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Biplob Kumar Sannyasi Reg: 20114113

ICMAB

Assessment of companies
Worked Example 1 M/s. John Morris Inc. is a multinational company doing business in Bangladesh. The company filed return of income for the assessment year 2011-2012 showing net income of Tk. 30,00,000. Examination of the audited statement of accounts filed with the return of income revealed the following: (a) Salary includes Tk. 3,30,000 paid to a Director working at the head office at California. He has never visited Bangladesh and no taxes, as such, has been deducted at the time of making the payment. (b) Head office expenses charged Tk. 11,00,000. No evidence could be produced for this other than HO auditors certificates. (c) Fine of Tk.11,000 paid for violation of customs law charged to P & L Account. (d) Two Nissan Petrol Jeeps purchased for Tk. 45,00,000 during the year. Depreciation @ 20% charged on the full cost of the vehicles. (e) To procure business Tk.10,00,000 has been paid as commission to a local agent. In making the payment, the provision of section 53E of IT Ordinance, 1984 has not been complied with. (f) The company sold a motor vehicle for Tk. 4,65,000. Original cost of the vehicle was Tk. 5,25,000 and the written down value was Tk. 3,25,000. This has not been reflected in the accounts.

(g) Tk.15,000 donated to a non-recognised school. (h) Miscellaneous expenses include Tk. 72,000 paid as salaries to three servants who are working at the residence of the Managing Director. (i) (j) Conveyance expenses include Tk. 2,20,000 paid for the plane fare of the wife and son of the Managing Director for the visit of the neighboring countries. Interest expense claimed at Tk. 33,50,000. The company has outstanding bank loan of Tk. 2.10 crores. The company advanced Tk. 75,00,000 interest-free loan to a sister-concern in Bangladesh.

From the above information compute the total income of the company for tax purpose.

Worked Example 2 The profit and loss account of Care Pharmaceuticals for the year ended on June 30 2011 reports net income of taka 20,00,000. A careful scrutiny of accounts and supporting documents revealed the following facts: (a) During the year the company sold some of its pharmaceutical supplies that remained unused for a long time in the storeroom. The company sold the supplies for a loss of taka 150,000 as the expiry period is very close and charged such loss against current years profit. (b) The company recovered taka 20,000 from bad debt that was written off earlier and was allowed. The amount so recovered was credited to sundry debtors account. (c) The company had taka 80,000 interests due to Bangladesh Shilpa Rin Sangstha in the year 2004 and such interest was shown as allowable deduction in that year. Still, such interest remains unpaid. (d) The company has a trading liability with one overseas company to the tune of taka 1,50,000 which has been totally waived by the overseas company under special agreement during this year. (e) During the year, the company sold one equipment for taka 1,80,000 which was purchased at a total cost of taka 1,30,000 and had a written down value of taka 90,000 on the date of sale. The company reports taka 90,000 as gain on sale of equipment in the credit side of profit and loss account. (f) Due to a sudden fire on the factory building, the extended portion of the building is totally destroyed and compensation received from the insurance company totaled taka 2,50,000. In addition, the company realized an additional sum of taka 30,000 by selling the scrap. The extension was constructed at a total cost of taka 4,00,000 and depreciation charged to date amounts to taka 50,000. (g) The company sold a scientific apparatus used for scientific research for taka 80,000 which was originally purchased at taka 1,50,000 and fully depreciated. The sale proceed is not recorded at all. (h) The company have had export quota for exporting garments to EU countries. As the company has recently changed the line of operation (switched from garments manufacturing to pharmaceuticals), it transferred the export quota to another garments manufacturer for an annual sum of taka 70,000. Such income is not reported at all. (i) The company claimed investment allowance for new machinery installed during the year costing taka 10,00,000 which is entitled to accelerated depreciation. (j) Bonus and commission to the field representatives at the rate of 4 months pay taka 3,00,000 including 1 months pay as festival bonus. But the general practice of bonus and commission for the similar business is two months pay. (k) Sum of taka 1,20,000 paid to an institution for scientific research which is not approved by NBR. (l) Sum of taka 5,00,000 expended for establishing a hospital for the benefit of employees without any charge. The company has not claimed any other deduction or allowance. (m) Salary of taka 5,00,000 and rent of taka 80,000 were paid without deducting tax at source. (n) Payment of brokerage and commission of taka 60,000 made to a non-resident without deducting tax at source. (o) Annual perquisites enjoyed by MD, Chairman and 5 members of BOD amounts to taka 22,00,000.

(p) Accounting depreciation charged to the account is taka 2,50,000 but tax depreciation amounts to taka 3,00,000 excluding the amount of accelerated depreciation on machinery. (q) Value of the free sample distributed was taka 2,00,000. Annual turnover during the year was taka 80,00,000. (r) Expenditure on foreign travels for holidaying and recreation of the employees and their dependants to the extent of the amount equivalent to three months basic salary of taka 3,60,000; actual expenditure being taka 4,00,000 and that the travel was not oftener than once in two years. (s) Sum of taka 50,000 expended to train employees (Bangladeshi citizen) in connection with a scheme approved by the Board. (t) The company expensed a sum of taka 2,00,000 for visits abroad as a member of trade delegation sponsored by the government. (u) Annual membership fee of taka 1,50,000 is paid to Bangladesh Pharmaceutical Society which is a professional institution recognized by the Board. (v) Expenditure on publicity and advertisement, taka 3,00,000. (w) Entertainment expenditure, taka 1,50,000.

