Q&A

Assignment - C

Q.1 A domestic company is always a company in which the public are substantially interested -(a) True (b) False(c) None of the above(d) True in some cases.

Q.2 A private limited company can never be a company in which the public are substantially interested –(a) True (b) False(c) True in some cases(d) None of the above

Q.3 A company registered in the UK and makes arrangement for payment of dividend in India is not a domestic company – (a) True (b) False (c) True in some cases(d) None of the above

Q.4 A company is said to be resident of a particular company if – (a)Control and management of the affairs of a company is situated wholly in that particular country. (b)Control and management of the affairs of a company is situated outside that particular country(c) Control and management of the affairs of a company is situated partly in that particular country and partly outside that particular country.(d) All of the above

Q.5 X Ltd. a foreign company manages its affairs partly from India and partly outside India. X Ltd. is said to be – (a) Resident in India(b) Non-Resident in India.(c) Resident and Ordinary Resident in India,(d) Resident but not ordinary Resident in India.

Q.6 A company owning the following hotels can claim deduction under section 80-ID – (a)A 5 star hotel in X ( a place ).

(b)A 4 star hotel in Y ( a place ). (c)A 3 star hotel in Z ( a place ). (d)All of the above.

Q.7 A company is qualified to claim deduction under section 80-IB. By mistake the deduction was not claimed in the return in the return of income. However, the company claims the before the Assessing Officer at the time of assessment under section 143(3)

(a)Deduction will be allowed by the assessing officer. (b)Deduction will not be allowed by the assessing officer. (c)Deduction will be allowed by the assessing officer, if the Commissioner of Income-tax permits. (d)Deduction will be allowed by the assessing officer, if the it is permitted by the Chief Commissioner. Q.8 A Government company cannot claim any deduction under section 10A, 10AA and 10B –

(a)True(b)False(c)None of the above(d)True in some cases.

Q.9 A limited liability partnership owns an infrastructure facility. It can claim deduction under section 80-IA –

(a)True(b)False(c)True in some cases(d)None of the above

Q.10 Only a company(not a limited liability partnership) can claim deduction under section 10A, 10AA, and 10B – (a)True

(b)False(c)True in some cases(d)None of the above

Q.11 Deduction under section 80JJJA is available in the following cases –(a)Indian Company(b)Foreign Company(c)Limited Liability Partnership.(d)All of the above

Q.12 Tonnage tax scheme is applicable in the following cases –(a)Foreign Shipping Company,(b)Indian Shipping Company,(c)Limited liability partnership in shipping industry.(d)All of the above

Q.13 A company will pay dividend tax if –(a)Bonus shares are allotted to equity shareholder.(b)Bonus shares are allotted to preference shareholders,(c)Shares are allotted to debenture holders free of cost.(d)Shares are allotted to employees as ESOP shares free of cost.

Q.14 Corporate taxation does not play any significance role in determining the choice between different sources of finance –

(a)True(b)False

Q.15 A Company want to purchase a plant (cost: Rs. 80 crore).It can out rightly purchase it. Alternatively, it can take the plant on lease. The following factors are taken into consideration to find out which one is better –

(a) Corporate tax rate;(b) Corporate rate and depreciation rate; (c) Corporate tax rate, depreciation rate, lease rent, cost of capital and useful life of

plant; (d) None of the above.

Q.16 If corporate tax rate is reduced the tax saving on account of depreciation will increase - (a) True (b) False (c) True in some cases (d) None of the above

Q.17 If rate of depreciation is reduced the tax saving on account of depreciation will increase - (a) True (b) False (c)True in some cases (d)None of the above

Q.18 If borrowed funds are used for purchase of a plant and tax rates are reduced, the tax saving will increase - (a) True (b) False

(c) True in some cases (d) None of the above

Q.19 Depreciation is not available in the case of machine acquired under higher purchase – (a) True (b) False (c) True in some cases (d) None of the above

Q.20 X Limited is considering a proposal to manufacture a component itself or purchase from market. No fresh investment in plant and machinery will be required if it decides to manufacture the component within its factory. Total Variable Cost of manufacturing is $ 74 per unit of component. Net fixed cost of use of plant and machinery comes to $ 20 per unit of component. The component is available in market at $ 79 per unit of component. It is better to purchase the component from market- (a) True (b) False (c) True in some cases (d) None of the above

Q.21 Y Limited has an option to purchase a machine out of own funds or alternatively a bank can finance it. At the current rate of corporate tax, the tax saving in the later option is higher. If the corporate tax rate is reduced, the second option will become less attractive- (a) True (b) False (c) True in some cases (d) None of the above

Q.22 In case of demerger, accumulated loss and unabsorbed depreciation of the demerged company will be-

(a) Carried forward in the hands of demerged companies.(b) Carried forward and set off in hands of resulting companies.(c) Set off in the hands of demerged companies.(d) None of these.

Q.23 Amalgamation and demerger are considered as-(a) Same terms always.(b) Distinct terms always(c) Same terms in certain cases.(d) Distinct terms in certain cases.

Q.24 Net wealth is calculated as-(a) Assets chargeable to wealth tax less the exempted assets(b) Assets chargeable to wealth tax less debt owned (c) Assets less debt owned(d) Assets less exempted assets

Q.25 Wealth tax is chargeable (a) @ 2% of the net wealth exceeding Rs. 30 Lakhs(b) @ 1% of the net wealth exceeding Rs. 30 lakhs (c) @ 1% of the entire net wealth provided it exceeds Rs. 30,00,000.(b) @ 2% of the entire net wealth provided it exceeds Rs. 30,00,000.

Q.26 Wealth tax is payable if the net wealth of the assesee(a) Exceeds Rs. 250,000(b) Is Rs. 30,00,000 or more (c) Exceeds Rs. 30,00,000(d) None of the above

Q.27 A firm is (a) Not liable to wealth tax (b) Liable to wealth tax(c) Not liable to wealth tax but partners share in the value of the assests of the firm shall be included in the net wealth of the partner(d) All of the above

Q.28 Asset held by a minor child is included in the net wealth of the (a)Father (b)Mother (c)Father or mother whose net wealth before clubbing is greater. (d)Father or mother whose net wealth before clubbing is lesser.

Q.29 An assessee is one who pays the wealth tax, an assesse belongs to which of the following category?

(a) A company(b) HUF(c ) A dead person’s legal representative, the executor or administrator(d)All of the above

Q.30 A house is not treated as an asset if(a) it is meant exclusively for residential purposes (b) house held as stock-in-trade(c) house used for own business or profession(d) all of the above

Q.31 VAT WAS FIRST INTRODUCED AS A TAX IN THE YEAR:-

(A) 1919(B) 1921 (C ) 1948(D) 1954

Q.32 VAT WAS FIRST INTRODUCED BY THE:- (A) FRANCE(B) GERMANY (C ) USA(D) UK

Q.33 WHICH IS MOST COMMON VARIANT OF VAT USED WORLD WIDE:- (A) GROSS PROFIT VARIANT(B) CONSUMPTION VARIANT(C ) GROSS PRODUCT VARIANT(D) GROSS INCOME VARIANT

Q.34 TIN MEANS:- (A) TAX INFORMATION NUMBER(B) TAX INDIA NUMBER(C ) TAX IDENTIFICATION NUMBER(D) TAX INTRODUCTION NUMBER

Q. 35 VAT INTRODUCTION WILL CERTAINLY:-(A) MAKE THE REVENUE COLLECTION WORST.(B) MAKE THE REVENUE COLLECTION BETTER.(C ) THE REVENUE COLLECTION ARE THE SAME.(D) REVENUE VOLUME HAS NOTHING TO DO WITH INTRODUCTION OF VAT

Q.36 THE ACCOUNTING UNDER THE VAT WILL BE:- (A) REGULAR AND CHEAP.(B) REGULAR AND EXPENSIVE(C) IRREGULAR AND CHEAP.(D) IRREGULAR AND EXPENSIVE

Q.37 TO CLAIM THE INPUT CREDIT OF TAX PAID WHAT IS MOST IMPORTANT DOCUMENT:- (A) PERMISSION OF THE SALES TAX AUTHORITY.(B) PROPER VAT INVOICE (C ) CASH BOOK(D) LEDGER

Q.38 WHICH IS MOST COMMON VARIANT OF VAT USED WORLD WIDE:-(A) GROSS PROFIT VARIANT(B) CONSUMPTION VARIANT(C ) GROSS PRODUCT VARIANT(D) GROSS INCOME VARIANT

Q.39 DUE TO INTRODUCTION OF VAT:- (A) TAX EVASION IS RESTRICTED.(B) TAX EVASION IS INCREASED.(C ) VAT HAS NOTHING TO DO WITH EVASION OF TAX.(D) TAX EVASION HAS BECOME EASY.

Q.40 THE ACCOUNTING UNDER THE VAT WILL BE:- (A) REGULAR AND CHEAP.(B) REGULAR AND EXPENSIVE(C) IRREGULAR AND CHEAP.(D) IRREGULAR AND EXPENSIVE

1. When determining the interaction between the UK and EU on the regulation of the financial services industry, the UK government must alwaysA. seek approval from the European Commission before implementing any new regulations. B. implement new EU Directives by passing acts of Parliament.C. accommodate all EU Decisions in UK legislation.D. provide copies of new regulation to the European Commission within a reasonable period of time for their approval.

2. A client has previously written to her former adviser opting out of any marketing activities from the firm or any third parties. However she continues to receive direct investment offers from the firm. She should complain based on the firm not complying with which set of regulations?A. Conduct of Business rules. B. Data Protection Act 1998.C. Distance Selling Regulations. D. Treating Customers Fairly.

3. The Financial Services and Markets Act 2000 regulates the provision of which type(s) of financial advice?A. Advice to vulnerable individuals only. B. Advice to all individuals.C. Advice to all individuals and group personal pensions schemes only. D. Advice to all individuals unless they are elective professional clients.

4. Simon has experience of dealing with retail clients and is now in training to qualify as a pension transfer specialist. As a consequence, which of the following statements are true?

A. He must have at least 3 years experience as an adviser before his training can commence. B. His firm is allowed to impose a time limit on completion of the qualification.C. His supervisor must also be suitably qualified.D. Once qualified, CPD requirements are waived for 12 months.E. Once qualified, records of his training must be maintained for at least 5 years.

Applied Direct Taxation

Objective Questions and Answers

1. Multiple Choice Questions(A) The following is capital receipt:(a) Dividend from investment;(b) Bonus shares;(c) Sale of technological know- how;(d) Compensation received for compulsory evacuation of place of business.Ans. (d) Compensation received for compulsory evacuation of place of business.

(B) Following is not a capital receipt:(a) Dividend on investment;(b) Bonus shares;(c) Sale of know-how;(d) Compensation received for vacating business place.Ans. (a) Dividend on investment

(C) An individual is said to be resident in India in a previous year (in which the February month has 29 days) if he is in India in that year for a period or periods amounting in all to 182 days or more, [(a) 182, (b) 183, (c) 60, (d) 150]Ans. 182 days

(D) The assessee is charged to income-tax in the assessment year following the previous year:(a) A non-resident business firm which shipped goods on 1.5.210 at

Visakhapatnam Port in Andhra Pradesh(b) An employee left India to USA on 1.8.2010 with no intention of returning(c) ABC firm which discontinued its business on 1.9.2010(d)An employee-assessee of a University who worked during 1.4.09 to 30.03.2010Ans. (d) An employee-assessee of a University who worked during 1.4.09 to 30.03.2010.

(E) Income received in India in previous year is taxable in the hands of:(a) Resident;

(b) Not-resident;(c) Non ordinarily resident;(d) All above.Ans. (d) All above.

(F) Expenditure incurred by an employer on medical treatment and stay abroad of the employee shall not be taxed in the case of ___________.(a) an employee whose gross total income before including the said expenditure does not exceed Rs. 2 lakhs.(b) an employee whose income under the head "Salaries" exclusive of all monetary

perquisites does not exceed Rs. 2 lakhs,(c) an employee whose income under the head "Salaries" exclusive of all non-monetary perquisites does not exceed Rs. 2 lakhs,(d) all employees irrespective of their amount of gross total income/the amount of income under the head "Salaries".Ans. (a) an employee whose gross total income before including the said expen-diture does not exceed Rs. 2 lakhs.

2. Expand - Expand abbreviations — CCIT, CBDT. Ans. CCIT - Chief Commissioner of Income Tax CBDT - Central Board of Direct Tax

3. Fill in the Blanks(A)The basic exemption limit in case of a non-resident individual being a senior citizen of Rs. 1.60,000. Income-tax rates are not prescribed by the Income-tax Act, but by the Finance Act of each year.(B) The term business would include profession and accordingly the term business used in Section 9(1)(i) would also include a professional connection.(C)Compensation received from an insurer on account of damage to the crops is an agricultural income.(D) Receipts from TV serial shooting in farm house is non agricultural income.

4. True and False/Correct and IncorrectA. 'Gross Total Income' means aggregate of income computed under various heads and after allowing deduction under Chapter Vl-A. Ans. False. 'Gross Total Income' means aggregate of income computed under various heads before allowing deduction under Chapter Vl-A. Income after al-lowing deduction under Chapter Vl-A is known as Total Income.B. If a person is resident and ordinarily resident of India, his income earned outside India is taxable in the country in which he earned that income. Ans. False. His income shall be taxable in India, subject to relief available u/s 90, 90A and 91.C. Where a person does basic operations in lands and later sells the saplings grown by him in a nursery owned by him, the same will be agricultural income. If the basic operations are not done by the assessee and the saplings are sold in his nursery, the same will still be regarded as agricultural income. Ans. True. Any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.

D. Vivitha, a Cost Accountant, is employed in Hema Plastics Ltd. The company pays the annual Cost accountant membership fee. The fee so paid by the company is not to be treated as a perquisite in the hands of Vivitha. Ans. False. As payment of annual Cost accountant membership fee is obligation of Vivitha. Since, obligation of the employee is paid by the employer, hence such payment shall be considered as taxable perquisite u/s 17(2)(iv).E. X is employed in Complex Ltd. as a Chartered Accountant. The annual membership fee of X paid by Complex Ltd. is not a perquisite and hence not chargeable to tax.Ans. False. Payment of annual membership is an obligation of X which is borne by the employer, hence the same shall be treated as perquisite u/s17(2).F. Rental income from residential property owned by a company carrying on business of property rentals is taxable under the head "Income from House Property". Ans. True. Rental income from residential property of an assessee is taxable under the head 'Income from House Property', irrespective of the fact that as-sessee is engaged in the business of letting of the property.

5. Multiple Choice Questions(A) If an employer transfers second hand motor car to the employee, the perquisite is valued at -(a) Actual cost less depreciation @ 30% for every completed year under straight line method(b) Actual cost less depreciation @ 20% for every completed year under WDV method(c) Actual cost less depreciation @ 30% for every completed year under WDV method(d)Actual cost less depreciation @ 20% for every completed year under SLM method.Ans. (b) Actual cost less depreciation @ 20% for every completed year under WDV method.(B)The following is exempt income :—(a) Travel concession to employee(b) Remuneration received for valuation of answer scripts(c) Encashment of leave salary whilst in service(d) Perquisites in IndiaAns. (a) Travel concession to employee.(C) The following is not taxable as income under the head "Salaries":-(a) Commission received by a full-time director;(b) Remuneration received by a partner;(c) Allowances received by an employee;(d) Free accommodation given to an employee.Ans. (b) Remuneration received by a partner.

6. Fill in the BlanksA. Expenditure on free meals to employee in excess of Rs. 50 per meal will be treated as perquisite of employee.B. Gift to employee upto Rs. 5,000 per annum will not be treated as perquisite taxable in the hands of employee.C. Death-cum-retirement gratuity received by an employee of Central Government is wholly exempt (wholly exempt /exempt up to Rs. 3,50,000/exempt up to 10,00,000)

D. If loan granted by employer to employee does not exceeds Rs. 20,000 (10,000, 20,000, 50,000, 1,00,000), it is not treated as perquisite to employee for purpose of income tax.E. Where an employer gifts a second hand motor car to an employee, the perquisite value is actual cost less depreciation at 20 % for every completed year under reducing balance method of computing depreciation.F. Any commission due or received by a partner of a firm from the firm shall not be regarded as salary income under section 15;G. Advance salary is taxable, while advance against salary is not taxable.

7. Distinguish between foregoing of salary and surrender of salary. Ans. Once salary has been earned by an employee, its subsequent waiver does not make it exempt from tax liability. Such waiver shall be treated as application of the in-come. Hence, salary foregone is taxable. However, where an employee opts to surren-der his salary to the Central Government u/s 2 of Voluntary Surrender of Salaries (Ex-emption from Taxation) Act, 1961, the salary so surrendered shall not be taxable.

8. Multiple Choice QuestionsIf an assessee earns rent from a sub-tenant in respect to tenanted property let out as a residence, the said rent is:(a) Exempt under Section 10.(b) Taxable under the head income from house property.(c) Taxable as business income, as the letting out is a commercial activity.(d) Taxable as income from other sources, unless the assessee is in the business of subletting properties on a regular basis.Ans. (d) Taxable as income from other sources, unless the assessee is in the business of subletting properties on a regular basis.

9. Fill in the BlanksA. Interest on capital borrowed for acquisition or construction of property is deductible subject to limit of Rs. 1,50,000 per year, if capital is borrowed on or after 1-04-1999. This is allowable if acquisition or construction is completed within 3 years from end of financial year in which loan was taken .B. For a self-occupied house property occupied on 1.7.2010, for which housing loan was availed, if the interest up to 31.3.2010 is Rs. 90,000 and thereafter the interest payable is Rs. 3,000 per month, the deduction available under section 24 in respect of interest for the year ended 31.3.2011 is Rs. 54,000. C. An assessee, after sale of house property, receiving arrears of rent is (is\is not) chargeable to tax; the same computed in the stipulated manner, is chargeable to tax as income from house property (income from other source/income from house property).D. The basis of chargeability under the head 'income from house property' is Annual Value .E. Arrear rent is taxable after deducting 30 % as per Section 25B of the Income-tax Act, 1961.

10. Multiple Choice Questions:(A)X Ltd. has failed to remit the tax deducted at source from annual rent of Rs. 6,60,000 paid to Mr. A for its office building. Said rent is —

(a)fully allowable as a business expenditure; (b)not allowable in view of Section 40(a)(i);(c)allowable to the extent of 50%; (d)none of the above.Ans. (b) not allowable in view of Section 40(a)(i).(B) A partnership firm's profit as per the profit and loss account is Rs. 10,00,000. Its total income determined according to the provisions of the Income- tax Act, 1961 is Rs. 9,00,000. A partner who has 20% share in the firm can claim exemption of amount of Rs.__________under Section 10(2A).(a)2,00,000,(b)1,80,000, (c) 20,000 (d) None of the aboveAns. (a) 2,00,000(C) Expenditure incurred in carrying out illegal business is—(a) Not allowed as deduction in any case.(b) Allowable as deduction, if gross total income is less than Rs. 5 lakhs.(c) Allowable as deduction in all cases.(d) Allowable as deduction, if income from illegal business is offered to tax.Ans. (d) Allowable as deduction, if income from illegal business is offered to tax.(D) if any expenditure is incurred by an Indian company wholly and exclusively for purpose of amalgamation or demerger, the said expenditure is —(a) not allowable as a deduction as a deduction in computing "Profits and gains from

business or profession"(b) Fully deductible as revenue expenditure in the year in which it is incurred.(c) allowable as a deduction, spread over eight successive previous years beginning if

the previous year in which the amalgamation or demerger taken place.(d) allowable as a deduction, spread over five successive years beginning with the

previous year in which the amalgamation or demerger taken place.Ans. (d) allowable as a deduction, spread over five successive years beginning with the previous year in which the amalgamation or demerger taken place.

11. Multiple Choice Questions: (A)If any expenditure is incurred by an Indian company wholly and exclusively for the purpose of amalgamation or demerger, the said expenditure is —(a) Not allowable as a deduction in computing profits and gains of business or

profession.(b) Fully deductible as revenue expenditure in the year in which it is incurred.(c) Not deductible but is eligible to be treated as an intangible asset in respect of

which depreciation can be claimed.(d) Allowed as a deduction spread over five successive previous year beginning with

the previous year in which the amalgamation or demerger takes place.Ans. (d) Allowed as a deduction spread over five successive previous year begin-ning with the previous year in which the amalgamation or demerger takes place.(B) Deduction for bad debts is allowed to an assessee carrying on business —(a) In the year in which the debt is written off as bad.(b) In the year in which the debt first arose.(c) In the year in which provisions was made in respect of the bad debt.(d) In the year in which the debt becomes irrecoverable by operation of law.Ans. (a) In the year in which the debt is written off as bad.(C) Under Section 41(4) of the Income-tax Act, 1961, where a bad debt allowed as a deduction under Section 36(1)(vii) in an earlier year is subsequently recovered —(a) It is taxable to the extent of 50% of recovery, in the year of receipt, as business income.

(b) It is taxable as business income in the year of recovery.(c) It is added back to the income of the year when it was written off and taxed as business income.(d)It is taxable as income from other sources in the year of receipt.Ans. (b) It is taxable as business income in the year of recovery.(D) Payment of interest to partners of partnership firm assessed as firm is allowable as deduction under Section 40(b) of the Income Tax Act, 1961.(a) If the rate of interest does not exceed 8% p.a.(b) If the interest is paid on the minimum balance of capital account between 10th

and the end of every month.(c) If it is calculated on quarterly balance.(d) If it is authorized by and in accordance with the partnership deed, pertains to a

period after the deed and does not exceed 12 percent simple interest per annum.Ans. (d) If it is authorized by and in accordance with the partnership deed, pertains to a period after the deed and does not exceed 12 percent simple interest per annum.(E) The following is not 'plant' u/s 43(3) of the Income-Tax Act, 1961 —(a) Books(b) Know-how(c) Road in the factory building(d) Electrical fittingsAns. (c) Road in the factory building.(F) Mr. L Singh used it in his business. This is the only asset in the block. 20% of the usage is for personal purposes. The WDV of the block as on 31.3.2011 is —(a) Rs. 2,70,000;(b) Rs. 2,55,000;(c) Rs. 2,10,000;(d) None of the above.Ans. (d) None of the above.

12. Fill in the BlanksA. In case of an existing industrial undertaking, to be eligible for additional depreciation, increase in installed capacity as compared to the installed capacity as on 31.3.2002 is 10per cent.[Note: As criteria of increment in installed capacity for allowing additional depreciation is now omitted]B. The due date for filling return of net wealth by an individual who is a non-working partner in a firm whose accounts are audited under Section 44AB of the Income-tax Act. 1961 is 31 st July .C. A person owns 4 heavy goods vehicles. His estimated annual income U/S. 44AE is 2,40,000. (16,800, 1,51,000, 1,92v000, 2,40,000). D. According to Section 44AB, every person, carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds Rs. 60 lakh in any previous year, inter alia, get his accounts of such previous year audited by a Chartered Accountant.E. Additional depreciation of 20% of the actual cost of any new machinery or plant which has been acquired or installed 31.03.2005 is available to an assessee engaged in the business of manufacture or production of an article of things. F. According to Section 40A(3), where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding Rs. 20,000 otherwise than

by a crossed cheque or crossed bank draft. 100 percent of such expenditure shall not be allowed as a deduction.G. The additional or accelerated depreciation, for an eligible assessee, for machinery installed and used after 31.03.2005 is 20% of actual cost of the machinery. H. Where an Indian company incurs any expenditure in connection with amalgamation or demerger, the same is allowable as deduction, spread over 5 successive previous years beginning with the in which amalgamation or demerger taken place .I. 44BBB(i) of the Income-tax Act, 1961, the presumptive income is taken as 10% of the eligible receipts in the hands of eligible assessee.J. The deduction for amortization of preliminary expenses under section 35D is allowable at 20% of the qualifying expenditure in each of the 5 successive years beginning with the year in which business commences.K. Capital Expenses is a non-recurring expenditure whereas revenue expenses is normally a recurring one.L. Sec 28 defines various income which are chargeable to tax under the head "Profits and gains of business or profession".M. Expenditure incurred towards demerger is deductible in 5 equal annual installments under Section 35DD of the Income-tax Act, 1961.

13. True and False/Correct And IncorrectA. Business expenses are allowed to be deducted from" business income even if they are in the nature of personal expenditure of the assessee, as long as they are reasonable.Ans. False. No personal expenses shall be allowed u/s 37(1).B.Where business is carried on, on behalf of the assessee's minor child (whose income is clubbed in assessee's hands), by the assessee, which is besides assessee's own business , the gross receipts of both should be reckoned for judging the applicability of section 44AB of the Income-tax Act, 1961. Ans. False. For the purpose of Sec.44AB, gross receipt or turnover from business of assessee-individual shall be considered.C. No disallowance under Section 40A(3) of the Income-tax Act, 1961 arises where an assessee makes a cash payment exceedings Rs. 20,000 towards purchase of a capital asset.Ans. True. Sec.40A(3) deals with expenditure covered u/s 30 to 37. Hence, any cash payment made for capital expenditure, subject to depreciation, is not cov-ered by Sec.40A(3).D. Depreciation is allowed when it is claimed.Ans. False. According to explanation 5 to Sec.32, depreciation is allowed even if it is not claimed by the assessee.E. In the case of a dealer in shares, Income by way of dividend is taxable under the heads "Profits and gains of business or profession". Ans. False. Dividend on shares is specifically covered under the head 'Income from Other Sources'.F. An assessee owns 11 trucks. One truck is always kept as a spare vehicle and is never plied on the road. Since only 10 vehicles are plied on the road at any given point of time, the provisions of section 44AE of the Income Tax Act, 1961, can be availed by the assessee.

Ans. False. The benefit u/s 44AE is available only if the assessee does not own more than 10 trucks. However, in the instant case, assessee is owning more than 10 trucks, hence Sec.44AE is not applicable.G. Municipal tax in respect of staff quarters is deductible only if it is paid, in computing business income.Ans. True. As per Sec. 43B, while computing business income, deduction in respect of any tax, duty, cess, etc. is allowable on payment basis.H. Advertisement in any souvenir, brochure, pamphlet or the like published by a political party is not deductible under Section 37(2B) of the Income-tax Act, 1961. Ans. True. Expenditure incurred by an assessee on advertisement in any souvenir, bro-chure, trade, pamphlet or like, published by a political party is disallowed u/s 37(2B).

14.Multiple Choice Questions A. Long-term capital gains arising on compulsory acquisition of agricultural land held by a domestic company within specified urban limits is —(a) not exempt under Section 10(37);(b) exempt under Section 10(37) in full;(c) 50% of the receipt is exempt under Section 10(37);(d) 25% of the receipt is exempt under Section 10(37).Ans. (a) not exempt under Section 10(37).B. In case of an investor in shares, in respect of shares sold, securities transactions tax paid (at the time of purchase of the said shares earlier), is —(a) to be added to the cost of acquisition;(b) to be deducted as an expenditure connected with transfer;(c) not deductible at all while computing capital gains;(d) none of the above.Ans. (c) not deductible at all while computing capital gains.C. In respect of listed shares held for 10 months sold on 12.8.2010, the rate of tax in respect of capital gains is —(a) 10%;(b) 20%;(c) 15%;(d) not determinable, as the capital gains will form part of the total income

whose other components are not known.Ans. (c) 15%D. Capital gains arising to an individual/HUF is exempt from tax under section 10(37) if the land was being used for agriculture purposes by such HUF or individual or parent of his during a period of or more immediately preceding the date of transfer.(a)2 years,(c) 12 months,(b)36 months,(d) 6 monthsAns. (a) 2 yearsE. Long term capital gain arising to an assessee on the sale of a capital asset is exempt under Section 54EC of the Income-tax Act, 1961 —(a) To the extent of investment in specified bonds up to a limit of X 100 lakhs.(b) To the extent of 50% of investment in certain bonds up to a limit of Rs. 50 lakhs.(c) To the extent of investment of capital gain in specified bonds not exceeding Rs. 50 lakhs.(d) Proportionate to the extent of investment of net sale proceeds in specified

bonds, not exceeding Rs. 50 lakhs.Ans. (c) To the extent of investment of capital gain in specified bonds not ex -ceeding Rs. 50 lakhs.

15. Fill in the BlanksA. 2010 - The cost of acquisition of 100 bonus shares, where the original shares (100 nos.) were acquired for Rs.30,000 is Nil.

