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Wealth
Statement

Preparation of Wealth Statement

1. Identify Assets and Liabilities: The wealth statement is essentially a
balance sheet of an individual, which includes personal assets and
liabilities on a given date. It does not reflect business assets and liabilities
but shows the net equity of the business. Assets and liabilities include
cash, bank balances, investments, properties, loans, etc.
2. Prepare Cash and Bank Reconciliation Statement: Start from the
opening balance of cash & bank and after adding cash inflows and
subtracting cash outflows, the remaining amount is the closing balances
of cash & bank account. This closing balance is included in the assets of
the wealth statement. If the expenditure side is not explained through
the cash receipt side, then the difference is unexplained investment and
is taxable.
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Preparation of Wealth Statement

3. Calculate Net Wealth: After taking the cash & bank reconciliation
figure, the wealth statement for the current year is complete. A person
can easily calculate the figure of increase/decrease in the net wealth by
subtracting the last year's net wealth figure from the current year's net
wealth figure.

4. Prepare Wealth Reconciliation Statement: This statement shows

the opening wealth, adds inflows (like salary income, gain on sale of
shares, profit on business, etc.), subtracts outflows (like tax paid,
household expenses, gifts, etc.), and finally gives the total wealth at the
end of the period.

Preparation of Wealth Statement

5. Record at Historical Cost: Assets and liabilities are recorded at
historical cost and not at market value.

6. Revise if Necessary: If a person discovers any omission or wrong

statement in the wealth statement, they can revise it by intimation to the
Commissioner. The revision can be made before the receipt of notice for
amendment in assessment. A revised wealth reconciliation and reasons
for revision will also be filed.

7. Furnish the Statement: The wealth statement should be furnished by

the due date specified in the notice.

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Mr. Nadeem has filed following wealth statement as on 30.06.2022

Plot at DHA, Lahore 3,500,000
Capital in ABC & Co 2,500,000
Jewelry 500,000
Shares in XYZ (Pvt.) Ltd 1,000,000
Cash 1,500,000
Bank 2,000,000
TOTAL 11,000,000
Personal Loan 1,000,000
TOTAL 10,000,000

During the year following information is provided:

1. He earned salary income of Rs. 1,200,000 and paid tax Rs. 100,000.
2. He sold share of Rs. 200,000 for a consideration of Rs. 350,000.
3. He settled his personal loan of Rs. 500,000.
4. His household expenses aggregates to Rs. 850,000.
5. He has given gift of Rs. 400,000 to his brother Kamran through crossed cheque.
6. He has earned profit on ABC & Co of Rs. 450,000. His drawings from the firm
during the year was
7. Rs. 275,000. He paid tax of Rs. 40,000 on firm income.
8. He purchased a new plot at EME society for total consideration Rs. 2,000,000
payable in 20 installments.
9. During the year he paid Rs. 700,000 in installments.
10. As at 30th June 2023, the market value of jewelry was Rs. 800,000
11. On 30th June 2023, his bank balance was Rs. 475,000.
Required:
Prepare the wealth reconciliation statement and wealth statement for 2023.
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1. Identify Assets and Liabilities: In Mr. Nadeem's case, his assets included
a plot at DHA, capital in ABC & Co, jewelry, shares in XYZ (Pvt.) Ltd, cash,
and bank balance. His liabilities included a personal loan.

2. Prepare Cash and Bank Reconciliation Statement: Mr. Nadeem started

with the opening balance of cash & bank. After adding cash inflows and
subtracting cash outflows, the remaining amount was the closing
balances of cash & bank account. This closing balance was included in
the assets of the wealth statement.

Calculate Net Wealth: After taking the cash & bank reconciliation figure, Mr.
Nadeem's wealth statement for the year was complete. Now calculated the
figure of increase/decrease in the net wealth by subtracting the last year's
net wealth figure from the current year's net wealth figure.

Prepare Wealth Reconciliation Statement: Mr. Nadeem's wealth

reconciliation statement showed the opening wealth, added inflows like
salary income and gain on sale of shares, subtracted outflows like tax paid on
salary, household expenses, and a gift to his brother, and finally gave the
total wealth at the end of the period.

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Calculation of capital in ABC & Co.

1. Start with the initial capital in ABC & Co, which is Rs. 2,500,000
2. Add the profit earned from ABC & Co during the year, which is Rs. 450,000
3. Subtract the drawings from the firm during the year, which is Rs. 275,000

Capital in ABC & Co = Initial Capital + Profit - Drawings

= Rs. 2,500,000 + Rs. 450,000 - Rs. 275,000
= Rs. 2,675,000

calculation of closing cash and bank balance.

1. Start with the opening cash and bank balance, which is Rs. 1,500,000 (cash) + Rs.
2,000,000 (bank) = Rs. 3,500,000.
2. Add the inflows during the year, which include salary income of Rs. 1,200,000, gain on
sale of shares (Rs. 350,000 - Rs. 200,000 = Rs. 150,000), and drawings from the firm
ABC & Co of Rs. 275,000.
3. Subtract the outflows during the year, which include tax paid on salary of Rs. 100,000,
household expenses of Rs. 850,000, gift to brother of Rs. 400,000, tax on profit of ABC
& Co of Rs. 40,000, and installments paid for the new plot of Rs. 700,000.

So, the calculation would be:

Cash and Bank = Opening Cash and Bank + Inflows - Outflows

= Rs. 3,500,000 + Rs. 1,200,000 + Rs. 150,000 + Rs. 275,000 - Rs. 100,000 - Rs. 850,000 -
Rs. 400,000 - Rs. 40,000 - Rs. 700,000
= Rs. 2,735,000
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Calculation of closing cash and bank balance.

