MODEL QUESTION

SUBJECT: Tax Planning TIME: 2 hrs

V Spring 2018 FULL MARK: 50

Attempt ALL questions

1. XYZ Pvt. Ltd has following transactions during the income year 20X1/ 20X2.
Profit and Loss Account

Particulars Amount in Rs.

Sales 31,000,000
Cost of Sales 17,600,000
Gross Profit 124,00,000
Other Income 500,000
Administrative Expenses 2,000,000
Selling and Distribution Expenses 600,000
Depreciation 6,800,000
Interest expenses 2,000,000
Profit before tax 2,500,000

Additional information:
a) Other income was interest from Bank of Kathmandu. It has presented net of
tax after @10%.
b) Cost of Sales includes the following:

Particular Amount (Rs) Amount (Rs)

Opening stock 700,000
Clinker and other raw 18,000,000
material
Manufacturing
expenses:
Salary and wages for 12,00,000
factory
Repair and maintenance 400,000
expenses
Other overhead 300,000
expenses
Total manufacturing 19,00,000
expenses
Closing stock 3,000,000
Cost of Sales 11,900,000
 c) Depreciation includes Rs. 2,000,000 for the construction of factory, which was
completed on Mangsir 20 20X1 with the total cost of Rs. 40,000,000.
Depreciation for others as follows:
Block Depreciation Base Depreciation
B 1,200,000 300,000
D 30,000,000 4,500,000

d) Interest expenses was charged for the loan borrowed for factory construction.
The loan is Rs. 20,000,000 with 10% interest rate.

Based on the above information, you are required to calculate taxable income (10
Marks) (Page 64)

2. Discuss the implication of tax/ withholding tax on following: (5*2=10 Marks)

a) X & Co., Chartered Accountants, has entered in to contract for tax consultancy
services to Z Ltd. For Rs. 200,000 per month. X & Co., raised the VAT invoice
for the month of shrawan 2073 amounting to Rs. 226000 (200,000+13% VAT)
b) Mr. Hari, an individual person, owned the furnished building situated at Kalanki,
Kathmandu. He has given on lease the furnished building to a development bank
for Rs. 40,000 per month for Shrawan month. Mr. Hari is conducting any business
and has rent income only.
c) Mr. Krishna is an economist; He published an article on “Current Status of
Economy” in Kantipur daily and received Rs. 6000. He also teaches, occasionally,
“Economics” in an educational institution for which he received Rs. 10000 for a
class.
d) A & Company Ltd. Decided to declare and distribute the cash dividend at the rate
of 10% amounting to Rs. 50,000 and bonus shares at the rate of 20% amounting
to Rs.100,000 out of the profit of the income year 2067/68 from its general
meeting dated Mansir 28, 2073.
e) M/S ABC Ltd. Has 60 shareholders. The company distributed I-Phone worth Rs.
38,000 free of cost to each shareholders. (Page 82 and Page 80)

3. A. Mr. A has been working in the capacity of senior manager of XYZ Co. Ltd. The
company provided his a Volkswagen car for the official and personal use. The current
market price of the car is Rs. 57,00,000. Mr. A’s remuneration during the IY
20X1/20X2 are as follows:
Salary Rs. 150,000 per month
Grade Rs. 75,000 per month
Allowances Rs. 7,000 per month
Other Allowances Rs. 9,000 per month
Quantify the amount for the vehicle facility provided for computing Mr. A’s taxable
income from remuneration for IY 20X1/X2.
Will the answer be different in case XYZ Co. hired Mr. A for four months in the
capacity of consultant for a fee of Rs. 700,000 in total? (5 Marks) (Page 22)
 b. Mr. Ganesh, a Reader in TU, submitted the following details of is employment
income during the year.
 Salary Rs. 27,000 per month
 Dearness Allowances Rs. 2000 per month
 House Rent Allowances Rs. 3000 per month
 City Compensatory Allowances Rs. 10,000
 Chairmanship Allowances Rs. 1000 per month
 Life insurance premium paid by office Rs. 12,000
 Interest on government securities Rs. 17,900 (net)
He has claimed following expenses:
 Donation to private school Rs. 2000
 Domestic expenses Rs. 200,000

Required:

Assessable income from employment of Mr. Ganesh for the relevant income year.
(5 Marks)

4. A. Fat Ltd. has following transactions during the month of Baisakh 2074, find the
amount of VAT credit available for the month of Jestha 2074: (7 Marks)

Particulars Amount in Rs.

Opening Credit available 12,000

Purchase (excluding VAT) 1,000,000
Salary for the month 150,000
Telephone expenses including VAT 13,560
Car Purchase (including VAT) 1,130,000
Purchase of Office Supplies 150,000
Total Sales for the month (excluding VAT) 1,500,000
Additional Information

 All the sales were VAT applicable

 Out of Office Supplies, Rs. 20,000 were purchased from abbreviated tax invoice.
 Fuel expenses consist of petrol used for office vehicle. (Page 121)

b. Mr. Anup Kumar, an Indian National, is a resident of India as per Indian Income
Tax Act. He is businessman in Mumbai and also stayed for 130 days in Nepal in last
365 days ended in Ashad and thereafter he returned back to India. Describe the
residential status of Mr. Anup Kumar as per provision of Income Tax Act 2058. (3
Marks)

5. A. Nirdhan Samaj Sewa is a nonprofit making organization registered in Kathmandu.

During the previous income year, the organization received the following incomes:
Membership fee Rs. 275,000
Interest Rs. 170,000
Donation Rs. 450,000
Dividend Income Rs. 1,200,000
Nirdhan Samaj Sewa claimed that as it is tax-exempt organization and it is not obliged
to pay tax. Describe the provision of tax-exempt entity and the income that the tax
exempt entity will be exempted in accordance with Income Tax Act 2058 to the above
case. (5 Marks) (Page 91)

b. The senior management of ABC Pvt. Ltd is considering following alternative

business proposal for its business expansion:
Proposal A: to establish trading business
Proposal B: to establish manufacturing business
The management expects to earn assessable income before charging depreciation
from each business Rs. 150,00,000 with same capital investment. It requires
investment in fixed assets falling in Block D is Rs. 100,00,000 for proposal B only
and investment in fixed assets falling in Block B is Rs. 50,00,000 for both proposal.
Corporate tax rate of manufacturing company: 20%
Normal corporate tax rate: 25%

Required: Suggests the senior management regarding the better proposal with
supporting from taxation approach.