16. True and False/Correct and IncorrectA. Long-term capital gains arising from units of debt-oriented equity funds for which securities transactions tax has been paid in a recognized stock exchange is exempt.Ans. False. Long-term capital gains arising from units of equity-oriented equity funds for which securities transactions tax has been paid in a recognized stock exchange is exempt u/s 10(38).B. For computation of capital gains, full value of consideration arising from the transfer of a capital asset, being land or building or both, shall be the value adopted by the "Stamp Valuation Authority" for payment of stamp duty or the consideration accruing or received from the transfer, whichever is less. Ans. False. As per Sec.50C, in case of transfer of immovable capital asset being land or building or both, sale consideration shall be higher of the following:1. Actual consideration received or accrued on such transfer; or2. The value adopted or assessed or assessable by any authority of a State

Government (i.e. Stamp Valuation Authority) for the purpose of payment of stamp duty.

C. Surplus on sale of motor car on which depreciation has been allowed for all year by proprietor of a business will be taxed as long term capital gain. Ans. False. Surplus on sale of motor car on which depreciation has been allowed for all year by proprietor of a business will be taxed as short term capital gain.D. Short-term capital gains arising from sale of listed shares through a recognized stock exchange, for which security transaction tax has been paid, will be charged to tax at a concessional rate of 10%.Ans. False. Short-term capital gains arising from sale of listed shares through a recognized stock exchange, for which security transaction tax has been paid, will be charged to tax at a concessional rate of 15%.

Multiple Choice Questions17. (A)Gift received from one or more unrelated person(s) during the previous year shall form part of an individual's income, if the aggregate of gifts exceeds —(a) Rs. 50,000(b) Rs. 1,00,000(c) Rs. 1,35,000(d) Rs. 1,65,000Ans. (a) Rs. 50,000B. Cash gift received under Section 56(2)(vii) from non relatives are not taxable upto —(a) Rs. 1,00,000;(b) 175,000;(c) Rs. 50,000;

(d) Rs. 25,000Ans. (c) Rs. 50,000.C. Mr. X gifts Rs.60,000 to the HUF of which he is member; said amount will be treated as income of —(a) Mr. X;(b) The HUF;(c) None, as it is exempt;(d) None of the above.Ans. (b) The HUF.

18. Fill in the BlanksA. Interest on refund on Income-tax paid in excess is a Taxable receipt.B. Amount received towards permission for putting up hoarding at the top of the building is taxable under the head Income from Other Sources.

19. True and False/Correct and IncorrectA. Mr. A has received gift of Rs. 1,50,000 on 12 th December, 2010 from his close friend who is assessed to income-tax. The same is taxable at the hands of Mr. A. Ans. True. Said gift is taxable u/s 56(2)(vii).B. Gift received from assesssee's grandfather in excess of Rs. 50,000 will be taxed as income from other sources.Ans. False. Gift from related person is not taxable.C. Gift of a diamond necklace worth I 2,00,000 received from a friend by an individual assessee is not taxable as income from other sources. Ans. False. Such gift is taxable u/s 56(2)(vii).D. Mr. Janak has received as gift, gold buillion bars worth Rs. 70,000 from his friend on his birthday on 15.3.2011. The same is not to be treated as income from other sources.Ans. False. Gift of bullions is covered under Sec.56(2)(vii), hence, it is taxable under the head 'Income from Other Sources'.E. Mr. Saravanan follows mercantile system of accounting. On 13.3.2011, he has received from the State Government, in respect of lands acquired, interest on enhanced compensation of Rs.1,50,000 which includes a sum of 120,000 relatable to this year. The amount assessable is Rs. 20,000. Ans. False. As per amended provision of Sec. 145A(2), interest on enhanced compensation is assessable as income from other source in the year of receipts. Hence, entire Rs.1,50,000 shall be assessable in the A.Y. 2011-12 subject to stan-dard deduction available u/s 56(2)(viii).G. Mr. A has three minor children deriving interest from bank deposits to of the tune of Rs.2,000, Rs.1,300 and Rs.1,600 respectively. Exemption available under Section 10(32) of the Income-tax Act, 1961 is-(a) Rs. 4,900;(c)Rs. 4,500;(b) Rs. 4,300;(d)None of above(c) Ans. (b) Rs. 4,300H. Miss Femina, aged 17, is married to Mr. Masculine. Her mother alone is alive. Income by way of interest on loans, of Miss Femina will be -(a) Assessed to tax in the hands of Mr. Masculine;(b) Assessed to tax in the hands of her mother;(c) Taxable in own hands;

(d) None of the above.Ans. (b) Assessed to tax in the hands of her mother.

20.Fill in the BlanksA. Exemption u/s. 10(32) of IT Act 1961 in respect of income of minor child

included in the hands of assesses under Section 64(1A) is restricted to Rs. 1,500 per child.

B. Assets held by minor married daughter will not (will/will not) be clubbed in the hands of the individual.

C. For the applicability of clubbing provisions of the Wealth Tax Act, 1957, the expression 'child' includes step child and adopted child.

21. Fill in the BlanksAccumulated losses of amalgamating company shall be allowed to be set off or carried forward by amalgamates company, if the amalgamated company holds continuously for a minimum period of 5 years from date of amalgamation at least three-fourths of the book value of assets of the amalgamating company.

22. True and False/Correct and Incorrect1. Benefit of carry forward and set off of accumulated losses and unabsorbed depreciation is not available in case of amalgamation of a company owning hotel, with another company.Ans. False. Benefit of carry forward and set off of accumulated losses and unabsorbed depreciation is available in case of amalgamation of a company owning hotel, with another company u/s 72A.2. Business loss can be set off against salary income.Ans. False;. As per Sec.71 (2A), business loss cannot be set off against salary income.3. Section 73 does not permit carry forward of losses from speculation business for more than four assessment years immediately succeeding the assessment year for which the loss was first computed.Ans. True. As per Sec.73, losses from speculation business cannot be carried forward for more than four assessment years immediately succeeding the as-sessment year for which the loss was first computed.

23.Multiple Choice QuestionsA. Government's contribution to the new pension scheme referred to in Section 80CCD is -(a) an exempt income;(b) income chargeable to tax as "Salaries" in full;(c) 50% thereof is income chargeable to tax as "Salaries";(d) Income chargeable to tax as "Income from other sources" in full.Ans. (b) income chargeable to tax as "Salaries" in full.B. In case of a hospital built in specified area after 31.3.2008 fulfilling the required conditions laid down in Section 80IB-(11C), the profits and gains derived from running the hospital are(a) deductible in full;(b) deductible to the extent of 50%;(c) deductible to the extent of 75%;(d) taxable in full.

Ans. (a) deductible in full.

24. Fill in the BlanksA. For a person suffering from server physical disability, deduction available

under Section 80U is Rs. 1,00,000.B. The tax rebate available under Section 80E to a Hindu Undivided Family

resident in India is Rs. Nil.C. The maximum amount of permissible deduction under Section 80C, subject to

overall ceiling of Rs. 1,00,000, for repayment of principal part of eligible housing loan in Rs. any amount subject to max of Rs.100000 and that of interest is Rs. Nil.

D. From out of his agricultural income, X has paid interest of Rs.10,000 on education loan taken from nationalized bank last year. Deduction available u/s 80E of the Income Tax Act, 1961 is Rs. NIL

E. Medical insurance premium paid otherwise than in cash is eligible for deduction under Section 80D of the Income-tax Act, 1961.

25.True and False/Correct And IncorrectA. Every assessee carrying on a business or profession is entitled to deduction under section 80JJAA equal to 30% of additional wages paid to new regular workmen employed by the assessee. Ans. False. Deduction u/s 80JJAA is available to Indian company only.B. In the case of an individual resident in India, who is an author, maximum deduction available from gross total income in respect of eligible royalty income is Rs. 5,00,000,Ans. False. In the case of an individual resident in India, who is an author, maxi -mum deduction available from gross total income in respect of eligible royalty income is Rs. 3,00,000.C. Market value of donation given in kind is also eligible for deduction under Section 80G of the Income-tax Act, 1961.Ans. False. Donation in kind is not eligible for deduction u/s 80G.

26. Multiple Choice QuestionsA. The registration of a charitable trust can be cancelled under Section 12AA of the Income-tax Act, 1961 by —'(a) Assessing Office;(b) Commissioner of Income-tax;(c) Chief Commissioner of Income-tax;(d) Central Board of Direct Taxes.Ans. (b) Commissioner of Income-tax.

27. Fill in the BlanksWhere a charitable trust is created on 01-04-2010, the application for registration u/s 12A of the Income-tax Act, 1961 should be submitted within one year from 1-4-2010 (date of creation of trust).[Note Now, a trust is required to apply for registration in Form 10A with the Commissioner of Income tax. It is to be noted that exemption will be available from the assessment year relevant to the financial year in which such application is made.]

28.True and False /Correct And IncorrectA. Under Section 12A of the Income-tax Act, 1961, application for registration of charitable trust can be made within one year form the date of creation of the trust.Ans. False. A trust is required to apply for registration in Form 10A with the Com-missioner of Income tax. It is to be noted that exemption will be available from the assessment year relevant to the financial year in which such application is made.B. In case of an artificial judicial person, no surcharge is payable where the total income exceeds Rs.10,00,000.Ans. True. Surcharge is applicable only in case of corporate assessee.C. Political parties governed by Section 13A of the Income-tax Act, 1961 have to file their returns of income within the time limit prescribed under Section 139(1) even if there is no income chargeable to tax under the Act. Ans. False. As per Sec.139(4B), the chief executive officer (whether such chief executive officer is known as Secretary or by any other designation) of any political party is required to furnish a return in respect of income of such political party, if the amount of gross total income before allowing exemption u/s 13A exceeds the maximum amount not chargeable to tax.

29.Multiple Choice QuestionsA. The income of any university or other educational institution existing solely for educational purposes and not for the purposes of profit is exempt under clause (iiiad) of Section 10(23C) if the aggregate annual receipts'of such university or educational institution do not exceed Rs. (a) Rs.100crores,(c) Rs. 10crores,(b) Rs.1 crore,(d) Rs. 10 lakhsAns. (b) Rs. 1 croreB. Any income chargeable under the based "Salaries" is exempt from tax under Section 10(6)(viii), if it is received by any non resident individual as remuneration for services rendered in connection with his employment in a foreign ship where his total stay in India does not exceed a period days in that previous year.(a) 90(b) 182(c) 60(d) 120Ans. (a) 90 daysC. The following is not a venture capital undertaking for the purposes of Sec.10(23F), if engaged in business of-(a) Generation of power(b) Telecommunications(c) Providing infrastructural facility(d) Dairy farming whose shares are not listed in a recognized stock exchangeAns. (d) Dairy farming whose shares are not listed in a recognized stock exchange.

30. Fill in the BlanksA. To claim the benefit under Section 10A, SEZ undertaking having a turnover of rupees two crores, should file the return of income on or before 31st Oct 2011.B. Exemption under Section 10B of the Income-tax Act, 1961 is available till assessment year A.Y. 2012-13.

31. True and False /Correct and IncorrectA. Amount received under Keyman insurance policy is not exempt under Section 10(10D) of the Income-tax Act, 1961.Ans. True. Amount received under Keyman insurance policy is specifically ex-cluded from exemption u/s 10(10D).B. Amount received under Reverse Mortgage Scheme is taxable as income under the head 'income form other sources'.Ans. False. Amount received under Reverse Mortgage Scheme is exempted u/s 10(43).C. In case of assesses other than companies, the following is advance tax rate to be payable on or before of 15lh September:(a) 15 per cent(c) 45 per cent(b) 30 per cent(d) 60 per centAns. (b) 30 per cent.

32. Fill in the BlanksWhile effecting the tax deduction at source, education cess and special higher education cess totalling 3% need not (should/need not) be also deducted from the amount due or payable to the deductee.

33.True and False/Correct and IncorrectA. As per Section 194-C of the Income-tax Act, 1961, all Association of Persons and Body of Individuals are liable to deduct tax at source from specified payments made to resident contractors.Ans. False. An association of persons or a body of individuals, whose books of account are required to audited u/s 44AB (due to turnover or gross receipt criteria) during the financial year immediately preceding the financial year is liable to deduct tax at source.B. The rate of TDS applicable for payment made on 28.2.2011 to non-individual sub-contractor, as per section 194C, is 2%.Ans. True. As per Sec. 194C, where payee is a other than individual and HUF, tax shall be deducted @ 2%.C. Only in the TDS certificate furnished by the deductor, quoting the PAN of deductor is compulsory and not in the other correspondences between the deductor and the deductee.Ans. False. As per Sec. 206AA, PAN of deductor is required to be quoted on TDS Statement and other correspondence.

34. Multiple Choice QuestionsA. In case of companies deriving loss for any assessment year, filling of return of income within the due date laid down in Section 139(1) is compulsory(a) only where the Department issues notice to the assessee-company;(b) for domestic companies only;(c) for foreign companies only;(d) for all companies.Ans. (d) for all companies.B. Where assessment has not been completed, belated income-tax return for assessment year 2011-12 can be filed upto

(a) 31-03-2013(b) 31-12-2012(c) 31-03-2012(d) 31-12-2013Ans. (a) 31-03-2013C. The due date for filing return of net wealth of an individual, who is a partner in a firm, whose turnover for the year ended 31-03-2011 exceeds Rs. 60 lacs, is(a) 30th June, 2011(b) 31st July, 2011(c) 31st October, 2011(d) None of the aboveAns. (d) None of the above.D. Where the karta is not available, the return of wealth of a HUF can be signed by:(a) Any adult member of the family;(b) Any adult coparcener of the family:(c) The male member who is next in seniority to the karta;(d) None of the above.Ans. (a) Any adult member of the family.E. Following Form Number is to be used for filing the return of income by an individual having business income:(a) Form No. 1;(b) Form No. 2;(c) Form No. 4;(d) Form No. 4A.Ans. (c) Form No. 4.

35. Fill in the Blanks:A. Belated return of income for the assessment year 2011-12 can be filed on or before 31 st March. 201 3. where no assessment has been made. B. The due date for filling wealth-tax return by a closely held company, whose turnover is below Rs. 40 lakhs, is 30 th September .C. Electronic furnishing of income-tax return in approved computer readable media can be furnished under sub-section (1B ) of section 139 of the Income-tax Act, 1961.D. 2009 - Time limit for filling revised return when assessment has not been completed is one year from the end of the relevant assessment year.E. Sec. 139(1) applies to all persons whether they are resident or non-resident.

36.True and False/Correct And IncorrectPartnership firm deriving loss need not file return of income.Ans. False. A firm is required to furnish return of income mandatorily.

37. Multiple Choice QuestionsA. Surcharge of 2.5% is payable in the case of companies, by(a) domestic companies only;(b) companies other than domestic companies;(c) all companies;(d) None of the above.

Ans. (d) None of the above.[Note; Surcharge of 2.5% is payable by non-domestic company if total income exceeds Rs.1 crore.]B. Expand - MAT. Ans. Minimum Alternate Tax

38.Fill in the BlanksA. For the assessment year 2011-12, tax on distributed profits (dividend distribution tax) is payable at 15% plus surcharge of 7.5% (+ Education Cess & SHEC 3%).B. The rate of Minimum Alternate Tax has been increased from 15% to 18% of book profits with effect from assessment year 2011 -12.C. Long term capital gain which are exempt u/s. 10(38) credited to profit and loss account are subject to ( subject to/not subject to) Minimum Alternate Tax, from assessment year 2011-12.D. A foreign company means a Company which is not a domestic company.E. The rate of tax in case of Minimum Alternate Tax has been increased to 18% % with effect from Assessment year 2011 -12.

39. True and False/Correct and IncorrectA. For the purposes of computing minimum alternate tax (MAT) under Section 115JB(2) of the Income-tax Act, 1961 the book profit need not to be increased, by inter alia, the amount of deferred tax debited to the profit and loss account. Ans. False. For the purposes of computing minimum alternate tax (MAT) under Section 115JB(2) of the Income-tax Act, 1961 the book profit required to be increased, by inter alia, the amount of deferred tax debited to the profit and loss account.B. The period for setting off the MAT credit under Section 115JB is seven years.

40. Multiple Choice QuestionsA. Which one of the following is an "asset" as per Section 2(ea) of the Wealth-tax Act?(a) Any residential property forming part of stock-in-trade(b) Any residential house that has been let out for a minimum period of 180 days during the previous year(c) Commercial complex(d) House occupied for the purpose of assessee's business.Ans. (b) Any residential house that has been let out for a minimum period of 180 days during the previous year.B. Under the Wealth Tax Act, 1957 the time limit for completion of regular assessment is months from the end of relevant assessment year.(a) 21(b) 12(c) 24(d) None of the above.Ans. (a) 21C. In valuation of immovable property in Bangalore, the specified area means of the aggregate area, for wealth-tax purpose.(a) 60%(b) 65%

(c) 70%(d) 75%Ans. (b) 65%D.The following is not an asset as envisaged by Sec.2(ea) of the Wealth-tax Act.(a) Bullion(b) Urban Land(c) Jeep used in business of manufacture of medicines(d) Motor boats of fishing businessAns. (d) Motor boats of fishing business.

41. Fill in the BlanksA. A plot of land not exceeding 500 sq. meters of area, belonging to an individual

is exempt from wealth tax.B. Partial partition of HUF is not recognized (recognized/not recognized) for

purpose of Wealth-tax Act, 1957.C. Where L whose cash and bank balance on 14.01.2011 is Rs. 50,000 gifts Rs.

2,50,000 to M, without any actual delivery of the money, Rs. 2,00,000 will be clubbed in the hands of L for wealth-tax purposes.

D. Under the Wealth-tax Act, 'assessment year' means the period of 12 months commencing on 1st day of April every year, falling immediately after the valuation date.

E. The term 'net wealth' is defined in Section 2(m) of the Wealth Tax Act.F. As per Section 2(ea)(i) Wealth-tax Act, 1957,"asset" means, inter alia, farm

house situated within 25 Kilometers of any municipality.G. Deemed individual is not liable to (liable to tax/not liable to tax) under Section

2(22)(e) of the Income-tax Act, 1961.H. The term "asset" is defined in clause (ea) of Section 2 of the Wealth-Tax Act,

1957.I. In the case of an individual or a HUF, a plot of land not exceeding 500 sq.

metres in area is exempt under Section 5(vi) of the Wealth-tax Act, 1957.J. In computing the net wealth of an individual, the value of assets, which on the

valuation date, are held by a minor child who is a married daughter of such individual, shall not (shall/shall not) be included.

42.True and False/Correct and IncorrectA. Property held by an assessee under trust for any private purposes of charitable nature in India is not an exempt asset under Section 5 of the Wealth-tax Act.Ans. True. Property held by an assessee under trust for any private purposes of charitable nature in India is not an exempt asset under Section 5 of the Wealth-tax Act.B. A charitable trust whose income is not exempt under any clause of Section 10 of the Income-tax Act, 1960 will be chargeable to wealth-tax in all cases, where the trust forfeits exemption.Ans. False. A trust forfeits exemption only in circumstances given in Section 21A of the Wealth-tax Act.C. The term 'individual', as a defied in the Wealth-tax, 1957 means only a single human being.

D. The term 'Individual' as defined in Wealth tax Act, 1957 means only a single human being.Ans. False. As per various court decisions, individual includes group of individuals forming one unit.E. Under the Wealth Act, 1957 a person who is once treated as a citizen of India, continues to be treated as a citizen of India for ever. Ans. False. If a person voluntarily acquired citizenship of another country, he would cease to be a citizen of India.F. Is it correct to state that every member of AOP is an assessee for the purpose of wealth tax?Ans. Correct. As per Sec. 2(c) read with Sec. 21AA of the Wealth-tax Act, assessee includes every member of the AOP.G. A political party is exempt from paying wealth tax.Ans. True. As per Sec. 45, a political party is exempt from paying wealth tax.H. The maximum amount of penalty leviable under Section 18(1)(c) of the Wealth-tax Act, 1957 for concealing the particulars of any asset chargeable-tax is five times the amount of tax sought to be evaded.Ans. True. The maximum amount of penalty leviable u/s 18(1)(c) of the Wealth-Tax Act, 1957 for concealing the particulars of any asset chargeable-tax is five times the amount of tax sought to be evaded.I. An individual himself has to sign the return of wealth and whatever be the contingency, cannot authorize another persons to sign on his behalf. Ans. False. As per Sec.15A, where for any reason, if an individual is not in a position to sign his return, he can authorize another person.J. A company owns a plot of urban land comprising of area of 500 square metres. Exemption is not available in respect of this asset under the provision to Section 5(vi) of the Wealth Tax Act, 1957. Ans. False. Exemption u/s 5(vi) is not available to a company-assessee.K. Vacant side held as stock-in-trade is not liable for wealth tax for 12 years from the end of the year in which it was acquired.Ans. False. Vacant side held as stock-in-trade is not liable for wealth tax for 10 years from the end of the year in which it was acquired.

LIST OF ATTEMPTED QUESTIONS AND ANSWERS Multiple Choice Multiple AnswerQuestion The entertainment allowance received by the Government employees is included in their salaries and the deduction is allowed to the extent of least of the following amounts :- CorrectAnswer Actual amount of Entertainment Allowance received. ,Rs. 5,000 , 1/5th of Salary

Your Answer Actual amount of Entertainment Allowance received. , Rs. 5,000 , 1/5th of Salary True/FalseQuestion Income Tax Act, 1961 recognizes Written Down Value (WDV) method as well as straight line method for the computation of depreciation u/s 32 this act. CorrectAnswer False Your Answer False

Multiple Choice Multiple AnswerQuestion Profits earned by an Industrial Undertaking engaged in other than infrastructure development is available under Section 80IB for :- CorrectAnswer Operation of Ship , Hotels situated in hilly area, rural area or place of pilgrimage , Company engaged in scientific and industrial research Your Answer Operation of Ship , Hotels situated in hilly area, rural area or place of pilgrimage Multiple Choice Single AnswerQuestion Which of the following expenditure is in the nature of revenue expenditure? CorrectAnswer Expenditure incurred as discount on issue ofdebentures Your Answer Expenditure incurred as discount on issue of debentures Select The BlankQuestion If sum received is net of TDS then it is to include in income from other sources. CorrectAnswer

Grossed up Your Answer Grossed up

True/FalseQuestion Interest paid on the loan for acquiring a capital asset will be considered to be a part of cost of acquisition. CorrectAnswer True Your Answer True

Multiple Choice Single AnswerQuestion Mr. A whose Gross Total Income, before allowing deductions under Chapter VI-A is Rs. 1,45,000, wants to make the investments in the following alternative forms Rs. 80,000 in PPF and Rs. 20,000 in Infrastructure Bonds. The amount of rebate available to him u/s 88 is :- CorrectAnswer Rs. 18,000 Your Answer Rs. 18,000

Multiple Choice Single AnswerQuestion Interest on specified securities or premium on redemption is exempt for :- CorrectAnswer Non resident Indian Your Answer Non resident Indian

True/False

Question As per section 2(11) of the Income Tax Act, Block of Assets includes both tangible as well as intangible assets. CorrectAnswer True Your Answer True

Multiple Choice Multiple AnswerQuestion Deductions in respect of Certain Incomes received under Section 80L is available in respect of CorrectAnswer Interest on Central or State Government Securities , Interest on National Saving Certificates (NSCs) Interest on National Saving Scheme, 1992 (NSS) , Bank Interest Your Answer Interest on Central or State Government Securities , Interest on National Saving Certificates (NSCs) Interest on National Saving Scheme, 1992 (NSS) , Bank Interest

Multiple Choice Single AnswerQuestion Tax liability of a person is based on :-

CorrectAnswer Residential status Your Answer Residential status

Multiple Choice Multiple AnswerQuestion For the purpose of income tax, the perquisites can beclassified into :- CorrectAnswer Perquisites which are taxable in case of all types of employees , Perquisites which are taxable only in the hands of specified employee

Your Answer Perquisites which are taxable in case of all types ofemployees , Perquisites which are taxable only in the hands of specified employee

Select The BlankQuestion For an individual as a citizen of India who leaves Indiain the relevant previous year for the purpose of employment has to be in India for days or more during previous year. CorrectAnswer 182 Your Answer 182

Multiple Choice Single AnswerQuestion Income earned in previous year is subjected to tax in:- CorrectAnswer Assessment year Your Answer Assessment year

Multiple Choice Multiple AnswerQuestion Following professional institutions have their incomes exempt from tax :- CorrectAnswer Town planning , Company secretary , Accounting Your Answer Town planning , Company secretary , Accounting

Select The BlankQuestion

of the Tax Audit Report refers to the details

CorrectAnswer of various payments which are allowed as deduction only if they are actually paid for.Section 43B Clause No-21 Your Answer Section 43B Clause No-21

Multiple Choice Multiple AnswerQuestion Short Term Capital Loss can be adjusted against :-

CorrectAnswer Short Term Capital Gains. , Long term Capital Gains Your Answer Short Term Capital Gains. , Long term Capital Gains

Select The BlankQuestion To claim sec 10A deduction unit must be establishedin . CorrectAnswer Free Trade Zone Your Answer Free Trade Zone

Multiple Choice Single AnswerQuestion Assessment year is the period of 12 months starting from :-

CorrectAnswer 1st April to 31st March Your Answer 1st April to 31st March

Multiple Choice Single AnswerQuestion Combined total of five heads of income equals :-

CorrectAnswer Gross total income Your Answer Gross total income

Multiple Choice Single AnswerQuestion If an employee does not avail of this leave travel concession or assistance during a block of four

CorrectAnswer calendar years :-Only one journey can be carried forward to the next block. Your Answer Only one journey can be carried forward to the next block.

Select The BlankQuestion To acquire PAN, a person shall apply in to the assessing officer. CorrectAnswer Form No. 49A Your Answer Form No. 49A

Multiple Choice Single AnswerQuestion Deduction from Capital Gains under Section 54F is forCapital Gains arising from transfer of :- CorrectAnswer Any Long Term Capital Asset Your Answer House Property

Select The BlankQuestion Where an assessee files or submits the returns as per provisions of section 139 or in response to the notice under section 142, the assessment officer undertakesas per section 143(2) and section 143(3). CorrectAnswer Scrutiny Assessment Your Answer Scrutiny Assessment

Multiple Choice Multiple AnswerQuestion Income of a professional association is exempt if its objectives are :- CorrectAnswer Supervision , Control , Encouragement Your Answer Supervision , Control , Encouragement

True/FalseQuestion While computing the profits from Business and profession, the business or profession must be carried out during the previous year. Correct

Answer True Your Answer True

Multiple Choice Single AnswerQuestion In respect of leave travel concession If Mr. A has availed the exemption only once or has not availed any exemption at all, in the block of four years i.e.1998-2001 then :- CorrectAnswer He can carry over the exemption to the next block of four years i.e. 2002-2005 provided that he avails the exemption of LTC in the first calendar year of the next block i.e. 2002. Your Answer He can carry over the exemption to the next block offour years i.e. 2002-2005 provided that he avails the exemption of LTC in the first calendar year of the next block i.e. 2002.

Multiple Choice Multiple AnswerQuestion The amount accumulated to the credit of the employee's provident fund account is paid at the time of :- CorrectAnswer Retirement , Resignation Your Answer Retirement , Resignation

Multiple Choice Multiple AnswerQuestion From annual value, following deductions are allowed :-

CorrectAnswer Standard deduction , Interest on borrowed capital , Municipal taxes

Your Answer Interest on borrowed capital , Municipal taxes

Multiple Choice Single AnswerQuestion As a general principle, the Basic Salary or Wages, Dearness Allowance and Bonus / Commission is :- CorrectAnswer Fully taxable. Your Answer Fully taxable.

Multiple Choice Multiple AnswerQuestion From GTI of a company following deductions under chapter VI A are allowed CorrectAnswer 80 G Donations , 80 HHB profits and gains fromprojects outside India , 80 IA profits and gains of infrastructure companiesYour Answer 80 G Donations , 80 IA profits and gains of infrastructure companies

Multiple Choice Single AnswerQuestion Annual value of any one palace in possession of aformer ruler is :- CorrectAnswer Exempt Your Answer Taxable

Select The BlankQuestion If the Salary is more than Rs. 5,00,000, Standard

Correct

Answer Deduction will be Rs. .20000 Your Answer 20000

Multiple Choice Single AnswerQuestion The amount of accumulated interest on NSCs purchased in the earlier years is assumed to be reinvested :- CorrectAnswer And qualifies for tax rebate under section 88. Your Answer And qualifies for tax rebate under section 88.

