Question

ASSUME ALL CORPORATIONS ARE C CORPORATIONS
During the first year of operation ending December 31, 2014, the corporation incurred the following:
Sales $200,000 Operating Expenses 150,000 (excludes charitable contribution deduction)
Nontaxable income 3,000
Nondeductible expenses 4,000
Capital Gains 12,000
Capital losses 15,000
Charitable contributions $6,000
Also, the corporation distributed $9,000 to its shareholders
($3,000 to each shareholder).

1.calculate the amount of charitable contribution deduction?
2.calculate the taxable income of J and J for the year ending December 31, 2014.
3. What is the required tax method of accounting for J and J?
4. What is the tax liability for the year")
5. what is the E and Pas of year-end'?
6. How is the $3,000 of cash distributions treated for each shareholder?

Answer 1

1) amount of charitable contribution deduction as per sec 181 of Companies Act 2013 is 5% of net profit

Here net profit is RS 50000(200000-150000)

Amount eligible for deduction is 500000*5%=2500

Amount actually contributed is 6000

Hence deduction is Rs 2500

2) Taxable income is RS 47500

It is calculated as sales - operating expenses - charitable contribution deduction

(200000-150000-2500)

Capital losses of RS 15000 will be set off against capital profit of RS 12000 and remaining will be carry forward

3)Accrual method should be followed

4) Tax liability is 31.2% of RS 47500 which is Rs 14820

Note: assume that turnover of corporation during financial year 17-18 is more than 250 crores. Therefore tax rate is taken as 30%

5) not understood

6) rupees 3000 distributed by corporation to each share holder is treated as dividend which is exempt in their hands under section 10(35)