CAF-2 Tax practices Test-7 Solution

Test 7 Suggested Solution

Answer-1
Sweet Bakers
Total income, Taxable income and tax thereon
For tax year 2023
Rs. in million
Income from business (W-1) 108.8
Income from agricultural land – Exempt rent (6 + 10.37) (W-1) 16.37
Total income 125.17
Income from agricultural land – Exempt rent (6 + 10.37) (16.37)
Taxable income 108.8

Tax liability on income falling under NTR (765,000 + 35% x 104,800,000) 37.45
Less: Tax credit on POS machine (allowed lower of)
- 0.4
- 150,000 x 3 = 0.45 (0.4)
Tax payable 37.05

(W-1) Income from business Rs. in million

Profit before tax 77
Add:
Purchase disallowed (W-2) 24
Purchase for personal use (10 x 10%) 1
Salaries of partners ( 8.2 + 6 + 4.8) 19
Purchase of plant 15
Purchase of POS machines 0.4
Payment for application 5.5
64.9
Less:
Rental income
- Cash (0.5 x 12) (6)
- In kind (120 x 7,200 x 12M) (10.37)
Market value of eggs received as a rent and used as a raw material – Cost of sales (10.37)
Initial allowance on plant (15 x 25%) (3.75)
Tax depreciation on plant (15 – 3.75) x 15% (1.69)
Tax depreciation on POS machines (Not allowed because tax credit is allowed) (-)
Tax amortisation (App is available for use subsequent to year end) (-)
Tax depreciation on van (7.5 x 15%) (1.13)
(33.31)
Income from non-speculation business 108.8

(W-2) Purchase disallowed (lower of)

Page 2
CAF-2 Tax practices Test-7 Solution

- Purchase on which tax is not deducted 24

- 20% of purchase (200 x 20%) 40

b)
Woman enterprise means a start-up established on or after first day of July 2021 as:
• sole proprietorship concern owned by a woman or
• an AOP all of whose members are women or
• a company whose 100% shareholding is held or owned by women
Since all partners of SB are not women, the given reduction in tax liability shall not be available to Sweet Baker.

Answer-2
Tax Gain/(loss) on disposal
(8) On disposal of an intangible, no amortisation shall be allowed in year of disposal and –
(a) if the consideration exceeds the WDV, the excess shall be chargeable under the head “Income from
Business”
(b) if the consideration is less than the WDV, the difference is deduction under the head “Income from
Business”.
(9) (a) The WDV at the time of disposal shall be calculated as follows–
Scenario Written down value equals to
Where asset is wholly used for business the cost of the intangible less total amortisation
deductions allowed to the person on intangible or,
where the intangible is not wholly used to the cost of the intangible less amortisation that would
derive income chargeable to tax, be allowed if the intangible was wholly used
(b) the consideration received on disposal shall be determined under section 77.
Answer-3
The actual consideration received by a bank or leasing company (approved by the Commissioner) for an asset leased
by the company to another person shall be the residual value received on maturity of the lease agreement. The
condition is that the residual value plus the amount realized during the term of the lease of the asset is not less than
the original cost of the asset.

Page 2