Select The BlankQuestion Deduction u/s

B is available for 10

CorrectAnswer consequent assessment years from the year of commencement of production.10 Your Answer 10

True/FalseQuestion Income from subletting is treated as income from house property. CorrectAnswer

False Your Answer False Select The BlankQuestion Section 80U allows the deduction in respect of the. CorrectAnswer Permanent physical disability Your Answer Permanent physical disability

Match The FollowingQuestion Correct Answer Your Answer

DisallowableExpenditure Litigation Expenses in connection with recovery of a debt which is not a trading debt Litigation Expenses in connection with recovery of a debt which is not a trading debt Business Includes trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture Includes trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture Profession Includes vocation Includes vocation

Capital Expenditure Expenditure incurred by a company with the issue of rights shares Premium on redemption of Debentures

True/False

Question Any recreational facility provided by the employer to a group of employees (not being restricted to a select few employees) is not exempt from tax. CorrectAnswer False Your Answer False

True/FalseQuestion In case of deductions for medical treatment under Section 80DDB the amount of deduction will be reduced by the amount received under an insurance policy or the amount reimbursed by the employer. CorrectAnswer True Your Answer True

True/FalseQuestion Any advance tax paid before 31st March is treated as advance tax paid during the previous year. CorrectAnswer True Your Answer True

Multiple Choice Single AnswerQuestion Municipal taxes paid is allowed as deduction from :-

CorrectAnswer Gross annual value Your Answer Gross annual value

True/FalseQuestion Entertainment Allowance received by the employees from the private sector is taxable in the hands of the employee. CorrectAnswer True Your Answer True


Any subscription made to National Saving Scheme By an individual or a HUF is eligible for rebate u/s 88 By an individual or a HUF is eligible for rebate u/s 88 Mr. A, a 70 years old Senior Citizen, has the Gross Total Income of Rs. 2,50,000 during the Assessment Year2005-2006. Heinvested Rs. 50,000 in the tax saving bonds of ICICI on 10th June2004. His tax liabilityfor the A Y 2005-2006. RS.12,500 RS.12,500 During the Assessment Rs. 1,000 Rs. 1,000Year 2005-2006, Mrs. A, age 58 years, hasthe Gross Total Income of Rs. 1,45,000 including the dividend from Indian companies amounting to Rs.10,000. She invests Rs. 50,000 in PPF during the said Assessment Year. her tax liabilit isAny contribution made

Is eligible for rebate u/s Is eligible for rebate u/s to a Public Provident 88 88Fund

Multiple Choice Multiple AnswerQuestion Following incomes of local authorities are exempt :-

CorrectAnswer Capital gains , Other income , House property Your Answer Capital gains , Other income , House property

Multiple Choice Multiple AnswerQuestion For Deduction u/s 54EC from Capital Gains the assessee should invest the whole or part of the capital gains in the specified assets :- CorrectAnswer Within six months from the date of transfer of the long-term capital asset Your Answer Within six months from the date of transfer of the long-term capital asset

True/False

RegistrationNumber: 200425352Name: Sarada J.H Subject: Taxation Assignment Status As On: 12/02/2006

Result for this Assignment

Assignment Date 11/02/2006Number of Correct Questions 39Number of Skipped Questions 3Number of Wrong Questions 8Total Questions attempted 50Total Marks obtained 85 Out of 100.ResultPass

LIST OF ATTEMPTED QUESTIONS AND ANSWERS

Multiple Choice Multiple Answer

QuestionThe entertainment allowance received by the Government employees is included in their salaries and the deduction is allowed to the extent of least of the following amounts :-

Correct AnswerActual amount of Entertainment Allowance received. , Rs. 5,000 , 1/5th of Salary

Your AnswerActual amount of Entertainment Allowance received. , Rs. 5,000 , 1/5thof Salary

True/False

QuestionIncome Tax Act, 1961 recognizes Written Down Value (WDV) method aswell as straight line method for the computation of depreciation u/s 32 this act.

Correct AnswerFalse

Your AnswerFalse


QuestionProfits earned by an Industrial Undertaking engaged in other than infrastructure development is available under Section 80IB for :-

Correct AnswerOperation of Ship , Hotels situated in hilly area, rural area or place of pilgrimage , Company engaged in scientific and industrial research

Your AnswerOperation of Ship , Hotels situated in hilly area, rural area or place ofpilgrimage

Multiple Choice Single Answer

QuestionWhich of the following expenditure is in the nature of revenue expenditure?

Correct AnswerExpenditure incurred as discount on issue of debentures

Your AnswerExpenditure incurred as discount on issue of debentures

Select The Blank

QuestionIf sum received is net of TDS then it is to include in incomefrom other sources.

Correct AnswerGrossed up

Your AnswerGrossed up

True/False

QuestionInterest paid on the loan for acquiring a capital asset will be considered to be a part of cost of acquisition.

Correct AnswerTrue

Your AnswerTrue


QuestionMr. A whose Gross Total Income, before allowing deductions under Chapter VI-A is Rs. 1,45,000, wants to make the investments in the following alternative forms Rs. 80,000 in PPF and Rs. 20,000 in Infrastructure Bonds. The amount of rebate available to him u/s 88 is :-

Correct AnswerRs. 18,000

Your AnswerRs. 18,000


QuestionInterest on specified securities or premium on redemption is exempt for:-

Correct AnswerNon resident Indian

Your AnswerNon resident Indian

True/False

QuestionAs per section 2(11) of the Income Tax Act, Block of Assets includes both tangible as well as intangible assets.

Correct AnswerTrue

Your AnswerTrue


QuestionDeductions in respect of Certain Incomes received under Section 80L isavailable in respect of

Correct AnswerInterest on Central or State Government Securities , Interest on National Saving Certificates (NSCs) Interest on National Saving Scheme, 1992 (NSS) , Bank Interest

Your AnswerInterest on Central or State Government Securities , Interest on National Saving Certificates (NSCs) Interest on National Saving Scheme, 1992 (NSS) , Bank Interest


QuestionTax liability of a person is based on :-

Correct AnswerResidential status

Your AnswerResidential status

Multiple Choice Multiple Answer QuestionFor the purpose of income tax, the perquisites can be classified into :-

Correct AnswerPerquisites which are taxable in case of all types of employees , Perquisites which are taxable only in the hands of specified employee

Your AnswerPerquisites which are taxable in case of all types of employees , Perquisites which are taxable only in the hands of specified employee

Select The Blank

QuestionFor an individual as a citizen of India who leaves India in the relevantprevious year for the purpose of employment has to be in India for days or more during previous year.

Correct Answer182

Your Answer182


QuestionIncome earned in previous year is subjected to tax in :-

Correct AnswerAssessment year

Your AnswerAssessment year


QuestionFollowing professional institutions have their incomes exempt from tax :- Correct AnswerTown planning , Company secretary , Accounting

Your AnswerTown planning , Company secretary , Accounting

Select The Blank

Question of the Tax Audit Report refers to the details of variouspayments which are allowed as deduction only if they are actually paid for.

Correct AnswerSection 43B Clause No-21

Your AnswerSection 43B Clause No-21


QuestionShort Term Capital Loss can be adjusted against :-

Correct AnswerShort Term Capital Gains. , Long term Capital Gains

Your AnswerShort Term Capital Gains. , Long term Capital Gains

Select The Blank

QuestionTo claim sec 10A deduction unit must be established in .

Correct AnswerFree Trade Zone

Your AnswerFree Trade Zone


QuestionAssessment year is the period of 12 months starting from :-

Correct Answer1st April to 31st March

Your Answer1st April to 31st March


QuestionCombined total of five heads of income equals :-

Correct AnswerGross total income

Your AnswerGross total income


QuestionIf an employee does not avail of this leave travel concession or assistance during a block of four calendar years :-

Correct AnswerOnly one journey can be carried forward to the next block.

Your AnswerOnly one journey can be carried forward to the next block.

Select The Blank QuestionTo acquire PAN, a person shall apply in to the assessing officer.

Correct AnswerForm No. 49A

Your AnswerForm No. 49A


QuestionDeduction from Capital Gains under Section 54F is for Capital Gains arising from transfer of :-

Correct AnswerAny Long Term Capital Asset

Your AnswerHouse Property

Select The Blank

QuestionWhere an assessee files or submits the returns as per provisions of section 139 or in response to the notice under section 142, the assessment officer undertakes as per section 143(2) and section 143(3).

Correct AnswerScrutiny Assessment

Your AnswerScrutiny Assessment


QuestionIncome of a professional association is exempt if its objectives are :-

Correct AnswerSupervision , Control , Encouragement

Your AnswerSupervision , Control , Encouragement

True/False

QuestionWhile computing the profits from Business and profession, the business or profession must be carried out during the previous year.

Correct AnswerTrue

Your AnswerTrue


QuestionIn respect of leave travel concession If Mr. A has availed the exemption only once or has not availed any exemption at all, in the block of four years i.e. 1998-2001 then :-

Correct AnswerHe can carry over the exemption to the next block of four years i.e.2002-2005 provided that he avails the exemption of LTC in the firstcalendar year of the next block i.e. 2002.

Your AnswerHe can carry over the exemption to the next block of four years i.e.2002-2005 provided that he avails the exemption of LTC in the firstcalendar year of the next block i.e. 2002.


QuestionThe amount accumulated to the credit of the employee's provident fund account is paid at the time of :-

Correct AnswerRetirement , Resignation

Your Answer

Retirement , Resignation


QuestionFrom annual value, following deductions are allowed :-

Correct AnswerStandard deduction , Interest on borrowed capital , Municipal taxes

Your AnswerInterest on borrowed capital , Municipal taxes


QuestionAs a general principle, the Basic Salary or Wages, Dearness Allowance and Bonus / Commission is :-

Correct AnswerFully taxable.

Your AnswerFully taxable.


QuestionFrom GTI of a company following deductions under chapter VI A are allowed

Correct Answer80 G Donations , 80 HHB profits and gains from projects outside India ,80 IA profits and gains of infrastructure companies

Your Answer

80 G Donations , 80 IA profits and gains of infrastructure companies


QuestionAnnual value of any one palace in possession of a former ruler is :-

Correct AnswerExempt

Your AnswerTaxable

Select The Blank

QuestionIf the Salary is more than Rs. 5,00,000, Standard Deduction will beRs. .

Correct Answer20000

Your Answer20000


QuestionThe amount of accumulated interest on NSCs purchased in the earlier years is assumed to be reinvested :-

Correct AnswerAnd qualifies for tax rebate under section 88.

Your AnswerAnd qualifies for tax rebate under section 88.

Select The Blank

QuestionDeduction u/s B is available for 10 consequent assessmentyears from the year of commencement of production.

Correct Answer10

Your Answer10

True/False

QuestionIncome from subletting is treated as income from house property.

Correct AnswerFalse

Your AnswerFalse

Select The Blank

QuestionSection 80U allows the deduction in respect of the .

Correct AnswerPermanent physical disability

Your AnswerPermanent physical disability

Match The Following

QuestionCorrect Answer Your Answer

Disallowable ExpenditureLitigation Expenses in connection with recovery of a debt which is not atrading debtLitigation Expenses in connection with recovery of a debt which is not a trading debt

BusinessIncludes trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufactureIncludes trade, commerce, or manufacture or any adventure or concernin the nature of trade, commerce or manufacture

Profession Includes vocation Includes vocation

Capital ExpenditureExpenditure incurred by a company with the issue of rights sharesPremium on redemption of Debentures

True/False

QuestionAny recreational facility provided by the employer to a group of employees (not being restricted to a select few employees) is not exempt from tax.

Correct AnswerFalse

Your AnswerFalse

True/False

QuestionIn case of deductions for medical treatment under Section 80DDB theamount of deduction will be reduced by the amount received under an insurance policy or the amount reimbursed by the employer.

Correct AnswerTrue

Your AnswerTrue

True/False

QuestionAny advance tax paid before 31st March is treated as advance tax paid during the previous year.

Correct AnswerTrue

Your AnswerTrue


QuestionMunicipal taxes paid is allowed as deduction from :-

Correct AnswerGross annual value

Your AnswerGross annual value

True/False QuestionEntertainment Allowance received by the employees from the private sector is taxable in the hands of the employee.

Correct AnswerTrue

Your AnswerTrue

Match The Following

Question Correct Answer Your Answer

Any subscription made to National Saving SchemeBy an individual or a HUF is eligible for rebate u/s 88By an individual or a HUF is eligible for rebate u/s 88

Mr. A, a 70 years old Senior Citizen, has the Gross Total Income of Rs.2,50,000 during the Assessment Year 2005-2006. He invested Rs.

50,000 in the tax saving bonds of ICICI on 10th June 2004. His tax liability for the A Y 2005-2006.RS.12,500RS.12,500

During the Assessment Year 2005-2006, Mrs. A, age 58 years, has the Gross Total Income of Rs. 1,45,000 including the dividend from Indian companies amounting to Rs. 10,000. She invests Rs. 50,000 in PPF during the said Assessment Year. her tax liabilit isRs. 1,000Rs. 1,000

Any contribution made to a Public Provident FundIs eligible for rebate u/s 88Is eligible for rebate u/s 88


QuestionFollowing incomes of local authorities are exempt :-

Correct AnswerCapital gains , Other income , House property

Your AnswerCapital gains , Other income , House property


QuestionFor Deduction u/s 54EC from Capital Gains the assessee should invest the whole or part of the capital gains in the specified assets :-

Correct AnswerWithin six months from the date of transfer of the long-term capital asset

Your AnswerWithin six months from the date of transfer of the long-term capital asset

True/False

QuestionIncome from partnership firms is exempt from taxation for the partners

Correct AnswerTrue

Your AnswerFalse

RegistrationNumber: 200425352Name: Sarada J.H Subject: Taxation Assignment StatusAs On: 12/02/2006

Result for this Assignment

Assignment Date11/02/2006

Number of Correct Questions39

Number of Skipped Questions3

Number of Wrong Questions8

Total Questions attempted50

Total Marks obtained85 Out of 100.

ResultPass

Taxation-------------LIST OF ATTEMPTED QUESTIONS AND ANSWERS

Select The BlankQuestion The basic advantage of having an agent in the export market is . Correct Answer He is knowledgeable of the marketing condition Your Answer He is knowledgeable of the marketing condition

Multiple Choice Multiple AnswerQuestion How does the customer know about the product & is influenced to buy it?Correct Answer Publicity , Advertising , Sales promotionYour Answer Publicity , Advertising , Sales promotion

Multiple Choice Single AnswerQuestion Which of the following is not included in foreign environment? Correct Answer Local dimensionYour Answer Local dimension


Question Why should a market researcher check a country's import tariffs when he isinvestigating it as an export market?Correct Answer It can affect the competitiveness of product against products made within the marketYour Answer It can affect the competitiveness of product against products made within the market

Multiple Choice Multiple AnswerQuestion This question is based on the case study "Oriental Silk Pvt. Ltd.". What are the distribution channels used for imports of silk products into USA market?Correct Answer Merchant intermediaries , Departmental storesYour Answer Merchant intermediaries , Departmental stores

True/FalseQuestion This question is based on the case study "Oriental Silk Pvt. Ltd.". Oriental entered theUS market in 1970 with a moderate export of Rs.20 million. Correct Answer FalseYour Answer False


Indirect exporting Home-based merchant Copyright Business dimensions Channel network Channel network Legal dimensions Copyright Use of patentLicensing arrangement Use of patent Home-based merchant

Multiple Choice Single AnswerQuestion What is important to take pricing decision? Correct Answer CompetitionYour Answer Competition

Select The BlankQuestion In , the firm faces only one set of customers.Correct Answer Domestic marketingYour Answer Domestic marketing

Multiple Choice Multiple AnswerQuestion This question is based on the case study "Oriental Silk Pvt. Ltd.". Oriental was an active member of some councils, which are those? Correct Answer Apparel Export Promotion Council , Woolen Export Promotion CouncilYour Answer Apparel Export Promotion Council , Woolen Export Promotion Council

Multiple Choice Single AnswerQuestion This question is based on the case study 'AB Enterprises'. What is the problem in adapting AB Enterprises product in the market?

Correct Answer Novelty is lost due to ethnic character in AB EnterprisesYour Answer Novelty is lost due to ethnic character in AB Enterprises

Multiple Choice Multiple AnswerQuestion What are the important infrastructure factors in evaluating production site?Correct Answer Industrial site , Transportation & communicationYour Answer Industrial site , Transportation & communication

Multiple Choice Multiple AnswerQuestion This question is based on the case study "Oriental Silk Pvt. Ltd.". Which are the two years the imports of silk fabrics from Japan by USA was almost same?Correct Answer 1982 , 1983Your Answer 1982 , 1983

Select The BlankQuestion dimensions include customs and practicesCorrect Answer BusinessYour Answer Business

Multiple Choice Multiple AnswerQuestion What is the nature of direct export market?Correct Answer Concentrated , Large potential saleYour Answer Concentrated , Large potential sale

Multiple Choice Single AnswerQuestion What does product-mix decision include? Correct Answer PackagingYour Answer Packaging

Multiple Choice Multiple AnswerQuestion What are the internal sources of information?Correct Answer Sales record , Correspondence from salesmenYour Answer Sales record , Correspondence from salesmen

True/FalseQuestion This question is based on the case study "Oriental Silk Pvt. Ltd.". Mr.Patnaik felt that it was high time that he appraises his agents' performance relating to the vast & expanding US market.Correct Answer TrueYour Answer True

Multiple Choice Multiple AnswerQuestion This question is based on the case study "Oriental Silk Pvt. Ltd.". What were the optionsMr.Patnaik had to operate in the US market?Correct Answer Opening a branch office , A subsidiary companyYour Answer Opening a branch office , A subsidiary company

Select The BlankQuestion In indirect export channel, the market is . Correct Answer DispersedYour Answer Dispersed

True/FalseQuestion Strategies suggested in the Medium Term Export Plan include product-market penetration strategy for existing products, product-market, diversification for new products & new markets.Correct Answer TrueYour Answer True

Multiple Choice Multiple AnswerQuestion Why is packaging so important for product planning?Correct Answer As it enhances protection , As it gives shelf life for a productYour Answer As it enhances protection , As it gives shelf life for a product

True/FalseQuestion If foreign retailers are used, the products in question are industrial products rather than consumer products.Correct Answer FalseYour Answer True

Multiple Choice Multiple AnswerQuestion How is the nature of international strategy?Correct Answer Depends on company's objectives , Varies from country to countryYour Answer Depends on company's objectives , Varies from country to country

Select The BlankQuestion "make site booking" is a point of checklist of _ Correct Answer Before the fairYour Answer Before the fair

Multiple Choice Single AnswerQuestion What marketing technique is used to know international marketing need?Correct Answer Marketing information & researchYour Answer Marketing information & research

Multiple Choice Multiple AnswerQuestion What are the benefits of participation in trade fair?Correct Answer To get to know about competition , To know about the extent of product adaptionYour Answer To get to know about competition , To know about the extent of product adaption

Select The BlankQuestion Experience survey, which is also called as .

Correct Answer Key informant surveyYour Answer Key informant survey

Multiple Choice Single Answer Question What is a foreign agent? Correct Answer Independent middleman Your Answer Independent middleman

Multiple Choice Single AnswerQuestion What does political environment include?Correct Answer Legal dimensionYour Answer Legal dimension

Match The FollowingQuestion Correct Answer Your Answer External factor Competitive profile Competitive profile

Ethnocentric orientation Overseas operation conducted from home country Overseas operation conducted from home country

Polycentric orientation Each market is unique Each market is unique

Target market Marketing strategy Marketing strategy

True/FalseQuestion In marginal cost pricing for export, competition in foreign markets requires quotation of a lower priceCorrect Answer TrueYour Answer True

True/FalseQuestion Policies or regulations regarding quality control & inspection vary considerably between nations.Correct Answer TrueYour Answer True

Select The BlankQuestion This question is based on the case study "Oriental Silk Pvt. Ltd.". Oriental Silk PrivateLimited, is a _ unit, was one of the leading Indian manufacturers & exporters of silk fabrics & made-upsCorrect Answer 100% export orientedYour Answer 100% export oriented

Select The BlankQuestion This question is based on the case study "Oriental Silk Pvt. Ltd.". The bulk of the tradewas handled by

Correct Answer Central buying organizationsYour Answer Foreign agents

True/FalseQuestion If business is variable, the company will choose the purchasing or subcontractingalternatives.Correct Answer TrueYour Answer True

Multiple Choice Single AnswerQuestion What is the meaning of offshore purchasing?Correct Answer Relationship between independent buyer & seller for exchange of good for money

Your Answer Relationship between independent buyer & seller for exchange of good for money

Select The BlankQuestion Many companies modify their products/promotion strategies to suit of the population of the different countries.Correct Answer Tastes & preferencesYour Answer Tastes & preferences

True/FalseQuestion Companies with smaller needs, an independent supplier will be less active. Correct Answer FalseYour Answer False

True/FalseQuestion Catalogues contain a list of all competitors with product details. Correct Answer FalseYour Answer False

Multiple Choice Multiple AnswerQuestion What is correct according to geocentric orientation?Correct Answer Companies view the entire world as a single market , Uniform inventory management & trainingYour Answer Companies view the entire world as a single market , Uniform inventorymanagement & training

True/FalseQuestion The area of change relates to product adaption requires upgradation of technology and huge investment in brands.Correct Answer TrueYour Answer True

Select The BlankQuestion This question is based on the case study "Chow Flowers Co. Ltd.". _ wasThailand's second largest export market for artificial flowers, mostly polyester or hand-wrapped. Correct Answer CanadaYour Answer Canada

Multiple Choice Single AnswerQuestion What are the similarities between domestic & international marketing?Correct Answer Satisfying consumers needYour Answer Satisfying consumers need

Multiple Choice Single AnswerQuestion What is the need of marketing research for export-import trade?Correct Answer To reduce the distance between an exporter & his customers in terms of marketingYour Answer To reduce the distance between an exporter & his customers in terms of marketing

Multiple Choice Single AnswerQuestion What is the avenue of entry into foreign markets? Correct Answer Contract manufacturingYour Answer Contract manufacturing

Multiple Choice Single AnswerQuestion What is the principal functional division of ministry of commerce & industry? Correct Answer Export Industries DivisionYour Answer Export Industries Division

----------LIST OF ATTEMPTED QUESTIONS AND ANSWERS Multiple Choice Multiple AnswerQuestion What are the factors to be considered in cluster analysis?Correct Answer Limited number of clusters due to limitation of market potential , Clusters are notwater tight compartment , Evaluating the quality of cluster is difficultYour Answer Limited number of clusters due to limitation of market potential , Clusters are not water tight compartment , Evaluating the quality of cluster is difficult

Multiple Choice Single AnswerQuestion Clarity of questions and instructions for filling the form is essential in :- Correct Answer Mail surveyYour Answer Data analysis


Question The technique through which objects/ cases are classified into relative homogeneous groups or clusters is known as :-Correct Answer Cluster analysisYour Answer Cluster analysis

Multiple Choice Single AnswerQuestion Mean or average value is used to estimate when data have been collected using :-Correct Answer Interval or ratio scaleYour Answer Interval or ratio scale

Select The BlankQuestion In method the research analyst is not concerned with cause and research relationship.Correct Answer DiagnosticYour Answer Diagnostic

Multiple Choice Multiple AnswerQuestion Which are the New Delhi based Research Institutions? Correct Answer NRDC , CSIR , Cement Research Institute of India Your Answer NRDC , CSIR , Cement Research Institute of India

Multiple Choice Single Answer Question Market Research is done to Correct Answer Explore the Opportunities Your Answer Explore the Opportunities

True/FalseQuestion "Consumer Panel" is a specialized market research technique. Correct Answer FalseYour Answer False


"What might this be ?" Inkblot test Inkblot test

Aided Recall Depth Research Depth Research

Doesn’t intend to tell Projective techniques Projective techniques

Ease of construction Likert scale Likert scale

True/FalseQuestion In regression analysis, dependent variables can be expressed as a linear function of impendent variables.Correct Answer TrueYour Answer True

True/False Question When company prepares a long range plan it is unpublished internal source of information.Correct Answer TrueYour Answer True

Select The BlankQuestion Association technique is a type of .Correct Answer Projective techniqueYour Answer Projective technique

Multiple Choice Single AnswerQuestion The impact of promotional slogans on the consumers can be studied withCorrect Answer Association techniqueYour Answer Association technique

True/FalseQuestion Brand image building is not important in case of industrial product for quality.Correct Answer FalseYour Answer False

Multiple Choice Multiple AnswerQuestion Which publications are used for research on Chemical Industry?Correct Answer Indian Chemical Directory , Chemical Industry News , Chemical & PetroChemicals JournalYour Answer Indian Chemical Directory , Chemical Industry News , Chemical & Petro ChemicalsJournal

Multiple Choice Single AnswerQuestion Spreading the sample through the entire population following a regular pattern is known as :-Correct Answer Systematic samplingYour Answer Systematic sampling

Select The BlankQuestion In absence of proper_ the market research becomes a data collection exercise. Correct Answer Problem DefinitionYour Answer Analysis

Multiple Choice Multiple AnswerQuestion Which institutions should be contacted for research on Paint Chemicals?Correct Answer National Chemical Laboratory, Pune , Industrial Research & Development Center, Building Research Institute

Your Answer National Chemical Laboratory, Pune , Industrial Research & Development Center , Building Research Institute

Multiple Choice Multiple AnswerQuestion The objectives of marketing research areCorrect Answer To understand the consumer needs and wants , To explore the new markets , To analyze the competitorsYour Answer To understand the consumer needs and wants , To explore the new markets , To analyze the competitors

Multiple Choice Single AnswerQuestion Ultra violet ink is used to disguise customer coding. This activity is :-Correct Answer A disapproved methodYour Answer A disapproved method Select The BlankQuestion Through cluster analysis objects/cases are classified into relatively group called cluster.Correct Answer HomogeneousYour Answer Homogeneous


Dangler POP POP

POP Communication medium Communication medium

Opinion Polls Daily basis Daily basis

Corporate Image Study Advertising research Advertising research

Multiple Choice Multiple AnswerQuestion Ethical issues to be observed while writing a report are :-Correct Answer No deliberate misinterpretations , Marketing problems should be designed to suithidden agenda , Complete confidentiality and secrecy of dataYour Answer No deliberate misinterpretations , Marketing problems should be designed to suit hidden agenda , Complete confidentiality and secrecy of data

Select The BlankQuestion Multiple Choice is a type of question.Correct Answer Close endedYour Answer Close ended


Question The conjoint analysis helps to enable company's to :- Correct Answer Conduct brand swot analysisYour Answer Conduct brand swot analysis

Multiple Choice Single AnswerQuestion In the Internet era, qualitative research is possible through :-Correct Answer Chat sessionsYour Answer Chat sessions

Select The BlankQuestion is an important communication medium that helps recall advertising. Correct Answer Point of Purchase(POP)itemsYour Answer Point of Purchase(POP)items

True/FalseQuestion In the Funnel approach, specific questions come first and general questions later.Correct Answer FalseYour Answer False

Multiple Choice Multiple AnswerQuestion In resources for marketing research skilled staff plays an important role in :- Correct Answer Maintaining data , Dealing with different situation and problems , Timely completion of researchYour Answer Maintaining data , Dealing with different situation and problems , Timely completion of research Select The BlankQuestion Convenience Sampling is used for _. Correct Answer Exploratory researchYour Answer Exploratory research

True/FalseQuestion The person conducting pharma research should be well qualified so that not to wasteDoctors time.Correct Answer TrueYour Answer True

True/FalseQuestion The limitations with regression forecasting is that independent variables must be forecasted before forecasting the dependent variables.Correct Answer TrueYour Answer True

Multiple Choice Multiple AnswerQuestion Main features of Technical Report are :-Correct Answer Minute details of planning data collection , Analysis , Interpretation

Your Answer Minute details of planning data collection , Analysis , Interpretation

Multiple Choice Single AnswerQuestion How people allocate their time and money to certain products and factors is depicted by

Correct Answer Psychographic VariableYour Answer Psychographic Variable

True/FalseQuestion Question phrasing and structure are eliminated in Semantic differential scale. Correct Answer TrueYour Answer True

True/FalseQuestion The popularity of Likert scale is due to its ease of construction and administration. Correct Answer TrueYour Answer True

Multiple Choice Multiple AnswerQuestion Which are the Export Promotion Councils?Correct Answer Cashew Export Promotion Council , Handloom Export Promotion Council , Gem& Jewellery Export Promotion CouncilYour Answer Cashew Export Promotion Council , Handloom Export Promotion Council , Gem & Jewellery Export Promotion Council

True/FalseQuestion The written contract of a research should cover the penalty clause covering deficits suchas delays, inadequate data. Correct Answer TrueYour Answer True

Multiple Choice Single AnswerQuestion The producers in the sellers' market are also forced to take decisions based on the market information becauseCorrect Answer The resources are scarceYour Answer The resources are scarce Multiple Choice Single AnswerQuestion Scale Intervals can be used forCorrect Answer AgeYour Answer Age

Select The BlankQuestion Bibliography contains .Correct Answer Information of references and secondary dataYour Answer Information of references and secondary data

Multiple Choice Multiple AnswerQuestion Online survey methods include :-Correct Answer Email survey , HTML survey , Downloadable interactive surveysYour Answer Email survey , HTML survey , Downloadable interactive surveys

Multiple Choice Single AnswerQuestion Data of market research cannot be maintained :-Correct Answer Without experienced and educated research staffYour Answer Without experienced and educated research staff

Multiple Choice Multiple AnswerQuestion Pretesting of Questionnaire includes testing of :-Correct Answer Question content , Time taken to answer questions , CategorisationYour Answer Question content , Time taken to answer questions , Categorisation

Multiple Choice Multiple AnswerQuestion Identification of Target Population is facilitated by :-Correct Answer Well defined research objectives , Alternative, reasonable/target population definitions , Specifications for exclusion in target populationYour Answer Well defined research objectives , Alternative, reasonable/target population definitions , Specifications for exclusion in target population

Select The BlankQuestion are used for National Panel Studies.Correct Answer Quota controlsYour Answer Quota controls

Select The BlankQuestion Finding out the number of vehicles at a given junction is a method. Correct Answer Direct ObservationYour Answer Direct Observation

45. Any loans or deposits borrowed or repaid under section 269SS of the Act provides that the said provisions will not apply to the loans or deposits accepted by :-

a)Government

Government companyb)

Banking company including cooperative bank and post office savings bank

c)

Insurance company

d)

Marks : 2

49. Any amount paid by an individual as tuition fees to any educational institution in India for the purpose of full time education of the individual's children. The maximum allowable limit is :-

a)Rs. 12,000 per child per annum

b) Subject to the maximum of two children.

