000
“ Rent and taxes 12000 “ Rent from HP 15000
“ Income Tax 10000 “ Refund of IT 2000
“ Household expense 14000 “ Int on Govt Securities 1000
“ RBD 5000 “ Bad debts recovered
“Advertisement 15000 (allowed earlier) 5000
“ Donations 6000 “ Profit on sale of
“ Sales Tax 20000 Machinery 3000
“Provision for taxation 8000 “ Miscellaneous Income 9000
“ carriage outward 11000
“ Drawings 4000
“ General expenses 16000
“ Interest on capital 9000
“ Bad debts 7000
“ Repairs 8000
“ taxes and Insurance 2500
“ Car expenses 11000
“ Audit expenses 12000
“ Depreciation 20500
“ Net profit 75000
306000 306000
Additional Information;
1. Salaries include Rs. 600 to domestic servant
2. Purchases include two payments of Rs.30000 and /rs.10000 paid in cash to
a supplier
3. Opening stock is valued as 10% above the cost
4. Allowable depreciation is Rs.22500
5. 60% of car expenses are for business purposes.
Prof. Lakshmi V 7
Income from business-VI semester B.Com
Computation of taxable income from business of Mr.David for the AY
2020-21
Particulars Amount Amount
Net Profit as per P/L account 75000
Add: disallowed expenses and allowable
income
1. Purchases in cash 30000
2. Salary to domestic servant 600
3. Income tax 10000
4. House hold expenses 14000
5. RBD 5000
6. Donations 6000
7. Provision for taxation 8000
8. Drawings 4000
9. Interest on capital 9000
10.Car expenses 40% for private use 4400
(11000X40/100)
11.Depreciation 20500 111500
186500
Less: Allowable expenses/Disallowed incomes
1. Depreciation as per IT 22500
2. Dividends on shares 6000
3. Rent from HP 15000
4. Refund of IT 2000
5. Interest on government securities 1000
6. Profit on sale of Machinery 3000 49500
137000
Adjustment of stock
Add: opening stock overvalued (40000x10/110) 3636
Income from Business of Mr.David 140636
Prof. Lakshmi V 8
Income from business-VI semester B.Com
Problem no 5: From the below given P/L account of Mr. Naveen, a
manufacturer. Calculate the taxable income from business for the year
ending as on 31-03-2020.
Particulars Amount Particulars Amount
To salary to employees 95000 By Gross profit 300000
“Advertise expenses in cash 24000 “ Interest on 14000
“General expenses 16000 securities
“Entertainment expenses 22000 “Income from HP 25000
“Bad debts 1500 “Bad debts recovered 12000
“Drawings by proprietor 24000 (allowed earlier)
Sales tax(due and paid on 1-7- “ Profit on sale of 80000
2016) 6000 import license
“Interest on owner’s capital 7000
“Repairs 2500
“Rent 21000
“Legal expenses 5000
“Depreciation 15000
“Bonus(due) 6000
“Bonus to proprietor 4000
“Motor car purchases 72000
“Expenses on car during the
year 12000
“Donations 2000
“provision for Bad debts 6000
“Net Profits 90000
431000 431000
Additional information:
1. Rs.3000 was spent on the purchse of land and it is included in
legal expenses
2. Half of repair expenses bear on letout building
3. Depreciation allowed on all assets including motor is Rs.14400
4. Bonus was paid to employee on 31/6/2020 and he filed his
income on 31/7/2020
Prof. Lakshmi V 9
Income from business-VI semester B.Com
Computation of taxable income from business of Mr.Naveen for the AY 2020-21
Particulars Amount Amount
Net profit as per P/L a/c 90000
Add: Dis allowed expenses/Allowable incomes
1. Advertisement in cash 24000
2. Drawings by proprietor 24000
3. Interest on proprietor capital 7000
4. Repairs 50% for let-out property(2500X50/100) 1250
5. Legal expenses for purchase of land 3000
6. Depreciation as per P/L a/c 15000
7. Bonus to Proprietor 4000
8. Motor car purchased 72000
9. Donations 2000
