ICAP PAST PAPER QUESTIONS

Q.1 On 1 July 20X4, Tahir commenced business of manufacturing garments. Income

statementof the business for the year ended 30 June 20X5 is as follows:

Notes Rs. in 000

Sales 49,330
Less: Cost of sales (i) (39,150)
Gross profit 10,180
Less: Administrative and selling expenses (ii) (9,140)
Financial charges (iii) (2,500)
Other charges (iv) (1,358)
(2,818)
Add: Other income 3,875
Profit before taxation 1,057

Notes to the income statement:

(i) On 15 July 20X4, used machinery was imported from China valuing Rs.
1,500,000. Depreciation @ 15% was charged on machinery for the whole
year and is included incost of sales.
(ii) Administrative and selling expenses include:
 Rs. 975,000 paid for the purchase of computer software. The software
is likely tobe used for twelve years.
 Cost of preparation of a feasibility study amounting to Rs. 250,000
which wasissued prior to the commencement of business.
 Salary of Rs. 50,000 per month was paid to Tahir’s brother who
handles thefinancial matters of the business.
(iii) Financial charges include Rs. 80,000 pertaining to a vehicle obtained on lease from a
leasing company. The cost of vehicle was Rs. 1,300,000. Depreciation of Rs. 260,000
has been included in administrative and selling expenses. Lease rentals paid during
the year amounted to Rs. 300,000.
(iv) Other charges include:
 running and maintenance expenses of vehicle amounting to Rs. 295,450. Use
ofvehicle for personal purposes was approximately 20%.
 provision for bad debts amounting to Rs. 25,000.
Other information:
(i) Tahir was working in UAE for the past five years and had come back to Pakistan in
April 20X4. He received an amount equivalent to Rs. 150,000 from his ex-employer as
differential amount on his final settlement in August 20X4.
(ii) He sold a plot for Rs. 3,500,000 which was inherited from his father in
20W9(2009). Fair market value of the plot at the time of inheritance was Rs.
1,500,000.
(iii) Donation of Rs. 300,000 was paid to BISE Multan through cross cheque.

Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income and tax
liability of Tahir for the tax year 20X5. (18) [Q 1 Spr. 15]
Q.2 Mushtaq is a sole proprietor of Mushtaq Enterprises (ME) engaged in the business of
manufacturing of different products. ME’s profit and loss account shows profit before taxation
of Rs. 1.8 million for the year ended 30 June 20X7. A review of ME’s records has revealed the
following information.

(i) ME employs five salesmen. Rs. 22,000 per month were paid to each salesman in cash
which includes reimbursement of Rs. 6,000 per month incurred on entertainment of
customers at the business premises.
(ii) Administrative expenses include Rs. 150,000 which were paid to a research
institutein China for the purpose of developing a new product.
(iii) Accounting loss on the sale of patents was Rs. 65,000. The tax written down value
ofthese patents at the beginning of the year was Rs. 430,000 and these were sold
for Rs. 524,000. Amortization charged to the profit and loss account on these patents
for the current year was Rs. 25,000.
(iv) Receivables from Atif and Aslam which had been written off in the previous year
were recovered. Details are as follows:

Atif Aslam
--------Rupees-------
Claimed bad debts in last tax return 800,000 1,200,000
Allowed by tax authorities last year 550,000 600,000
Amount recovered during the year 700,000 400,000

(v) ME has opened a sales office in Dubai. In this respect, furniture costing Rs. 850,000
with written down value (WDV) of Rs. 650,000 was shifted to Dubai office. The
taxWDV of the furniture at the beginning of the year was Rs. 610,000.
(vi) Accounting depreciation for the year is Rs. 580,450. However, no depreciation
has been provided on the following fixed assets purchased on 1 March 20X7:
Rupees
Furniture 200,000
Used machine imported from Germany 500,000

(vii) Tax depreciation for the year, prior to the adjustments mentioned in (vi)
above,amounted to Rs. 456,400.
(viii) Advance tax paid u/s 147 was Rs. 200,000.
(ix) The assessed business losses of tax year 20X1 brought forward in year 20X7
are Rs. 830,000. These include unabsorbed tax depreciation amounting to Rs.
705,000.
Other transaction of Mushtaq:
On 1 June 20X7, he sold 6,000 shares for Rs. 432,000 out of 15,000 shares which he
received on 1 May 20X4, on the death of his father. The fair market value of shares on
thedate of transfer to Mushtaq was Rs. 25 per share.
Required: Under the provisions of Income Tax Ordinance, 2001 and rules made thereunder,
compute taxable income and net tax payable by or refundable to Mushtaq for the year
ended 30 June 20X7. (16) [Q.1 Spr. 17]
Q.3 Mr. Qateel, a resident individual, is engaged in the manufacture of various consumer goods
under the name and style ‘Qateel Enterprises (QE)’. The following information has been
extracted from the records of QE for the financial year ended 30 June 20X8.