Rs.10,000 per child per annum

c)Subject to the maximum of three children.

d)

Marks : 2

50. Combined total of five heads of income equals :- a)

Gross total income

Gross taxable incomeb)

Net income

c)Tax amount

d)

LIST O F ATTEMPTED QUESTIONS AND ANSWERS


QuestionThe amount of advance tax payable by non corporate assessees before 15thDecember of Previous year is :-

Correct Answer60% of advance tax payable

Your Answer60% of advance tax payable

Se lect The Blank

QuestionThe aggregate amount of all the expenditure falling under the head preliminary expenses incurred under section 3________, for an Indian company the aggregate of all the expenditure can be 5% of the cost of project or 5% of capital employed whichever is higher.

Correct Answer5% of the cost of project or 5% of capital employed

Your Answer5% of the cost of project or 5% of capital employed


QuestionCondition for deduction from Capital Gains arising from transfer of House property under Section 54 is :-

Correct AnswerAssessee must have purchased another residential property one year before or within two years after the date on which transfer took place , Assessee musthave constructed another residential property within, three years after the date onwhich the transfer took place.

Your AnswerAssessee must have purchased another residential property one year before orwithin two years after the date on which transfer took place , Assessee musthave constructed another residential property within, three years after the date on which the transfer took place.

True/False

QuestionRebates as per the provisions of Section 88B of the Act are not available from the tax on long-term capital gains.

Correct AnswerFalse

Your AnswerTrue


QuestionProfits earned by an Industrial Undertaking engaged in other than infrastructure development is available under Section 80IB for :-

Correct Answer

Operation of Ship , Hotels situated in hilly area, rural area or place of pilgrimage , Company engaged in scientific and industrial research

Your AnswerOperation of Ship , Hotels situated in hilly area, rural area or place of pilgrimage , Company engaged in scientific and industrial research

Se lect The Blank

QuestionIf a person, other than an individual or a HUF, is responsible to pay the rent toany person in excess of ________ during the financial year.

Correct AnswerRs. 1,20,000

Your AnswerRs. 1,00,000


QuestionThe entertainment allowance received by the Government employees is includedin their salaries and the deduction is allowed to the extent of least of the following amounts :-

Correct AnswerRs. 5,000 , 1/5th of Salary , Actual amount of Entertainment Allowance received.

Your AnswerRs. 5,000 , 1/5th of Salary , Actual amount of Entertainment Allowance received.

Se lect The Blank

Question

As per the Clause N0-30 of the Act ________ requires company engaged in production, mining, and manufacturing activities should maintain proper books of accounts showing the particulars of utilization of material, labour or any other item.

Correct AnswerSection 209 of the Companies Act,1956

Your AnswerSection 209 of the Companies Act,1956


QuestionUnder the clause No-32 of the Act, in the Tax Audit Report, the Auditor is required to give the accounting calculation in ratios of :-

Correct AnswerGross profit/turnover , Net profit/turnover , Stock in trade/turnover

Your AnswerGross profit/turnover , Net profit/turnover , Stock in trade/turnover


QuestionThe losses incurred in the current Assessment Year :-

Correct AnswerCan be carried forward to the subsequent Assessment Years

Your AnswerCan be carried forward to the subsequent Assessment Years


Question

Standard deduction takes care of :-

Correct AnswerGround rent , Repairs & maintenance , Insurance premium

Your AnswerRepairs & maintenance , Insurance premium , Ground rent

True/False

QuestionLoss under the head Profits from Business or Profession can be adjusted against the Income from Salaries.

Correct AnswerFalse

Your AnswerFalse



Correct Answer1st April to 31st March


True/False

Question

If assessee owns more than one house properties, for his self occupation, annual value of any one of the house property of his own choice is treated as nil & another house as rented out. Correct AnswerTrue

Your AnswerTrue


QuestionThe specified assets for the purpose of claiming exemption from Capital Gains u/s 54EC mean the bonds redeemable after 3 years issued by the following institutions

Correct AnswerNational Bank for Agriculture and Rural Development (NABARD) , RuralElectrification Corporation Limited , Small Industries Development Bank of India

Your AnswerNational Bank for Agriculture and Rural Development (NABARD) , RuralElectrification Corporation Limited , Small Industries Development Bank of India

Se lect The Blank

QuestionIn case of foreign companies rate of tax is ________.

Correct Answer0.35

Your Answer0.3


QuestionWhich of the following expenses should be debited to P & L Account, butdisallowed for Income tax purpose?

Correct AnswerWealth Tax , Personal expenditure , Income Tax

Your AnswerWealth Tax , Revenue expenditure , Personal expenditure

True/False

QuestionAny Employer's Contribution payable by the assessee towards any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees, if they are actually paid, allowed as deduction.

Correct AnswerTrue

Your AnswerTrue


QuestionMaximum Deduction u/s 80D in respect of medical insurance premium for a person who is a Senior Citizen is Rupees :-

Correct Answer15000

Your Answer15000

Se lect The Blank

Question

The rate of TDS is ________ in case of advertising work.

Correct Answer0.01

Your Answer0.01



Correct AnswerAssessment year Your AnswerAccounting year

Se lect The Blank

QuestionThe rebate u/s 88B is available to an individual who has attained the age of________ or more at any time during the previous year.

Correct Answer65

Your Answer65

Se lect The Blank

QuestionUnabsorbed business loss can carried forward and set off in the subsequentAssessment Years subject to the time limit of ________ Assessment years.

Correct Answer8

Your Answer8


QuestionPrevious year always ends on :-

Correct Answer31st March

Your Answer31st March


QuestionGross Annual Value can not exceed :- Correct AnswerStandard rent

Your AnswerStandard rent

True/False

QuestionFor being resident of India, a person must be citizen of India.

Correct AnswerFalse

Your AnswerTrue

True/False

QuestionSales tax and expenses in connection with the proceedings for the assessmentof sales tax are allowed as business expenditure.

Correct AnswerTrue

Your AnswerTrue

Match The Following


PerquisitesIndicate benefits or amenities provided by the employer to the employee, either free of cost or at the concessional rateIndicate benefits or amenities provided by the employer to the employee, either free of cost or at the concessional rate

House Rent Allowance This indicates the amount paid by the employer to the employee to meet the expenditure for residential accommodation occupied by the employeeThis indicates the amount paid by the employer to the employee to meet the expenditure for residential accommodation occupied by the employee

Retrenchment CompensationCompensation received by a worker at the time of retrenchment

Compensation received by a worker at the time of retrenchment

Traveling AllowanceAny allowance granted to meet the cost of travel on tour or on transfer of duty.assistance received or due to an assessee from his employer, for himself and his family for proceeding on leave to any place in India or to any place in India after the retirement or termination of his service


QuestionForeign allowance received by an Indian national is exempt if it is paid by :-

Correct AnswerGovernment of India

Your AnswerForeign government


QuestionFollowing news agencies are specified by the Central Government as specifiednews agencies :-

Correct AnswerPTI , UNI

Your AnswerPTI , P TV , NDTV


QuestionAnnual value of any one palace in possession of a former ruler is :-

Correct AnswerExempt

Your AnswerReduced from income from house property

True/False

QuestionIncome tax paid is allowed as deduction while calculating profit from business or profession.

Correct AnswerFalse

Your AnswerTrue


QuestionSection 35CCA of the Act applies to any expenditure incurred by the assessee by way of payment of any sum to :-

Correct AnswerThe National Fund for rural development set up by the central government , Any association or institution used for carrying out any programs of rural development, The National Urban Poverty eradication fund set up by the central government

Your AnswerThe National Fund for rural development set up by the central government , Any association or institution used for carrying out any programs of rural development, The National Urban Poverty eradication fund set up by the central government

Se lect The Blank

QuestionNo tax is required to be deducted if the amount paid or credited in pursuance of any contract does not exceed a certain amount. However, if the aggregate of such amounts paid or credited to a payee exceeds ________ the tax is required to be deducted under this Section.

Correct AnswerRs. 50000

Your AnswerRs.100000


QuestionIncome from winning from lotteries / crossword puzzles/ horse races is taxed at flat rate of :-

Correct Answer0.3

Your Answer0.3


QuestionThe provisions regarding set off and carry forward of loses are contained in :-

Correct AnswerSections 70 to 80 of the Income Tax Act, 1961.

Your AnswerSections 70 to 80 of the Income Tax Act, 1961.

Se lect The Blank

QuestionSection 80U allows the deduction in respect of the ________ .

Correct AnswerPermanent physical disability

Your AnswerPermanent physical disability


QuestionAny premium paid by the assessee by Cheque as an employer to effect or keep in force an insurance on the health of his employees is :-

Correct AnswerAllowed as expenses while calculating profits from business and profession

Your AnswerAllowed as expenses while calculating profits from business and profession

True/False

QuestionRebates as per the provisions of Section 88 of the Act are not available from the tax on long-term capital gains.

Correct AnswerTrue

Your AnswerFalse

True/False

QuestionJewellery held by the assessee is not a Capital Asset.

Correct AnswerFalse

Your AnswerFalse


QuestionTo get deduction of Rs 150000/- as interest on borrowed capital assessee needs to satisfy conditions i.e. :-

Correct AnswerBorrowal is after 1st April 1999 , Construction is completed in 3 years

Your Answer Deduction can be for principal portion also , Borrowal is after 1st April 1999 , Construction is completed in 3 years


QuestionThe return of income required to be filed in the form by the Non-Corporate Assessee not claiming the exemption under the provisions of section 11 of the Act and not having income from business and profession is :-

Correct AnswerForm No. 3 or 2D(saral)

Your AnswerForm No. 2 or 2D(saral)


QuestionSalary paid by any partnership firm to its working partners is taxable as :-

Correct AnswerIncome from Business and Profession

Your AnswerIncome from Business and Profession

True/False

QuestionThe payments made u/s 43B of the Income Tax Act are allowed as deductions only if they are actually paid.

Correct AnswerTrue

Your AnswerTrue

Match The Following

QuestionCorrect Answer Your Answer

Containers made of glass or plastic used as refillsRate of depreciation is 40% Rate of depreciation is 40%

All intangible assets like Patents, Trademarks, Copy Rights, Licenses etc. Rate of depreciation is 25%Rate of depreciation is 25%

Temporary StructuresRate of depreciation is 100% Rate of depreciation is 100%

ComputersRate of depreciation is 60% Rate of depreciation is 60%

Se lect The Blank

QuestionDeduction for remuneration from foreign sources for professors, teachers etcunder Section 80R is limited to ________% of such remuneration brought inIndia.

Correct Answer15

Your Answer15

Se lect The Blank

QuestionIf the asset sold or transferred by the employer to employee is in the form of computers an electronic items, the wear and tear will be calculated @ ________%. Correct Answer50

Your Answer

20

Score Card

RegistrationNumber: 200404214Name: Manpreet MalhotraSubject: TaxationAssignment Status As On: 19/03/2006

Re sult for this Assignme nt

Assignment Date18/03/2006

Number of Correct Questions31

Number of Skipped Questions4

Number of Wrong Questions16

Total Questions attempted51

Total Marks obtained69 Out of 100.

ResultPass

Click here to view the list of attempted question and answers.



QuestionForeign allowance received by an Indian national is exempt if it is paid by :-

Correct AnswerGovernment of India

Your AnswerGovernment of India


QuestionFor the purpose of section 80IA, the term eligible business means :-

Correct AnswerDeveloping, maintaining or operating any infrastructure facility where the term infrastructure facility means a road (including a toll road, a bridge or a rail system) or a highway project or a water supply project. , Developing, maintaining or operating an industrial park or special economic zones notified by the Central Government , Generation or distribution of power

Your AnswerDeveloping, maintaining or operating an industrial park or special economic zones notified by the Central Government , Generation or distribution of power, Developing, maintaining or operating any infrastructure facility where theterm infrastructure facility means a road (including a toll road, a bridge or a rail system) or a highway project or a water supply project.

True/False

QuestionFor being resident of India, a person must be citizen of India.

Correct AnswerFalse

Your AnswerFalse


QuestionThe due date prescribed for filing the returns of income in Form No. 2C is

Correct Answer31st October of the respective Assessment year

Your Answer31st October of the respective Assessment year


QuestionThe amount of accumulated interest on NSCs purchased in the earlier years is assumed to be reinvested :-

Correct AnswerAnd qualifies for tax rebate under section 88.

Your AnswerAnd qualifies for tax rebate under section 88.

True/False QuestionA person who is a Senior Citizen who has attained the age of 65 years is not entitled to the rebate u/s 88 of the Act.

Correct AnswerFalse

Your AnswerFalse


QuestionThe total amount of rebates under Section 88, Section 88B, Section 88C andSection 88D of the Act. shall :-

Correct AnswerNot exceed the amount of tax calculated on the total income.

Your AnswerNot exceed the amount of tax calculated on the total income.

True/False

QuestionA company is resident of India if in any previous year it is an Indian Company even though control & management are situated outside India.

Correct AnswerFalse

Your AnswerFalse


QuestionFrom GTI of a company following deductions under chapter VI A are allowed Correct Answer80 G Donations , 80 HHB profits and gains from projects outside India , 80 IAprofits and gains of infrastructure companies

Your Answer80 G Donations , 80 HHB profits and gains from projects outside India , 80 IAprofits and gains of infrastructure companies

True/False

QuestionClause N0-30 of the Tax Audit requires that, if the cost Audit of the company carried out, the report of such audit should be enclosed to the Tax Audit Report.

Correct AnswerTrue

Your AnswerTrue

Match The Following


Deductions of Rent, Rates, Repairs, Taxes and Insurance on Buildings are availableu/s 30 u/s 30

Deduction of Depreciation is available u/s 32 u/s 32

General deductions are allowed as deductions while calculating profits from business and professionu/s 37 u/s 37

Deductions of Repairs & maintenance of machinery, plant & furniture are availableu/s 31u/s 31


QuestionIn case of any contribution made by an individual or a HUF to notified units of any approved mutual fund or of Unit Trust of India in accordance with a notified scheme (Equity Linked Savings Scheme) :-

Correct AnswerThe maximum allowable limit is Rs. 10,000

Your AnswerThe maximum allowable limit is Rs. 10,000

True/False

QuestionThe value of benefit resulting from the payment made by the employer in a club for any expenditure incurred by the employee shall be taken as perquisites unless the said expenses are incurred wholly and exclusively for official purposes. Correct AnswerTrue

Your AnswerTrue


QuestionWhat is the treatment of principal amount of loan borrowed for the purchase or construction of a residential house?

Correct AnswerRebate u/s 88 for such amount not exceeding Rs. 20,000

Your AnswerRebate u/s 88 for such amount not exceeding Rs. 20,000

True/False

QuestionRebates as per the provisions of Section 88 of the Act are not available from the tax on longterm capital gains.

Correct AnswerTrue

Your AnswerTrue


QuestionFollowing specific incomes are taxable under the heading income from other sources :-

Correct AnswerWinning from betting , Interest on securities of local authority , Bonus from key man insurance policy

Your AnswerWinning from betting , Interest on securities of local authority

True/False

QuestionDeductions available as per the provisions of Chapter VI of the Act are not available for the long-term capital gains.

Correct AnswerTrue

Your AnswerTrue

True/False

QuestionIncome earned & received outside India & remitted to India is taxable for resident & ordinary resident

Correct AnswerTrue

Your AnswerTrue


QuestionWhat is the due date for filing Annual return for TDS from Salaries?

Correct Answer30th June of Assessment Year

Your Answer30th June of Assessment Year


QuestionThe least of the following is the exemption available to an employee if he is in receipt of house rent allowance :-

Correct Answer50% of the Salary where such accommodation is situated in Mumbai, Kolkata, Chennai and Delhi and 40% of the Salary when the accommodation is situated at any other place. , Actual amount of HRA received by the employee. ,Excess of rent paid over 10% of the Salary.

Your Answer

50% of the Salary where such accommodation is situated in Mumbai, Kolkata, Chennai and Delhi and 40% of the Salary when the accommodation is situated at any other place. , Actual amount of HRA received by the employee.

Select The Blank

QuestionIf the CC of the engine is more than 1..6 liters and the motor car is owned or hired by the employer and is used partly of official and partly for personal purposes and if running and maintenance expenses are borne by the employee then the value of perquisite will be Rs. per month plus Rs.600 if car is chauffer driven car.

Correct Answer600

Your Answer600


QuestionAs a general principle, the Basic Salary or Wages, Dearness Allowance andBonus / Commission is :- Correct AnswerFully taxable.

Your AnswerFully taxable.


QuestionUnder the clause No-32 of the Act, in the Tax Audit Report, the Auditor is required to give the accounting calculation in ratios of :-

Correct AnswerGross profit/turnover , Net profit/turnover , Stock in trade/turnover

Your AnswerGross profit/turnover , Net profit/turnover , Stock in trade/turnover


QuestionIf taxable income is less than 7.5% of book profit, income tax is payable @ of:-

Correct Answer0.1

Your Answer0.1

Select The Blank

QuestionIn case of foreign companies rate of tax is .

Correct Answer0.35

Your Answer 0.2

True/False

QuestionInterest is payable by the assessee for not paying the Advance tax or if the Advance tax paid by the assessee is less than 80% of the Assessed tax after adjusting the amount of TDS and Advance tax Paid

Correct AnswerFalse

Your AnswerTrue


QuestionFor the purpose of income tax, the perquisites can be classified into :-

Correct AnswerPerquisites which are taxable in case of all types of employees , Perquisites which are taxable only in the hands of specified employee

Your AnswerPerquisites which are taxable in case of all types of employees , Perquisites which are taxable only in the hands of specified employee


QuestionLoss from owning and maintaining race horses can be adjusted against :-

Correct AnswerOnly the income arising out of the same activity

Your AnswerOnly the income arising out of the same activity


QuestionMunicipal taxes are payable on :-

Correct AnswerMunicipal valuation

Your AnswerMunicipal valuation

True/False

QuestionDividend received from domestic company to its shareholders is taxable in the hands of the shareholder.

Correct AnswerFalse

Your AnswerFalse

Select The Blank

QuestionCompany means any Company.

Correct AnswerIndian

Your AnswerDomestic Company

Multiple Choice Multiple Answer QuestionSection 35D applies to the preliminary expenses incurred by a company, which consists of :-

Correct Answer

Expenditure in connection with the preparation of feasibility/project report, engineering services, or conducting market survey , Legal charges and fees for registering the company as per the provisions of company Act, 1956 , Charges in connection with drafting and printing of memorandum of association and Articles of Association

Your AnswerExpenditure in connection with the preparation of feasibility/project report, engineering services, or conducting market survey , Legal charges and fees for registering the company as per the provisions of company Act, 1956 , Charges in connection with drafting and printing of memorandum of association and Articles of Association


QuestionPerquisites which are taxable only in the hands of specified employee include the following categories of perquisites :-

Correct AnswerMotor Car , Services of sweeper, gardener, watchman or personal attendant , Gas, electricity and water provided for personal consumption

Your AnswerMotor Car , Gas, electricity and water provided for personal consumption , Amount spent on training of employees or fees paid for refresher management course

Select The Blank

QuestionLoss under the head Income from Capital Gains, to the extent it is long term capital loss can be carried forward and set off in the subsequent Assessment Years against the subject to the limit of 8 Assessment years.

Correct Answer Long term Capital Gains

Your AnswerLong term Capital Gains


QuestionFor charging the income in the form of salaries :-

Correct AnswerThere needs to be an employer-employee relationship between the payer and the payee.

Your AnswerThere needs to be an employer-employee relationship between the payer and the payee.

True/False

QuestionThe amount of telephone bills (including the mobile phone bills) of the employee reimbursed by the employer is exempt from tax.

Correct AnswerTrue

Your AnswerTrue

True/False

QuestionThe amount of expenses including membership fees and annual fees incurred by the employee on credit card and which are paid by the employer shall be added as the perquisites unless the said expenses are incurred wholly and exclusively for official purposes.

Correct Answer

True

Your AnswerTrue


QuestionThe amount of advance tax payable by corporate assessees before 15thSeptember of Previous year is :-




QuestionAs per which provision and section, every person, company or any other person shall furnish his returns of income in the prescribed form on or before the specified due date?

Correct AnswerSection 139(1)

Your AnswerSection 139(1)

Select The Blank

Question is the tax payable on the manufacturing of goods.

Correct Answer

Excise duty

Your Answer Sales tax


QuestionThe return of income is required to be filed by all the companies, except those covered under section 25 of the companies Act,1956 in the :-

Correct AnswerForm No. 1

Your AnswerForm No. 1

Match The Following


Disallowable ExpenditureLitigation Expenses in connection with recovery of a debt which is not a trading debtLitigation Expenses in connection with recovery of a debt which is not a trading debt

Business

Includes trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufactureIncludes trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture

Profession Includes vocation Includes vocation

Capital ExpenditureExpenditure incurred by a company with the issue of rights sharesExpenditure incurred by a company with the issue of rights shares


QuestionThe sum total of all the heads of income clubbed together gives the amount of:-

Correct AnswerGross Total Income

Your AnswerGross Total Income

Select The Blank

QuestionShort term Capital Gains is taxed at .

Correct AnswerNormal Tax rates

Your Answer

Normal Tax rates

Multiple Choice Multiple Answer QuestionFrom annual value, following deductions are allowed :-

Correct AnswerStandard deduction , Interest on borrowed capital , Municipal taxes

Your AnswerStandard deduction , Interest on borrowed capital , Municipal taxes


QuestionThe rebate u/s 88 is available to an :-

Correct AnswerIndividual , Hindu Undivided Family.

Your AnswerIndividual , Hindu Undivided Family.

Taxation-Saroj2

Select The BlankQuestion For an individual as a citizen of India who leaves India in the relevant previous year for the purpose of employment has to be in India for days or more during previous year.

Correct Answer 182Your Answer 182

Multiple Choice Single AnswerQuestion The due date prescribed for filing the returns of income in FormNo. 2C isCorrect Answer 31st October of the respective Assessment yearYour Answer 31st October of the respective Previous year

Multiple Choice Single Answer Question The payments for claiming the rebate u/s 88 should :- Correct Answer Be made out of the income chargeable to tax. Your Answer Be made out of the income chargeable to tax.

Multiple Choice Single AnswerQuestion As per which provision and section, every person, company or any other person shall furnish his returns of income in the prescribed form on or before the specified due date?

Correct Answer Section 139(1) Your Answer Section 139(1)

Select The BlankQuestion Mrs. X of 45 years has received salary of Rs 5,50,000 she can claim tax rebate of u/s 88C of the IT Act.

Correct Answer Rs. 5,000Your Answer Nil

Multiple Choice Multiple AnswerQuestion Rebate is allowed on any subscription made to National SavingScheme by :-Correct Answer An individual , A HUFYour Answer An individual , A HUF , Partnership Firms

Multiple Choice Multiple AnswerQuestion For the purpose of taxability of perquisite a specified employee means :-Correct Answer The person who is director of a company , The employee who has substantial interest in the company by having 20% or more of the voting power , The employee whose income under the head salaries (including

all the taxable monetary payments of salary but excluding the value of anynon-monetary benefits or perquisites), after allowing deductions under Section16, exceeds Rs. 50,000

Your Answer The person who is director of a company , The employee who has substantial interest in the company by having 20% or more of the voting power , The employee whose income under the head salaries (including all the taxable monetary payments of salary but excluding the value of any non-monetary benefits or perquisites), after allowing deductions under Section16, exceeds Rs. 50,000

Multiple Choice Multiple AnswerQuestion Following professional institutions have their incomes exempt from tax :-Correct Answer Town planning , Company secretary , AccountingYour Answer Town planning , Company secretary , Accounting

True/FalseQuestion Deduction u/s 80E for repayment of loan taken for higher education is available if the loan must have borrowed by the assessee himself or his Father

Correct Answer FalseYour Answer False

True/FalseQuestion The consideration for transfer of Capital Asset is received by the transferor is not material while Capital gain chargeable to tax.

Correct Answer TrueYour Answer True

Multiple Choice Multiple AnswerQuestion Any loans or deposits borrowed or repaid under section 269SS of the Act provides that the said provisions will not apply to the loans or deposits accepted by :-

Correct Answer Banking company including cooperative bank and post office savings bank , Government , Government company

Your Answer Government , Government company , Banking company including cooperative bank and post office savings bank


Employee stock option plan ESOPS ESOPS

Uncommuted Pension Indicates the periodical payment of pensionIndicates the periodical payment of pension

Commuted Pension Indicates the lump sum received in lieu of the periodical Indicates the lump sum received in lieu of the periodical

Treatment of Perquisite Taxed in the hands of employee as taxable salaryTaxed in the hands of employee as taxable salary

True/FalseQuestion A person who is a Senior Citizen who has attained the age of 65 years is not entitled to the rebate u/s 88 of the Act.

Correct Answer FalseYour Answer True

Multiple Choice Multiple AnswerQuestion For Deduction u/s 54EC from Capital Gains the assessee shouldinvest the whole or part of the capital gains in the specified assets :-

Correct Answer Within six months from the date of transfer of the long-term capital assetYour Answer Within six months from the date of transfer of the long-term capital asset

Select The BlankQuestion Unabsorbed business loss can carried forward and set off in the subsequent Assessment Years subject to the time limit of Assessment years.


Multiple Choice Single AnswerQuestion Mr. A whose Gross Total Income, before allowing deductions under Chapter VI-A is Rs. 2,40,000 wants to make the investments in the following alternative forms Rs. 50,000 in PPF and Rs. 50,000 in InfrastructureBonds. The amount of rebate available to him u/s 88 is :-

Correct Answer Rs. 15,000Your Answer Rs. 15,000

Multiple Choice Single AnswerQuestion Annual value of any one palace in possession of a former ruler is :- Correct Answer ExemptYour Answer Exempt


Any subscription made to National Saving Scheme

By an individual or a HUF is eligible for rebate u/s 88 By an individual or aHUF is eligible for rebate u/s 88

Mr. A, a 70 years old Senior Citizen, has the Gross Total Income of Rs.2,50,000 during the Assessment Year 2005-2006. He invested Rs. 50,000 in the tax saving bonds of ICICI on 10th June 2004. His tax liability for the A Y2005-2006.

