1. Arguably, free parking places provided to employees by their employers might
ID: 2451551 • Letter: 1
Question
1. Arguably, free parking places provided to employees by their employers might be excluded from taxable income on the grounds that such items neither satisfy the economic definition of income nor fall within the definition of the income for tax purposes. a. b. any gain obtained by the employee is secondary or incidental to the employers business purpose that is served by granting such benefit. the value of the benefit obtained by the employee is not determinable. the benefit obtained by the employee is not in the form of cash. c. d. 2. In which of the following situations would the taxpayer not be considered in constructive receipt of income in 2015? Assume that al of the taxpayers use the cash method of accounting. a. Al is a self-employed accountant. On December 27 2015, he received a check for $2,000 for preparing the November financial statements of one of his clients. Due to illness, he was unable to deposit the check until January 5, 2016. b. Ben entered into a contract to sell his rental property on December 3, 2015. On that date, the down payment, a check for $1,000, was placed in an escrow account. Ben received the check when the transaction closed on January 20, 2016. c. Sugar Ray fought Rocky on December 25, 2015, a Christmas fight shown on television all over the world. On December 28, the fight promoters gave Sugar Ray's agent, Don Queen, a check for S5 million representing his prize money for the fight. Dorn delivered the check to Sugar Ray on January 12, 2016. d. On December 20, 2015, Mr. Big received stock worth S10,000 as a bonus from the corporation for which he worked. He did not sell the stock until January 5, 2016. e. All of the taxpayers above are in constructive receipt of the income items.
Explanation / Answer
1) Free parking place provided by employer to his employees is an social benefit which could neither satify the economic definition of Income and can not be measured monetory as fringe benefit.
So, correct answer is (e)
2) (a) Cheque of $ 2000 is received and accounted for in books of accounts (as per Cash Basis). Even the same has not been deposited in Bank, that is treated as Income in Books and taxed accordingly.
(b) As per Cash method of accounting, the Income or expense are recognised on actual transaction. In this case payment for down payment is not received in 2015, so not treated as Income.
(c) Sugar Ray received the Prize money in 2016 so not eneterd as Income in 2015. So, by virtue of Cash method of Accounting, the same can not be treated as Income in 2015.
(d) Mr. Big received stock in 2015 but could not sell the same till 2016. As per Indian Income Tax Laws, Anything received in kind from non relative is taxed. So, fair Market value is accessed for Stock and taxed accordingly in 2015 (as per Income tax Act, India)
3) There are 2 bassis of Accounting :
- Cash Basis of Accounting
- Accrual Basis of Accounting
Income Tax laws as well as Accounting Standards prevailing in India, always go for Accrual System of Accounting for each type of Business except Charitable Trusts (where Receipt & Payment Account is generated)
So, as per above statement, all the mentioned businesses are required to maintained books as per Accrual Basis of Accounting.
4) As discussed above, there are 2 basis of Accounting. So, any business may use any type of Accounting Method.
But, Indian Accounting Standards as well as Taxation Laws supports Accrual Basis of Accounting.
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