10.Provision for taxation 6000 158250
248250
Less: Allowable expenses/ Disallowed incomes
1. Depreciation as per IT act 14400
2. Interest on securities 14000
3. Income from house property 25000 53400
Income from business of Mr. Naveen 194850
Prof. Lakshmi V 10
Income from business-VI semester B.Com
Problem No 6: Mr.Sairam, a trader furnishes the following information
Particulars Amount Particulars Amount
To General expenses 480000 By Gross profit 2200000
“ Salary to staff 240000 “Commission 40000
“ Salary to Sairam 120000 “Bad debts recovered
“Interest on capital 60000 (earlier allowed) 60000
“Interest on overdraft 40000 “Interest on listed 100000
“Extension of building 150000 debentures
“Interest on Loan 40000
“Depreciation 120000
“Travelling expenses 80000
“Audit Fees 72000
“Fire insurance 78000
“Bonus to staff 100000
“Contribution to RPF 122000
“Advertisement 200000
“RBD 60000
“Bad debts 90000
“Net Profit 348000
2400000 2400000
Other information:
1. Depreciation allowable as per IT rules is Rs.140000
2. Advertisement include Rs.50000 being cost of permanent sign
board
3. Income of Rs.60000 accrued during the PY but not entered in P/L
A/C
4. Loans was taken to pay income tax arrears
5. Rs.40000 paid as damages for failure to full fill a contract on time
is included in general expenses.
Prof. Lakshmi V 11
Income from business-VI semester B.Com
Computation of taxable income from business of Mr.Sairam for the AY 2020-21
Particulars Amount Amount
Net profit as per P/L A/c 348000
Add: Disallowed expenses/Allowable income
1. Salary to sairam 120000
2. Interest on capital 60000
3. Extension of building 150000
4. Interest on loan (IT dues) 40000
5. depreciation as per P/L a/c 120000
6. Advertisement-cost of permanent sign board 50000
7. RBD 60000
8. Income not shown in p/La/c 60000 660000
1008000
Less: Allowable expenses/Disallowed income
1. Depreciation as per IT 140000
2. Interest on listed debentures 100000 240000
Income from business of Mr. Sairam 768000
Prof. Lakshmi V 12
Income from business-VI semester B.Com
Problem No 7: The following is the Profit and loss account of Mr.
Kumar for the year ending 31-3-2020. Find IFB
Particulars Amount Particulars Amount
To General expenses 37800 By Gross profit 487480
“ Rent 38700 “ Miscellaneous receipts 3830
“ Salary to staff 86200 “ Discounts 4580
“Interest on Loan 7500 “Interest on Govt
“Interest on capital 18000 securities 24000
“Audit fees 3000 “ Bad debts recovered 5600
“Bad debts 8400 “Profit on sale of
“Reserve for Bad debts 6000 investment 57650
“Income Tax 24000
“ Law charges 37000
“Retrenchment compensation 28000
“Cost of extension of office
premises 20000
Charity and donations 1840
“Depreciation 57000
“Entertainment expenses 63000
“Net Profit 146700
583140 583140
1. The expenditure of rent includes a sum of Rs.7200 being rent charged
for godown owned by assesse himself.
2. Staff salary includes Rs.12000 being the salary of a servant in home.
3. The general expenses include a sum of Rs.5000 being expenses on
entertainment to customer.
4. Claim for bad debts includes an item of Rs.3000 due form rajesh since
15-4-2017 who is a insolvent.
5. Law charges include payment of Rs.20000 being stamp regiatration and
solicitor bill for deed of purchasing a property
6. Depreciation on fixed assets other than office premises according to
income tax rules amount to Rs.25800. WDV of office premises on 1-4-
2019 is Rs.400000
7. Bad debts recovered include an item of Rs.2000 the claim for which was
disallowed in the related year of assessment.