RS.12,500 RS.12,500

During the Assessment Year 2005-2006, Mrs. A, age 58 years, has the Gross Total Income of Rs. 1,45,000 including the dividend from Indian companies amounting to Rs. 10,000. She invests Rs. 50,000 in PPF during the said Assessment Year. her tax liabilit is

Rs. 1,000 Rs. 1,000

Any contribution made to a Public Provident Fund

Is eligible for rebate u/s 88 Is eligible for rebate u/s 88

Select The BlankQuestion To claim sec 10A deduction unit must be established in . Correct Answer Free Trade ZoneYour Answer Free Trade Zone

Select The BlankQuestion Non resident individual satisfies of the basic conditions. Correct Answer NoneYour Answer Any one

Multiple Choice Single AnswerQuestion Deduction from Capital Gains under Section 54 is for Capital Gains arising from transfer of :-Correct Answer House PropertyYour Answer House Property

Select The BlankQuestion Deduction for remuneration from foreign sources for professors, teachers etc under Section 80R is limited to _% of such remuneration brought in India.


Select The BlankQuestion Relief under section 89 is available to an employee in respect of the amount of salary received .Correct Answer In advance or in arrearsYour Answer In the immediately succeeding year.

Select The BlankQuestion AOP id formed when two or more come together to earnincome.Correct Answer PersonsYour Answer Persons

Multiple Choice Multiple AnswerQuestion Capital Gains arise on account of excess of transfer consideration over the following amountsCorrect Answer Cost of acquisition , Cost of improvement , Expenditure incurred wholly and exclusively in connection with the transfer Your Answer Cost of acquisition , Cost of improvement , Expenditure incurred wholly and exclusively in connection with the transfer

Multiple Choice Multiple AnswerQuestion Which of the following amounts credited to P & L Account but not taxable from Income tax Purposes as Profits from Business and Profession?

Correct Answer Refund of Income tax , Capital Gains , Dividend IncomeYour Answer Refund of Income tax , Capital Gains , Dividend Income

True/FalseQuestion Rebates as per the provisions of Section 88 of the Act are not available from the tax on long-term capital gains.


Select The BlankQuestion If assessee owns more than one house properties, he can get benefit of nil annual value for any one house property .

Correct Answer As per his choiceYour Answer As per his choice

Multiple Choice Single AnswerQuestion What is the treatment of principal amount of loan borrowed for the purchase or construction of a residential house?

Correct Answer Rebate u/s 88 for such amount not exceeding Rs. 20,000Your Answer Rebate u/s 88 for such amount not exceeding Rs. 20,000

Multiple Choice Multiple AnswerQuestion The provisions for payment of gratuity is not allowed under section40A(7) but, under the head, profits from business and profession, the amount of gratuity will be allowed as deduction only when :-

Correct Answer The amount of gratuity has actually become payable to the employees during the previous year , The provision has been made for the payment of a sum by way of contribution to an approval gratuity , The other than the above two situations, any provision made for the payment of gratuity is not allowed as deduction

Your Answer The amount of gratuity has actually become payable to the employees during the previous year , The provision has been made for the payment of a sum by way of contribution to an approval gratuity

Multiple Choice Multiple AnswerQuestion If the Salary is less than Rs. 5,00,000, Standard Deduction will be the least of the following :-Correct Answer 40% of the Salary , Rs. 30,000Your Answer 40% of the Salary , Rs. 30,000

Multiple Choice Single AnswerQuestion The amount of advance tax payable by non corporate assessees before 15th December of Previous year is :-Correct Answer 60% of advance tax payableYour Answer 100% of advance tax payable

Select The BlankQuestion It should be noted that the tax liability of an individual having the total income of less than Rs is Nil u/s 88D.

Correct Answer 1,00,000Your Answer 1,00,000

True/FalseQuestion If assessee owns more than one house properties, annual value of any one of the house property can be treated as nil, and such option can be changed year on year basis.


True/FalseQuestion Income from subletting is treated as income from house property. Correct Answer FalseYour Answer False

Multiple Choice Multiple Answer Question Following persons are deemed to be an assessee :-Correct Answer Legal heir of deceased person , Parents of minor assessee , Agent of NRIYour Answer Legal heir of deceased person , Parents of minor assessee , Agent of NRI

Multiple Choice Single AnswerQuestion Income of notified news agencies is exempt provided :-Correct Answer They apply their income for collection & distribution ofnewsYour Answer They apply their income for collection & distribution of news

Select The BlankQuestion The rebate u/s 88B is available to an individual who has attained the age of or more at any time during the previous year.


Multiple Choice Multiple AnswerQuestion What is the tax treatment of the Lump sum received from unrecognized provident fund on the retirement or resignation or death of the employee?

Correct Answer Employee's contribution to PF is exempt from tax , Interest on employee's contribution is taxable as "Income from Other Sources" , Employer's Contribution to PF and interest thereon is taxable as "Income from salaries"

Your Answer Employee's contribution to PF is exempt from tax , Interest on employee's contribution is taxable as "Income from Other Sources" , Employer's Contribution to PF and interest thereon is taxable as "Income from salaries"

True/FalseQuestion Any advance tax paid before 31st March is treated as advance tax paid during the previous year.Correct Answer TrueYour Answer True True/FalseQuestion A woman assessee below the age of 65 years is also entitled to rebate u/s 88.Correct Answer TrueYour Answer True

Multiple Choice Single AnswerQuestion Rent for other amenities like lift, electricity, telephone etc. is taxed under the heading :-Correct Answer Income from other sourcesYour Answer Income from salaries

Multiple Choice Single AnswerQuestion The amount of advance tax payable by non corporate assessees before 15th June of Previous year is :-Correct Answer NilYour Answer 100% of advance tax payable


Question The entertainment allowance received by the Government employees is included in their salaries and the deduction is allowed to the extent of least of the following amounts :-

Correct Answer Rs. 5,000 , 1/5th of Salary , Actual amount of EntertainmentAllowance received.Your Answer Rs. 5,000 , 1/5th of Salary , Actual amount of EntertainmentAllowance received.

True/FalseQuestion Loss from house property can be adjusted against the income fromany other house property. Correct Answer True Your Answer True

True/FalseQuestion Annual premium paid by the employer for the accident insurance policy taken by the employer in the name of the employee is chargeable to tax.

Correct Answer FalseYour Answer True Multiple Choice Single AnswerQuestion Annual return for TDS from Salaries is to be filed in :- Correct Answer Form No. 24Your Answer Form No. 24


Select The Blank

QuestionMonetory Limit for deduction for royalty income of authors under Section80QQB is Rs. .

Correct Answer300000

Your Answer300000


QuestionIncome from winning from lotteries / crossword puzzles/ horse races is taxed at flat rate of :-

Correct Answer0.3

Your Answer0.3



Correct AnswerAssessment year

Your AnswerAssessment year


QuestionMediclaim premium u/s Section 80D should be paid by

Correct AnswerCheque

Your AnswerCheque or Cash

True/False

QuestionAny sum payable by the assessee by way of tax, duty, cess or fee is allowed as deduction even though they are not actually paid.

Correct AnswerFalse

Your AnswerTrue

True/False

QuestionAs per section 2(11) of the Income Tax Act, Block of Assets includes both tangible as well as intangible assets. Correct AnswerTrue

Your AnswerTrue


QuestionWhat is the tax treatment of Statutory Provident Fund?

Correct Answer

Employer's Contribution to PF is not liable for any tax payment , Interest credited to the employee's account is not liable for any tax payment. , The lump sum received at the time of retirement or resignation or death is also exempt under section 10(11) and 10(12).

Your AnswerEmployer's Contribution to PF is not liable for any tax payment , Interest credited to the employee's account is not liable for any tax payment. , The lump sum received at the time of retirement or resignation or death is also exempt under section 10(11) and 10(12).

Select The Blank

QuestionThe aggregate amount of all the expenditure falling under the head preliminary expenses incurred under section 3 , for an Indian company the aggregate of all the expenditure can be 5% of the cost of project or 5% of capital employed whichever is higher.

Correct Answer5% of the cost of project or 5% of capital employed

Your Answer5% of the cost of project or 7% of capital employed


QuestionCombined total of five heads of income equals :-

Correct AnswerGross total income



QuestionPrevious year always ends on :-

Correct Answer31st March

Your Answer31st March


QuestionRates of income tax are prescribed by :-

Correct AnswerThe Finance Act

Your AnswerOrdinance

Select The Blank

QuestionIf assessee owns more than one house properties, he can get benefit of nil annual value for any one house property .

Correct Answer As per his choice

Your AnswerHouse which is first purchased


QuestionTax liability of a person is based on :-

Correct AnswerResidential status



QuestionChoose capital expenditure from the following list :-

Correct AnswerPurchase of Building , Purchase of machinery

Your AnswerPurchase of Building , Construction of temporary structures , Purchase of machinery


QuestionRebate is allowed on any subscription made to National Saving Scheme by :-

Correct AnswerAn individual , A HUF

Your AnswerAn individual , A HUF


Question

In respect of leave travel concession If Mr. A has availed the exemption only once or has not availed any exemption at all, in the block of four years i.e.1998-2001 then :-

Correct AnswerHe can carry over the exemption to the next block of four years i.e. 2002-2005 provided that he avails the exemption of LTC in the first calendar year of the next block i.e. 2002.

Your AnswerHe can carry over the exemption to the next block of four years i.e. 2002-2005 provided that he avails the exemption of LTC in the first calendar year of the next block i.e. 2002.

True/False

QuestionLoss under the head Profits from Business or Profession can be adjusted against the Income from Salaries.

Correct AnswerFalse

Your AnswerFalse


QuestionThe amount paid by the employer to the employee on his retirement is taxed as :-

Correct AnswerIncome from Salaries Your AnswerIncome from Salaries

Select The Blank

Question

For an individual as a citizen of India who leaves India in the relevant previous year for the purpose of employment has to be in India for days or more during previous year.

Correct Answer182

Your Answer182

True/False

QuestionBad Debts recovered not allowed as deduction in earlier years is not taxable in any year.

Correct AnswerTrue

Your AnswerFalse


QuestionShort Term Capital Loss can be adjusted against :-

Correct AnswerShort Term Capital Gains. , Long term Capital Gains

Your AnswerLong term Capital Gains , Short Term Capital Gains. Multiple Choice Single Answer

QuestionThe amount of advance tax payable by non corporate assessees before 15thMarch of Previous year is :-




Question

An assessee can claim deduction under section 35 in relation to the expenditure incurred on scientific research in the field of natural gas or applied sciences if :-

Correct AnswerAny revenue expenses incurred by the assessee for carrying out the scientific research provided that such research is related to his business , Any capital expenses incurred by the assesse himself for carrying out the scientific research provided that such research is related to his business , The assesse is a company engaged in the business of bio-technology or any other notified product a weighted deduction of 150% is allowed in respect of in-house research and development expensed, till 31st March, 2005

Your AnswerAny revenue expenses incurred by the assessee for carrying out the scientific research provided that such research is related to his business , The assesse is a company engaged in the business of bio-technology or any other notified product a weighted deduction of 150% is allowed in respect of in-house research and development expensed, till 31st March, 2005

Select The Blank

Question Registration charges in connection with the increasing of share capital of the company is not allowed as revenue expenditure.

Correct AnswerAuthorized

Your AnswerIssued

True/False

QuestionIf a person is required to quote the PAN and he quotes or intimates a false number then he may be liable to pay a penalty of Rs. 25000.

Correct AnswerFalse

Your AnswerFalse


QuestionWhat is the tax treatment of the Lump sum received from unrecognized provident fund on the retirement or resignation or death of the employee?

Correct AnswerEmployee's contribution to PF is exempt from tax , Interest on employee's contribution is taxable as "Income from Other Sources" , Employer's Contribution to PF and interest thereon is taxable as "Income from salaries"

Your AnswerEmployee's contribution to PF is exempt from tax , Interest on employee's contribution is taxable as "Income from Other Sources"

Select The Blank

Question If the person responsible for deducting the tax at source and paying the same to the credit of Central Government has not been allotted the Tax Deduction Account Number (TAN), he shall within from the end of the month in which the tax was deducted, apply for the allotment of TAN Number.

Correct AnswerOne month

Your AnswerFifteen days

Match The Following


Deduction in case of permanent physical disabilitySection 80U Section 80U

Deductions for Donations PaidSection 80G Section 80G

Deduction for Rent PaidSection 80GG Section 80GG

Deduction in respect of Interest on Bank DepositsSection 80L Section 80L

True/False

QuestionIf the capital asset becomes the property of the assessee by virtue of gift or will, the period for which the capital asset is held by the previous owner should be excluded while deciding the holding period.

Correct AnswerFalse

Your AnswerTrue

True/False

QuestionAmount paid by the employer in respect of any leave standing to the credit of the employee after the date of furnishing return of income, this sum was payable in the previous year is allowed as deduction.

Correct AnswerFalse

Your AnswerFalse

Select The Blank

QuestionUnder section 43B, Clause N0-21 provides that the details of variouspayments are allowed as deductions only if they are actually paid but, where if the assessee follows the , the payments can be claimed on due basis.

Correct Answer Mercantile system of accounting

Your AnswerCash system of accounting

True/False

QuestionA woman assessee below the age of 65 years is also entitled to rebate u/s 88.

Correct AnswerTrue

Your AnswerTrue


QuestionIncome received by following assesses is taxable in India :-

Correct AnswerResident , Non resident , Resident but not ordinary resident

Your AnswerResident , Resident but not ordinary resident


QuestionAny premium paid by the assessee by Cheque as an employer to effect or keep in force an insurance on the health of his employees is :-

Correct AnswerAllowed as expenses while calculating profits from business and profession

Your AnswerIs allowed as a deduction under Section 80G

Select The Blank

QuestionWhere an assessee files or submits the returns as per provisions of section

139 or in response to the notice under section 142, the assessment officer undertakes as per section 143(2) and section 143(3).

Correct AnswerScrutiny Assessment

Your AnswerScrutiny Assessment


QuestionAssessee gets deduction of interest paid on borrowed capital even if he :-

Correct AnswerTakes possession later on , Acquires later on

Your AnswerTakes possession later on , Acquires later on

Match The Following


PerquisitesIndicate benefits or amenities provided by the employer to the employee, either free of cost or at the concessional rateIndicate benefits or amenities provided by the employer to the employee, either free of cost or at the concessional rate

House Rent AllowanceThis indicates the amount paid by the employer to the employee to meet the expenditure for residential accommodation occupied by the employeeThis indicates the amount paid by the employer to the employee to meet the expenditure for residential accommodation occupied by the employee

Retrenchment CompensationCompensation received by a worker at the time of retrenchmentCompensation received by a worker at the time of retrenchment

Traveling AllowanceAny allowance granted to meet the cost of travel on tour or on transfer of duty.Any allowance granted to meet the cost of travel on tour or on transfer of duty.

Select The Blank

QuestionMrs. X of 45 years has received salary of Rs 5,50,000 she can claim tax rebate of u/s 88C of the IT Act.

Correct AnswerRs. 5,000

Your AnswerRs. 20,000 Multiple Choice Single Answer


Correct Answer

1st April to 31st March



QuestionIf notified news agency distributes its income amongst its members then :-

Correct AnswerWhole of its income will be taxable

Your AnswerIt will have to pay tax on distributed profits


QuestionDeduction in respect of Contribution to certain pension funds u/s 80CCC is available to :-

Correct AnswerIndividuals

Your AnswerIndividuals

True/False

QuestionIncome from subletting is treated as income from house property. Correct AnswerFalse

Your AnswerFalse


QuestionIn case of Payment of Interest on Securities no tax is required to be deducted under the following circumstances :-

Correct AnswerIf the debentures are issued by a widely held company and the debentures are listed on a stock exchange and if the amount of interest does not exceed Rs.2,500 during the financial year. , If the interest paid is on State or Central Government Securities , If the debentures are issued by an institution, authority, Public Sector Company or cooperative society as the Central Government may notify.

Your AnswerIf the interest paid is on State or Central Government Securities , If the debentures are issued by a widely held company and the debentures are listed on a stock exchange and if the amount of interest does not exceed Rs.5,000 during the financial year.

Select The Blank

QuestionExpenditure incurred by an assessee on advertisement in any brochure, tract, pamphlet or like published by a shall not be allowed as business expenditure.

Correct AnswerPolitical party

Your AnswerCompany

)

Match The Followi ng


Intangible Capital Asset Tenancy Rights Equity Shares held for a period of Less than 36 months

Excluded from ambit of term Capital Asset Stock in Trade Land

Short Term Capital Asset Equity Shares held for a period of Less than 36 months Stock in Trade

Long Term Capital Asset Land held for a period of 36 months or more Land held for a period of 36 months or more

Select The BlankQuestion Long term Capital Gains is taxed at _. Correct Answer 0.1Your Answer 0.1

Select The BlankQuestion Free meals provided by the employer duri ng the office hours provided that the value per meal does not exceed Rs. .Correct Answer 50Your Answer 25

True/FalseQuestion Professional Tax paid by a person carrying on the business is allowed as business expenditure. Correct Answer TrueYour Answer True

Match The Followi ngQuestion Correct Answer Your Answer

Retrenchment Compensation Exemption can be claimed u/s 10(10B) of the Income Tax Act TerminalCompensation

Salary or wages for the purpose of calculating Death-Cum -Retirement Gratuity. Basic Salary plus Dearness all owance Basic Salary plus Dearness allowance

Any amount of compensation received or receivable by the employee from the employer at the time of termination of his employment or at the time of modification of terms and conditions in connection wi th the employment. Terminal Compensation Treated as income from other sources.

Any Death-Cum-Retirement Gratuity received Treated as income from salary Treated as income from salary

True/FalseQuestion Di vidend received by the shareholder is treated as income chargeable to tax u/s 10(34) of the ITAct.Correct Answer FalseYour Answer False Select The BlankQuestion The valuation of perquisites in the case of interest free loans or the loans at the concessional rate of interest wil l be the sum equal to the interest calculated at the rate charges by State Bank of India, on the first day of the relevant previous year in respect of the loans for the same purpose. Such interest is calculated on the monthly balance.Correct Answer Maximum outstandingYour Answer Minimum outstanding

Multi ple Choice Multi ple AnswerQuestion For the purpose of calculating the value of perquisite of residential accommodation the term salary does not include :-Correct Answer Dearness All owance , Employer's contribution to Provident Fund , Allowances which are exempt from taxYour Answer Dearness Allowance , Employer's contribution to Provident Fund

Multi ple Choice Multi ple AnswerQuestion Foll owing incomes are deemed to have accrued or arisen in India :-Correct Answer Salary earned in India even if paid outside India , Salary paid by Government to Indian national for services rendered outside India , Tax deducted in IndiaYour Answer Salary earned in India even if paid outside India , Salary paid by Government to Indian national for services rendered outside India , Income from any capital asset situated outside India

True/FalseQuestion Any sum payable by the assessee as interest on any loan borrowed by him from any state fi nancial corporation as per the terms on the agreement is not all owed as deduction from profi t as per P & L account, if they are actually paid before the due date of furnishing return of income.Correct Answer FalseYour Answer True

Multi ple Choice Multi ple AnswerQuestion What is the treatment of the perquisite in the form of Gas, electri city and water supplied to theemployee?Correct Answer If the facil ity of gas, electri city and water is supplied by the employer to the employee purchasing the same from an outside agency, the

valuation of perquisite will be the charges paid by the employer to the outside agency supplying gas, electricity and water. , If the facili ty in the form of gas,electri city and water is supplied by the employer out of his own resources, the valuation of perquisite wil l bethe manufacturing cost per unit incurred by the employer.

Select The BlankQuestion Di vidends from the is an exempt income and hence will not be included in the Taxable income.Correct Answer Indian CompaniesYour Answer Indian Companies

Multi ple Choice Multi ple AnswerQuestion The vari ous payments which are referred as deductions under section 43B, Clause No-21 are :- Correct Answer Any employees contribution payable by the assessee towards any Provident Fund or Superannuation Fund or Gratuity Fund for the welfare of the employees , Any sum payable by the assessee by way of tax duty, cess or fee , Any sum payable by the assessee as interest on any loan or borrowing made by him from any public financial institution or state fi nancial corporation as per the terms of the agreement

Multi ple Choice Single AnswerQuestion If the capital gains arise on account of compulsory acquisition of the capital asset under any law and any compensation is paid for such acquisition :- Correct Answer The capital gains liability will be computed in the previous year i n which the compensation or the part thereof i s fi rst received

Multi ple Choice Multi ple AnswerQuestion What is the tax treatment of the Lump sum received from unrecognized provident fund on the retirement or resignation or death of the employee?Correct Answer Employee's contribution to PF is exempt from tax , Interest on employee's contribution is taxable as "Income from Other Sources" , Employer's Contribution to PF and interest thereon is taxable as "Income from salaries"

Multi ple Choice Single AnswerQuestion The head of income in the form of Income from Salari es is applicable in respect of the :- Correct Answer Remuneration received by an employee from the employerYour Answer Remuneration received by an employee from the employer

Select The BlankQuestion As per the Clause N0-30 of the Act requires company engaged in production, mining, and manufacturing activities should maintain proper books of accounts showing the particulars of utili zation of material, l abour or any other item.

Correct Answer Section 209 of the Companies Act,1956Your Answer Section 209 of the Income Tax Act, 1961

Multi ple Choice Multi ple AnswerQuestion A domestic company has following features :-Correct Answer It is an Indian Co. , It can be any other Co. , Has made prescribed arrangements for declaration and payment of dividend

Multiple Choice Single AnswerQuestion For fi ling the returns of income, Form No. 2C is to be fi lled in by :- Correct Answer Persons falli ng under One by Six Scheme

Multi ple Choice Multi ple AnswerQuestion For the purpose of Section 40 A (2) of the IT Act, if assessee is a firm, the term "SpecifiedPersons" may include :-Correct Answer Any partner of the fi rm or his relative , Any person having the substantial interest in the business or profession of the firm or any director or partner of such company or firm or any relative of such person. , Any person who carries on business or profession and in his business or profession the assessee or any partner of such firm or relative of such partner has substantial interest.True/FalseQuestion Refund of Income tax is taxable as Income from other sources. Correct Answer False

Select The BlankQuestion Prior peri od interest is calculated from the date of _ to the date of completion. Correct Answer BorrowingYour Answer Borrowi ng

Question Capital Gains are chargeable to Income Tax if there is any profit or gain arising from the transfer of a :-Correct Answer Capital Asset

1.The Uniform Capitalization Rules of Code Sec. 263A apply to retailers whose average gross receipts for the preceding three years exceed what amount?

a. $1,000,000b. $2,500,000c. $5,000,000d. $10,000,000

Solution:Choice "d" is correct. The uniform capitalization rules do not apply to inventory acquired for resale if the taxpayer's average gross receipts for the preceding three tax years do not exceed $10,000,000.

Choices "a", "b", and "c" are incorrect per the above rule.

2.An individual taxpayer reports the following items for the current year:

Ordinary income from partnership A, operating a movie theaterin which the taxpayer materially participates $70,000Net loss from partnership B, operating an equipment rental businessin which the taxpayer does not materially participate (9,000)Rental income from building rented to a third party 7,000Short-term capital gain from sale of stock 4,000What is the taxpayer's adjusted gross income for the year?

a. $70,000b. $72,000c. $74,000d. $77,000

Solution:Choice "c" is correct. Except in the year in which an individual, estate, trust, or closely-held C corporation disposes of an entire interest in a passive activity investment, such taxpayers cannot deduct passive activity expenses and losses against income and gain attributable to non-passive activities. A passive activity is (i) any activity in which such taxpayers do not materially participate and (ii) as a general rule, such taxpayers' rental real estate investments – regardless of the extent of such taxpayers' involvement with the rental real estate operations. A limited exception (the "Mom and Pop Exception") regardingrental real estate activities is available to individuals, but the facts of this question do not provide any information which would entitle the taxpayer to the benefits of this exception.

Hence, the taxpayer can deduct, against the profit from the taxpayer's $7,000 passive activity rental income from the building rented to a third party, only $7,000 of the $9,000 net loss from partnership B which is operating an equipment rental business in which the taxpayer does not materially participate.

Computation of adjusted gross income for the year:

Ordinary income from partnership A, operating a movie theater

in which the taxpayer materially participates $70,000Rental income from building rented to a third party (a passive activity) 7,000Net loss from partnership B, operating an equipment rental business in which the taxpayer does not materially participate (per the above rule the taxpayer can deduct only $7,000 of the $9,000passive activity loss)

(7,000)Short-term capital gain from sale of stock (fully taxable) 4,000Adjusted gross income for the year $74,000Choices "a", "b", and "d" are incorrect per the above rule and per the above computations.

3.On February 1, year 1, a taxpayer purchased an option to buy 1,000 shares of XYZ Co. for $200 per share. The taxpayer purchased the option for $50,000, which was to remain in effect for six months. The market declined, and the taxpayer let the option lapse on August 1, year 1. The taxpayer would report which of the following as a capital loss on the year 1 income tax return?

a. $50,000 long term. b. $50,000 short term. c. $150,000 long term. d. $200,000 short term.

Solution:Choice "b" is correct. An option held by an investor is a capital asset. A capital asset which is sold or exchanged within one year of acquisition will generate either a short-term capital gain (if the capital asset is sold at a price greater than acquisition cost) or a short-term capital loss (if the capital asset is sold at a price less than the acquisition cost). The cost (or other basis) of worthless stock or securities is treated as a capital loss as if they were sold on the last day of the taxable year in which they became totally worthless. The option's exercise price is irrelevant with respect to determining loss on account of the lapse of the options.

In this question, the options, which were capital assets purchased for $50,000 on February 1, Year 1, became worthless on the lapse date, August 1, Year 1. Thus, the $50,000 capital loss is treated as having occurred on December 31, Year 1, the last day of the taxable year in which the options became totally worthless. Because, as of December 31, Year 1, the options had not been held for more than a year, the $50,000 capital loss will be reported on the income tax return as a short-term capital loss.

Choices "a", "c", and "d" are incorrect per the above rules.

4.A taxpayer lived in an apartment building and had a two-year lease that began 16 months ago. The taxpayer's landlord wanted to sell the building and offered the taxpayer $10,000 to vacate the apartment immediately. The taxpayer's lease on the apartment was a capital asset but had no tax basis. If the taxpayer accepted the landlord's offer, the gain or loss would be which of the following?

a. An ordinary gain.b. A short-term capital loss. c. A long-term capital gain. d. A short-term capital gain.

Solution:Choice "c" is correct. A capital asset which is sold or exchanged more than one year after the date of acquisition will generate either a long-term capital gain (if the capital asset is sold at a price greater than acquisition cost) or a long-term capital loss (if the capital asset is sold at a price less than the acquisition cost). In this question, the lease-hold interest, which is a capital asset, was acquired more than a year ago, and the basis (acquisition cost) in that capital asset is -0-. So, the receipt of $10,000 to vacate the apartment will generate a $10,000 long-term capital gain.

Choices "a", "b", and "d" are incorrect per the above rules.

5.In year 1, a taxpayer sold real property for $200,000, receiving $100,000 at closing and $100,000 plus accrued interest at the prime rate in the next year. The buyer also assumed a $50,000 mortgage on the property. The taxpayer's adjusted basis was $75,000, and the taxpayer incurred $10,000 of selling expenses. If this transaction qualifies for installment sale treatment, what is the gross profit on the sale?

a. $115,000b. $125,000c. $165,000d. $175,000

Solution:Choice "c" is correct. Unless the taxpayer elects not to use the installment sales method, the taxpayer generally will recognize gain (but not loss) over the period during which the taxpayer receives cash payments (other than interest income) from the sale of noninventory assets. Note that this method is not available for the sale of stocks and securities traded on an established securities market.

The gross profit will be the amount realized less selling costs less the adjusted basis of the property sold (note: IRS forms require the taxpayer (i) to increase the adjusted basis by the amount of the selling costs and (ii) not reduce the amount realized by the selling costs. This requirement does not change the amount of gain/gross profit.

If the contract requires that payments be made in a subsequent year and if the contract requires little or no interest, the taxpayer may have to reduce the amount realized by the amount of unstated interest. This rule does not apply here because the contract requires that the buyer pay accrued interest at the prime rate in the next year.

Amount realized:Cash to be received, excluding interest income $200,000Related debt assumed by the buyer 50,000Less: selling expenses (10,000)Amount realized $240,000Less: Adjusted basis (75,000)Gain realized/gross profit $165,000Choices "a", "b", and "d" are incorrect per the above rule and per the above computations.

