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CMA Final · Direct Tax Laws and International Taxation · Business Restructuring

A general insurer's profit and loss account shows profit before tax and appropriations of Rs 80 lakh after debiting provision for tax Rs 12 lakh (inadmissible) and provision for diminution in value of investments Rs 5 lakh. It also shows a gain on realisation of investments of Rs 6 lakh not credited to the profit and loss account. A reserve for unexpired risks of Rs 9 lakh, as prescribed, was carried over. Under Schedule XIV, the profits and gains of this business are:

The profit is Rs 94 lakh. Starting from Rs 80 lakh, add back the inadmissible tax provision of 12 and the investment diminution provision of 5, add the uncredited investment gain of 6, then deduct the Rs 9 lakh unexpired risks reserve.

  1. ARs 94 lakhCorrect
  2. BRs 85 lakh
  3. CRs 91 lakh
  4. DRs 82 lakh

Explanation

Paragraph 4(1): start at 80, add back tax provision 12 and diminution provision 5, add the unrecorded gain 6, and deduct the prescribed unexpired-risk reserve 9: 80+12+5+6-9 = 94. Rs 85 lakh omits the tax provision and gain; Rs 82 lakh mis-signs the gain.

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