Page 241 - DMGT306_MERCANTILE_LAWS_II

Mercantile Laws – II

Notes Deduct

(a) Capital receipts and capital profits (other than profits on the sale of assets on which depreciation
has been allowed for income-tax or agricultural income-tax).
(b) Profits of, and receipts relating to, any business situated outside India.

(c) Income of foreign concerns from investments outside India.
(d) Expenditure or losses (if any) debited directly to reserves, other than –
 Capital expenditure and capital losses (other than losses on sale of capital assets on which
depreciation has not been allowed for income-tax or agricultural income-tax) ;
 Losses of any business situated outside India.
(e) In the case of foreign concerns proportionate administrative (over head) expenses of Head
Office allocable to Indian business.
(f) Refund of any direct tax paid for previous accounting years and excess provision, if any, of
previous accounting years relating to bonus, depreciation, taxation or development rebate or
development allowance, if written back.

12.4.2 Computation of Available Surplus [Section 5]

Available surplus = Gross profit [derived as per First Schedule or Second Schedule of this Act] –
(minus) Depreciation, investment allowance or development allowance [Section 6] – (minus)
direct taxes payable [Section 7] – (minus) further sums as are specified in respect of the employer
in the Third Schedule of this act consist of dividend payable (preference shares), reserves and %
of paid up equity share capital [investment].

12.4.3 Computation of Allocable Surplus [Sec. 2 (4)]

Allocable surplus= 67% of the available surplus (other than banking companies) or 60% of the
available surplus (banking companies and companies linked with abroad)
Payment of bonus calculated on the allocable surplus which is derived by the above calculation

12.4.4 Set-on and Set-off of Allocable Surplus [Sec. 15]

Set-on (In case of Huge Profits)

Excess allocable surplus remain after paying the maximum bonus of 20% on the wage or salary
of the employee, should be carried forward to the next following year to be utilized for the
purpose of payment of bonus in case of the shortage of the allocable surplus or losses occur. This
is called as Set-on.

Set-off (In case of Losses Occur)

When there are no profits (available surplus or allocable surplus) or the amount falls short or
deficiency for payment of minimum bonus to employees 8.33%, such deficiency amount should
be adjusted to the current accounting year from the Set-on amount which was carried forward in
case of excess allocable surplus in the previous year. This is called as Set-off.

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