6.Upon her grandfather's death, Jordan inherited 10 shares of Universal Corp. stock that had a fair market value of $5,000. Her grandfather acquired the shares in 1995 for $2,500. Four months after her grandfather's death, Jordan sold all her shares of Universal for $7,500. What was Jordan's recognized gain in the year of sale?

a. $2,500 long-term capital gain. b. $2,500 short-term capital gain. c. $5,000 long-term capital gain. d. $5,000 short-term capital gain.

Solution:Choice "a" is correct. Unless the executor elects the "alternative valuation date" method (not applicable to this question), the basis of property acquired by bequest or by inheritance is the property's fair market value on the date of the decedent's death. The decedent's basis is irrelevant. Additionally, such acquired property is always considered to be "long-term" property, regardless of how long it has been held by the decedent and by the beneficiary or heir.

Calculation of gain realized and recognized:

Amount realized $7,500Less: Basis (date-of-death fair market value) (5,000)Long-term capital gain realized and recognized

Choices "b", "c", and "d" are incorrect per the above rule. $2,500

7.Davidson was transferred from Chicago to Atlanta. In connection with the transfer, Davidson incurred the following moving expenses:

Moving the household goods $2,000Temporary living expenses in Atlanta 400Lodging on the way to Atlanta 100Meals 40

What amount may Davidson deduct if the employer reimbursed Davidson $2,000 (not included in form W-2) for moving expenses?

a. $100b. $120c. $500d. $520

Solution:Choice "a" is correct. The moving expense deduction is allowable only for direct moving expenses: (i) travel and along-the-way lodging of the taxpayer and the taxpayer's family and (ii) transportation, to the new location, of the taxpayer's household goods and personal effects. Deductible expenses must be reduced by the amount of employer reimbursements not properly included on IRS form W-2. No longer is there a deduction for either (i) temporary living expenses at the new location or (ii) along-the-way meal expenses.

Moving the household goods $ 2,000Lodging on the way to Atlanta 100Less: employer reimbursement not included on IRS form W-2 (2,000)Deduction (adjustment) for (towards) AGI $ 100Choices "b", "c", and "d" are incorrect per the above rule: The $400 temporary living expenses in Atlanta and the $40 meal expense are not deductible.

8.Which of the following statements is correct regarding the deductibility of an individual's medical expenses?a. A medical expense paid by credit card is deductible in the year the credit card bill is paid.b. A medical expense deduction is allowed for payments made in the current year for medical services received in earlier years.

c. Medical expenses, net of insurance reimbursements, are disregarded in the alternative minimum tax calculation.d. A medical expense deduction is not allowed for Medicare insurance premiums.

Solution:Choice "b" is correct. A medical expense deduction is allowed for payments made in the current year for medical services received in earlier years.

Choice "a" is incorrect. A medical expense paid by credit card is deductible in the year the amount is charged to credit card (rather than in a subsequent year when the credit card bill is paid).

Choice "c" is incorrect. Medical expenses, net of insurance reimbursements, are not disregarded in the alternative minimum tax calculation. However, the allowable amount for AMT purposes is the net amount in excess of 10% of adjusted gross income (for regular tax purposes, the allowable amount is the net amount in excess of 7.5% of adjusted gross income).

Choice "d" is incorrect. A medical expense deduction is allowed for Medicare insurance premiums.

9.An individual taxpayer earned $10,000 in investment income, $8,000 in noninterest investment expenses, and $5,000 in investment interest expense. How much is the taxpayer allowed to deduct on the current- year's tax return for investment interest expenses?

a. $0b. $2,000c. $3,000d. $5,000

Solution:Choice "b" is correct. The deduction for investment interest expenses is limited to net taxable investment income which is defined as taxable investment income minus all related investment expenses (other than investment interest expense). If the investment expense is an itemized deduction, then only those expenses exceeding 2% of AGI are considered.

Taxable investment income includes: (i) interest and dividends, (ii) rents (if the activity is not a passive activity), (iii) royalties (in excess of related expenses), (iv) net short-term capital gains, and (v) net long- term capital gains if the taxpayer elects not to claim the net capital gains reduced tax rate.

Calculation:

Investment income $10,000Less: Related investment expenses other than investment interest expenses (8,000)Net investment income $ 2,000The taxpayer's deduction for investment interest expense is $2,000: the lesser of (i) $2,000 net investment income or (ii) $5,000 investment interest expense.

Choices "a", "c", and "d" are incorrect per the above rule and per the above computations.

10.Brenda, employed full time, makes beaded jewelry as a hobby. In year 2, Brenda's hobby generated$2,000 of sales, and she incurred $3,000 of travel expenses. What is the proper reporting of the income and expenses related to the activity?

a. Sales of $2,000 are reported in gross income, and $2,000 of expenses is reported as an itemized deduction subject to the 2% limitation.b. Sales of $2,000 are reported in gross income, and $3,000 of expenses is reported as an itemized deduction subject to the 2% limitation.c. Sales and expenses are netted, and the net loss of $1,000 is reported as an itemized deduction notsubject to the 2% limitation.d. Sales and expenses are netted and deducted for AGI.

Solution:Choice "a" is correct. Based upon the facts presented ("Brenda makes jewelry as a hobby . . ."), this activity is not a trade or business activity but is an activity not engaged in for profit. As such, the taxpayer can only deduct as itemized deductions on Schedule A of IRS form 1040 the following: (i) expenses, such as state and local income taxes and property taxes, which would be allowed regardless of whether or not the activity were engaged in for profit and (ii) all other expenses that would be allowed if such activitywere engaged in for profit. However, the amount of these "other expenses" cannot exceed gross income reduced by the expenses described in "(i)," above. Furthermore, the allowable "other expenses" are subject to the "2% of AGI" limitation.

Because Brenda had only $2,000 of gross income, the most she can deduct is $2,000 of the $3,000 travel expenses she incurred. Because the travel expenses constitute "all other expenses" (see "(ii)," above), this amount is subject to the "2% of AGI" limitation.

Note that the activity-is-engaged-in-for-profit statutory presumption does not apply. Reason: that presumption applies only if the activity shows a profit for at least three taxable years during the five consecutive taxable year period ending with the year in question (year #2 for this question). Because the facts do not state that during the five year period ending with year 2 Brenda had a profit in at least threeof those five years, the presumption is not available to Brenda. If the presumption would have been available to her and if she had had a profit in at least three of the five consecutive, ending with year #2, then the sales and expenses would have been netted and deducted for AGI (and choice "d" would have been correct).

Choices "b", "c", and "d" are incorrect per the above rules.

11.On their joint tax return, Sam and Joann had adjusted gross income (AGI) of $150,000 and claimed the following itemized deductions:

Interest of $15,000 on a $100,000 home equity loan to purchase a motor homeReal estate tax and state income taxes of $18,000Unreimbursed medical expenses of $15,000 (prior to AGI limitation) Miscellaneous itemized deductions of $5,000 (prior to AGI limitation)Based on these deductions, what would be the amount of AMT add-back adjustment in computing alternative minimum taxable income?

a. $21,750b. $23,750c. $35,000d. $38,750

Solution:Choice "d" is correct. Per the mnemonic “PANIC TIMME,” for purposes of calculating alterative minimum taxable income, the taxpayer must add back, among other things, the following itemized deductions:

- Taxes reduced by taxable refunds,

- Home mortgage interest when the mortgage loan proceeds were not used to buy, build, or improve the taxpayer’s qualified dwelling (house, condominium, apartment, or mobile home not used on a transient basis),

- Medical expenses not exceeding 10% of AGI, and

- Miscellaneous deductions subject to the 2% of AGI floor. The “PANIC TIMME” add-back is as follows:Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,000

Home mortgage interest not used to buy, build, or improve a qualified dwelling (themotor home is not a qualified dwelling) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000

Medical expenses in excess of 7.5% AGI but not in excess of 10% of AGI . . . . . . . . . . . . . . 3,750

Deductible miscellaneous expenses in excess of 2% of AGI . . . . . . . . . . . . . . . . . . . . . . . . . 2,000

Total “PANIC TIMME” add-back . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $38,750

Choices “a”, “b”, and “c” are incorrect per the above rule and per the above calculations.

12.On January 1 of the current year, Locke Corp., an accrual-basis calendar-year C corporation, had$30,000 in accumulated earnings and profits. For the current year, Locke had current earnings and profits of $20,000, and made two $40,000 cash distributions to its shareholders, one in April and one in September. What amount of the distributions is classified as dividend income to Locke's shareholders?

a. $0b. $20,000c. $50,000d. $80,000

Solution:Choice "c" is correct. The general rule is that distributions are taxable dividends to the extent of current earnings and profits (E&P) by year end and to the extent of accumulated E&P as of the distribution date. If both are positive and if distributions exceed the sum of current E&P and accumulated E&P, then the distributions in excess of the sum are treated as a return of capital. In this example, both current E&P and accumulated E&P are positive (the total is $50,000), and total distributions during the year are$80,000; so, $50,000 of the total distributions will be taxable dividends. Choices "a", "b", and "d" are incorrect per the above rule.

13.

Gem Corp. purchased all the assets of a sole proprietorship, including the following intangible assets: Goodwill $50,000Covenant not to compete 13,000

For tax purposes, what amount of these purchased intangible assets should Gem amortize over the specific statutory cost recovery periods?

a. $63,000b. $50,000c. $13,000d. $0

Solution:Choice "a" is correct. Post-August 10, 1993, acquisitions of goodwill, covenants not-to-compete, franchises, trademarks, and trade names must be amortized on a straight-line basis over a fifteen-year period (180 months) beginning with the month of acquisition. So, both the $50,000 acquisition of the goodwill and the $13,000 acquisition of the covenant not-to-compete – for a total cost of $63,000 -- are amortized over the fifteen-year period statutory cost recovery period.

Choices "b", "c", and "d" are incorrect per the above rule.

14.For year 2, Quest Corp., an accrual-basis calendar-year C corporation, had an $8,000 unexpired charitable contribution carryover from year 1. Quest's year 2 taxable income before the deduction for charitable contributions was $200,000. On December 12, year 2, Quest's board of directors authorized a$15,000 cash contribution to a qualified charity, which was made on January 6, year 3. What is the maximum allowable deduction that Quest may take as a charitable contribution on its year 2 income tax return?

a. $23,000b. $20,000c. $15,000d. $8,000

Solution:Choice "b" is correct. C corporations are allowed a maximum charitable contribution deduction of 10% of taxable income computed before the following deductions:

• Any charitable contribution,• The dividend received deduction,• Any net operating loss carryback,• Any net capital loss carryback, and

• The U.S. production activities deduction.

Accrued charitable contributions not paid by the end of the year are deductible in the year of accrual if (i) the board of directors authorizes the contribution during the tax year and (ii) the accrual-basis corporation pays the accrued amount by the fifteenth day of the third month (generally 2½ months) following the end of the tax year.

Any amount in excess of the "10% limitation" may be carried forward for five years.

In this question, the corporation has: (i) an $8,000 unexpired charitable contribution carryover from the previous year, (ii) -0- charitable contributions paid during the current year, and (iii) a $15,000 contribution which the board of directors authorized by the end of the year and which the corporation paid by the fifteenth day of the third month following the end of the tax year. Hence, the deduction before application of the "10% limit" is $23,000: $8,000 + 0 + $15,000. However, the taxable income before the five deductions listed above is $200,000. So, the deduction is limited to $20,000: the lesser of (i) the $23,000 amount before application of the "10% limit" or (ii) $20,000 which is 10% of the $200,000 taxable income before the five deductions listed above.


15.Nichol Corp. gave gifts to 15 individuals who were customers of the business. The gifts were not in the nature of advertising. The market values of the gifts were as follows:

5 gifts @ $15 each9 gifts @ $30 each1 gift @ $100

What amount is deductible as business gifts?

a. $0b. $75c. $325d. $445

Solution:Choice "c" is correct. Business gifts are deductible up to a maximum deduction of $25 per recipient per year.

Computation:

5 x lesser of (i) $15 value of each gift or (ii) $25 maximum per recipient per year$ 75

9 x lesser of (i) $30 value of each gift or (ii) $25 maximum per recipient per year$225

1 x lesser of (i) $100 value of the gift or (ii) $25 maximum per recipient per year$ 25

Amount deductible for business gifts $325Choices "a", "b", and "d" are incorrect per the above rule and per the above computations.

16.In the current year, Fitz, a single taxpayer, sustained a $48,000 loss on Code Sec. 1244 stock in JJJ Corp., a qualifying small business corporation, and a $20,000 loss on Code Sec. 1244 stock in MMM Corp., another qualifying small business corporation. What is the maximum amount of loss that Fitz can deduct for the current year?

a. $50,000 capital loss. b. $68,000 capital loss.c. $18,000 ordinary loss and $50,000 capital loss. d. $50,000 ordinary loss and $18,000 capital loss.

Solution:Choice "d" is correct. The stock in each corporation is a capital asset. The general rule is that a loss on the sale or exchange of a capital asset will be a capital loss (either a short-term capital loss or a long-term capital loss – depending upon the holding period). However, a special rule applies to “section 1244 small business stock): when a corporation’s stock is sold or becomes worthless, an original stockholder can be treated as having an ordinary loss (fully deductible), instead of a capital loss, up to $50,000 ($100,000 if married filing jointly) for the year. Any loss(es) in excess of this amount is (are) a capital loss.

In this question the taxpayer, who is not married, during the year has $68,000 of losses from the sale of section 1244 small business stock. As such, the taxpayer will treat as an ordinary loss $50,000 of the total loss; the taxpayer will treat as a capital loss the remaining $18,000 of the total loss.

Choices “a”, “b”, and “c” are incorrect per the above rule.

17.A sole proprietorship incorporated on January 1 and elected S corporation status. The owner contributed the following assets to the S corporation:

Basis Fair market valueMachinery $7,000 $8,000Building 11,000 100,000Cash 1,000 1,000Two years later, the corporation sold the machinery for $4,000 and the building for $110,000. The machinery had accumulated depreciation of $2,000, and the building had accumulated depreciation of$1,000. What is the built-in gain recognized on the sale?

a. $100,000b. $99,000c. $6,000d. $0

Solution:Choice "d" is correct. An S corporation is subject to the "built-in gains" tax (as well as the "LIFO Recapture" tax and the "Passive Investment Income" tax) only if the S corporation had previously been a C corporation. In this question, the corporation elected "S" status on the day or incorporation; hence, the corporation was never a C corporation. So, the "built-in gains" tax doesn't apply to the facts presented.

Choices "a", "b", and "c" are incorrect per the above rule.

18.Which of the following items must be separately stated on Form 1120S, U.S. Income Tax Return for an S Corporation, Schedule K-1?

a. Mark-to-market income. b. Unearned revenue.c. Section 1245 Gain.d. Gain or loss from the sale of collectibles.

Solution:Choice "d" is correct. Gain or loss from the S corporation's sale of collectibles is separately reported on the Schedule K-1 of IRS form 1120S.

Choice "a" is incorrect. The S corporation's mark-to-market income is part of "ordinary business income (loss)," which is separately stated on the Schedule K-1 of IRS form 1120S. However, the various components of "ordinary business income," such as mark-to-market income, are not separately stated on the K-1 of IRS form 1120S.

Choice "b" is incorrect. The S corporation's unearned revenue is not separately stated but is a component of "ordinary business income" or "net rental real estate income (loss)" or "other net rental income (loss)," each of which is separately stated

on the Schedule K-1 of IRS form 1120S. However, the various components (such as unearned revenue) of "ordinary business income," "net rental real estate income (loss)," and "other net rental income (loss)" are not separately stated on the K-1 of IRS form1120S.

Choice "c" is incorrect. The S corporation's section 1245 gain (and section 1250 gain) is not separately stated but is a component of "ordinary business income" or "net rental real estate income (loss)" or "other net rental income (loss)," each of which is separately stated on the Schedule K-1 of IRS form 1120S. However, the various components (such as section 1245 gain) of "ordinary business income," "net rental real estate income (loss)," and "other net rental income (loss)" are not separately stated on the K-1 of IRS form 1120S.

19.For which of the following entities is the owner's basis increased by the owner's share of profits and decreased by the owner's share of losses but is not affected by the entity's bank loan increases or decreases?

a. S corporation. b. C corporation. c. Partnership.d. Limited liability company.

Solution:Choice "a" is correct. The owner's basis in an S Corporation is increased by the owner's share of profits and decreased by the owner's share of losses. It is not affected by any bank loans increased or decreased by the corporation. It is only increased by direct loans made to the corporation by the owner.

Choice "b" is incorrect. C Corporations are not flow through entities and the owner's basis is not affected by profits, losses, or loans made by the corporation.

Choice "c" is incorrect. The owner's basis in a partnership is increased by the owner's share of profits and decreased by the owner's share of losses. For a partnership, the basis is also affected by increases and decreases of bank loans.

Choice "d" is incorrect. Limited Liability Companies are taxed as C corporations or partnerships, which are both incorrect as per above.

20.Turner, Reed, and Sumner are equal partners in TRS partnership. Turner contributed land with an adjusted basis of $20,000 and a fair market value (FMV) of $50,000. Reed contributed equipment with an adjusted basis of $40,000 and an FMV of

$50,000. Sumner provided services worth $50,000. What amount of income is recognized as a result of the transfers?

a. $50,000b. $60,000c. $90,000d. $150,000

Solution:Choice "a" is correct. Generally, no gain or loss is recognized on a contribution of property to a partnership in return for a partnership interest (note: when contributed property is subject to a liability, if the decrease in the contributing partner's individual basis exceeds the partner's partnership basis, the excess amount is treated like taxable boot and is a gain to that partner). So, given the facts in this question, Turner and Reed will recognize no income or gain.

On the other hand, the value of a partnership acquired for services is ordinary income to the partner rendering those services. So, Summer must recognize $50,000 of ordinary income on account of Summer's rendering to the partnership $50,000 worth of services in exchange for a partnership interest.


21.While preparing a partnership tax return, the accountant discovered that ABC Partnership distributed property to Anne, a partner, in a nonliquidating transfer. No money was distributed to Anne during the year, the property was in the partnership for over five years, and no debt was attached to the property. Anne had a basis in her partnership interest of $10,000. The partnership had an adjusted basis of$20,000 in the property distributed to Anne. Which of the following are the tax consequences to Anne?

a. $0 gain, basis in the partnership is reduced to $0, and basis in the property received is $10,000. b. $0 gain, basis in the partnership is reduced to $0, and basis in the property received is $20,000.c. $10,000 gain, basis in the partnership is reduced to $0, and basis in the property received is $20,000. d. $10,000 gain, basis in the partnership is unchanged, and basis in the property received is $20,000.

Solution:Choice "a" is correct. General rules:

1. A nonliquidating distribution to a partner is nontaxable.

2. In nonliquidating distribution to a partner, the basis of property received will be the same as the basis in the hands of the partnership immediately prior to the nonliquidating distribution.

3. Distributions to a partner reduce the partner's basis by the cash the partner receives and by the partnership's adjusted basis in property which the partner receives.

Exception to the general rule (the exception does not apply to the facts set forth in the question): Gain is recognized only to the extent that cash (including the partner's share of partnership liabilities are assumed by other partners) distributed exceeds the adjusted basis of the partner's interest in the partnership immediately before the distribution.

In this question, the partner received no cash, and the partner's share of partnership liabilities did not change. So, the partner will recognize no gain with respect to the distribution. Although the partnership's adjusted basis in the distributed property was $20,000, because the partner's basis in the partner's partnership interest was only $10,000, the adjusted basis of the property which the partner received will be limited to $10,000. The new basis in the partnership interest will be reduced from $10,000 to -0-.


22.Able and Baker are equal members in Apple, an LLC. Apple has elected not to be treated as a corporation. Able contributes $7,000 cash and Baker contributes a machine with a basis of $5,000 and a fair market value of $10,000, subject to a liability of $3,000. What is Apple's basis for the machine?

a. $2,000b. $5,000c. $8,000d. $10,000

Solution:Choice "b" is correct. This LLC has elected not to be treated as a corporation. Therefore, the rules for partnerships will apply. The general rule is that the partnership's basis in the contributed property is the carryover basis of the contributor. So the $5,000 basis to Baker becomes the carryover $5,000 basis to Apple.


23.The answer to each of the following questions would be irrelevant in determining whether a tuition payment made on behalf of another individual is excludible for gift tax purposes, except:

a. Was the tuition payment made for a part-time student?b. Was the qualifying educational organization located in a foreign country?c. Was the tuition payment made directly to the educational organization?d. Was the tuition payment made for a family member?

Solution:Choice "c" is correct. This question asks the reader to identify the listed question whose answer is relevant. The answer to each of listed questions "a", "b", and "d" is irrelevant. Only the answer to listed question "c" is relevant. Tuition payments made directly to a qualifying foreign or domestic educational organization qualify for an unlimited exclusion from the gift tax. The payments can be for the benefit of any student (not just the donor's family members), and the student can be enrolled either full-time or part- time (per the next to the last sentence of U.S. Treasury Regulation section 25.2503-6(b)(2)).

24.Which of the following is not considered a primary authoritative source when conducting tax research?

a. Internal Revenue Code. b. Tax Court cases.c. IRS publications.d. Treasury regulations.

Solution:Choice "c" is correct. IRS publications are not considered a primary authoritative source when one is conducting tax research

Choices "a", "b", and "d" are incorrect. The Internal Revenue Code, tax court cases, and Treasury regulations, respectively, are considered primary authoritative sources when one is conducting tax research; hence they are incorrect choices (the question asks which item is not considered a primary authoritative source).

25.Under Treasury Circular 230, which of the following actions of a CPA tax advisor is characteristic of a best practice in rendering tax advice?

a. Requesting written evidence from a client that the fee proposal for tax advice has been approved by the board of directors.b. Recommending to the client that the advisor's tax advice be made orally instead of in a written memorandum.c. Establishing relevant facts, evaluating the reasonableness of assumptions and representations, and arriving at a conclusion supported by the law and facts in a tax memorandum.d. Requiring the client to supply a written representation, signed under penalties of perjury, concerning the facts and statements provided to the CPA for preparing a tax memorandum.

Solution:Choice "c" is correct. Characteristic of a best practice in rendering tax advice is establishing in a tax memorandum relevant facts, evaluating the reasonableness of assumptions and representations, and arriving at a conclusion supported by the law and facts.

Choice "a" is incorrect. Circular 230's "Best Practices" do not include the tax advisor's requesting written evidence from a client that the fee proposal for tax advice has been approved by the board of directors.

Choice "b" is incorrect. Circular 230's "Best Practices" do not include the tax advisor's recommending to the client that the advisor's tax advice be made orally instead of in a written memorandum.

Choice "d" is incorrect. Circular 230's "Best Practices" do not include the tax advisor's requiring the client to supply a written representation, signed under penalties of perjury, concerning the facts and statements provided to the CPA for preparing a tax memorandum.

26.A CPA prepared a tax return for a client who will receive a refund check. The client is traveling abroad and asked the CPA to pick up the check at the client's home address. Under Treasury Circular 230, any of the following actions, if taken by the CPA relating to the refund check, would be a violation of the rules of practice before the Internal Revenue Service, except:

a. Endorsing the check and depositing it into the client's bank account. b. Holding the check for safe keeping and awaiting the client's return.c. Holding the check until the client is billed, then endorsing and depositing the check into the CPA's account as payment for the bill.d. Endorsing the check and depositing it into an escrow account for the client's benefit.

Solution:Choice "b" is correct. Circular 230 does not prohibit a practitioner's holding the check for safe keeping and awaiting the client's return.

Choice "a" is incorrect. Circular 230 prohibits a practitioner's endorsing the check. So, endorsing the check and depositing it into the client's bank account is a violation of Circular 230.

Choice "c" is incorrect. Circular 230 prohibits a practitioner's endorsing the check. So, holding the check until the client is billed, then endorsing and depositing the check into the CPA's account as payment for the bill is a violation of Circular 230.

Choice "d" is incorrect. Circular 230 prohibits a practitioner's endorsing the check. So, endorsing the check and depositing it into an escrow account for the client's benefit is a violation of Circular 230.

27.In which of the following circumstances does the three-year statute of limitations on additional tax assessments apply?

a. A taxpayer willfully attempts to evade tax in filing income tax returns.b. A taxpayer inadvertently omits from gross income an amount in excess of 25% of the gross income stated on the income tax return.c. A taxpayer inadvertently overstates deductions equal to 15% of gross income.d. The IRS files a substitute income tax return when it learns that a taxpayer failed to file a return.

Solution:Choice "c" is correct. With respect to a timely filed return, the general rule is that the IRS can assess additional tax within three years from the later of the return's due date (plus extensions, if any) or the date the return was filed. A taxpayer's inadvertently overstating deductions in an amount equal to 15% ofgross income will not trigger any of the exceptions to the general rule.

Choice "a" is incorrect. There is no statute of limitations when a taxpayer willfully attempts to evade tax in filing income tax returns.

Choice "b" is incorrect. A six year statute of limitations applies when a taxpayer omits from gross income an amount in excess of 25% of the gross income stated on the income tax return. For purposes of the "six year" statute, gross income is not reduced by cost of goods sold.

Choice "d" is incorrect. There is no statute of limitations when the IRS files (actually, "executes") a substitute income tax return when the IRS learns that a taxpayer failed to file a return.

28.Tax return preparers can be subject to penalties under the Internal Revenue Code for failure to do any of the following, except:

a. Sign a tax return as a preparer. b. Disclose a conflict of interest.c. Provide a client with a copy of the tax return. d. Keep a record of returns prepared.

Solution:Choice "b" is correct. With respect to a tax return preparer's failure to disclose a conflict of interest, theInternal Revenue Code does not set forth any penalty.

Choice "a." is incorrect. With respect to a tax return preparer's failure to sign a tax return as a preparer, the Internal Revenue Code sets forth a penalty of $50 for each failure (maximum $25,000 per calendar year).

Choice "c." is incorrect. With respect to a tax return preparer's failure to provide a client with a copy of the tax return, the Internal Revenue Code sets forth a penalty of $50 for each failure (maximum $25,000 per calendar year).

Choice "d" is incorrect. With respect to a tax return preparer's failure to keep a record of returns prepared, the Internal Revenue Code sets forth a penalty of $50 for each failure (maximum $25,000 per calendar year).

29.A CPA assists a taxpayer in tax planning regarding a transaction that meets the definition of a tax shelter as defined in the Internal Revenue Code. Under the AICPA Statements on Standards for Tax Services, the CPA should inform the taxpayer of the penalty risks unless the transaction, at the minimum, meets which of the following standards for being sustained if challenged?

a. More likely than not. b. Not frivolous.c. Realistic possibility.d. Substantial authority.

Solution:

Choice "a" is correct. The CPA should inform the taxpayer of the penalty risks with respect to the tax effects (tax return position) of a transaction unless the transaction, at the minimum, meets the more- likely-than-not standard.

Choices "b", "c", and "d" are incorrect.

Reason: "Not frivolous," "realistic possibility," and "substantial authority" are lesser standards than the more-likely-than-not standard. So, if the transaction meets only one of these lesser standards, the CPA must inform the taxpayer of the penalty risks with respect to the tax effects (tax return position) of a transaction.

30.Which Senate committee considers new tax legislation?

a. Budget. b. Finance.c. Appropriations.d. Rules and Administration.

Solution:Choice "b" is correct. Most tax legislation begins in the House Ways and Means Committee of the U.S. House of Representatives. Tax legislation goes from the U.S. House of Representatives to the U.S. Senate Finance Committee.

Choices "a", "c", and "d" are incorrect per the above rule.

31.An IRS agent has just completed an examination of a corporation and issued a "no change" report. Which of the following statements about that situation is correct?

a. The taxpayer may not amend the tax return for that taxable year.b. The IRS generally does not reopen the examination except in cases involving fraud or other similar misrepresentation.c. The IRS may not reopen the examination.d. The IRS may not examine any other tax return of the corporation for a period of one year.

Solution:Choice "b" is correct. The IRS generally does not reopen the examination except in cases involving fraud or other similar misrepresentation.

Choice "a" is incorrect. The taxpayer may timely amend the tax return for that taxable year.

Choice "c" is incorrect. The IRS generally may not reopen the examination except in cases involving fraud or other similar misrepresentation.

Choice "d" is incorrect. The IRS may examine any other tax return of the corporation for that same year.

32.Under the Sales Article of the UCC, which of the following requirements must be met for a writing to be an enforceable contract for the sale of goods?

a. The writing must contain a term specifying the price of the goods.b. The writing must contain a term specifying the quantity of the goods. c. The writing must contain the signatures of all parties to the writing.d. The writing must contain the signature of the party seeking to enforce the writing.

