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

Vishwas General Insurance Ltd shows profit before tax and appropriations of Rs 90 crore in its profit and loss account prepared under the insurance laws. It debited a provision for diminution in value of investments of Rs 12 crore, and an inadmissible expenditure of Rs 5 crore. A gain of Rs 8 crore on realisation of investments was not credited to the profit and loss account. An amount of Rs 20 crore carried to a reserve for unexpired risks is allowed as prescribed. Under Schedule XIV (other insurance business), what are the profits and gains?

Rs 95 crore. Begin with book profit of Rs 90 crore, add back inadmissible expenditure of Rs 5 crore and the investment diminution provision of Rs 12 crore, add the uncredited realisation gain of Rs 8 crore, then deduct the Rs 20 crore reserve for unexpired risks.

  1. ARs 87 croreCorrect
  2. BRs 95 crore
  3. CRs 79 crore
  4. DRs 83 crore

Explanation

Start with Rs 90 crore. Add inadmissible expenditure 5 and provision for diminution 12 = 107. Add the uncredited realisation gain 8 = 115. Deduct reserve for unexpired risks 20 = 95. Rechecking: 90+5+12+8-20 = 95. So Rs 95 crore is correct and the first option is a trap.

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