basic accounting details for taxation

7/31/2019 Basic Accounting Details for Taxation

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ACCOUNTING DETAILS

1. Current Assets Current Liabilities = Working Capital

2. Gratuity Calculation = Basic Salary x 15 x No. of Years of Service26

3. What is a Balance Sheet?

Ans. A Balance Sheet portrays the financial position of the Company by stating its economic

resources and economic obligations both to the owners and creditors.

4. Current Ratio = Current Assets

Current Liabilities

5. Debt Equity Ratio = Debt

Equity

6. G.P Ratio = Gross Profit x 100

Net Sales

7. Net Profit Ratio = Net Profit x 100

Net Sales

8. Stock Turnover Ratio = Cost of Goods Sold

Average Stock

9. Debtors Turnover Ratio = Debtors + Bills Receivable x 365

Net Credit Sales

10. Creditors Turnover Ratio = Creditors + Bills Payable x 365

Credit Purchases

11. Operating Ratio = Operating Cost x 100

Net Sales

12. What is Retention Money?

Ans. The amount deducted from the vendors bill to be paid to the vendor after a certain

period on completion of the contract (Ex. After 6 months or 1 year)

The Journal entry = Sundry Creditors Dr

To Retention Payable Cr

13. Contingent Liability

Ans. Contingent Liability is a liability that comes into existence on the happening of an

uncertain event.


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14. What is a Trial Balance?

Ans. When all the accounts of a concern are balanced, a list of Debit balances and Creditbalances are prepared. That list is called the Trial Balance.

15. What is a Contra Entry?

Ans. Whenever a transaction relates to Cash and Bank both, it is recorded on both sides of

the cash book. Such entry is called Contra Entry.

Journal Entries:

i) Income Outstanding (O/S)

Accrued Income Dr

To Income

ii) Interest on Drawings

Capital A/c Dr

To Interest on Drawings

iii) Outstanding Expenditure (O/S)

Expenses A/c Dr

To O/S Expenses

iv) Prepaid Expenses

Prepaid Expenses A/c Dr

To Expenses

16. What is Depreciation?

Ans. The process of spreading the cost of Fixed Assets is termed as Depreciation.

17. Two Types of Depreciation

i) Straight Line Method:

Under this method depreciation is charged evenly every year.

ii) W.D.V Method:

Depreciation is charged at a fixed rate on reducing balance.

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18. Rates of Depreciation on the Following Assets.

Plant & M/c. 15%

Furniture & Fixtures 10%

Buildings 10%

Motor Vehicles 15%

Computer 60%

Air Conditioner

Office Equipment

19. Why is J.V Passed?

Ans. Journal Voucher is passed in order to rectify the errors in the Books of Accounts.

20. Tax exemption equal to 100% of profit for 5 Years and 50% of Profit for the next

2 years is allowed to undertakings who manufacture computer software in SEEPZ

Zone from AY 2003-2004.

21. Profession Tax Slab

Upto 2000 NIL

2001 2500 30

2501 3500 60

3501 5000 120

5001 10,000 175

10,001 & above 200

22. TDS Rates:

Payments to Contractors - 2.24% Interest Payment 22.44%

Payments to Professionals - 5.61%

Payment of Rent - 22.44%

23. Fringe Benefit Tax - Section (XII H)

Ans. A new chapter inserted by the I.Tax Act to levy a tax termed as Fringe Benefit Tax

(FBT) @ 30% of the value of Fringe Benefits plus surcharge and Education Cess

provided or deemed to be provided by the Employer to his Employees. FBT is payableby the Employer.

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Any Expenditure on conveyance, tour and travel including Foreign travel or hotel or

boarding and lodging in connection with any conference shall be deemed to be

expenditure incurred for the purpose of conference 20% of Expenditure is considered

as the value of Fringe benefit.

Conveyance, tour and travel including Foreign travel 5% of Expenditure in case the

employer is engaged in manufacture of computer software is considered as value of

Fringe benefit.

