Tax Book 2023

Method of Accounting and Records Chapter- 11

Section Rule

Topic covered

(For CAF- 6 and ICMAP students)

32 Method of accounting

Change in method of accounting

33 Cash basis of accounting

34 Accrual basis of accounting

Trading liability not paid & its recovery

35 Stock in trade

Computation of cost

36 Long term contracts

174 Records

28 to 31 Books of accounts prescribed

32 General form of Books of accounts, documents & records

33 Books of account, documents & record to be kept at specific place

MCQ’s with solutions

ICMAP & CA CAF- 6 past papers theoretical questions

For CAF- 6 and ICMAP students

1. Method of accounting [u/s 32(1), (2) and (3)]

 A person income chargeable to tax shall be computed according to the method of accounting

regularly employed (that may be cash or accrual basis) by such person.

 A company shall account for its income chargeable to tax under the head “Income from

business” on accrual basis (if company is deriving income chargeable to tax under any

other head other than “business income”, company can adopt cash basis method of

accounting).

 Any other person: on accrual or cash basis.

 The Board may prescribe that any class of persons shall account for income chargeable to tax

under the head “income from business” on a cash or accrual basis.

2. Approval from Commissioner Inland Revenue (CIR) for change in method of accounting [u/s
   32(4) and (5)]
    A person may apply to the CIR in writing for change in method of accounting and such approval
   by the CIR in writing shall be allowed only on satisfaction that such change is necessary to clearly
   reflect the business income of such person.
    After change in method of accounting the person shall make adjustments to all the items
   affected by the change so that no item is omitted and no item is taken into account more than
   once.
   Cash basis of accounting [Section 33]
   "Income from Business" on a cash basis shall derive income when it is received and shall incur
   expenditure when it is paid.

METHOD OF ACCOUNTING AND

RECORDS

11

Chapter