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Calculation of profit u/s 349

Sourav Chatterjee (Management Trainee) (171 Points)

23 March 2012

At the time of calculation of profit u/s 349 of the Companies Act 1956, whether the profit on sale of Long Term Investment (other than trade) will be added? If yes then why?

Awaiting for an early reply.

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2 Replies

Sonam Bidasaria (CA) (770 Points)
Replied 23 March 2012

Sec 349(1) states that

In computing the net profits of a company in any financial year

(a) credit shall be given for the sums specified in sub-section (2), and credit shall not be given for those specified in sub-section (3); and

(b) the sums specified in sub-section (4) shall be deducted, and those specified in sub-section (5) shall not be deducted.

(2) In making the computation aforesaid, credit shall be given for the following sums: bounties and subsidies received from any Government, or any public authority constituted or authorised in this behalf, by any Government, unless and except in so far as the Central Government otherwise directs.

(3) In making the computation aforesaid, credit shall not be given for the following sums:

(a) profits, by way of premium, on shares or debentures of the company, which are issued or sold by the company;

(b) profits on sales by the company of forfeited shares;

(c) profits of a capital nature including profits from the sale of the undertaking or any of the undertakings of the company or of any part thereof;

(d) profits from the sale of any immovable property or fixed assets of a capital nature comprised in the undertaking or any of the undertakings of the company, unless the business of the company consists, whether wholly or partly, of buying and selling any such property or assets:

Provided that where the amount for which any fixed asset is sold exceeds the written down value thereof referred to in section 350, credit shall be given for so much of the excess as is not higher than the difference between the original cost of that fixed asset and its written down value.

It is to be noted that these are the additional points which needs to be considered for determination of profit under this section apart froom the compliane as reauired in accordance with Part II of Schedule VI.

Now, As per AS-13, profit on sale of long term investment has to be shown separately and Old Schedule VI also required to disclosed any income from trade and non-trade to be disclosed separately,

Hence, it is but obvious, the profit on sale of Long Term Investment (other than trade) will be credited in the Profit & Loss Account

Now coming to Sec 349(3) only the sum mentioned in clause (a) to (d) will not be credited i.e. shall be deducted from the net profit.

Hence, there is no question of adding back the Profit on sale of Long Term Investment.