Required: Compute the taxable income of the company.

Worked Example 3 ABC Bank Ltd., a bank incorporated in Bangladesh, has submitted the following audited income statement showing profit before tax of TK 258,000 for the income year 2010-11. You have been provided with the notes supporting the figures to compute the tax liability of the bank for the respective assessment year: Prticulars Interest Income Interest Paid on Deposits & Borrowings etc. Net Interest Income Income from investments Commission, Exchange and Brokerage Other Operating Income (20+61) Total Operating Income (A) Less: Operating Expenses Payment to Employees Postage and Telegrams Rent, Rates & Insurance, etc. Legal Charges Directors Fees Auditors Fees Repairs to Premises Stationery, Printing and Advertisements Stamps Charges on Loan Losses Other Expenses of Business Total Operating Expenses (B) Profit / (Loss) before Provision (C=A-B) Provisions: Specific Provision General Provision Total Provision (D) Total Profit / (Loss) before Taxes (C-D) Supporting Information:
1. 2.

Amount (Tk.)

Amount (Tk.) 650,000 200,000 450,000 100,000 60,000 81,000 691,000

215,000 5,000 11,000 2,000 2,000 1,000 60,000 72,000 3,000 5,000 15,000 391,000 300,000 12,000 30,000 42,000 258,000

Accounting depreciation charged was Tk. 50,000 whereas tax depreciation is Tk. 80,000. Inadmissible expenses have been found as follows: Perquisites Tk. 50,000 Printing and Advertisement (capital nature) 40,000 Other expenses (tax is not deducted at sources) 10,000

Balance Sheet (extract): Paid up Capital Tk. 2,000,000 Statutory Reserve 750,000 Retained Earnings 250,000 Dividend Equalization Fund 200,000 4. Classification of Loans and Advances: Unclassified Tk. 2,100,000 Sub-standard 850,000 Doubtful 1,145,000 Bad/Loss 10,250,000 5. Entertainment Expenses amounts to TK 65,000 for the period
3.

Worked Example 4: Prime Leasing is a public limited company listed with Dhaka Stock Exchange. It has recently submitted its income tax return for the accounting year ending on 31 December, 2010 showing a net profit before tax of Tk. 11,37,25,000. Further examination of the file, records and documents revealed the following: (a) Depreciation on leased assets charged in the accounts of Tk. 3,80,50,000 and loss on disposal of leased assets was Tk. 29,88,000 this arose out of the shortage of residual value of returned or repossessed assets plus rentals received on the lease of these assets over the original cost of the assets. (b) Provision for used assets and term finance has been made in the accounts at Tk. 51,35,500 and Tk.19,13,900 respectively. This has been provided in accordance with FID Circular No. 8 issued by the Bangladesh Bank. (c) Tax depreciation for the relevant year is 5,85,00,000. (d) Balances of statutory reserve and paid up share capital on 1.1.2010 were Tk. 1,86,00,000 and Tk.12,00,00,000 respectively. (e) Excess perquisites amounted to Tk. 6,95,000 and legal expenses included Tk. 80,000 for professional fees for the acquisition of company's new office at Dhanmondi. (f) Net profit included dividend received on investments of Tk. 19,98,000. You are required to compute the (a) total income and (b) tax liability of the company for the relevant

Worked Example 5 According to the last actuarial valuation at 31 December 2010, the Pioneer Life Insurance Co. Ltd. had a surplus of Tk. 10,00,000. There was a deficit of Tk. 3,00,000 in the preceding actuarial valuation. 60% of the surplus was reserved for bonus to the policyholders. The company had the following income in the income year 2010-2011: 1. 2. 3. 4. 5. 6. Premium Tk. 20,00,000 Interest on tax free government securities Tk. 1,00,000 Dividends Tk. 1,50,000 Fines and fees Tk. 80,000 Profits on sale of shares Tk. 90,000 Profits on granting annuities and reversion Tk. 1,50,000

Management expenses claimed and admitted by the DCT are Tk. 2,50,000. During the undervaluation period the company paid income tax at source of Tk. 3,00,000. Some of the share investments have depreciated in value during the year by Tk. 60,000. Determine the income of life insurance business of the company for the income year 2010-2011.
Worked Example 6 Following is the profit and loss account of Sonar Bangla Insurance Co. Ltd. for the year 31 December 2010: Directors' fee Audit fees Registration, renewal etc. Advertisement Depreciation Interest on overdraft Balance transferred to Appropriation Account Amount 48,000 1,35,000 2,05,331 32,40,251 7,92,127 1,81,198 3,23,57,906 3,70,09,813 Interest, dividend, rent Profit transferred from other revenue accounts Other Income Amount 1,97,26,029 1,72,73,952 9,832

3,70,09,813

Further scrutiny of the relevant papers, files and documents revealed the following: (1) (2) (3) (4) (5) Gross premium received during the year was Tk.125607426 and in three years immediately preceding were Tk. 131212308, Tk. 136887085 and Tk. 135580109 respectively. Net premium income of the year was Tk. 64441296 and the balance brought forward on reserve for exceptional loss was Tk.101945720. Accounting depreciation has been Tk. 792127 whereas as per tax law this has been computed as Tk. 919029. Gratuity provided in the accounts was for Tk. 779845 and paid actually Tk. 6,25,860. Analysis of the dividend, rent etc. revealed that an amount of Tk. 6488284 being interests on various bank deposits has been included therein.

Calculate the taxable profit and tax liability of the company for the relevant assessment year:

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