Solution:Choice "b" is correct. Under the Sales Article, if parties' contracts are incomplete, the Article has many gap filling provisions through which the contract may be completed. However, the courts will not enforce a contract that does not state the quantity of the goods bought and sold, either specifically or in terms of output of the seller or requirements of the buyer.

Choice "a" is incorrect. If the price term is missing from a contract, the Sales Article provides that the price shall be a reasonable one.

Choice "c" is incorrect. Generally, a contract for the sale of goods need not be in writing to be enforceable, so no signature is required. If the contract is for the sale of goods for $500 or more (i.e., it is within the Statute of Frauds), the contract is unenforceable unless its material terms are evidenced by a writing signed by the party "to be charged" (i.e., the party being sued).

Choice "d" is incorrect. As explained above, generally a writing and signature are not required at all. And even if the contract is within the Statute of Frauds, the signature needed is the partying being sued, not the party seeking to enforce the contract.

33.When do title and risk of loss for conforming goods pass to the buyer under a shipment contract covered by the Sales Article of the UCC?

a. When the goods are identified and designated for shipment. b. When the goods are given to a common carrier.c. When the goods arrive at their destination.d. When the goods are tendered to the buyer at their destination.

Solution:Choice "b" is correct. In a shipment contract, risk of loss and title pass to the buyer when the goods are placed in the hands of the carrier.

Choice "a" is incorrect. At identification, the buyer gains some rights in the goods (e.g., an insurable interest), but title and risk of loss do not pass at that time.

Choices "c" and "d" are incorrect. Risk of loss and title pass to the buyer when the goods reach their destination and are tendered only in a destination contract. The question here asks about a shipment contract, which is governed by a different rule.

34.Ashley needs to endorse a check that had been endorsed by two other individuals prior to Ashley'sreceipt of the check. Ashley does not want to have surety liability, so Ashley endorses the check "without recourse." Under the Negotiable Instruments Article of the UCC, which of the following types of endorsement did Ashley make?

a. Blank.b. Special.c. Qualified.d. Restrictive.

Solution:Choice "c" is correct. An endorsement that includes the words "without recourse" is called a "qualified" endorsement. When an endorser signs without recourse, the endorser does not undertake the contract liability of an endorser.

Choice "a" is incorrect. A blank endorsement is one that does not name a person to be paid. Such an endorsement makes the check bearer paper, which can be transferred simply by delivery.

Choice "b" is incorrect. A special endorsement is a check that names a new payee. It makes the check order paper. Further transfer requires delivery and the signature of the named payee.

Choice "d" is incorrect. A restrictive endorsement is one that purports to limit further transfers of the check. Such endorsements generally are not effective

except to the extent that they limit the transfer to the collection system (e.g., for deposit only).

35.Under the Secured Transactions article of the UCC, when does a security interest become enforceable?

a. A contract is executed between a debtor and a secured party under which the debtor gives the secured party rights in collateral if the debtor violates any of the terms contained in the contract.b. The debtor and the secured party execute a security agreement describing the transfer of the collateral and, after doing so, the secured party files it with the requisite agency.c. The debtor and the secured party execute a security agreement describing the transfer of collateral from seller to buyer and the secured party retains possession of the agreement.d. The value has been given, the secured party receives a security agreement describing the collateral authenticated by the debtor, and the debtor has rights in the collateral.

Solution:Choice "d" is correct. For a security interest to be enforceable, it must attach to the collateral. There are three prerequisites to attachment, and all three must be satisfied for an interest to attach: (i) the parties have to agree to create a security interest and this agreement must be evidenced by the creditor taking possession of the collateral or by a written security agreement describing the collateral and authenticated (e.g., signed) by the debtor, (ii) the secured party must have given value in exchange for the security interest, and (iii) the debtor must have rights in the collateral.

Choice "a" is incorrect. All three prerequisites are required in order for a security interest to be enforceable. A contract granting a security interest in collateral is not sufficient.

Choice "b" is incorrect. As stated above, all three prerequisites are required. This choice mentions the security agreement (one prerequisite) and filing, which is a method of perfection but is not a prerequisite to attachment.

Choice "c" is incorrect. Again, all three prerequisites are required. This choice mentions the existence of only one requirement—the security agreement. Thus, choice "d" is the better choice.

36.

Under the Secured Transactions Article of the UCC, which of the following security agreements does notneed to be in writing to be enforceable?

a. A security agreement collateralizing a debt of less than $500.b. A security agreement where the collateral is highly perishable or subject to wide price fluctuations. c. A security agreement where the collateral is in the possession of the secured party.d. A security agreement involving a purchase money security interest.

Solution:Choice "c" is correct. Attachment of a security interest requires an agreement to create the security interest evidenced by either a written security agreement describing the collateral and authenticated (e.g., signed) by the debtor or by the debtor's taking possession of the collateral. When a debtor takes possession, no written security agreement is required.

Choice "a" is incorrect. In all cases, attachment of a security interest requires a written security agreement or the debtor's taking possession of the collateral. The value of the obligation being collateralized is irrelevant. The examiners are trying to trick you here with the dollar threshold for the writing requirement under the Statute of Frauds for a contract for the sale of goods.

Choices "b" and "d" are incorrect. In all cases, attachment of a security interest requires a written security agreement or the debtor's taking possession of the collateral. It does not matter that the collateral ishighly perishable, subject to price fluctuations, or subject to a purchase money security interest.

37.Under the Secured Transactions Article of the UCC, which of the following items can usually be excludedfrom a filed original financing statement?

a. The name of the debtor.b. The address of the debtor.c. A description of the collateral.d. The amount of the obligation secured.

Solution:Choice "d" is correct. A security agreement need not include the amount of the obligation secured. It must include the name and address of the debtor, a description of the collateral (by type is sufficient), and the debtor's authentication

(e.g., a signature or electronic substitute). Since choices "a", "b", and "c" all are required, they cannot be excluded and are incorrect choices.

38.Which of the following statements is correct regarding the liability of a CPA for services performed?

a. A CPA's work is not guaranteed to be accurate even though the CPA acted in a reasonably competent and professional manner.b. A CPA is negligent for exercising only that degree of care a reasonably competent CPA would exercise under the circumstances.c. A CPA's liability for negligence extends only to the client and no further.d. A CPA's liability for fraud extends only to the client and no further.

Solution:Choice "a" is correct. A CPA does not guarantee everything to be accurate—only that the work was performed in a competent and professional manner.

Choice "b" is incorrect. A CPA who exercises the degree of care that a reasonably competent CPA would exercise under the circumstances has met his or her duty of care and would not be found negligent.

Choice "c" is incorrect. In most states, a CPA's duty of care extends not only to the client, but also to all persons whom the CPA knows will be relying on the CPA's work.

Choice "d" is incorrect. A CPA's liability with regard to fraud is very broad—it extends to all persons who rely on the fraud.

39.Which of the following statements is correct regarding disclosure of client working papers prepared by aCPA?

a. Working papers may not be transferred to another accountant without the client's permission.b. Working papers may not be turned over to a CPA quality review team without the client's permission. c. Working papers may not be disclosed under a federal court subpoena without the client's permission. d. Working papers may not be disclosed to any third parties without the client's permission.

Solution:

Choice "a" is correct. As a general rule, although a CPA owns his or her working papers, because of confidentiality issues, they cannot be turned over to another accountant without the client's permission.

Choice "b" is incorrect. A CPA may turn over working papers to a CPA quality review team without the client's permission.

Choice "c" is incorrect. A CPA must turn over working papers when they are subpoenaed by a federal court, even without the client's permission.

Choice "d" is incorrect. As noted above, a CPA must turn over working papers to a court when they are subpoenaed and may turn working papers over to a CPA quality review team without the client's permission. Always be suspect of broad answer choices (e.g., those with words like always, never, any, etc.).

40.Which of the following statements is correct regarding a limited liability company's operating agreement?

a. It must be filed with a central state agency. b. It must be in writing.c. It is designed to forestall and resolve disputes among the owners. d. It is necessary for a limited liability company to exist.

Solution:Choice "c" is correct. An operating agreement is an optional agreement among members of a limited liability company (LLC) setting out the details of how the LLC will be run.

Choice "a" is incorrect. Articles of organization must be filed with the state in order to form an LLC. An operating agreement is an agreement among the members and need not be filed.

Choice "b" is incorrect. In most states, operating agreements must be in writing to be enforceable, but this is not true in some states.

Choice "d" is incorrect. As indicated above, the articles of organization are required for formation; an operating agreement is optional.

Under the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), which of the following statements is(are) correct regarding employee rights?I. Employers are required to establish either a contributory or noncontributory employee pension plan. II. Employers are required to include employees as pension-plan managers.

a. I only. b. II only.c. Both I and II.d. Neither I nor II.

ANSWER:

Choice "d" is correct. The Employment Retirement Income Security Act (ERISA) does not require employers to have retirement plans or require contributions to existing retirement plans. ERISA does not mandate that employers are required to include employees as pension-plan managers. ERISA does establish standards for funding and investing and imposes fiduciary duties on pension fund managers.

Only choice "d" reflects that employers are not required to establish a pension plan and employees do not need to be included as pension-plan managers.

The Rites are married, file a joint income tax return, and qualify to itemize their deductions in the current year. Their adjusted gross income for the year was $55,000, and during the year they paid the following taxes:

Real estate tax on personal residence $2,000Ad valorem tax on personal automobile 500Current-year state and city income taxes withheld from paycheck 1,000What total amount of the expense should the Rites claim as an itemized deduction on their current-year joint income tax return?a. $1,000b. $2,500c. $3,000d. $3,500

ANSWER:

Choice "d" is correct. In answering this question, we must assume that the examiners mean to ask, "What total amount of the tax expense should the Rites claim as an itemized deduction?" Obviously, the Rites have more deductions than just those tax deductions above, or they would tax advantage of the standard deduction. In any case, for cash-basis taxpayers, deductible taxes are generally deductible in the year paid, and real estate taxes, income taxes, and personal property taxes (e.g., ad valorem taxes on personal automobile) are allowable deductions. The total amount of deductions for tax expense is calculated as follows:

Real estate tax on personal residence $2,000Ad valorem tax on personal automobile 500

Current-year state and city income taxes withheld 1,000Total deduction for taxes $3,500Choice "a" is incorrect. Real estate taxes and personal property taxes are allowable itemized deductions.

Choice "b" is incorrect. Current-year state and city income taxes withheld from a paycheck are allowable itemized deductions.

Choice "c" is incorrect. Personal property taxes (e.g., ad valorem taxes paid) are allowable itemized deductions.

Under the Negotiable Instruments Article of the UCC, an instrument will be precluded from being negotiable if the instrument:a. Fails to state the place of payment.b. Is made subject to another agreement.c. Fails to state the underlying consideration. d. Is undated.

ANSWER:

Choice "b" is correct. Under the Negotiable Instruments Article of the UCC, an instrument is not negotiable if it states that it is "subject to" or "contingent upon" another agreement.

Choice "a" is incorrect. A negotiable instrument is not required to state the place of payment.

Choice "c" is incorrect. Consideration is not required for an instrument to be negotiable. We frequently make gifts by check. The check can be negotiable even though no consideration is given for the gift.

Choice "d" is incorrect. Failure to date an instrument will not destroy negotiability. An undated instrument is counted as being payable on demand.

Porter was unemployed for part of the year. Porter received $35,000 of wages, $4,000 from a state unemployment compensation plan, and $2,000 from his former employer's company-paid supplemental unemployment benefit plan. What is the amount of Porter's gross income?a. $35,000b. $37,000c. $39,000d. $41,000

ANSWER:

RULE: Gross income includes all income unless it is specifically excluded in the tax code.

Choice "d" is correct. Wages and all unemployment compensation are not excluded from being taxable;therefore, there are included in the taxpayer's gross income for tax purposes.

Wages received $35,000State unemployment compensation 4,000Employer's unemployment compensation plan 2,000

$41,000Choice "a" is incorrect. All forms of unemployment compensation are included as part of gross income.

Choice "b" is incorrect. The $4,000 of state unemployment compensation received is included as part of gross income.

Choice "c" is incorrect. The $2,000 of his former employer's company-paid supplemental unemployment benefit plan is included as part of gross income.

Under the ethical standards of the profession, which of the following business relationships would generally not impair an auditor's independence?a. Promoter of a client's securities.b. Member of a client's board of directors. c. Client's general counsel.d. Advisor to a client's board of trustees.

ANSWER:

Choice "d" is correct. Rule 101 of the Code of Conduct requires that members be independent in fact and appearance in audits and attestation services. Independence is impaired if an auditor is an employee of an audit client or is able to make management decisions on behalf of an audit client. An advisor of an audit client's board of directors is not an employee, nor is the advisor able to make managementdecisions for the audit client. The advisor does not make decisions, the advisor simply gives advice that the client is free to accept or reject.

Choice "a" is incorrect. A promoter of the audit client's securities has a direct relationship with the client. A promoter is a business relationship that would impair independence.

Choice "b" is incorrect. A member of the board of directors of the audit client is able to make management decisions for the client. A member of the board is a business relationship that would impair independence.

Choice "c" is incorrect. A client's general counsel is an employee. A general counsel is a business relationship that would impair independence.

Under the Securities Exchange Act of 1934, which of the following penalties could be assessed against aCPA who intentionally violated the provisions of Section 10(b), Rule 10b-5 of the Act?Civil liability of Criminal liability monetary damages of a finea. Yes Yes b. Yes No c. No Yesd. No No

ANSWER:

Choice "a" is correct. Violation of Rule 10b-5 of the Securities Exchange Act of 1934 can result in civil damages, an SEC injunctive action and or criminal fines and penalties.

Only choice "a" reflects that both civil and criminal liability can be assessed against a CPA who intentionally violates the provisions of Rule 10b-5 of the Securities Exchange Act of 1934.

All of the following statements regarding compliance with the statute of frauds are correct, except:a. Any necessary writing must be signed by all parties against whom enforcement is sought. b. Contracts involving the sale of goods in an amount greater than $500 must be in writing. c. Contract terms must be contained in only one document.d. Contracts for which it is improbable to assume that performance will be completed within one year must be in writing.

ANSWER:

Choice "c" is correct. Under the Statute of Frauds, there is no requirement that the terms be stated in a single document. Terms can be stated in more than one document.

Choice "a" is incorrect. The Statute of Frauds does require that the party or parties against whom enforcement is sought sign certain specified contracts.

Choice "b" is incorrect. Contracts for the sale of goods for $500 or more are one of the specified contracts requiring some kind of writing under the Statute of Frauds.

Choice "d" is incorrect. Contracts which by there terms can not be performed within a year are one of the specified contracts requiring some kind of writing under the Statute of Frauds.

ParentCo, SubOne, and SubTwo have filed consolidated returns since their inception. The members reported the following taxable incomes (losses) for the year.

ParentCo $50,000SubOne ($60,000)SubTwo ($40,000)No member reported a capital gain or loss or charitable contributions. What is the amount of the consolidated net operating loss?a. $0b. $30,000c. $50,000d. $100,000

ANSWER:

Choice "c" is correct. Net capital losses are not allowable deductions for corporations. A corporation can only use capital losses to offset capital gains. Further, the deduction for charitable contributions may be limited in some cases, and no charitable contribution deduction is allowed in calculating the NOL. The facts of this question indicate that there are no reported capital gains or losses or charitable contributions for any of the consolidated entities; therefore, we know that we are able to use the total income (loss) identified in the facts to calculate the net operating loss. When entities file consolidated income tax returns, 100% if their net income (losses) is consolidated. The facts do not indicate that any inter- company transactions exist; therefore, there are no elimination entries to make before consolidating the net income (loss). The consolidated net operating loss is calculated as follows:

Parent Co. $ 50,000

Sub One (60,000) Sub Two (40,000) NOL $(50,000)Choice "a" is incorrect. A consolidated net loss of $50,000 exists, as calculated above. Choice "b" is incorrect. A consolidated net loss of $50,000 exists, as calculated above.

Choice "d" is incorrect. The income from Parent Co. ($50,000) is netted with the losses from the subsidiaries ($100,000) to arrive at the consolidated net operating loss of $50,000.

Which of the following types of mistake will generally make a contract unenforceable and allow it to be rescinded?a. A unilateral mistake of fact. b. A mutual mistake of fact.c. A unilateral mistake of value. d. A mutual mistake of value.

ANSWER:

Choice "b" is correct. A mutual mistake of a material fact is unenforceable. The adversely affected party can rescind the contract.

Choice "a" is incorrect. Generally, a unilateral mistake of fact does not make the contract unenforceable. The mistaken party can only rescind if there was a mistake of a material fact and the other party knew or should have known that a mistake was being made.

Choice "c" is incorrect. Only mistakes as to material facts can make a contract unenforceable. Mistakes as to value do not make a contract unenforceable. Thus, a unilateral mistake of value would not make a contract unenforceable.

Choice "d" is incorrect. Only mistakes as to material facts can make a contract unenforceable. Mistakes as to value do not make a contract unenforceable. Thus, a mutual mistake of value would not make a contract unenforceable.

Wallace purchased 500 shares of Kingpin, Inc., 15 years ago for $25,000. Wallace has worked as an owner/employee and owned 40% of the company throughout this time. This year, Kingpin, which is not an S corporation, redeemed 100% of Wallace's stock for $200,000. What is the treatment and amount of income or gain that Wallace should report?a. $0b. $175,000 long-term capital gain. c. $175,000 ordinary income.d. $200,000 long-term capital gain.

ANSWER:

Choice "b" is correct. An investment in a capital asset (e.g., stock) results in the income being capital (either a capital loss or a capital gain). Ownership percentage is not a factor in the calculation, and, in this question, nor is the fact that the corporation is not an S corporation. The calculation is simple: Wallace invested

$25,000 in the stock and received $200,000 for 100% of his investment 15 years later. The capital gain is $175,000 ($200,000 - $25,000), and it is considered long-term because the stock was held for greater than one year.

Choice "a" is incorrect. There is $175,000 of gain on the transaction ($200,000 - $25,000). This type of transaction is not a transaction that is excluded from tax in the tax code.

Choice "c" is incorrect. An investment in a capital asset (e.g., stock) results in the income being capital (either a capital loss or a capital gain). Although the calculation of the income is correct (i.e., $175,000), ordinary income is not the proper treatment for this transaction.

Choice "d" is incorrect. Although this transaction does result in a long-term capital gain, Wallace has basis in the stock ($25,000), and the gain is calculated as the proceeds from the sale ($200,000) less the basis in the stock.

Carter purchased 100 shares of stock for $50 per share. Ten years later, Carter died on February 1 and bequeathed the 100 shares of stock to a relative, Boone, when the stock had a market price of $100 per share. One year later, on April 1, the stock split 2 for 1. Boone gave 100 shares of the stock to another of Carter's relatives, Dixon, on June 1 that same year, when the market value of the stock was $150 per share. What was Dixon's basis in the 100 shares of stock when acquired on June 1?a. $5,000b. $5,100c. $10,000d. $15,000

ANSWER:

Choice "a" is correct. This question combines the rules of estate taxation and gift taxation. Carter's investment in the stock was $50 per share when he died. Upon Carter's death, the stock received a step- up in basis to the fair market value at the date of death (or six months later, if the alternate lower valuation data was elected). Therefore, the stock's basis was $100 per share when it was transferred to Boone. [Note that no capital gain was reportable for the step-up in basis from $50 to $100; however, Carter's estate included the stock at its fair market value of $100/share for estate tax purposes and likely paid a large amount of estate tax on that.] Further, regardless of how long Carter owned the stock (i.e., it could have only been owned for one day), it was automatically deemed long-term property upon Carter's death. So, Boone had 100 shares of stock at a basis of $100/share when Boone received the inheritance. Then, there was a 2-for-1 stock split on April 1 of the following year. This transaction caused Boone to nowhave double the amount of shares (or, 200 shares) at half the basis per share (or, $50/share). [Note that the total basis remains unchanged (i.e., $100 x 100 shares =

$10,000 and $50 x 200 shares = $10,000).] When Boone gifted the stock to Dixon (note: it would not have mattered if Dixon had not been a relative), the donee (Dixon) received the stock at the carryover basis of the donor (Boone). The 100 shares gifted to Dixon were shares from after the stock split; therefore, they have a basis of $50 per share, or a total basis of $5,000 for the 100 shares. [Note that Boone still has 100 shares at a basis of $50 as well.]

Choice "b" is incorrect, per the above discussion. Choice "c" is incorrect, per the above discussion. Choice "d" is incorrect, per the above discussion.

Which of the following sales should be reported as a capital gain?a. Sale of equipment.b. Real property subdivided and sold by a dealer. c. Sale of inventory.d. Government bonds sold by an individual investor.

ANSWER:

Choice "d" is correct. Government bonds held by an individual investor are considered capital assets in the hands of the investor. When these types of security investments are sold, the resulting gain or loss is reported as capital.

Choice "a" is incorrect. In this case, we must assume that the BEST answer is option "d" (as that option would ALWAYS result in capital gain or loss treatment) and that the examiners are assuming that the equipment is depreciable equipment that has been used in a business for over one year. [If the equipment had been considered a personal asset by the examiners and had sold for a gain, it would also be a capital asset that sold for a capital gain, and there would be two correct answers. Remember that the correct answer is the option that best answers the question.] Depreciable equipment used in a business and held for over one year falls under the category of Section 1245 property. When Section1245 assets are sold at a gain, all the accumulated depreciation on the asset is recaptured as ordinary income (the same category as the depreciation expense was deducted against), and any remaining gain (typically, in practice, this is not the case, though, as the asset would have had to sell for an amountgreater than its purchase price) is capital gain under Code Section 1231. [Note that Section 1245 appliesonly to gains. If the asset had sold for a loss, the loss would have been ordinary under Section 1231.]

Choice "b" is incorrect. Real property sold by a dealer is considered inventory and results in ordinary income or ordinary losses upon sale. Inventory is not a capital asset and is not afforded the capital gain benefits.

Choice "c" is incorrect. Inventory is not a capital asset and is not afforded the capital gain benefits. The sale of inventory results in ordinary income or loss (e.g.,

gross profit on sales) being reported on the tax return, as inventory is an asset held for sale in the ordinary course of business.

A partnership had four partners. Each partner contributed $100,000 cash. The partnership reported income for the year of $80,000 and distributed $10,000 to each partner. What was each partner's basis in the partnership at the end of the current year?a. $170,000b. $120,000c. $117,500d. $110,000

ANSWER:

RULE: The basis in a partnership is increased by investment, pro-rata share of income, and liabilities for which the partner is personally liable. The basis of a partnership is decreased by distributions, pro-rata share of losses, and liabilities for which the partner is personally relieved of.

Choice "d" is correct. Per the above RULE, each partner's basis in the partnership is $110,000 at the end of the current year, calculated as follows:

Contributions $100,000

Pro-rata income allocation 20,000 [$80,000 / 4 partners] Distributions received ( 10,000)Basis at year-end $110,000

Choice "a" is incorrect. The partnership reported income of $80,000, and this amount must be allocated pro-rata to each partner. The mistake made here is that the entire $80,000 was included for each partner as an increase in basis when it should only have been ¼ of that amount (or $20,000). Applying all other facts correctly, this answer was calculated as $100,000 + $80,000 - $10,000 = $170,000.

Choice "b" is incorrect. The distribution of $10,000 must be deducted from the basis of each partner. Applying all other facts correctly, this answer was calculated as $100,000 + $20,000 = $120,000.

Choice "c" is incorrect. Each partner received a distribution of $10,000. Therefore, the total distributions for the partnership were $40,000. The mistake made here was that the $10,000 distribution was incorrectly assumed to be the total distribution made by the partnership. $10,000 divided by 4 = $2,500. Applying all the other facts correctly, this answer was calculated as $100,000 + $20,000 - $2,500 =$117,500.

An accounting firm was hired by a company to perform an audit. The company needed the audit report in order to obtain a loan from a bank. The bank lent $500,000 to the company based on the auditor's report. Fifteen months later, the company declared bankruptcy and was unable to repay the loan. The bank discovered that the accounting firm failed to discover a material overstatement of assets of the company. Which of the following statements is correct regarding a suit by the bank against the accounting firm?The bank:a. Cannot sue the accounting firm because of the statute of limitations.b. Can sue the accounting firm for the loss of the loan because of negligence. c. Cannot sue the accounting firm because there was no privity of contact.d. Can sue the accounting firm for the loss of the loan because of the rule of privilege.

ANSWER:

Choice "b" is correct. The bank can certainly sue the accountant for negligence. Whether the bank would be successful or not is another question. The accounting firm may be able to raise the "privity defense." Under this defense, the accounting firm is only liable to clients and to those the accounting firm hasreason to know will rely on their work. Whether or not the privity defense is successful, the bank can obviously sue the accounting firm for negligence. The privity defense does not preclude the lawsuit. The defense determines whether or not the lawsuit will be successful.

Choice "a" is incorrect. The statute of limitations requires that a lawsuit be brought within a specified period of time. Although states vary as to the time in which lawsuits must be commenced, no state would preclude a lawsuit brought within fifteen months.

Choice "c" is incorrect. Lack of privity would not preclude the lawsuit. However, the privity defense might preclude the lawsuit from being successful. Additionally, although the accounting firm only has privity of contract with the client, the firm owes a duty of care to parties the firm has reason to know will rely ontheir work. Although not clear from the facts, it is likely that the bank can show the accountant had reason to know it would rely on the accountant's work.

Choice "d" is incorrect. There is no rule of privilege in the law concerning lawsuits between accountants and banks.

In evaluating the hierarchy of authority in tax law, which of the following carries the greatest authoritative value for tax planning of transactions?

a. Internal Revenue Code. b. IRS regulations.c. Tax court decisions. d. IRS agents' reports.

ANSWER:

Note: This question is not specifically addressed in your text materials, as the topic has yet to show up on the exam as far as we are aware, and if it ever did, we are confident that our students would be able to respond correctly over 85% of the time without any guidance. The answer is rather obvious. Just by looking at the answer options, you will immediately notice that Option A is presented in title case. This would be a quick sign that it may be the correct response. Further, we suspect that most students would narrow the options down to "a" or "b" by simply using common sense. While we are confident that our students would fare well on this question if it appeared on their exams, we present the following detailed explanation of the answer options.

Choice "a" is correct. According to the IRS's website under Tax Code, Regulations and Official Guidance, the "federal tax law begins with the Internal Revenue Code (IRC), [which was] enacted by Congress in Title 26 of the United States Code (26 U.S.C.)." The IRC holds the most authoritative value.

Choice "b" is incorrect. According to the IRS's website under Tax Code, Regulations and Official Guidance, the IRS regulations or "Treasury regulations (26 C.F.R.)—commonly referred to as Federal tax regulations—pick up where the Internal Revenue Code (IRC) leaves off by providing the official interpretation of the IRC by the U.S. Department of Treasury." Regulations give directions on how to apply the law outlined in the Internal Revenue Code. Regulations have the second most force and effect, second only to the IRC.

Choice "c" is incorrect. Tax court decisions interpret the Internal Revenue Code. They do not have the authority of the IRC.

Choice "d" is incorrect. The reports of IRS agents are used to report on specific taxpayer situations. IRS agents' reports apply the Internal Revenue Code, IRS regulations, and other forms of authoritative literature, but they do not hold the value that the IRC, the IRS regulations, or even tax court decisions have.

Which of the following items should be included on the Schedule M-1, Reconciliation of Income (Loss) per Books With Income per Return, of Form 1120, U.S. Corporation Income Tax Return to reconcile book income to taxable income?a. Cash distributions to shareholders.b. Premiums paid on key-person life insurance policy. c. Corporate bond interest.d. Ending balance of retained earnings.

ANSWER:

Choice "b" is correct. The Schedule M-1 reports the reconciliation of income (loss) per books to income (loss) per the tax return. [Note: It reports both permanent and temporary differences that are discussed in the Financial textbook for deferred taxes.]. Items that are included on this schedule are those that are (1) reported as income for book purposes but not for tax purposes; (2) reported as an expense for book purposes but not for tax purposes; (3) reported as taxable income for tax purposes but not as income for book purposes; and (4) reported as deductible for tax purposes but not as an expense for book purposes. The only option above that falls into one of these four categories is option b. Premiums paid on a key- person life insurance policy are proper GAAP expenses for book purposes, but they are not allowable deductions for tax purposes.

Choice "a" is incorrect. Cash distributions to shareholders are not reported on the income statement for book purposes and are not deductible as an expense for tax purposes. They do not enter into the calculation of income in either case and are not reported on the Schedule M-1. Cash distributions actually are reported on Schedule M-2, which is a reconciliation of unappropriated retained earnings.

