Rise School of Accountancy

Suggested Solution Test 06

Question 01

Consideration received 800,000

Less: Written down value (W-1) 429,888
Add: Deductions not allowed
TY2008 21,000
TY2009 -
TY2010 45,518 (496,405)
Gain on disposal 303,595

W-1

Normal
Depreciation Depreciation
Depreciation
Calculation not allowed
Allowed

Cost 700,000
Depreciation @ 15% (105,000) 84,000 21,000
WDV as on 30.6.08 595,000
Depreciation @ 15% (89,250) 89,250 -
WDV as on 30.6.09 505,750
Depreciation@ 15% (75,863) 30,345 45,518
WDV as on 30.6.10 429,888

Question 02
“Depreciable asset” means any tangible movable property, immovable property (other than
unimproved land), or structural improvement on immovable property, owned by a person that –
(a) has a normal useful life exceeding 1 year;
(b) is likely to lose value as a result of normal wear and tear, or obsolescence; and
(c) is used wholly or partly in deriving income from business,
but shall not include any property for which full cost of asset is allowed as deduction in the year of purchase;
and
“structural improvement” in relation to immovable property, includes any building, road, driveway, car park,
railway line, bridge, tunnel, airport runway, canal, fence, water or sewerage pipes, drainage, landscaping or
dam.
In case a depreciable asset is jointly owned by a taxpayer and an Islamic financial institution licensed by the
SBP or SECP due to an arrangement of Musharika financing (or diminishing Musharika financing), the asset is
considered as wholly owned by the taxpayer.

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Question 03
a) The cost of new purchased machine shall be the sum of following amounts:
(a) The total amount given for asset, including FMV of consideration in kind determined at the time
the asset is acquired.
(b) Any incidental expenditure paid in acquiring and disposing of asset.
(c) Expenditure paid to alter or improve the asset. For example, the cooling equipment purchased
here.
b)
As per S.76 (3) if a personal asset is put to business use, its cost will be the fair market
value on the date it is put to business use and as per S.76 (2) (c), the cost shall include
expenditure paid to alter or improve the asset. Therefore, the cost of personal computer
shall be sum of FMV on 1st July, 2015 and cost of up gradation.

c)
As per S.76 (4) the cost of self-constructed furnace shall be the total cost incurred in
producing or constructing the asset plus any incidental expenditure paid to alter or
improve the asset.

Question 04
Bashir Associates
Taxable Income TY
20X8
Rupees
Accounting profit 1,200,000
Less: Amount received from Pulse International (652,000)
Less: Amount received from Hussain Global (346,000)
Add: Tax Bad debt recovery – PI [S.29 (3) (a)] (W-1) 327,000
Less: Tax Bad debt – HG [S.29 (3) (a)] (W-1) (339,000)
Taxable income 190,000
(W-1) Bad debt recovery:
PI HG
Amount received 652,000 346,000
Less: Actual amount of bad debt 1,150,000 925,000
Less: Previously allowed as deduction (825,000) (325,000) (240,000) 685,000
327,000 (339,000)

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