Tax Book 2023

Assets and Depreciation Chapter- 10

3) In case the transaction is not undertaken in the manner specified in sub-section (1),

a) such asset shall not be eligible for any allowance under sections 22, 23, 24

and 25 of this Ordinance; and

b) such amount shall not be treated as cost in terms of section 76 of this

Ordinance for computation of any gain on sale of such asset

COST OF ASSETS UNDER VARIOUS SITUATIONS [U/S 76]

The Board may prescribe rules for determination of cost for any asset, however except otherwise provided
in the Income Tax Ordinance, 2001 the cost of an asset shall be determined as under.

1. Cost of an asset purchased:

The cost of an asset purchased by a person shall be the sum of the following amounts:-

 The total consideration given for the asset, including the FMV of any consideration in kind

determined at the time the asset is acquired;

 any incidental expenditure incurred in acquiring and disposing of the asset; and

 any expenditure incurred by the person to alter or improve the asset.

but shall not include any expenditure above that has been fully allowed as a deduction under this

Ordinance.

Example: Determine the cost of asset from following information.

Rs.

Cash paid for purchase of asset 50,000

FMV of motorcycle given for purchase of asset 30,000

Legal expenses incurred on purchase of asset 10,000

Repair expenses (fully allowed as deduction) 5,000

Solution:

Rs.

Cash paid for purchase of asset 50,000

FMV of motorcycle given for purchase of asset 30,000

Legal expenses incurred on purchase of asset 10,000

Total 90,000

Note: As repair expenses have already allowed therefore the same shall not be added in the cost of

asset.

2. Cost where personal asset applied for business use The cost of an asset treated as acquired
   shall be the FMV of the personal asset determined at the date it is applied to business use.

Example: Rs.

Cost of personal asset purchased 100,000

Book value of asset as on June 30, 20 23 85,000

You are required to compute the cost of asset if the same asset put to use for business purposes as

on June 30, 20 23 under the following situations:

A. If the fair market value of the personal asset as on June 30, 20 23 is Rs.100,000.

B. If the fair market value of the personal asset as on June 30, 20 23 is Rs.80,000.

C. If the fair market value of the personal asset as on June 30, 20 23 is Rs.150,000.

Solution: In all the above cases the fair market value as on June 30, 20 23 shall be taken as cost of

asset irrespective of its cost or book value for business purposes.

3. Cost of an asset produced or constructed