PGP 2011 Name________________________

QUIZ 4

Time: 25 Minutes Roll No.______

Sumit started a Pharma company (Firm name: Sumit) on 1st April 2010 with a capital of ` 300,000. The transactions in 2010 -11 are summarized below: 1. Total revenue generated during the year was Rs. 12,50,000. Sumit defers 20% of the software revenues to future years. The deferred amount is recognized equally over the next two years. However, income tax act does not allow deferral of any revenue. 2. Total expenses during the year include the following: a. b. Cost of materials consumed was Rs. 3,00,000. Wages and salary expenses during the year were Rs. 3,00,000. The amount includes bonus due to the workers amounting to Rs. 50,000. The bonus payment was made on November 10, 2011. Under Income Tax Act, bonus is allowed as a deduction only to the extent paid before the due date (i.e. 30 September) of filing of Income Tax Return. Bonus paid after the due date is allowed as deduction in the subsequent years. The depreciation expense during the year was Rs. 1,20,000. Depreciation expense for income tax purpose was Rs. 1,40,000 Interest expense on loans was Rs. 30,000, of which only 25,000 was paid during the year. Income tax act allows deduction for interest payments based on cash accounting (i.e. year of payment of interest). The firm paid Rs. 20,000 as donation to a Scientific Research Organization. The income tax allows deduction to the extent of 125% of such payment. The firm paid Rs. 15,000 against sponsorship of a charity show. Income tax does not allow such expenses as deductions. Research and Development cost during the year was Rs. 1,50,000. For financial reporting, 50% of the R & D expenses is capitalized in the year incurred. It is amortized equally over the next two years. Income tax allows entire R & D costs as deductions in the year in which the amount is spent.

c. d.

e. f. g.

3. The tax rate for the firm is 30% for 2010-11. The tax rate for 2011-12 as declared in Union Budget was 35%. Fill all the cells in the table overleaf. (You are required to calculate the deferred tax effect separately for each item.)

SUMIT Calculation of Deferred Tax Assets /Liabilities and Deferred Tax Expense/Income Difference Financial Tax (sign not Timing/ Change in Accounting Accounting relevant) Permanent? DTA/DTL DTA/DTL

Particulars Revenues/Incomes Sales Expenses/Deductions Materials Wages & Salaries Depreciation Interest Donation to SRO Charity payment R&D Total Exps/dedu. PBIT I Tax Exps: Current Deferred

Taxable Income

Profit after Tax

Figure in the Balance Sheet Deferred Tax Asset

Amount

Deferred Tax Liability Net (DTA/DTL)