Rupees
Total turnover 28,500,000
Cost of sales (26,155,000)
Gross profit 2,345,000
Operating expenses (4,500,000)
Operating loss (2,155,000)
Finance charges on lease of machinery (35,703)
Other income 5,000,000
Profit before tax 2,809,297
Additional information:
(i) Cost of sales includes:
 Rs. 45,000 paid as fine for violation of contract with a customer for delay in
supplyof goods.
 accounting depreciation of Rs. 1,900,000 (including depreciation on leased assets).
(ii) Operating expenses include:
 Rs. 450,000 paid for renewal of a manufacturing licence for fifteen years.
 vehicle tax paid in cash amounting to Rs. 55,000 for eight office cars.
 Rs. 200,000 paid as security deposit to K-Electric (KE) for replacement of
transformer at the factory.
 Rs. 300,000 collected by KE as advance tax through monthly electricity bills.
 cash donation to poor families amounting to Rs. 64,600 and donation of
Rs. 2,000,000 paid through cheque to Edhi Foundation, which is listed in Part 1
ofthe Second Schedule of the Income Tax Ordinance, 2001.
 penalty of Rs. 25,000 imposed by the Commissioner Inland Revenue for late filing
of annual return of income for the tax year 20X7.
 entertainment expenditure of Rs. 128,000 incurred on arrival of foreign customers
forbusiness purposes.
(iii) Other income includes:
 dividend of Rs. 580,000 received from listed companies. The amount is net of
income tax at the rate of 15% and Zakat of Rs. 100,000 deducted under the
Zakat and Usher Ordinance, 1980.
 Capital gain of Rs. 1,200,000 from sale of shares of a private limited company.
Shares were acquired on 1 August 20X3.
(iv) On 30 June 20X8, leased machinery was transferred to Qateel on maturity of lease.
The leasing company was asked to adjust the amount of security deposit against the
residual value of Rs. 100,000. The date of commencement of lease was 1 July 20X3.
Lease rentals paid during the year amounted to Rs. 270,000.
On the date of maturity, the accounting written down value and market value of
the machinery was Rs. 590,490 and Rs. 800,000 respectively.
(v) During the year, a warehouse was constructed for storage of goods at a cost
ofRs. 1,040,000. No accounting depreciation has been recorded on it.
(vi) Tax depreciation for the tax year 20X8 without considering the effect of para (iv) and
(v) above, amounted to Rs. 1,560,000.
 (vii) Advance income tax paid during the year amounted to Rs. 480,000.
Required: Under the provisions of the Income Tax Ordinance, 2001 and Rules made
thereunder, compute the total income, taxable income and net tax payable by or refundable to
QE for the year ended 30 June 20X8. (18) [Q.1 Spr. 18]
Q.4 Saleem is a resident taxpayer and runs a fitness centre in DHA Karachi. He files his return ofincome
regularly. Following information pertains to his business for the tax year 20X8:

(i) Accounting profit before tax amounted to Rs. 2,350,000.

(ii) Administrative expenses include annual rent of the premises used for fitness centre
amounting to Rs. 1,560,000. Withholding tax of Rs. 144,000 was deducted from the rent
payment but was not deposited in the government treasury.
(iii) A passenger transport vehicle used for pick and drop of employees of fitness centre was
disposed of for Rs. 8,500,000. The vehicle was purchased for Rs. 9,500,000 in tax year 20X7.
No accounting depreciation was provided during the year 20X8. Accounting gain of Rs.
1,200,000 has been recorded in the profit or loss account.
(iv) On 1 July 20X7, a car was acquired on finance lease for Rs. 3,000,000. Advance tax paid at the
time of acquisition and registration of vehicle aggregated Rs. 85,000. The vehicle has been
used 70% for business purposes and 30% for Saleem’s personal use.

Accounting depreciation of Rs. 600,000 and financial charges of Rs. 462,000 were
recorded in the profit or loss account. Lease rentals paid during the year amounted to Rs.
857,000.

(v) During the year, Saleem recorded gain of Rs. 50,000 on disposal of shares. Details are as
under:

Name of the company Sold on Purchased Gain/loss on

on disposal (Rs.)
Sun (Private) Limited 1 Aug 20X7 1 Sep 20X3 500,000
Moon Limited - a listed company 15 Sep 20X7 1 Jan 20X5 (700,000)
Planet Limited - a listed company 1 Feb 20X8 1 Jan 20X6 250,000
50,000
Required:
Compute Saleem’s taxable income under appropriate head of income and tax liability for the tax year
20X8. (12)[Q5 Aut. 18]
Q.5 For the purpose of this question, assume that the date today is 31 August 2020.