Prof. Lakshmi V 13
Income from business-VI semester B.Com
Computation of taxable income from business of Mr. Kumar for the AY 2020-21
Particulars Amount Amount
Net profit as per P/L A/c 146700
Add: Disallowed expenses/Allowable income
1. Rent charged self-premises 7200
2. Salary to domestic worker 12000
3. Law charges for registration of property 20000
4. Interest on capital 18000
5. RBD 6000
6. Income tax 24000
7. Cost of extension of office premises 20000
8. Charity and donations 1840
9. Depreciation 57000 166040
312740
Less: Allowable expenses/ Disallowed income
1. Depreciation as per IT act(excluding office 25800
premises)
2. Depreciation on office premises 42000
WDV+ Additions during the year=total value
400000+20000=420000X10%
3. Interest on govt securities 24000
4. Bad debts recovered 2000
5. Profit on sale of investment 57650 151450
Income from business of Mr. Kumar 161290
Prof. Lakshmi V 14
Income from business-VI semester B.Com
Problem No 8: Sri Govinda age 55 years a resident of Mumbai submits the following
profit and loss account for the year ending 31st March 2020
Particulars Amount Particulars Amount
To Opening Stock 110000 By Sales 3600000
“ Purchases 1400000 “ Closing Stock 220000
“Wages 300000
“ Gross Profit 2010000
3820000 3820000
To Advertisement Expenses 200000 By Gross Profit 2010000
“ Salary to Staff 660000 “ Rent 240000
“ Govind’s Salary 120000 “ Commission 150000
“Audit fees 60000 “Bad debts recovered 70000
“ Bad debts 40000 (earlier disallowed)
“RBD 50000 “ Dividend on SRM Shares 30000
“General Expenses 250000
“Municipal Tax 24000
“Fire insurance on goods 26000
“ depreciation 78000
“Patent rights 160000
“ Staff welfare fund 40000
“Employee RPF 50000
“ Sales Tax 190000
“Donations to NDF 100000
“Premium on govind LIC 36000
To Net Profit 416000
2500000 2500000
Other information: 1.Opening stock and closing stock were overloaded by 10%
2. Advertisement includes Rs.100000 being cost of permanent sign board
3. Business income of Rs.70000 was no entered in P/L A/C
4. General expenses include Rs.50000 paid for securing business orders and Rs.60000
spent on govind’s birthday
5. Depreciation allowable on all assets including permanent sign board but excluding
patents rights as per IT rules-90000
6. Patents rights were acquired on 11-10-2019 on which depreciation is allowable at
25%
Prof. Lakshmi V 15
Income from business-VI semester B.Com
Computation of taxable income from business of Mr. Sri govinda for the AY 2020-
21
Particulars Amount Amount
Net profit as per P/L account 416000
Add: Disallowed expenses/allowable income
1. Advertisement in sign board(capital) 100000
2. Govinds’s salary 120000
3. RBD 50000
4. General expenses for birthday celebration 60000
5. Municipal tax(paid on property) 24000
6. Depreciation as per P/L account 78000
7. Patent rights(capital) 160000
8. Donations to NDF 100000
9. Premium on govind’s LIC 36000
10.Income not entered in P/L Account 70000 798000
1214000
Less: Allowable expenses/Disallowed income
1. Depreciation as per IT rules 90000
2. Depreciation on patent rights
160000X25/100X1/2 (asset not used more than 20000
180 days)
3. Bad debts recovered(disallowed). 70000
4. Rent (Income from HP) 240000
5. Dividend from SRM shares(income from OS) 30000 450000
764000
Adjustment for stock evaluation
Add: Overvaluation of Opening stock-11000X10/110 10000
Less: Overvaluation of Closing stock-220000X10/110 (20000) (10000)
Income from Business of Mr.Sri Govind 754000
Prof. Lakshmi V 16
Income from business-VI semester B.Com
Problem No 9: Following is the P/L A/C for the year ending 31-3-2020
for Mr. Shah sole trader. Compute taxable income from business
Particulars Amount Particulars Amount
To Opening Stock 80000 By Sales 1200000
“ Purchases 920000 “ Closing Stock 90000
“Gross Profit 290000
1290000 1290000
To Salaries 55000 By Gross profit 290000
“Rent and taxes 25000 “Bank interest 500
“Commission 5000
“Legal charges 4500
“Bad debts written off 14500
“RBD 11500
“Repairs to machinery 1500
“Depreciation on Assets 26500
“Other Expenses 2000
“Income Tax 20000
“Net Profit 125000
290500 290500
1. Sales include the value of goods worth Rs.50000 which were
drawn by Mr.Shah for his personal use. The cost price of such
goods on the date of transfer was values at Rs.45000 and their
market price is valued at Rs.56000
2. Rent includes Rs.3600 which was charged related to the house
which was the part of his own business.
