c. A fire damaged a warehouse and a machine shop housing the production plant of an...

 

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c. A fire damaged a warehouse and a machine shop housing the production plant of an engineering company. Some of the plant was totally destroyed but the remainder was capable repair as were the buildings. An insurance claim was settled on the closing date of the accounts for Rs 512,000 which was credited to a suspense account in the Balance Sheet. The amount recovered is made up as shown below: R$ i. Damage to warehouse 50,000 (Actually spent on repairs Rs 55,200) 70,000 (Actually spent on repairs Rs 62,000) 112,000 (But book value in company books Rs120,000 transferred to a "Destroyed Plant A/c" and then debited to Profit & Loss. Tax written down value or base value for capital allowance purposes: Rs 100,000) 64,000 12,000 ii. Damage to factory workshop iii. Plant & Machinery destroyed iv. Cost of repairs to Plant & Machinery (Actually spent) v. Cleaning and other expenses (carried out by company's own workmen) vi. Loss of profit (due to temporary stoppage of production for 3 months) 74,000 vii. Loss of stock destroyed or damaged 130,000 512,000 Required: Say how you would deal with each of the above items in the computation of the company's income tax liability, giving your reasons. You should assume that all the expenses mentioned at (i), (ii), (iv) and (v) above have been debited to the Profit &Loss Account (19 marks) c. A fire damaged a warehouse and a machine shop housing the production plant of an engineering company. Some of the plant was totally destroyed but the remainder was capable repair as were the buildings. An insurance claim was settled on the closing date of the accounts for Rs 512,000 which was credited to a suspense account in the Balance Sheet. The amount recovered is made up as shown below: R$ i. Damage to warehouse 50,000 (Actually spent on repairs Rs 55,200) 70,000 (Actually spent on repairs Rs 62,000) 112,000 (But book value in company books Rs120,000 transferred to a "Destroyed Plant A/c" and then debited to Profit & Loss. Tax written down value or base value for capital allowance purposes: Rs 100,000) 64,000 12,000 ii. Damage to factory workshop iii. Plant & Machinery destroyed iv. Cost of repairs to Plant & Machinery (Actually spent) v. Cleaning and other expenses (carried out by company's own workmen) vi. Loss of profit (due to temporary stoppage of production for 3 months) 74,000 vii. Loss of stock destroyed or damaged 130,000 512,000 Required: Say how you would deal with each of the above items in the computation of the company's income tax liability, giving your reasons. You should assume that all the expenses mentioned at (i), (ii), (iv) and (v) above have been debited to the Profit &Loss Account (19 marks)