Shahid is engaged in the business of manufacturing and supplying of auto parts. Followingis the extract of
his profit or loss statement for the tax year 2020:

Rs. in '000
Sales 29,058
Cost of goods sold (18,724)
Gross profit 10,334
Operating expenses (3,137)
Financial charges (2,030)
Other income 1,260
Profit before tax 6,427

Additional information:
(i) The above accounts have been prepared on cash basis and stock-in-trade has been
valued on prime cost method. However, Shahid wants to change the method of
 accounting from cash basis to accrual basis. In this respect, following information has been
gathered:

Opening Closing
Balance balance
------Rupees in 000------
Stock-in-trade using prime cost method 1,800 2,800
Stock-in-trade using absorption cost method 2,300 3,200
(ii) Cost of goods sold includes:
 purchase of packing material of Rs. 440,000 from Nasir Traders. No withholdingtax
was deducted at the time of payment.
 freight charges of Rs. 85,000. These were paid in cash for transporting goods from
suppliers.
(iii) Operating expenses include:
 salary of Rs. 80,000 per month paid to Shahid’s brother who handles
administrative matters of the business.
 expenditure of Rs. 950,000 incurred on the development of a product which is
expected to generate revenue for five years.
 penalty of Rs. 15,000 for late filing of income tax return.
(iv) Financial charges include profit on debt of Rs. 450,000 earned on fixed deposit account
maintained with a bank. The bank withheld income tax and Zakat amounting to Rs. 45,000
and Rs. 93,750 respectively.
(v) Other income includes:
 capital gain of Rs. 45,000 received, net of withholding tax of Rs. 6,750, on sale of
20,000 shares in Metal Limited (ML) in November 2019. ML is listed on PSX. On 1
January 2018, Shahid purchased these shares for Rs. 200,000 at initial public offering.
He had claimed a tax credit of Rs. 15,000 on such investment intax year 2018.
 rent of Rs. 980,000 received from an agriculture land in Badin. No withholding tax
was deducted at the time of receipt.
(vi) Tax depreciation for the year amounts to Rs. 680,000.
(vii) Tax deducted at source by customers amounts to Rs. 875,000.
(viii) The unabsorbed tax depreciation brought forward from tax year 2019 amounts toRs.
568,000.
Required: Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
compute total income, taxable income and net tax payable by or refundable to Shahid for the tax year
2020. (Use accrual basis of accounting) (18)[Q.1 Spr. 20]
Q.6 Muhammad Asghar owns an industrial undertaking under the name and style of Asghar & Company (AC)
which is engaged in the business of manufacturing pharmaceutical products. Following information is
available for the year ended 31 December 20X1:

Rs. in '000
Turnover 324,850
Cost of goods sold (217,197)
Gross profit 107,653
Administrative and distribution expenses (88,980)
Marketing expenses (19,765)
Other income 3,560
Profit before tax 2,468
 Additional information:

(i) Cost of goods sold includes:

raw materials of Rs. 7,800,000. No withholding tax was deducted at the time ofpayment.

accounting depreciation of Rs. 2,100,000 on plant and machinery.

provision for slow moving inventory of Rs. 1,800,000.

(ii) Administrative and distribution expenses include:

Rs. 676,500 paid to a local hotel for holding annual Eid-Milan party for theemployees
and their families.
Rs. 1,235,000 paid as penalty to a customer in settlement of his claim for damages under a
contract for the supply of a batch of vaccines. Laboratory tests and in-house investigations
revealed that the level of impurities in the vaccines exceeded the acceptable level as agreed
in the contract.
Rs. 2,300,000 paid as donation to a hospital established by the local government.

(iii) Marketing expenses include a reward of Rs 500,000. The reward was paid in cash to one of the
salesmen for exceeding his sales target.
(iv) Other income includes:
dividend of Rs. 174,000. This amount was received from a listed company after deduction
of income tax at the rate of 15% and Zakat of Rs. 30,000 deducted under the Zakat and
Usher Ordinance, 1980.
gain of Rs. 660,000 on sale of shares in Akash (Pvt) Limited (APL) in November 20X1. 60%
of the shares in APL are owned by the Federal Government. AC purchased these shares in
June 20X0.

