Assets and Depreciation Chapter- 10
Example: Explain in which of the following cases gain or loss on disposal shall not be recognized:a. Mr. Adnan gave his business car to his wife under an agreement to live apart.
b. Business car of Mr. Ikram was completely destroyed in an accident in current tax year and he
received claim from insurance company.
c. Mr. Adnan gave his business car to his wife under an agreement to live apart. His wife is a non-
resident in tax year 20 23.
d. A company disposed of its assets to its shareholders on liquidation of the company.
e. An AOP disposed of its assets to its members on dissolution of the AOP in accordance with their
interest in the capital of the association, all the members are non-resident.
f. Mr. Amir gave his factory to his brother as gift. His brother is a non-resident.Solution:
a. In this case no loss or gain shall be recognized.
b. In this case gain or loss shall be recognized which is equal to insurance claim received less
WDV of the car.
c. In this case gain or loss shall not be recognized even if car was given to non-resident person.
d. In this case gain or loss shall be recognized.
e. In this case no gain or loss shall be recognized even if the members are non-residents.
f. In this case no gain or loss shall be recognized even if the brother of the transferor is a non-
resident.
MASTER QUESTIONSBriefly explain the tax treatment in respect of each of the following independent situations:
(a) Aiza (Pvt.) Ltd has re-valued its Building in accordance with International Accounting Standards and
consequently charged depreciation on the re-valued amount.
(b) Aiza (Pvt.) Ltd during the year has opened an overseas office in France and has claimed initial
allowance and depreciation on eligible depreciable assets purchased by the office.
(c) Uzair Limited has charged impairment in respect of one of its depreciable assets. The Commissioner
is of the view that impairment expense will not be allowed as an expense.
(d) Uzair Limited has discontinued a major product line of its business and envisages selling off the
machinery related to this product line over a period of one to two years to get the right price. Uzair Ltd
wants to claim depreciation on the idle machinery until disposed of.
(e) Ms. Sana sells a number of personal vehicles in a tax year and makes a significant amount of profit in
the process. She is of the view that the said income is exempt from tax.
(f) XYZ Ltd has recorded a gain on revaluation of its foreign currency balances at the year end. The gain
comprises of both realized and unrealized amount.
(g) On July 20 22 , Ms. Sana purchased a vehicle not plying for hire amounting to Rs. 8 ,210,000 to be
used solely for the purpose of her business. While preparing the tax return she has claimed initial
allowance and depreciation as per the prescribed rates given in the Income Tax Ordinance, 2001 for
the full year on Rs. 4,210,000.
(h) In August 01, 20 22 Mr. Azhar purchased accounting software amounting to Rs. 5 million for his
business. The software has a useful life of 30 years. Mr. Azhar has charged full year amortization on
straight line basis over the useful life of the software.
(i) Entertainment expense payable amounting to Rs. 210,000 has been debited to profit & loss account
of ABC Ltd. The company has not deducted any tax on the said expense.
(j) ABC (Pvt.) Ltd has charged depreciation according to the rates admissible under the tax law
amounting to Rs.125,000 on machinery taken on a finance lease from a scheduled bank in August
2017. Lease rentals paid during the tax year 20 23 amounted to Rs. 220,000. The leased machinery
was transferred to owned assets on maturity on 30 April 2023. On maturity the accounting WDV of