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Profit or gains from business and profession

Ankush sharma (Auditor Article Assistant) (816 Points)

08 September 2012

please help appreciated

do define in laymen term

1. what wil be the treatment in pgbp of prepaid income and accrued receipt

with section if possible

2. asset which is used as sec35 full exemption claimed earlier if sold in profit or loss what will be the treatment in pgbp with section or reasoning if posible

3. furniture 1-4-2010 86000 cosing 27500 wdv on 1-4-2010, Rs.20000 has been sold for Rs. 32000, on what value depreciation will be calculated if on 54000 why so

4. sale of car loss or in profit,, should it not be taken in pgbp because it is not a capital asset

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4 Replies

Arun Kumar (Article Assistant) (83 Points)
Replied 08 September 2012

Dear Ankush,

1. Prepaid expenses will not be allowed as deduction since it is not pertaining to that year as per accrual concept. It has to be shown in the balance sheet as current asset.

2. For an asset to which full exemption claimed, if it was sold then entire amount of sale consideration would be treated as short term capital gains.

3. Under Block of asset principle, you have caluculate the depreciation on 86000 less 32000 i.e. on 54000/-

4. If it is used for business purpose, then the sale consideration value less wdv will be charged for short term capital gains.

It is only my opinion.

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CA Ruben Balooni (Professionalism ™) (1324 Points)
Replied 09 September 2012

1. Prepaid Income will be taxable in the year of receipt IF YOU FOLLOW CASH ACCOUNTING BASIS whereas IF YOU FOLLOW ACCRUAL ACCOUNTING BASIS then Prepaid Income will be taxable in the year to which it relates !! If you are following CASH BASIS ACCOUNTING then there will be no treatment for accrued receipt where if you are following ACCRUAL BASIS ACCOUNTING then accrued receipt will be taxable in the year in which it accrues.

2. First of all it will be called DEDUCTION and not EXEMPTION. The whole sale consideration will be taxable as Income from P/G/B/P u/s 41(3)

3. As per section 43(6) WDV shall be calculted as follows :

Opening WDV : 86000

+ Cost of Assets purchased during the previous year : NIL

- Sales Consideration of the Asset Sold : 32000

= 54000

4. Profit/Loss on Sale of Car shall be taxable under the head Capital Gains. If Car is a depreciable asset then there will be Short Term Capital Gain and if it is non-depreciable then it will be according to its holding period.

- Ruben Balooni

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Ankush sharma (Auditor Article Assistant) (816 Points)
Replied 10 September 2012

Originally posted by : Ruben Balooni

thanx for your reply ruben

the concept of "prepaid incomes", what you are saying is if assesse follows cash bais of accounting then all the expenses and incomes are considered on cash basis or in due basis in accrual basis,, but outstanding expenses are allowed as deduction whether or not person follows accrual or cash please correct me if i am wrong or else explain with example and section thankyou again appreciated

1. Prepaid Income will be taxable in the year of receipt IF YOU FOLLOW CASH ACCOUNTING BASIS whereas IF YOU FOLLOW ACCRUAL ACCOUNTING BASIS then Prepaid Income will be taxable in the year to which it relates !! If you are following CASH BASIS ACCOUNTING then there will be no treatment for accrued receipt where if you are following ACCRUAL BASIS ACCOUNTING then accrued receipt will be taxable in the year in which it accrues.

2. First of all it will be called DEDUCTION and not EXEMPTION. The whole sale consideration will be taxable as Income from P/G/B/P u/s 41(3)

3. As per section 43(6) WDV shall be calculted as follows :

Opening WDV : 86000

+ Cost of Assets purchased during the previous year : NIL

- Sales Consideration of the Asset Sold : 32000

= 54000

4. Profit/Loss on Sale of Car shall be taxable under the head Capital Gains. If Car is a depreciable asset then there will be Short Term Capital Gain and if it is non-depreciable then it will be according to its holding period.

- Ruben Balooni

Ankush sharma (Auditor Article Assistant) (816 Points)
Replied 10 September 2012

Originally posted by : Arun Kumar
	thanx arun can you provide any section which relate your answer thanks Dear Ankush, 1. Prepaid expenses will not be allowed as deduction since it is not pertaining to that year as per accrual concept. It has to be shown in the balance sheet as current asset. 2. For an asset to which full exemption claimed, if it was sold then entire amount of sale consideration would be treated as short term capital gains. 3. Under Block of asset principle, you have caluculate the depreciation on 86000 less 32000 i.e. on 54000/- 4. If it is used for business purpose, then the sale consideration value less wdv will be charged for short term capital gains. It is only my opinion.