Other information:
(i) A second hand plant was imported from France at a cost of Rs. 2,500,000. Withholding tax of
Rs. 150,000 was deducted at import stage. The plant was installed in the month of September
20X1. AC incurred Rs. 375,000 on the installation of plant which is included in administrative and
distribution expenses.
(ii) Pre-commencement expenditures of Rs. 3,400,000 were charged to accounting profit and loss for the
year ended 31 December 20X0. However, for tax purposes, it has tobe amortized over the period
of five years.
(iii) Tax depreciation other than imported plant amounted to Rs. 1,900,000.
(iv) Income tax deducted by the customers u/s 153 and advance income tax paid u/s 147during the
year amounted to Rs. 1,400,000 and Rs. 200,000 respectively.
Required: Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
compute total income, taxable income and net income tax payable by or refundable to AC for the tax year
20X2. (19)
Note: Your computation should commence with profit before tax figure of Rs. 2,468K.

 Ignore minimum tax under section 113.

 Show all relevant exemptions, exclusions and disallowances.
Q.7 Abbas, a resident individual, is engaged in the business of manufacturing various consumer goods
under the name and style of ‘Kamyab Enterprises (KE)’. Following information has been extracted
from KE’s records for the year ended 30 June 2021:
 Rupees
Sales 43,089,000
Cost of sales (26,042,000)
Gross profit 17,047,000
Administrative and selling expenses (7,800,000)
Financial charges (2,100,000)
Other income 5,560,000
Profit before tax 12,707,000

Additional information:
Cost of sales includes:
(i) accounting depreciation of Rs. 1,200,000. The tax written down values of KE’s fixedassets
on 1 July 2020 were:

Rupees
Plant and machinery 6,860,000
Computers and related products 800,000
Motor vehicles (80% for business purposes) 3,000,000

A new computer was purchased on 1 April 2021 for Rs. 150,000.

Motor vehicle which was purchased on 15 June 2019 at the cost of Rs. 1,000,000 was sold for
Rs. 750,000 on 31 May 2021. Carrying value of this motor vehicle was equal to sale
proceeds.

(ii) an amount of Rs. 40,000 paid to factory supervisor on 23 March 2021 as advance salary
for the month of April. Since he was in urgent need of the amount and the banks were
closed on 23 March 2021 due to the Pakistan Day, he was paid in cash.

Administrative and selling expenses include:

(i) expenditure on ‘In-house scientific research’ related to KE’s business. It includes salaries
of Rs. 880,000 paid to scientists, material of Rs. 230,000 used in the research and Rs. 700,000
paid to a company in China for supporting KE’s scientists in the research work. This
expenditure was not recorded as intangible asset as it could not
provide an advantage for a period of more than one year.
(ii) an expense of Rs. 650,000 paid as an installment towards the purchase price of an
industrial plot.
(iii) purchase of goats worth Rs. 225,000 for sacrifice on Eid-ul-Azha. The payment was made
through cross cheque.
(iv) donations of Rs. 1,000,000 to approved non-profit organisations. 40% of this amountwas
donated to organisations listed on the Second Schedule of the Income Tax
Ordinance, 2001. All donations were made through crossed cheques.
(v) an insurance premium of Rs. 200,000 paid to a registered insurance company forhealth
insurance of Abbas and his dependents.

Other income includes:

(i) an amount of Rs. 720,000 received from income tax department on account of taxrefund
related to tax year 2018. This amount includes an additional payment of
Rs. 80,000 due to delay in tax refund.
(ii) capital gains of Rs. 430,000 and Rs. 250,000 on sale of investments in shares of Manzil
Limited, a public unlisted company and Himmat Limited, a public listed company
respectively on 20 June 2021. Both investments were made on
1 January 2019.
 Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,compute
total income, taxable income and net income tax payable by or refundable to
Abbas for the tax year 2021. (18)
Note:  Your computation should commence with profit before tax figure of Rs. 12.707 million.
 Ignore minimum tax under section 113.
 Show all relevant exemptions, exclusions and disallowances.

Q.8 For the purpose of this question, assume that the date today is 31 August 2022.

Aakash Kumar owns an industrial undertaking under the name and style of Premjee & Co. (PJC) which is
engaged in the business of manufacturing fast moving consumer goods. Following information is available
from PJC’s records for the year ended 30 June 2022:

(i) Loss before tax for the year was Rs. 87 million.
(ii) Operating expenses include:
 a penalty of Rs. 2 million for late delivery of goods to a customer.
 commission of Rs. 2.5 million which was paid to a distributor, Liaquat Bashir, on
sale of PJC’s products of Rs. 50 million. These products are covered in the Third
Schedule of the Sales Tax Act, 1990. Name of Liaquat Bashir is not appearing in
the active taxpayers’ list under the Income Tax Ordinance, 2001.
 freight charges of Rs. 1.2 million which were paid in cash to a freight forwarding
company in Karachi.
 accounting depreciation of Rs. 40 million.
(iii) Other income includes:
an insurance claim of Rs. 6 million, equivalent to accounting book value, received
on 8 November 2021 in respect of a vehicle which was completely destroyed by
fire. The cost and fair market value of the vehicle before fire incident were Rs. 10
million and Rs. 8 million respectively. This vehicle was purchased on 1 October
2019.
amounts recovered during the year from two debtors i.e. Shameem and Faheem.
These amounts had been written off in the last year. Details are as follows:

Shameem Faheem
---- Rs. in million ----
Bad debts claimed in the last tax return 19.2 28.8
Bad debts allowed by tax authorities last year 13.2 14.8
Amounts recovered during the year 16.8 10.6
rent of Rs. 21.6 million. On 1 July 2021, Aakash leased one of its factory buildings
alongwith the plant to Kamran at a monthly rent of Rs. 1.8 million, payable in
advance. The building was purchased for Rs. 85 million on 16 August 2019
whereas a second hand locally purchased plant was installed at a cost of Rs. 34
million on 1 July 2021. During the year, Aakash incurred Rs. 3.2 million on repair
and maintenance of the factory building.
(iv) PJC’s liabilities include amounts of Rs. 14 million and Rs. 17 million in respect of
purchases made on 18 March 2018 and 1 August 2018 respectively. These purchases were
allowed as admissible deductions while computing income from business in their
relevant tax years.
 (v) During the year, outstanding financial charges of Rs. 2.8 million were waived by thebank on
rescheduling the loan. These charges were claimed as admissible deduction in the tax year
2020.
(vi) Tax depreciation for the year on all fixed assets, other than factory building and plantwhich
were leased out to Kamran, amounted to Rs. 48 million.

Other information:
(i) On 15 August 2021, Aakash entered into a derivative contract for the purchase of gold.
The contract was to be expired on 15 November 2021. Aakash sold the contract before the
settlement date and earned a net gain of Rs. 23 million on the contract.
(ii) On 30 June 2022, Aakash earned capital gains of:
Rs. 20 million on sale of his immovable property which was purchased on1 June
2019.
Rs. 3.6 million on sale of shares in a private company. These were acquired on1 June
2021.
(iii) During the year, Aakash received his share of profit from an AOP of Rs. 70 million.

Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,compute
total income, taxable income and net income tax payable by or refundable to
Aakash for the tax year 2022. [Q 3 Spr. 2022] (18)
Note:  Ignore minimum tax under section 113.
 Show all relevant exemptions, exclusions and disallowances.

Division 2 For individual non- salaried /AOP case i.e Where taxable salary is less than or equal to 75% of taxable
income.

Taxable Income Rate of Tax

1 Where taxable income does not exceed Rs. 600,000 0%
2 Where taxable income exceeds Rs. 600,000 but 7.5% of the amount exceeding
does not exceed Rs. 800,000 Rs.600,000
3 Where taxable income exceeds Rs. 800,000 but Rs. 15,000 + 15% of the amount
does not exceed Rs. 1,200,000 exceeding Rs. 800,000
4 Where taxable income exceeds Rs. 1,200,000 but Rs.75,000 + 20% of the amount
does not exceed Rs. 2,400,000 exceeding Rs. 1,200,000
5 Where taxable income exceeds Rs. 2,400,000 but Rs. 315,000 + 25% of the amount
does not exceed Rs. 3,000,000 exceeding Rs. 2,400,000
6 Where taxable income exceeds Rs. 3,000,000 but Rs. 465,000 + 30% of the amount
does not exceed Rs. 4,000,000 exceeding Rs. 4,000,000.
7 Where taxable income exceeds Rs. 4,000,000 Rs. 765,000 + 35% of the amount
exceeding Rs. 4,000,000.
 ANS.1
MR TAHIR
COMPUTATION, TAXABLE INCOME AND TAX LIABILITY
TAX YEAR 20X5
Income from business (W-1) 1,956,090
Total income /Taxable Income 1,956,090
Tax liability under NTR (75,000 +20% x 756,090) 226,218
Less: Tax credit (W-2) (34,695)
Tax payable 191,523
(W-1) Income from Business
Profit before tax 1,057,000
Add
Accounting depreciation on imported machinery 225,000
Intangible assets - Cost of software 975,000
Pre-commencement expenditures – Cost of feasibility 250,000
Lease financial charges 80,000
Depreciation on leased asset 260,000
Personal car expenses 59,090
Provision for bad debts 25,000
Less:
Initial allowance on imported machinery (1,500,000x25%) (375,000)
Tax depreciation on imported machinery (168,750)
(1,500,000–375,000) x15%
Pre-commencement expenditures (50,000)
Amortization (81,250)
Lease rentals paid (300,000)
1,956,090
(W-2) Tax credit
Tax credit on Donation paid (226 ,218/1,956,090) x 34,695
300,000C is lower of 300,000 or 30% of 1,956,090 =
586,827
Note
 Salary paid to Tahir's brother is allowable expense as he is Working as employee in the
business.
 The amount received from employment in UAE is foreign source income and since Tahir is
a citizen of Pakistan and was not resident in last four tax years, such income is exempt from
tax in this and the next year.
 As the holding period of plot is more than 6 years so the gain is not taxable
ANS.2