Choice "c" is incorrect. Corporate bond interest is not reported differently for GAAP and Tax purposes. It is included as income for GAAP purposes and for tax purposes. Therefore, no reconciliation of book income to taxable income is required for this item.

Choice "d" is incorrect. The ending balance of retained earnings is not reported on a GAAP income statement, nor is it included as part of taxable income. Therefore, it is not part of the Schedule M-1. Unappropriated retained earnings are reconciled on Schedule M-2 of the Form 1120.

In which of the following situations may taxpayers file as married filing jointly?a. Taxpayers who were married but lived apart during the year.b. Taxpayers who were married but lived under a legal separation agreement at the end of the year. c. Taxpayers who were divorced during the year.d. Taxpayers who were legally separated but lived together for the entire year.

ANSWER:

RULE: In order to file a joint return, the parties must be MARRIED at the end of the year. Exception: If the parties are married but are LEGALLY SEPARATED under the laws of the state in which they reside, they cannot file a joint return (they will file either under the single or head of household filing status).

Choice "a" is correct. Per the above rule, taxpayers who are married but lived apart during the year are allowed to file a joint return for the year. The fact that they did not live together during the year has no bearing on the issue.

Choice "b" is incorrect. Per the above rule, taxpayers who are married but lived under a legal separation agreement at the end of the year may not file a joint return. They will generally file either under the single or head of household filing status.

Choice "c" is incorrect. Per the above rule, taxpayers who were divorced during the year may not file a joint return together, as they are not married at the end of the year. [Note, however, that they may become married again in the year and file a joint return with the new spouse.]

Choice "d" is incorrect. Per the above rule, taxpayers who were legally separated but lived together for the entire year may not file a joint return. They will generally file either under the single or head of household filing status.

Which one of the following will result in an accruable expense for an accrual-basis taxpayer?a. An invoice dated prior to year end but the repair completed after year end. b. A repair completed prior to year end but not invoiced.c. A repair completed prior to year end and paid upon completion.d. A signed contract for repair work to be done and the work is to be completed at a later date.

ANSWER:

RULE: An accruable expense is one is which the services have been received/performed but have not been paid for by the end of the reporting period.

Choice "b" is correct. The facts indicate that a repair was completed prior to year end but not yet invoiced. If it has not yet been invoiced, it is assumed that it has also not yet been paid for. Therefore, this is a situation in which the repair expense would be accrued at year end. Services have been performed, but they have not been paid for, as they have not even been invoiced yet.

Choice "a" is incorrect. If the repair was completed after year end, then the expense is not accruable, as the benefit of the services hasn't been received as of year end. The fact that the repair was invoiced prior to year end does not impact the situation.

Choice "c" is incorrect. If a repair was completed and paid for prior to year end, no accrual is appropriate. On the accrual basis, the expense is taken in the year the

repair is completed and the benefit is received. In this case, the account payable was also paid in the same year, but this has no effect on the expense.

Choice "d" is incorrect. The facts indicate that the work is to be completed at a date later than year end. Therefore, the expense is not accruable at year end, as the benefit of the repair hasn't been received as of year end. It is reasonable that a signed contract for the repair work exists, but this has no effect on the accrual.

At a confidential meeting, an audit client informed a CPA about the client's illegal insider-trading actions. A year later, the CPA was subpoenaed to appear in federal court to testify in a criminal trial against the client. The CPA was asked to testify to the meeting between the CPA and the client. After receiving immunity, the CPA should do which of the following?a. Take the Fifth Amendment and not discuss the meeting.b. Site the privileged communications aspect of being a CPA. c. Discuss the entire conversation including the illegal acts.d. Discuss only the items that have a direct connection to those items the CPA worked on for the client in the past.

ANSWER:

Choice "c" is correct. A CPA can be compelled to disclose confidential client information if he is subpoenaed and the information is relevant to the court case. The CPA's information regarding illegal insider trading would be relevant in a criminal case.

Choice "a" is incorrect. The Fifth Amendment only applies to self-incriminating evidence. Here the evidence does not relate to wrongdoing by the CPA, but rather to wrongdoing by the client.

Choice "b" is incorrect. The privileged communication rule for accountants does not apply at the federal level.

Choice "d" is incorrect. Since there is no privilege communication rule in federal courts, the CPA must reveal all relevant information if subpoenaed.

Which of the following types of entities is entitled to the net operating loss deduction?a. Partnerships.b. S corporations.c. Trusts and estates.d. Not-for-profit organizations.

ANSWER:

RULE: A Net Operating Loss (NOL) exists if there is a net loss on the following tax returns:

• Form 1040, Line 41 for Individuals

• Form 1041, Line 22 for Estates and Trusts

• Form 1120, Line 28 for Taxable C Corporations

A net operating loss exists on tax returns of taxable entities.

Choice "c" is correct. Per the above rule, trusts and estates are entitled to a net operating loss deduction. Trusts and estates can be taxable entities, even though, at times, they may also have pass-through effects.

Choice "a" is incorrect. Partnerships are pass-through entities; thus, they do not pay tax at the entity level. Therefore, NOLs are not allowed at the partnership level. [Note: If the partnership has a pass- through loss, however, an NOL may exist, for example, on the personal tax return of an individual partner.]

Choice "b" is incorrect. S Corporations are pass-through entities; thus, they do not pay tax at the entity level. Therefore, NOLs are not allowed at the S Corporation level. [Note: If the S Corporation has a pass-through loss; however, an NOL may exist, for example, on the personal tax return of an individual shareholder.]

Choice "d" is incorrect. Not-for-profit organizations are not taxable entities (although they may generate some taxable income, called unrelated business taxable income); therefore, they cannot generate net operating losses.

Jans, an individual, owns 80% and 100% of the total value and voting power of A and B Corps., respectively, which in turn own the following (both value and voting power).

OwnershipProperty A Corp. B Corp.C Corp. 80% -D Corp. - 100%All companies are C corporations, except B Corp., which had elected S status since inception. Which of the following statements is correct with respect to the companies' ability to file a consolidated return?a. A, C, and D may file as a group.b. A and C may not file as a group, and B and D may not file as a group. c. A and C may file as a group, and B and D may file as a group.

d. A and C may file as a group, but B and D may not file as a group.

ANSWER:

RULE: Filing a consolidated return is a privilege afforded to affiliated groups of corporations (Code Sections 1501 and 1504(b)), and it can only be filed if all of the affiliated corporations consent to such a filing. An affiliated group has ownership through a common parent. The common parent must directly own at least 80% of the voting power of at least one of the affiliated (includible) corporations and at least80% of the value of the stock of that corporation, and the other corporations not controlled by the parent must be controlled under the 80% ownership test by an includible corporation. Not all corporations are allowed the privilege of filing a consolidated return.

Examples of those that are denied the privilege include: (1) S Corporations,(2) Foreign corporations,

(3) Most real estate investment trusts (REITs), (4) Some insurance companies, and(5) Most exempt organizations.

Choice "d" is correct. To summarize the facts in the question, the ownership percentage rules are met for all corporations. A, C, and D are all C corporations, and B Corp is an S corporation. Jans owns A and B; A owns C; and B owns D. Per the rules above, S corporations are denied the privilege of filing a consolidated return. Therefore, B Corp. cannot file a consolidated return. A and C may file a consolidated return, as Jans controls A, and A controls C in the required percentages and both are includible corporations. However, the control of D rests with B, an S corporation. Therefore, D cannot be consolidated with A or C, and because B cannot file a consolidated return (as it is an S corporation), D cannot file consolidated with B. Therefore, A and C may file as a group, but B and D may not file as a group.

Choice "a" is incorrect. Per the above rules, D cannot file as a group with A and C, as the control of Drests with B, an S corporation that is not deemed an includible corporation.

Choice "b" is incorrect. A and C may file a consolidated return, as Jans controls A, and A controls C in the required percentages and both are includible corporations. The control of D rests with B, an S corporation. Therefore, D cannot be consolidated with A or C, and because B cannot file a consolidated return (as it is an S corporation), D cannot file consolidated with B. Therefore, A and C may file as a group, but B and D may not file as a group.

Choice "c" is incorrect. A and C may file a consolidated return, as Jans controls A, and A controls C in the required percentages and both are includible corporations. The control of D rests with B, an S corporation. Therefore, D cannot be consolidated with A or C, and because B cannot file a consolidated return (as it is an S

corporation), D cannot file consolidated with B. Therefore, A and C may file as a group, but B and D may not file as a group.

In the current year, an unmarried individual with modified adjusted gross income of $25,000 paid $1,000 interest on a qualified education loan entered into on July 1. How may the individual treat the interest for income tax purposes?a. As a $500 deduction to arrive at AGI for the year.b. As a $1,000 deduction to arrive at AGI for the year. c. As a $1,000 itemized deduction.d. As a nondeductible item of personal interest.

ANSWER:

RULE: The adjustment for education loan interest (an above-the-line deduction to arrive at AGI) is limited to the amount paid or $2,500 (whichever is lower), and all qualified education loan interest is allowed as part of the adjustment. The adjustment is phased-out for single taxpayers with modified AGI between$50,000 and $65,000 (2005 tax law—the amounts are indexed annually for inflation and the 2006 amount is not available at this time).

Choice "b" is correct. Per the above rule, the $1,000 of qualified education loan interest paid in the year is reported as a deduction to arrive at AGI for the year.

Choice "a" is incorrect. The adjustment for education loan interest (an above-the-line deduction to arrive at AGI) is limited to the amount paid or $2,500 (whichever is lower), and all qualified education loan interest is allowed as part of the adjustment. Therefore, the total amount paid of $1,000 is an allowable adjustment. (The $500 limit likely refers to an older education tax law that is no longer in effect.)

Choice "c" is incorrect. Allowable education loan interest paid is deductible as an adjustment, which is an above-the-line deduction to arrive at AGI. It is not reported as the less-advantageous itemized deduction.

Choice "d" is incorrect. Allowable education loan interest paid is deductible as an adjustment, which is an above-the-line deduction to arrive at AGI. Only the disallowed portion (in this case there is no disallowed portion) is a nondeductible item of personal interest.

Page, CPA, has T Corp. and W Corp. as audit clients. T Corp. is a significant supplier of raw materials to W Corp. Page also prepares individual tax returns for Time, the owner of T Corp. and West, the owner of W Corp. When preparing West's return, Page finds information that raises going-concern issues with respect to W Corp. May Page disclose this information to Time?

a. Yes, because Page has a fiduciary relationship with Time.b. Yes, because there is no accountant-client privilege between Page and West.c. No, because the information is confidential and may not be disclosed without West's consent.d. No, because the information should only be disclosed in Page's audit report on W Corp.'s financial statements.

ANSWER:

Choice "c" is correct. Under Rule 301, a member in public practice cannot disclose its client's confidential information without permission from the client. In this case, West is an individual with his/her own confidential relationship with tax preparer Page, CPA. Information discovered during the preparation of West's individual tax return is confidential and cannot be disclosed without West's permission.

Additionally, tax preparers are prohibited from disclosure of a client's information without client permission.

Choice "a" is incorrect. Page's relationship to Time is not one of the exceptions to the confidentiality rules.

Choice "b" is incorrect. Page is a CPA subject to the Professional Rules of Conduct, Rule 301, and West is Page, CPA's client.

Choice "d" is incorrect. Page CPA should discuss the going concern with West to determine its significance to the audit of W Corp.'s financial statements and to seek permission to disclose the taxpayer's information. There is potential for a conflict of interest in doing the audit that should be considered.

Part agreed to act as Young's agent to sell Young's land. Part was instructed to disclose that Part was acting as an agent but not to disclose Young's identity. Part contracted with Rice for Rice to purchase the land. After Rice discovered Young's identity, Young refused to fulfill the contract. Who does Rice have a cause of action against?

Part Younga. Yes Yesb. Yes Noc. No Yesd. No No

ANSWER:

Choice "a" is correct. Once an undisclosed principal becomes known to the third party, the third party can elect to hold either the agent or the principal liable for breach of contract.

Choice "b" is incorrect, per the above explanation. Choice "c" is incorrect, per the above explanation. Choice "d" is incorrect, per the above explanation.

Tana's divorce decree requires Tana to make the following transfers to Tana's former spouse during the current year:

Alimony payments of $3,000. Child support of $2,000.Property division of stock with a basis of $4,000 and a fair market value of $6,500.

What is the amount of Tana's alimony deduction?

a. $3,000b. $7,000c. $9,500d. $11,500

ANSWER:

RULE: Alimony payments to a former spouse are adjustments to arrive at AGI. Child support payments are NOT alimony and are NOT deductible. Property settlements are NOT alimony and are NOT deductible.Choice "a" is correct. Only the amount of alimony ($3,000) is allowed as Tana's alimony deduction. Choice "b" is incorrect. The basis of property division of stock ($4,000) is NOT alimony and is NOTdeductible, but the $3,000 in alimony paid is deductible.

Choice "c" is incorrect. The fair market value of property division of stock ($6,500) is NOT alimony and isNOT deductible, but the $3,000 in alimony paid is deductible.

Choice "d" is incorrect. The fair market value of property division of stock ($6,500) and the child support($2,000) are NOT alimony and are NOT deductible, but the $3,000 in alimony paid is deductible.

Ball borrowed $10,000 from Link. Ball, unable to repay the debt on its due date, fraudulently induced Park to purchase a piece of worthless costume jewelry for $10,000. Ball had Park write a check for that

amount naming Link as the payee. Ball gave the check to Link in satisfaction of the debt Ball owed Link. Unaware of Ball's fraud, Link cashed the check. When Park discovered Ball's fraud, Park demanded that Link repay the $10,000. Under the Negotiable Instruments Article of the UCC, will Link be required torepay Park?a. No, because Link is a holder in due course of the check.b. No, because Link is the payee of the check and had no obligation on the check once it is cashed. c. Yes, because Link is subject to Park's defense of fraud in the inducement.d. Yes, because Link, as the payee of the check, takes it subject to all claims.

ANSWER:

Choice "a" is correct. A Holder in Due Course takes free of personal defenses. Fraudulent inducement is a personal defense. Park should have verified the worth of the jewelry before giving Ball the check. Link is a holder in due course because Link gave the transferor Ball value (the $10,000) without notice of any defenses and in good faith.

Choice "b" is incorrect. Even though the check was cashed, payees and endorser's remain secondarily liable. The drawee bank was primarily liable on the instrument. This choice is not the reason why Link is not liable on the instrument to Park.

Choice "c" is incorrect, per the above explanation in choice "a".

Choice "d" is incorrect. Link is a holder in due course and does not take subject to "all" claims. An HDCdoes take subject to real defenses.

Starr, a self-employed individual, purchased a piece of equipment for use in Starr's business. The costs associated with the acquisition of the equipment were:

Purchase price $55,000Delivery charges 725Installation fees 300Sales tax 3,400What is the depreciable basis of the equipment?a. $55,000b. $58,400c. $59,125d. $59,425

ANSWER:

Choice "d" is correct. The rules for depreciable basis in tax are generally the same as the GAAP rules for capitalizing an asset. The depreciable basis is the cost associated with the purchase of the asset and with getting the asset ready for its intended use. Further improvements are also capitalized, and thebasis is reduced for any accumulated depreciation. In this case, the cost of obtaining the equipment and getting the equipment ready for its intended use includes all the items shown above, as follows:

Purchase price $55,000Delivery charges 725Installation fees 300Sales tax 3,400Total depreciable basis $59,425Choice "a" is incorrect. The costs of delivery charges, installation, and sales tax are all part of the cost of obtaining the asset and getting the asset ready for its intended use. All of these charges are included in the depreciable basis of the equipment.

Choice "b" is incorrect. The costs of delivery charges and installation are both part of the cost of obtaining the asset and getting the asset ready for its intended use. These charges are included in the depreciable basis of the equipment.

Choice "c" is incorrect. The cost of installation is part of the cost getting the asset ready for its intended use. This charge is included in the depreciable basis of the equipment.

Which of the following securities is exempt from registration under the Securities Act of 1933?a. Municipal bonds.b. Securities sold by a discount broker.c. Pre-incorporation stock subscriptions.d. One-year notes issued to raise working capital.

ANSWER:

Choice "a" is correct. Municipal bonds are securities issued by the government and are generally exempt from registration.

Choice "b" is incorrect. Securities issued by discount brokers are required to be registered and do not fall within the exempt securities of section 3 of the 1933 Act.

Choice "c" is incorrect. Pre-incorporation stock subscriptions are required to be registered and do not fall within the exempt securities of section 3 of the 1933 Act.

Choice "d" is incorrect. One-year notes are securities that are required to be registered and do not fall within the exempt securities of section 3 of the 1933 Act.

Which of the following statements is the best definition of real property?a. Real property is only land.b. Real property is all tangible property including land.c. Real property is land and intangible property in realized form.d. Real property is land and everything permanently attached to it.

ANSWER:

Choice "d" is correct. Real property includes land and all items permanently affixed to the land (e.g., buildings, paving, etc.)

Choice "a" is incorrect. Real property includes more than just the land (as per the explanation above); it includes all items permanently affixed to land.

Choice "b" is incorrect. "All" tangible property could include moveable personal property and is therefore, incorrect.

Choice "c" is incorrect. "Intangible property in realized form" is a distracter and a contradiction in terms.

Which of the following is correct concerning the LIFO method (as compared to the FIFO method) in a period when prices are rising?a. Deferred tax and cost of goods sold are lower.b. Current tax liability and ending inventory are higher.c. Current tax liability is lower and ending inventory is higher.d. Current tax liability is lower and cost of goods sold is higher.

ANSWER:

NOTE: This question was released by the AICPA as a Regulation question, and while it relates to tax, it is actually more of a question related to financial accounting. Therefore, the reference to the Becker textbooks is to the Financial textbook.

Choice "d" is correct. Under LIFO, the last costs inventoried are the first costs transferred to cost of goods sold. Ending inventory, thus, includes the oldest costs. The ending balance of inventory will typically not approximate replacement cost, as it will under FIFO. Further, LIFO generally does not reflect the actual flow of goods in a company because most companies sell their oldest goods first to prevent holding old or obsolete items. This question asks about current and deferred income tax

expenses and about current tax liability. Therefore, it is focusing on the effects of LIFO vs. FIFO on the income statement for tax expense. It further asks about the impact on the balance sheet. As discussed above, LIFO tends to match current revenues with current costs because (in a period of rising prices, as in this case) the cost of goods sold under LIFO tends to be higher than the cost of goods sold under FIFO. The ending inventory under LIFO, however, tends to be lower than the ending inventory under FIFO, as the oldest goods are the ones still in inventory under LIFO.

So, cost of goods sold is higher under LIFO than under FIFO in a period of rising prices. If the expense is higher on the tax return, then, the related income tax expense is lower. Therefore, the current tax liability would be lower.

Choice "a" is incorrect. As discussed above, LIFO tends to match current revenues with current costs because (in a period of rising prices, as in this case) the cost of goods sold under LIFO tends to be higher than the cost of goods sold under FIFO, not lower. Also, the effect on deferred tax really depends on if ending inventory is higher or lower than beginning inventory, so we don't have enough information to evaluate deferred tax liability, asset, or expense.

Choice "b" is incorrect. Cost of goods sold is higher under LIFO than under FIFO in a period of rising prices. If the expense is higher on the tax return, then, the related income tax expense. Therefore, the current tax liability would be lower, not higher. Further, as discussed above, under LIFO (in a period of rising prices), ending inventory tends to be lower than under FIFO, not higher.

Choice "c" is incorrect. Cost of goods sold is higher under LIFO than under FIFO in a period of rising prices. If the expense is higher on the tax return, then, the related income tax expense. Therefore, the current tax liability would be lower, as the option indicates. However, as discussed above, under LIFO (in a period of rising prices), ending inventory tends to be lower than under FIFO, not higher.

A calendar-year individual is eligible to contribute to a deductible IRA. The taxpayer obtained a four- month extension to file until August 15 but did not file the return until November 1. What is the latest date that an IRA contribution can be made in order to qualify as a deduction on the prior year's return?a. October 15. b. April 15.c. August 15.d. November 1.

ANSWER:

Choice "b" is correct. For IRAs, the adjustment is allowed for a year ONLY if the contribution is made by the due date of the tax return for individuals (April 15). The due date for filing the tax return under a filing extension is NOT allowed (i.e., filing extensions are NOT considered).

Choice "a" is incorrect, per the above explanation. Choice "c" is incorrect, per the above explanation. Choice "d" is incorrect, per the above explanation.

Barkley owns a vacation cabin that was rented to unrelated parties for 10 days during the year for $2,500. The cabin was used personally by Barkley for three months and left vacant for the rest of the year. Expenses for the cabin were as follows:

Real estate taxes $1,000Maintenance and utilities $2,000

How much rental income (loss) is included in Barkley's adjusted gross income?

a. $0b. $500c. $(500)d. $(1,500)

ANSWER:

RULE: If a vacation residence is rented for less than 15 days per year, it is treated as a personal residence. The rental income is excluded from income, and mortgage interest (first or second home) and real estate taxes are allowed as itemized deductions. Depreciation, utilities, and repairs are not deductible.

Choice "a" is correct. Applying the rule above, if a vacation residence is rented for less than 15 days per year, it is treated as a personal residence. The rental income ($2,500 in this case) is excluded from income. A Schedule E is not filed for this property (i.e., no income is reported, the taxes are reported as itemized deductions, and the maintenance and utilities are not deductible), so the effect on AGI is zero.

Choice "b" is incorrect. This assumes that the property taxes are reported as itemized deductions but that the rental income ($2,500) less the maintenance and utilities ($2,000) are reported net on Schedule E.Per the above RULE, the rental income is excluded from income, and the maintenance and utilities are not deductible.

Choice "c" is incorrect. This assumes that all of the items shown are reported net on the Schedule E—$2,500 - $1,000 - $2,000 = ($500). Per the above RULE, the rental income is excluded from income, the maintenance and utilities are not deductible, and the property taxes are reported on Schedule A as an itemized deduction.

Choice "d" is incorrect, per the above rule and discussion.

In the current year, Brown, a C corporation has gross income (before dividends) of $900,000 and deductions of $1,100,000 (excluding the dividends-received deduction). Brown received dividends of$100,000 from a Fortune 500 corporation during the current year. What is Brown's net operating loss?

a. $100,000b. $130,000c. $170,000d. $200,000

ANSWER: RULES:A net operating loss (NOL) for corporations is the excess of deductions over gross income; however, the dividends received deduction is allowed to be deducted before calculating the NOL.

The dividends received deduction (DRD) for entities that are controlled 0% to <20% (which is how a Fortune 500 corporation would be controlled) is the LESSER of 70% of dividends received or 70% of taxable income computed without regard to the DRD, and NOL deduction, or any capital loss carryback (but this does not apply in the case when deducting the full DRD results in an NOL).

Choice "c" is correct. Applying the rules above, Brown's net operating loss is calculated as follows:

Gross income before dividends $900,000Add: Dividends received 100,000Less: Deductions (excluding DRD) (1,100,000)Less: DRD (70,000) [$100,000 x 70%]NOL $(170,000)Choice "a" is incorrect. The dividends received deduction ($70,000 in this case) is allowed to be deducted before calculating the NOL—[$900,000 + $100,000 - $1,100,000 = ($100,000)].

Choice "b" is incorrect. The DRD is 70% of the dividends received ($70,000), not 30% (or, $30,000)— [$900,000 + $100,000 - $1,100,000 - $30,000 = ($130,000)].

Choice "d" is incorrect. The DRD for ownership of a Fortune 500 company is 70% of the dividends received, not 100%—[$900,000 + $100,000 - $1,100,000 - $100,000 = ($200,000)].

Kerr and Marcus form KM Partnership with a cash contribution of $80,000 from Kerr and a property contribution of land from Marcus. The land has a fair market value of $80,000 and an adjusted basis of$50,000 at the date of the contribution. Kerr and Marcus are equal partners. What is Marcus's basis immediately after formation?a. $0b. $50,000c. $65,000d. $80,000

ANSWER:

RULE: Generally, no gain or loss is recognized on the contribution of property to a partnership in return for partnership interest. The basis of the partnership interest is the basis of the property in the hands of the partner upon contribution. The partnership takes on the contributor's basis of the contributed property; however, if the fair market value of the property differs from the basis, the amount of the unrealized gain or loss at the date of contribution is specially-allocated to the contributing partner upon the sale of that contributed property.

Choice "b" is correct. Per the above rule, Marcus's basis in the partnership immediately after formation is$50,000—which is Marcus's basis in the land at the date of contribution.

Choice "a" is incorrect. Marcus has basis in the partnership in the amount of Marcus's basis in the property upon contribution.

Choice "c" is incorrect. Per the above rule, the Marcus's basis in the partnership immediately after formation is $50,000—which is Marcus's basis in the land at the date of contribution.

Choice "d" is incorrect. Per the above rule, the Marcus's basis in the partnership immediately after formation is $50,000—which is Marcus's basis in the land at the date of contribution. The basis is not the fair market value at the date of contribution.

Which of the following contract rights can generally be assigned?a. The right to receive personal services. b. The right to receive a sum of money.c. The right of an insured to coverage under a fire insurance policy. d. A right whose assignment is prohibited by statute.

ANSWER:

Choice "b" is correct. Generally, one can assign rights to receive under a contract with the exception of personal services or when the assignment increases the obligor's risk. The right to receive money is a very common right that is assignable.

Choice "a" is incorrect, per the above explanation.

Choice "c" is incorrect. Insurance policies are contracts involving the assessment of risk. Coverage rights under these contracts are not assignable.

Choice "d" is incorrect. Legal prohibition of a right prevents lawful assignment.

Which of the following entities may adopt any tax year end?a. C corporation. b. S corporation.c. Limited liability company. d. Trust.

ANSWER:

Choice "a" is correct. C corporations may adopt any year end, provided the year end is approved by theIRS.

Choice "b" is incorrect. S corporations must generally adopt a calendar year end; however, certain S corporations may establish a valid business purpose for a different fiscal year by filing an election using Form 8716.

Choice "c" is incorrect. Limited liability companies generally elect to be taxed as partnerships. Partnerships must generally use the year end or the majority of its partners. If there is no majority, then the partnership must generally use a calendar year end.

Smith received a one-third interest of a partnership by contributing $3,000 in cash, stock with a fair market value of $5,000 and a basis of $2,000, and a new computer that cost Smith $2,500. Which of the following amounts represents Smith's basis in the partnership?a. $10,500b. $7,500c. $5,500d. $3,000

ANSWER:

RULE: Generally, no gain or loss is recognized on the contribution of property to a partnership in return for partnership interest. The basis of the partnership interest is

the basis of the property in the hands of the partner upon contribution. The partnership takes on the contributor's basis of the contributed property; however, if the fair market value of the property differs from the basis, the amount of the unrealized gain or loss at the date of contribution is specially-allocated to the contributing partner upon the sale of that contributed property.

Choice "b" is correct. Applying the rule above, Smith's basis in the partnership upon contribution is calculated as follows:

Cash contributed $3,000Basis of stock contributed2,000Basis of computer contributed 2,500Basis in partnership $7,500Choice "a" is incorrect. This answer assumes that the fair market value of the stock ($5,000) is used to calculate the basis of the partnership, but this is an incorrect assumption (the basis of $2,000 is used).

Choice "c" is incorrect. This answer neglected to include in the basis of the partnership the $2,000 basis of the stock contributed.

Choice "d" is incorrect. This answer neglected to include in the basis of the partnership ant property contributed to the partnership and only considered the cash contributed, which is incorrect (per the above rule).

While preparing a client's individual federal tax return, the CPA noticed that there was an error in the previous year's tax return that was prepared by another CPA. The CPA has which of the following responsibilities to this client?a. Inform the client and recommend corrective action.b. Inform the client and the previous CPA in writing, and leave it to their discretion whether a correction should be made.c. Discuss the matter verbally with the former CPA and suggest that corrective action be taken for the client.d. Notify the IRS if the error could be considered fraudulent or could involve other taxpayers.ANSWER:

Choice "a" is correct. When a tax preparer becomes aware of an error in a previously filed return, he should promptly notify the taxpayer.

Which of the following is an advantage of forming a limited liability company (LLC) as opposed to a partnership?a. The entity may avoid taxation.b. The entity may have any number of owners.c. The owner may participate in management while limiting personal liability.d. The entity may make disproportionate allocations and distributions to members.ANSWER:

Choice "c" is correct. A member in a limited liability company has limited liability and the ability to manage, while a partner in a general partnership has full liability and the ability to manage.

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