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MIDTERM EXAMINATION

SPRING 2008

FIN623 - TAXATION MANAGEMENT (Session - 1 )

Marks: 40

Time: 60min

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Student Name:
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Exam Date:
Saturday, May 31, 2008

Please read the following instructions carefully before attempting any


question:
§All questions are compulsory.
§This exam consists of 10 Multiple Choice Questions (MCQs) carrying 1 mark each; 5
True/False carrying 1 mark each; 5 Short Questions carrying 3 marks each; and 1
Descriptive Question carrying 10 marks.
§For each MCQ, read the available choices carefully and select the most appropriate choice
which you consider is the correct answer, by clicking on the appropriate check box.
§Remember not to spend too much time on any one objective type question since all
objective type questions carry equal marks. It is important to manage your time
according to the marks allocated to each question.
§ If you believe that some essential piece of information is missing, make an
appropriate assumption and use it to solve the problem.
§ Use of calculator is allowed.
§Save your answer before proceeding to the next question.
§Do not click the “Finish” button while solving your paper. Once you clicked the “Finish”
button, you will not be able to access your paper again. Click it at the end of your paper.
That means you have submitted your complete paper.
§A clock is given in the exam software. Software will automatically close at the end
of given time.
§Use of mobile phone is strictly prohibited. Switch off your mobile phone during the
exam.
§Failure to comply with the Supervisor’s directions will result in your test being cancelled.
Please comply with supervisor’s directions to avoid any unpleasant event.

For Teacher's use only

Question
1
2
3
4
5
6
7
8
9
10
Total

Marks
Question
11
12
13
14
15
16
17
18
19
20

Marks

Question
21
Marks

Question No: 1 ( Marks: 1 ) - Please choose one

Which one of the following policy have taxes as an important instrument?


Monetary policy


Fiscal policy


Trade Policy


Economic Policy

Question No: 2 ( Marks: 1 ) - Please choose one

Which one of the following is the main source of revenue generation of the state?


Taxes


Tariffs


Internal Borrowing


Penalties & Fines
Question No: 3 ( Marks: 1 ) - Please choose one

In the canon of taxation, which one of the following statements best describe the benefits principle?


Persons deriving more income leads to enjoy less benefits from the state, should be taxed at the
lower rates


Persons deriving more income leads to enjoy less benefits from the state, should be taxed at the
higher rates


Persons deriving less income leads to enjoy more benefits from the state, should be taxed at the
lower rates


All persons deriving more or less income should be taxed at the same rate
Question No: 4 ( Marks: 1 ) - Please choose one

Which one of the following is NOT the type of tax?


Direct Taxes


Indirect Taxes


Value Added Taxes


Federal Taxes

Question No: 5 ( Marks: 1 ) - Please choose one


Which one of the following is the Special Accounting Year of the Insurance Companies?


1st January to 31st December


1st July to 30th June


1st October to 30th September


1st September to 31st August

Question No: 6 ( Marks: 1 ) - Please choose one

Which one of the following is the legal status of Mr. Z a Director in Private Company under section
80 of the Income Tax Ordinance 2001?

Individual


Company


Hindu Undivided Family


AOP

Question No: 7 ( Marks: 1 ) - Please choose one

Mr. Ali is 60 years old and being a citizen of Pakistan, if his total taxable income is Rs. 400,000. His
tax liability will be reduced by ______ under Part 3 of second schedule.


10%


25%


50%


75%

Question No: 8 ( Marks: 1 ) - Please choose one

Mr. Khan is an employee of ABC Co. the company has provided a driver and a gardener to him.
What will be the treatment of their salaries as per Income Tax Ordinance 2001?


Salaries paid to them added in the salary of Mr. Khan

Ssalaries paid to them subtracted from the salary of Mr. Khan


Have no relation with salary of Mr. Khan


Salaries paid to them are exempted from Tax

Question No: 9 ( Marks: 1 ) - Please choose one

Which one of the following is an example of tax evasion?


Mr. Javed transfers stock to his grandchildren so that the dividend income is included in their
taxable income


Mis Saima sells her corporate bonds and reinvests the proceeds in tax exempt municipal bonds

Imran wins $500 at beach bingo and does not report the income on his tax return


Khuram invests in an apartment that expects to show losses for the next three years

Question No: 10 ( Marks: 1 ) - Please choose one

Mr. Suleman is an employee of ABC Co. utilities are provided by Company to him for the tax year
2007. What will be the treatment of Utilities as per Income Tax Ordinance 2001 in the tax year
2007?


Utilities paid are added in the salary of Mr. Suleman


Fair market value of Utilities is added in the salary of Mr. Suleman


10% of Utilities is exempted from tax and remaining amount will be added in the salary of Mr.
Suleman


Utilities paid are exempted from Tax

Question No: 11 ( Marks: 1 ) - Please choose one

Simplicity principle implies that taxation system should be plain, and easily understandable by the
tax payer.


True


False

Question No: 12 ( Marks: 1 ) - Please choose one


Provincial Government can issue administrative instructions explanations/circulars under the
powers vested through Sec 206 and 213.


True


False

Question No: 13 ( Marks: 1 ) - Please choose one

Scholarship granted to a person to meet the cost of person’s education shall be exempt from tax
under Section 45 of Income Tax Ordinance 2001.


True


False
Question No: 14 ( Marks: 1 ) - Please choose one

Part 2 of the Second Schedule of Income Tax Ordinance 2001 deals with reduction in Tax Rates.


True


False

Question No: 15 ( Marks: 1 ) - Please choose one

Mr. Akbar a resident individual received Dividends in Tokyo from a Pakistani resident company.
Dividend will be added in his gross total income.


True

False

Question No: 16 ( Marks: 3 )

Mr. Zeeshan an employee of federal government has been posted at Paris on 1st July, 2006. He
came on a visit to Pakistan on 1st November, 2006 and returned back to Paris on 15th December,
2006. For the rest of the period pertaining to tax year 2007, he remained in UK.
Determine residential status for the tax year 2007 with respect to section 81 of Income Tax
Ordinance 2001.

Question No: 17 ( Marks: 3 )

Enumerate the essentials of Taxation Management.

Question No: 18 ( Marks: 3 )

Determine tax year in the light of following information:


a)Mr. Kamran a rice exporter deriving income during the period from 1st January 2004 to 31st
December 2004.
b)M/S XYZ an insurance company having an accounting period from 1st January 2006 to 31st
December 2006.
c)Mr. X an individual derived income during the period from 1st July 2002 to 30th June 2003.
Question No: 19 ( Marks: 3 )

Make a comparison between the residential status of Resident AOP and Resident Company.

Question No: 20 ( Marks: 3 )

Is the income of non- resident taxed in Pakistan? Which part of his/her income is taxed?

Question No: 21 ( Marks: 10 )

1. Determine gross total income of Mr. Majid in the light of following informations pertaining to tax
year 2006. (5+5)
a.Pension from Pakistan Government but received in New York Rs. 25,000.
b.Dividends received in UK on 20th August 2006 from a Pakistani resident company
amounting Rs. 50,000.
c.Interest on Swiss Bonds (Half is received in Pakistan) Rs. 60,000.
d.Rent for tax year 2006 of a house property situated in New York and received there on 01-01-
2006 Rs.500, 000.
e.Income from agriculture in New York received there but later on remitted to Pakistan 80,000.

Find out gross total income of Mr. Majid, if he is:


a.Pakistani resident
b.Non–resident