MR MUSHTAQ
COMPUTATION OF TAXABLE INCOME AND TAX LIABILITY
TAX YEAR 20X7
income from Business (W-1) 606,800
Capital Gain (W-2) 282,000
Taxable income 888,800
Tax liability (15,000 + 15% x 88,800) 28,320
Less: Adv. tax paid (200,000)
Tax refundable (171,680)
(W 1) Income from Business
Profit before taxation 1,800,000
Add: Inadmissible expenses/admissible income
Research expenditure incurred outside Pakistan 150,000
Accounting loss on the sale of patents 65,000
Amortization charged on patents for the year 25,000
Gain on sale of patents (524,000 – 430,000) 94,000
Tax bad debts: Atif (W 1.2) 450,000
Accounting depreciation 580,450
Gain on Transfer of furniture to Dubai (W 1.3) 240,000
Less: Admissible expenses/Inadmissible income
Tax bad debts: Aslam (W 1.2) (200,000)
Bad debts recovered: Atif (700,000)
Bad debts recovered: Aslam (400,000)
PBT Depreciation, tax Amortization, Initial allowance (W 1.4) (667,650)
1,436,800
Less: loss before depreciation (830,000 - 705,000) (125,000)
1,311,800
Depreciation b/f (705,000)
Under the head business 606,800
(W 1.1) Sales proceeds 524,000
WDV (430,000)
Gain 94,000
(W 1.2) bad debts
Atif Aslam
A-B A-B
700,000 – (800,000-550,000) = 450,000 400,000 – (1200,000-600,000) = (200,000)
(W 1.3) Furniture
Disposal proceeds 850,000
Less: WDV 610,000
Gain 240,000
(W 1.4) Tax Depreciation, tax Amortization, Initial allowance
Tax depreciation (given) 456,400
Tax depreciation on furniture (200,000 x 15%) 30,000
Initial allowance on machinery (500,000 x 25%) 125,000
Tax depreciation on machinery (500,000-125,000) x 15%) 56,250
667,650
(W 2) Capital Gain
Gain on the sale of 6,000 shares [432,000 – (6,000 × 25) 282,000
N-1 Salary paid to employees Rs. 16,000/month (22,000-6,000) in cash is allowed as
deduction as it is less than 25,000/month.
ANS.3
MR QATEEL
COMPUTATION OF TAXABLE INCOME AND TAX LIABILITY
TAX YEAR 20X8
income from Business (W-1) 4,025,600
Capital Gain 1,200,000
Dividend Income -FTR (W-2) 800,000
Total income 6,025,600
Less: FTR Income (800,000)
Zakat deducted on dividend (100,000)
Taxable income 5,125,600
Tax liability [765,000 + (35% x 1,125,600) 1,158,960
Donation (W-3) (347,688)
Tax on dividend 120,000
Less: Advance tax (480,000)
Advance tax (K-electric) (300,000)
tax deductible at source on dividend (120,000)
Net tax refundable 31,272
(W 1) Income from Business
Accounting profit before taxation 2,809,297
Add:
Accounting depreciation 1,900,000
Renewal of license fee 450,000
Replacement of transformer (KESC) – security deposit 200,000
Advance tax collected (KESC) 300,000
Donation paid in cash 64,600
Donation paid 2,000,000
Penalty paid to CIR for late filing of return 25,000
Finance charges on lease machinery 35,703
Less:
Amortization (30,000)
Capital gain (1,200,000)
Tax depreciation as given (1,560,000)
Building depreciation (1,040,000 x 10%) (104,000)
Lease rental paid (270,000)
Dividend income (580,000)
Tax depreciation on leased machinery (100,000 x 15%) (15,000)
Income from business 4,025,600
Notes
N-1 Any penalty paid in respect of violations of state laws is not admissible
N-2 Vehicle tax of Rs.55,000 paid in cash is allowed as deduction.
N-3 As entertainment is incurred for business purposes; hence it is allowed as deduction.

(W 2) dividend Income and tax on dividend.

