Rise School of Accountancy

Suggested Solution Term Test 01

Question 01
Mr. Usman
Taxable income and tax thereon
Tax year 2009

Income from Business Rs in '000' Marks

0.5
Accounting profit 1,500,000
Add: Salaries to daily wage workers[allowed because monthly is Rs.12,000 (30 x 400)] - 1
Salaries to contract employees (not allowed because more than Rs. 35,000) 60,000 1
Electricity & freight (allowed even if paid in cash) - 1
Accounting Depreciation 500,000 1
Accounting Depreciation 75,000 1
Accounting Amortization 25,000 1
Penalties paid under Sales Tax 25,000 1
Rent rates and taxes to Prov. Govt. (allowed being not paid to Government) - 1
685,000
Less: Tax amortization 20,000 1
Tax depreciation 500,000 1
(520,000)
Taxable income 1,665,000 0.5
Calculation of tax liability
Tax liability [(1,220,000 + 35% x 1,659,000,000)] 581,870 1

Question 02
Mr Murtaza
Taxable Income and Tax Thereon
Tax year 2005 0.25
Income from other sources
Income from the provision of amenities connected with the renting of a
building (10,000 x 12) 120,000 0.5
[S.15(3A)]
Income from property (W-1) 554,800 0.25
Taxable income – taxable under NTR 674,800
Tax Liability on NTR [10,000 + (10% x 74,800)] 17,480 0.5

(W-1) Income from property

Rent chargeable to tax (60,000 – 10,000) x 12 [S.15(1)] 600,000 1
Non-adjustable amount received [S.16(3)] 1,500,000 0.5
Less: Already taxed
In TY 2003 (1,000,000/10) (100,000) 0.5
In TY 2004 (1,000,000/10) (100,000) 0.5
1,300,000
Amount to be taxed (1,300,000/10) 130,000 0.5
730,000
Less: Expenses
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Repairs (1/5th x 730,000) (146,000) 0.5
Rent collection charges (lower of)
- Actual expenses 120,000 0.5
- 4% of rent chargeable to tax (4% x 730,000) 29,200 (29,200) 0.5
Income from property 554,800

Question 03

(1) A depreciation deduction shall be allowed against depreciable assets used in business. [S.22] 0.5
Professional books are depreciable assets and deduction shall be allowed at 15%. If professional 1.5
books are used in the person’s business for the first time in a tax year commencing on or after the
1st day of July 2020 depreciation deduction shall be reduced by 50%.
(2) As per Section 39 of Income Tax Ordinance, 2001, any amount received other than through cross 0.5
cheque or banking channel and fair market value of any property received without consideration or
received as gift shall be chargeable under the head Income from other source.
1
Therefore, receipt of cash gift amounting to Rs.100,000 and gold necklace having fair value of
Rs.30,000 from friend shall be chargeable in tax year 2021 under the head Income from other source
in hands of Jamila.
As per Section 37 (4A), where a capital asset becomes property of the person under a gift, the fair 0.5
market value of asset on the date of its transfer shall be treated as cost of the asset. Jewelry is a
capital asset therefore, cost of jewelry received from friend shall be Rs. 30,000.
0.5
A gain arising on the disposal of a capital asset shall be chargeable under the head “Capital Gain”.
Therefore, gain of Rs. 3,000 (33,000 – 30,000) shall be chargeable under the head Income from
capital gain. As the holding period is less than one year, gain shall not be reduced to 75%.
(3) The cost of purchased asset shall be sum of:
(a) The total amount given for the asset, including the fair market value of consideration in kind 0.5
determined at the time the asset is acquired;
(b) any incidental expenditure paid in acquiring and disposing of the asset; and 0.5
(c) expenditure paid to alter or improve the asset, 0.5
but shall not include any expenditure which is fully allowed as a deduction. S.[76(2)]

Question 04
(1)
As per S.76, the cost of purchased asset shall be the total amount given for the asset and does not include 1
the amount of any subsidy received in respect of the acquisition of the asset. However if subsidy is
chargeable to tax then it will be added in the cost. Firstly we will calculate amount of subsidy:

Total subsidy (25,000 x 100) = 2,500,000 x 15% 375,000

Exempt subsidy (375,000 x 25%) 93,750 0.5
Taxable subsidy (375,000 x 75%) 281,250 0.5

We will start with net purchase price and then taxable will be added.
Purchase price [2,500,000 – 375,000] = (net) 2,125,000 + 281,250 2,406,250 1
(2)
The cost of produced or constructed asset shall be the total costs incurred in producing or constructing the 1.5
asset plus any incidental expenditure and expenditure paid to alter or improve the asset.
If an asset is purchased with a loan from foreign currency, then any increase/decrease in the liability

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(before repayment) due to currency fluctuation will be added/deducted in the cost of the asset.