Use of Hotel, boarding & Lodging facilities 5% in case the employer is engaged in

manufacture of computer software.

Use of Telephone including mobile 20% of Expenditure

Use of Club Facilities - 50% of Expenditure

No deduction shall be available in respect of Fringe Benefit Tax paid while computing

income under the head Profits and Gains of Business or Profession.

VAT:

Rates of Tax : 12.50%

Works Contract Tax:

Issuance of Certificate of deduction of Works Contract Tax in Form 402.

Works Contract Tax to be deducted only in cases where payment to a Contractor is Rs.

5 Lakhs or more during a year.

Types of Works Contract Amount to be deducted from the

Contract Price (%)

1. Installation of Plant & M/c. 15%

2. Civil Work, Construction of Buildings 30%

3. Fixing of Marbles, Slabs etc. 25%

4. Any other Contract 20%

The % age is to be applied after deducting from the total Contract Price, the amount paid by

way of price for the entire sub contract to sub contractors if any.

24. Allowance Exempt from Tax:

Leave Travel Allowance - Section 10(5)

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25. HRA Section 10(13A)

The least of the following is exempt from Tax

i) 50% of Salary (Residential house at Mumbai, Delhi, Calcutta, Chennai) & 40%if house is situated at any other place.

ii) Actual HRA received by the Employee

iii) Excess of Rent paid over 10% of Salary.

26. Leave Encashment Section 10 (10AA) - Treated as Income

27. Medical Benefits - Section 17 Exempt

28. Perquisites taxable in hands of all Employees

i) Value of Rent Free Accommodation

ii) Value of Concession in rent

29. DEDUCTION & REBATES

Section 80 DD - Rs. 50,000 for ordinary disability

- Rs. 75000 for severe disability

30. Income Tax Forms:

Return of Income for Persons - Form No. 2 C

Tax on banking transaction @ 0.1% on withdrawals of cash on any single day (other than

S/B account) in excess of Rs. 25,000/- for an individual and 1 lac for other applicable from

01.06.2005)

31. Service Tax:

All taxable services may be exported without payment of Service Tax.

32. Forms & Nos:

10CC ABA - Certificate to be issued by an undertaking in the Special Economic Zone to the

manufacturer undertaking for purchase goods for producing / computer software

for export.

16A - Certificate of Tax deduction at source

24 - Annual Return of Salaries

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Foreign Exchange:

Exporters of Projects / Services are permitted to open and hold currency bank account in India

or abroad.

33. What is Closing Entry?

Ans. All expenses and gains a/c must be closed at the end of the year and the balances

transferred to Trading or P&L A/c. Journal entry is required for transferring them to Trading or

P&L A/c. Such entry is called Closing Entry.

34. Closing Entry for Transferring Profit

P&L A/c. Dr

To Capital

For Transferring Loss

Capital A/c Dr

To P&L A/c

35. Two Types of Accounting:

i) Cash basis Accounting:

Under this type income is taken as the difference between Cash receipts & payments

irrespective of the period which they relate.

ii) Mercantile System:

Under this system, the period is the basis. Only the revenues and payments for that

particular period is taken into account.

36. Why is adjustment entry passed?

Ans. Because of the adoption of accrual system, Adjustment entry becomes necessary for eg.Prepaid Expenses, O/S Expenses, Accrued Income, Income received in advance.

Some other Adjustment Entries are:

i) Stock at the end.

ii) Depreciation

iii) Provision for discount on Creditors & Debtors etc.

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Adjustment Entry:

i) Interest on Capital

Interest on Capital A/c DrTo Capital A/c

ii) Income received in advance

Income a/c Dr (P&L A/c)

To Income received in advance (Liability)

37. Why is Bank Reconciliation done?

Ans. Bank Reconciliation is done to reconcile the balances in the Cash Book and the Bank

Book. Reconciliation statement explains the reasons for the difference.

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