(580,000+100,000)/.85 = 800,000
800,000 x 15% = 120,000

(W 3) Donation
A/B x C 1,158,960/5,125,600 x 1,537,680 = 347,688
Lower of
-Actual 2,000,000
-30% of TI (5,125,600 x 30%) 1,537.680
Ans.4
MR SALEEM
COMPUTATION OF TAXABLE INCOME AND TAX LIABILITY
TAX YEAR 20X8
Income from Business (W-1) 3,457,626
Capital Gain 500,000
Taxable income 3,957, 626
Tax liability (465,000 +30% x 957,626) 752,288
Less: advance tax (85,000)
Tax payable 667,288
(W-1) Income from Business
Accounting profit before taxation 2,350,000
Add:
Rent not allowed 1,560,000
Accounting depreciation 600,000
Gain on disposal of vehicle 335,526
Finance charges 462,000
Less:
Accounting gain (1.200,000)
Accounting gain on sale of share (50,000)
Lease rentals (857,000 x 70%) (599,900)
3,457,626
 (W-1.2) Gain on disposals

Disposals proceeds 7,500,000 x 8,500,000 6,710,526

9,500,000
Less: WDV (7,500,000-1125,000) (6,375,000)
335,526
Item not included in computation of taxable income.
There is a net loss of 450,000 on the disposal of securities as computed below.
Loss on share of moon limited (700,000)
Loss on share of planet limited 250,000
Capital loss carried forward (450,000) (for 3 yrs.)

Ans. 5
SHAHID ENTERPRISES
TAX YEAR 2020
COMPUTATION OF TOTAL TAXABLE INCOME

Rs. in ‘000’
Income from Business (W.1) 4,967
Capital Gain (45+6.75) 51.75
Income from other source 450
Agricultural Income 980
Total income 6,448.75
Less: Exempt Income (980)
Less: Capital gain (SBI) (51.75)
Less: Profit on debt (SBI) (450)
Less: Zakat (93.75)
Taxable Income 4,873.25
Tax Liability under NTR (765+873.25x35%) 1,070.638
Add: Tax on Capital gain (51.75x12.5%) 6.47
Add: Tax on profit on debt (450x15%) 67.5
Less: Tax deducted (875+6.75+45) (926.75)
Tax payable 217.857

(W-1) Income from business

Profit before tax 6,427
Add:
Closing balance using absorption costing method (3200-2800) 400
Payment without deduction of tax (440,000*20%) 88
Development of product 950
Penalty 15
Less:
Amortization (950/5) (190)
Capital gain (45)
Profit on debt (450)
 Tax depreciation (680)
Rent of Agricultural land (exempt) (980)
Income from business 5,535
b/f unabsorbed depreciation (568)
Income from business 4,967
Note-1 Freight charges paid in cash of 85,000 are allowed as deduction.
Note-2 Salary to Shahid’s brother is allowed as deduction.
Ans. 6
Mr. Muhammad Asghar
Computation of total income, taxable income, tax payable
Tax period 20X1
Income from business (W-1) 6,646,812
Capital gain (W-3) 660,000
Dividend Income 240,000
Total income 7,546,812
Less: FTR Income (240,000)
Less: Separate block item (Capital gain on securities) (660,000)
Zakat (30,000)
Taxable income 6,616,812
Tax liability NTR (765,000 + (2,616,812 x 35%) 1,680,884
Donation (W-4) (504,265)
Tax on dividend (W-2) 36,000
Tax on capital gain (SBI)W-3 82,500
Advance tax (1,400,000 +200,000) (1,600,000)
Withholding tax on import stage (150,000)
Tax deducted on dividend (FTR) (36,000)
Tax Refundable (490,881)

W-1 INCOME FROM BUSINESS

Profit before tax 2,468,000
ADD: Tax not deducted on raw material (7,800,000*20%) 1,560,000
A/C depreciation 2,100,000
Provision for bad debt 1,800,000
Donation 2,300,000
Renewal paid in cash 500,000
Installment of plant 375,000
Less: dividend received (174,000)
Capital gain (660,000)
Initial allowance (2,875,000*25%) (718,750)
Depreciation (2,875,000-718,750) *15% (323,438)
Amortization of Pre-Commencement (3,400,000*20%) (680,000)
Tax depreciation (1,900,000)
Income from business 6,646,812
W-2 Dividend
Dividend Received 174,000
Dividend income (174,000+30,000)/0. 85 240,000
Tax on dividend (240,000 x 15%) 36,000
W-3 Capital gain
Capital gain on securities (660,000*12.5%) 82,500
W-4
Donation (1,680,884/6,616,812 x 1,985,043) 504,265
W-4.1 C = Amount on which the tax credit is given
Lower of
 Actual - 2,300,000
 30% x 6,616,812 - 1,985,043
Notes
(N-1) Expenditure on Eid milan party on employees and their families is allowed as deduction.
(N-2) Penalty on violation is not allowed as deduction, however it is allowed in case it is not
due to the violation of any law.

