Liability on Liability
This query is : Resolved
02 April 2008
Profit is shown as a Liability in the Balance Sheet which is added to Properitor's Capital but we have to pay incometax on profit which is another liability. Dont u think, we are generating one liability through another?
CA Praveen Chopra
(Expert)
02 April 2008
As far liability of tax on profit is concerned,it is purely a liability and as far as capital is concerned it is a liability towards proprietor.
i just explain u th.an example. Suppose u don`t have any money and starts business by taking loan.so this loan is a liability.With this loan u earn profit in the business and pay tax on profit.This tax is again a liability.So first liability is of principal amount i.e.loan and second liability generates from surplus i.e.profit.So we are not creating liability of tax from loan but from profit.
i just explain u th.an example. Suppose u don`t have any money and starts business by taking loan.so this loan is a liability.With this loan u earn profit in the business and pay tax on profit.This tax is again a liability.So first liability is of principal amount i.e.loan and second liability generates from surplus i.e.profit.So we are not creating liability of tax from loan but from profit.
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