Closing Cash and Bank = Opening Cash and Bank + Inflows - Outflows
Start with the opening cash and bank balance, which is Rs. 1,500,000 (cash) + Rs.
2,000,000 (bank) = Rs. 3,500,000.
Add the inflows during the year, which include salary income of Rs. 1,200,000, sale of
shares Rs. 350,000 , and drawings from the firm ABC & Co of Rs. 275,000.
Subtract the outflows during the year, which include tax paid on salary of Rs. 100,000,
household expenses of Rs. 850,000, gift to brother of Rs. 400,000, tax on profit of ABC &
Co of Rs. 40,000, and installments paid for the new plot of Rs. 700,000 and settlement of
loan Rs. 500,000

Closing Cash and Bank = Opening Cash and Bank + Inflows - Outflows
= 3,500,000 + 1,200,000 + 350,000 + 275,000 - 100,000 - 850,000 - 400,000 - 40,000
- 700,000 – 500,000
= Rs. 2,735,000

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The wealth reconciliation statement is a document that shows how an

individual's wealth has changed over a specific period. It includes the
opening wealth, adds an increase in wealth, subtracts a decrease in
wealth, and finally gives the total wealth at the end of the period.
Opening Wealth: Start with the opening wealth. In Mr. Nadeem's case, the opening wealth was
Rs. 10,000,000.
Add Increase in wealth (Assets)
▪ Salary income of Rs. 1,200,000
▪ Gain on sale of shares (Rs. 350,000 - Rs. 200,000 = Rs. 150,000)
▪ Profit on ABC & Co of Rs. 450,000
Subtract Decrease in wealth (Assets)
▪ Tax paid on salary of Rs. 100,000
▪ Household expenses of Rs. 850,000
▪ Gift to brother of Rs. 400,000
▪ Tax on profit of ABC & Co of Rs. 40,000
Calculate Total Wealth: The total wealth at the end of the period is the opening wealth plus
increase in assets minus decrease in assets. In Mr. Nadeem's case, this was Rs. 10,410,000.
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The repayment of a loan is not typically included in a wealth reconciliation statement

because it is a transfer between two types of assets: cash and liabilities. When you repay a
loan, you decrease your cash assets and also decrease your liabilities (the loan). The net
effect on your total wealth is zero.
In the context of Mr. Nadeem's wealth reconciliation statement, the repayment of the
personal loan is not included because it does not affect his net wealth. The cash used to
repay the loan decreases his cash assets, but it also decreases his liabilities by the same
amount. Therefore, the net effect on his total wealth is zero.
However, the outstanding loan amount at the end of the year would be considered in the
calculation of Mr. Nadeem's total wealth, as it is a liability that reduces his net wealth. The
wealth statement would show a decrease in liabilities (due to loan repayment), which would
increase his net wealth.
Remember, a wealth statement is a snapshot of an individual's assets and liabilities at a
specific point in time, while a wealth reconciliation statement shows how the individual's
wealth has changed over a specific period. The repayment of a loan affects the individual's
wealth statement (by reducing liabilities) but does not affect the wealth reconciliation
statement (as it does not change the net wealth). 13

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Mr. Nadeem
Wealth Statement
For Tax Year 2016
Assets: Rs. in „000‟
Plot at DHA 3,500
Capital in ABC (Note 1) (2,500 + 450 - 275) 2,675
Advance for plot at EIVIE 700
Jewellery 500
Shares in XYZ (1,000 - 200) 800
Cash ((W-1) 2,735 – 475) 2,260
Bank 475 2,735
10,910
Less Liabilities:
Loan 1,000 - 500) (500)
Closing wealth 10,410

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Zahid, the sole proprietor of FG and company, is a resident individual and is in the process of
filing his wealth
statement for the tax year 20X7. The relevant information is as under:
Assets and liabilities disclosed in the wealth statement for the tax year 20X6 were as follows:
Rupees
Assets
Agriculture land in Hyderabad 5,000,000
Residential property in DHA Karachi 3,000,000
Investment in shares of listed companies 1,100,000
Business capital-FG & Co. 4,000,000
Motor vehicle 1,540,000
Cash at bank 600,000
Cash in hand 300,000
15,540,000
Liabilities
Bank loan (1,500,000)
Net assets 14,040,000
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Details relating to FG & Co. are as follows:

Rupees
Income from business for the tax year 20X7 2,540,000
Drawings during the year 450,000
Balance of cash in hand and at bank, as on 30 June 20X7 amounted to Rs. 157,500 and Rs. 730,000
respectively.
Transactions carried out by Zahid during the year were as follows:
I. Paid an advance of Rs. 1,000,000 against purchase of a bungalow for Rs. 10,000,000.
II. Sold shares of a listed company for Rs. 350,000. The shares were purchased on 1 May 20X6 for
Rs. 50,000. Capital gain tax collected by NCCPL amounted to Rs. 37,500.
III. Gifted shares of a listed company to his brother. The shares were purchased by Zahid in 20X2 at
a cost of Rs. 100,000 whereas market value of the shares at the time of gift was Rs. 150,000.
IV. Paid Rs. 200,000 towards principal amount of the bank loan.
V. Personal expenses amounted to Rs. 2,075,000.
VI. Net receipts against agricultural income amounted to Rs. 2,500,000.
Required:
Prepare Zahid‘s wealth statement and wealth reconciliation statement for the tax year 20X7. (07)
(Q.6 March 2017)
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