3. Bad debts include Rs.3000 which were not finally settled as
irrecoverable but same is included in last year’s sales.
4. Legal expenses include Rs.500, the fee paid for the registration of
the title deeds land acquired for the business last year.
5. Both opening and closing stock of the year were undervalued at
20% below the cost.
6. Depreciation allowable as per IT rules was Rs.30000
Prof. Lakshmi V 17
Income from business-VI semester B.Com
Computation of taxable income from business of Mr.sha for
the AY 2020-21
Particulars Amount Amount
Net profit as per P/L Account 125000
Add: Disallowed expenses/ allowable income
1.Rent of own building 3600
2. Legal charger for land 500
3. RBD 11500
4.Depreciatin as per P/L A/C 26500
5. Income tax 20000
6.Bad debts which not written off 3000 65100
190100
Less: allowable expenses/Disallowed income
1. Depreciation as per IT Rules 30000
2. Bank interest 500
3. Profit on sale of goods(50000-45000) 5000 35500
154600
Adjustment of Stock
Less: Under valuation of opening stock(80000X20/80) (20000)
Add: Under valuation of Closing stock(90000X20/80) 22500 2500
Income from Business of Mr.Shah 157100
Prof. Lakshmi V 18
Income from business-VI semester B.Com
Problem No 10: Mr. Dhaush presents you the following trading and
profit and loss account for the year ending 31-3-2020 and requires you
to compute the taxable income from business.
Particulars Amount Particulars Amount
To Opening stock 85000 By Sales 394000
“ Purchases 240000 “Closing Stock 110000
“ Wages 35000
“Carried Inward 12000
“Gross Profit 132000
504000 504000
To Staff Salary 18750 By Gross Profit 132000
“Office rent 12000 “Interest on Debenture 17800
“Audit expenses 5500 “Ba debts 5200
“Income Tax 32000 recovered(allowed earlier)
“Car expenses 15000 “Sundry income 2650
“Y2K expenses 40000 “Rent from house let-out 90000
“Donations 2500
“General expenses 18650
“Sales Tax provision 16000
“Technical Knowhow
purchased 30000
“Interest on capital 16000
“Depreciation of Car 18000
“Provision for bad
debts 6500
“Net Profit 16750
247650 247650
Adjustments:
1. Opening stock is undervalued by 15%
2. Closing stock overvalued by 10%
3. Purchase include a cash payment of Rs.30000 towards raw materials
4. 20% of car expenses are attribute to use of car for personal purposes.
Prof. Lakshmi V 19
Income from business-VI semester B.Com
5. Out of the income tax provision and sales tax provision, Income tax of
Rs6250 and sales tax of Rs1250 were paid before filling of return of
Income.
Particulars Amount Amount
Net profit as per P/L a/c 16750
Add: Disallowed expenses/Allowable income
1. Purchases in cash 30000
2. Income tax 32000
3. Car expenses(15000X20/100) 3000
4. Donations 2500
5. Sales tax provision(16000-1250) 14750
6. Technical Knowhow(capital) 30000
7. Interest on capital 16000
8. Depreciation on car(18000X20/100) 3600
9. Provision for Bad debts 6500 138350
Less: Allowable expenses/Disallowed income
1. Interest on Debenture 17800
2. Rent from house property 9000
3. Depreciation on Technical Know how
(30000X25/100) 7500 115300
39800
Adjustment for Stock
Less: under valuation of O/S (85000X15/85) (15000)
Less: Overvaluation of ClS (110000X10/110) (10000)
(25000)
Income from business of Mr.Dhanush 14800
Prof. Lakshmi V 20
