Chapter 21 ___ Solved Past Papers Income Tax Numericals of CA Module C - (2001 to 2022)
Q # 1 March, 2017
MushtaqisasoleproprietorofMushtaqEnterprises(ME)engagedinthebusinessofmanufacturingof
differentproducts.ME’sprofitandlossaccountshowsprofitbeforetaxationofRs.1.8millionfortheyear
ended 30 June 2023. A review of ME’s records has revealed the following information.
(i)MEemploysfivesalesmen.Rs.22,000permonthwerepaidtoeachsalesmanincashwhichincludes
reimbursement of Rs. 6,000 per month incurred on entertainment of customers at the business premises.
(ii)AdministrativeexpensesincludeRs.150,000whichwerepaidtoaresearchinstituteinChinaforthe
purpose of developing a new product.(^504) ____ _ _Conceptual Approach to Taxes
(iv) Receivables from Atif and Aslam which had been written off in the previous year were recovered.
Details are as follows:
Atif Aslam
Claimed bad debts in last tax return 800,000 1,200,000
Allowed by tax authorities last year 550,000 600,000
Amount recovered during the year 700,000 400,000
(iii)AccountinglossonthesaleofpatentswasRs.65,000.Thetaxwrittendownvalueofthesepatentsatthe
beginningoftheyearwasRs.430,000andtheseweresoldforRs.524,000.Amortizationchargedtotheprofit
and loss account on these patents for the current year was Rs. 25,000.
------ Rupees ------
(v)MEhasopenedasalesofficeinDubai.Inthisrespect,furniturecostingRs.850,000withwrittendown
value(WDV)ofRs.650,000wasshiftedtoDubaioffice.ThetaxWDVofthefurnitureatthebeginningofthe
year was Rs. 610,000.
Rupees
Furniture 200,000
Used machinery imported from Germany 500,000
(viii) Advance tax paid u/s 147 was Rs. 200,000.
year was Rs. 610,000.
(vi)AccountingdepreciationfortheyearisRs.580,450.However,nodepreciationhasbeenprovidedonthe
following fixed assets purchased on 1 March 2023:
(ix)Theassessedbusinesslossesoftaxyear 2016 broughtforwardinyear 2022 areRs.830,000.These
include unabsorbed tax depreciation amounting to Rs. 705,000.
(vii) Tax depreciation for the year, prior to the adjustments mentioned in (vi) above, amounted to Rs. 456,400.
Other transaction of Mushtaq
Required:
Answer
Mushtaq Enterprises
Computation of total income, taxable income and net tax payable/refundable
For tax year 2023
On 1 June2023,hesold6,000sharesforRs.432,000outof15,000shareswhichhereceivedon 1 May2019,
onthedeathofhisfather.ThefairmarketvalueofsharesonthedateoftransfertoMushtaqwasRs. 25 per
share.
UndertheprovisionsofIncomeTaxOrdinance, 2001 andrulesmadethereunder,computetaxableincome
and net tax payable by or refundable to Mushtaq for the year ended 30 June 2023.
Income from Business: Rupees Rupees
Profit before taxation 1,800,000
Add: Inadmissible expenses/admissible income
Salary paid to salesmen [5 × (22,000–6,000) × 12] 960,000
Entertainment expenditures^ -
150,000
Accounting loss on the sale of patents 65,000
Amortisation charged on patents for the year 25,000
Gain on sale of patents (524,000 – 430,000) 94,000
Bad debts recovered: Atif [700,000 – (800,000 – 550,000)] 450,000
Accounting depreciation 580,450
Transfer of furniture to Dubai (850,000–610,000) 240,000
Research expenditure incurred outside Pakistan [not allowable u/s 26 read with
section 20(1)]
(^504) __ ___ _Conceptual Approach to Taxes