Labour 50,000 0.5

Instrument 200,000 0.5
Expert 100,000 0.5
Effect of Currency fluctuation (105-100) ×1,000 5,000 1.0
Total cost 355,000

Question 05
Consideration received 12,000,000 0.5
Less: WDV:
Cost 12,000,000
Less: Accumulated depreciation (2,689,750) 0.75
(10,000,000 – 7,310,250)
(9,310,250)
Gain/(loss) 2,689,750 0.5

W-1
07.12.2020 Cost of the building 10,000,000 0.25
30.06.2021 Depreciation (10,000,000 x 10% x 50%) (500,000) 0.25
30.06.2021 Written down value 9,500,000 0.25
30.06.2022 Depreciation (9,500,000 x 10%)
30.06.2022 Written down value 8,550,000 0.25
30.06.2023 Depreciation (8,550,000 x 10%) 0.25
(855,000)
30.06.2023 Written down value 7,695,000 0.25
01.01.2024 Depreciation (7,695,000 x 10% x 50%) 0.25
(384,750)
01.01.2024 Written down value 7,310,250 0.25

Question 06
Mrs. Ahsan
Calculation of taxable income and tax liability
TY2022 0.5
Income from salary Rs.
From SL
Leave encashment [S.12(2)(a)] 95,000 0.5
Gratuity [2nd Sch. Clause 13(iv)] 500,000 0.5
Less: Exempt (lower of:)
- 50 % of 500,000
-or 75,000 (75,000) 425,000
Reimbursement (Exempt assuming as per terms) [2nd Sch. Clause 139] - 0.5
520,000
From HPL
Basic Salary [S.12(2)(a)] (200,000 x 12) 2,400,000 0.5
Medical allowance [S.12(2)(c)] (60,000 x 12) 720,000 0.5
Less: Exempt upto 10% of basic salary (10% of 2,400,000) (240,000) 480,000 0.5
Rent free accommodation [S.13(12)]
Higher of:
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- 45% of basic salary (45% x 2,400,000) 1,080,000
- Annual letting value 480,000 1,080,000
Travelling allowance [S.12(2)(c)] (20,000 x 12) 240,000 0.5
Employer contribution - Provident fund (10% of 2,400,000) 240,000
Less: Exempt (lower of:)
- 10% of 2,400,000
- 150,000 (150,000) 90,000
Employee contribution (Ignored being already part of salary) _ 0.5
Shares acquired under scheme [S.14(2)]
Fair market on date restriction released (5,000 x28) 140,000
Less: Cost of shares - 140,000
Interest benefit [S.13(7)] (Exempt because loan less than Rs. 1,000,000) _ 0.5
Laptop transferred [S.13(11)] 150,000 0.5
4,580,000
Tax to be borne [S.12(3)] (W-2) 734,654 0.5
5,834,654
Income from capital gain
Gain on securities [S.37A] (acquired after 1.7.16) (W-1) 20,000 0.25
Total Income 5,854,654
Less: Income from capital gain – taxable separately (20,000) 0.25
Total Income under NTR 5,834,654
Less: Zakat [Sec. 60] (105,000)
Taxable income 5,729,654

Tax liability on income falling under NTR (670,000 + 729,654 x 22.5%) 834,172
Less: Tax credit on charitable donation [S.61] (834,172/5,729,654) x 70,000 (10,191) 1.5
C is lower of - 70,000 or 30 % of 5,729,654 823,981
Tax on securities [S.37A] (acquired after 1.7.16) ((W-1)20,000 x12.5%) 2,500
Less: Tax borne by employer (734,654) 0.5
Payable to Government/ (Refundable) 91,827 0.5

Item not included Any amount received from spouse under an agreement to live a part is exempt from tax.
[S.48] 0.5
Workings
(W-1)Gain
Consideration received (5,000 x 32) 160,000 0.5
Less: Cost
Cost of shares - 0.25
Cost of right - 0.25
Amount charged under salary 140,000 (140,000) 0.5
20,000
(W-2) Tax borne by employer[S.12(3)]
Step 1
Salary income 4,580,000
Tax there on (370,000 + 1,080,000 x 20%) 586,000 1
Step 2
Salary income (4,580,000 + 586,000) 5,166,000
Tax there on (670,000 + 166,000 x 22.5%) 707,350 1
Step 3
Salary income (4,580,000 + 707,350) 5,287,350
Tax there on (670,000 + 287,350 x 22.5%) 734,654 1
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