Tax Book 2023

Assets and Depreciation Chapter- 10

to pay any increase in the amount of loan due to change in exchange rate. On June 30, 20 23 ,

exchange rate was ($1 = RS. 85). Calculate the amount of tax depreciation and initial allowance for

tax year 20 23.

Solution: In this case, change in value of loan shall not be considered for depreciation purpose.

Initial allowance [4,000,000) x 25%] 1,000,000

Depreciation for the year [(4,000,000 – 1,000,000) x 15%] 450,000

6. Cost of an asset sold in parts

Where a part of an asset is disposed of by a person, the cost of the asset shall be apportioned

between the part of the asset retained and the part disposed of in accordance with their respective

FMV’s determined at the time the person acquired the asset.

Example: On July 01, 20 22 , Mr. Zahid acquired a building for Rs. 500,000. In May, 20 23 he disposed

of 1/4th of building for Rs. 300,000. On the date of acquisition, fair value of part sold was Rs. 2 00,000

and fair value of remaining part was Rs. 4 00,000. Determine gain / loss on disposal and cost of

building retained.

Solution: Gain / loss on disposal: Rs.

Consideration received on disposal 300,000

Less: Cost apportioned on the basis fair value

(500,000 x 2 00,000 / 6 00,000) 166 , 667

Gain on disposal 133,333

Cost of asset retained: Rs.

Cost of total asset 500,000

Less: Cost of asset disposed of (as above) 166 , 667

Cost of asset retained 333 , 333

7. Cost of an asset acquired from the amount chargeable to tax

Where the acquisition of an asset by a person is the derivation of an amount chargeable to tax,

the cost of the asset shall be the amount so charged plus any amount paid by the person for the

asset.

8. Cost of an asset acquired from the amount exempt from tax

Where the acquisition of an asset by a person is the derivation of an amount exempt from tax, the

cost of the asset shall be the exempt amount plus any amount paid by the person for the asset.

Example: Mr. Ahmed purchased vehicle to be used for his business purpose for Rs. 800,000. Rs

2 00,000 was paid from taxable income while remaining Rs. 6 00,000 was paid from an amount which

is exempt from tax. What is the cost of asset?

Solution: Cost of asset is determined by the amount paid and it is immaterial whether the amount

paid as purchase price of asset is taxable or exempt. Hence, the cost of asset is Rs. 800,000.

9. Cost of an asset acquired from the grant not chargeable and chargeable to tax

The cost of an asset does not include the amount of any grant, subsidy, rebate, commission or

any other assistance (other than a loan repayable with or without profit) received or receivable by a

person in respect of the acquisition of the asset, except to the extent to which the amount is

chargeable to tax under this Ordinance.

Example: Mr. Naeem received grant of Rs. 500,000 from Government for purchase of an asset. Forty

percent (40%) of this grant is taxable and balance sixty percent 60% is exempt. Asset was purchased

by Mr. Naeem for Rs. 700,000. You are required to determine the cost of asset.