ANS. 7
Mr Abbas
Computation of Total income, Taxable income and Tax liability
Tax year 2021
Income from Business (W-1) 13,680,450
IFOS 80,000
Capital Gain (430,000 + 250,000) (W-2) 680,000
Total income 14,440,450
Capital gain on securities (Separate block income) (250,000)
Taxable income 14,190,450
Tax liability [765,000 + (14,190,450-4,000,000) x 35%] 4,331,658
Donation (4,331,658/14,190,450 x 1,000,000) (305,252)
Lower of:
- Actual 1,000,000
- 30% of 14,190,450 4,257,135
Tax on Capital gain on securities (250,000 x 12.5%) 31,250
Tax payable 4,057,656
(W 1) Income from Business
A/C Profit before taxation 12,707,000
Add: Inadmissible expenses/admissible income
A/C depreciation 1,200,000
Advance salary in cash 40,000
Research work 700,000
Capital nature 650,000
Personal expense 225,000
Donation 1,000,000
 Insurance premium 200,000
Less: Admissible expenses/Inadmissible income
Loss on disposal of vehicle (W 1.2) (28,000)
IFOS (720,000)
Capital gain (430,000 + 250,000) (680,000)
Depreciation & initial allowance (W 1.1) (1,613,550)
Income from business 13,680,450

(W 1.1) Tax depreciation

P&M (6,860,000 X 15%) 1,029,000
Initial allowance 37,500
Dep of new computer (150,000 - 37,500) x 30% 33,750

Computer (800,000 x 30%) 240,000

Motor vehicle (3,000,000 – 722,500) x 15% x 80% 273,300
1,613,550
(W 1.2)
Sale proceeds 750,000
Less: WDV (778,000)
Loss (28,000)
Cost 1,000,000 20%
Not allowed
Ty – 2019 (1,000,000 x 15%) 150,000 30,000
Ty – 2020 (850,000 x 15%) 127,500 25,500
WDV 722,500 55,500
Dep not allowed 55,500
778,000
(W-2) Capital Gain
Gain on share of public company (security) SBI (250,000 x 12.5%) 31,250
Gain on share of unlisted company 430,000

Ans.8
Aakash
Computation of total income, taxable incomeand net tax payable/refundable
For tax year 2022
Income/loss from business (W-1) (101.89)
Income from capital gain (W-2) 23.6
Income from other source (W-3) 6.3
Total Income/Loss (71.99)
Gain on immovable property not adjustable against any loss (20)
Taxable Income/Loss 91.99
Tax on sale of immovable Property (Plot) (20 x 7.5%) 1.5
(W-1)
Income from (87.0)
businessLoss
before tax
Add: Inadmissible expenses / admissible income
Commission expense disallowed due to sale to inactive tax payer [2.5- 2.4
0.1(50×0.2%)]
Accounting depreciation 40.0
Bad debts recovered from Shameem [16.8-6(19.2-13.2)] 10.8
Outstanding payments for more than 3 years 14.0
Financial charges waived by the bank 2.8

Less: Admissible expenses and inadmissible / FTR income

Penalty -
Freight charges paid in cash -
Tax depreciation (48.0)
Insurance claim received (6.0)
Loss on disposal of vehicle (w-4) (0.92)
Reversal of Bad debts recovered recorded as other income (16.8+10.6) (27.4)
Bad debts recovered from Faheem [10.6-14(28.8-14.8)] (3.4)
Rental income – Chargeable under income from other sources (21.6)
Income from non-speculation business (124.32)
Income from speculation business Net gain from derivative contract
23.0
Income from business (101.89)

W-2
Capital gain
Sale of property 20
Sale of private company shares 3.6
23.6
W-3
Income from other sources
Rental income from leasing of property comprised of building and 2nd
hand locally purchased plant (1.8×12) 21.6
Less: Deductions
Repair and maintenance (actual) (3.2)
Depreciation of building (85×90%×90%×10%) (6.9)
Depreciation of plant (34×15%) (5.2)
6.3

W-4: Loss / Gain on disposal of vehicle Rs.’m

Insurance claim (7.5/10 x 6) 4.5
Cost 7.5
Depreciation TY 2020 (7.5× 15%) (1.125)
TY 2021 (7.5-1.125)×15%) (0.956)
TY 2022 -
WDV 5.42
Loss on disposal of vehicle (.92)

Notes
Since Aakash’s taxable income for tax year 2022 is negative, his share of profit from
associate is ignored.
We assume that the vehicle is not plying for hire