Lecture 36 Exercises on Income from business

Income from Business Exercise 1 –Taxation of Resident Company M/S XYZ Ltd. filed tax return for tax year 2006, declaring taxable income as Rs.1,350,000/; during the assessment and scrutiny of record by the tax authority it was observed that deduction of tax at source was not made by the company, while making the following payments. Compute taxable income and tax thereon for tax year 2006.

Income from Business Exercise 1 Contd… Salaries Rs. 350,000 Payments made in execution Rs. 150,000 of a contract for purchase of office appliances Professional fee paid to Rs. 100,000 chartered accountant

Income from Business Solution E-1 Tax payerM/S XYZ Ltd. Tax year 2006 Residential status Resident NTN Following amounts are added back since deductions are not allowed under provisions of section 21. Salaries Rs. 350,000 Payment in execution of contract Rs. 150,000 Professional FeeRs. 100,000 Total amount to be Added BackRs. 600,000

Income from Business Solution E-1 Contd… Taxable income declared Rs. 1,350,000 Add back under section 21Rs. 600,000 Taxable income after add back Rs. 1,950,000 Computation of tax Tax already paid with return Rs. 1,350,000 x 35% = Rs. 472,500 Tax payable on account of additions of Rs. 600,000/- Rs. 600,000 x 35% = Rs. 210,000

Taxation of Companies  Minimum Tax on Resident Companies— Sec 113. Resident Company is subjected to minimum 0.50% of its turnover for a tax year, even in cases where the company sustains loss. turnover under this section means: a)the gross receipts, exclusive of sales tax and central excise duty or any trade discounts shown on invoice or bills, derived from the sale of goods;

Taxation of Companies b)the gross fees for the rendering of services or giving benefits, including commissions; c)the gross receipts from the executions of contracts; and d)the company’s share of the amounts stated above of any association of persons of which the company is a member.

Income from Business Exercise-2 M/S XYZ (PVT) Ltd. filed return for tax year 2007, declaring taxable income of Rs. 1,300,000 and paid entire liability of tax. On scrutiny of record by tax authorities, it came to their notice that following amounts have been paid by Cash. In the light of this information/data compute tax liability of said company for tax year-2007.

Income from Business Exercise-2 Contd… SalaryRs. 30,000 Office RentRs. 120,000 Professional FeeRs. 80,000 Postages Rs. 8,000 Freight paid Rs. 9,000 Electricity bill Rs. 7,000 Telephone Rs. 5,000 Penalty Rs. 9,000

Income from Business Solution of Exercise 2 Add Back Inadmissible Deductions U/S 21 Salary paid by cashRs. 30,000 Rent of office paid by cashRs. 120,000 Professional fee paid by cashRs. 80,000 Total Additions Rs. 230,000

Income from Business Solution of Exercise -2 Contd… -Declared income Rs. 1,300,000 -Tax already paid Rs. 455,000 (1,300,000 x 35%) -Additions made U/S 21 Rs. 230,000 -Tax payable on additions Rs. 230,000 x 35%= Rs. 80,500 Note: Additions on account of rest of payments, although by cash not required to be added back as provided in section 21(L).

Income from Business Exercise 3 Computation of Depreciation. M/S A.K. Brothers is a partnership firm. In the books of accounts the following information/data has been provided with respect to plant and machinery. Compute normal depreciation and initial allowance in the light of the given information. - Book value of plant and machinery as on Rs. 1,800,000 - Machinery disposed of during the year with book value.Rs. 600,000 - Additions of eligible depreciable asset during the year Rs 1,000,000

Income from Business Solution of Exercise 3 Tax Payer :A.K. Brothers Tax Year: 2007 Residential Status: Resident NTN Particulars Book value Depreciation -Opening W.D.V1,800, Disposals(600,000)---- -Balance W.D.V1,200,000(X)---- Additions During Year1,000,000

Income from Business Solution of E-3 Contd… Particulars Book valueDepreciation -Initial 50% on 1,000, ,000 -Balance book value (Y) 500,000 -Total book value1,700,000 (X+Y) -Normal 15% 255,000 Total Depreciation 505,000

Income from Business Exercise – 4 on Speculation Business M/S ABC Ltd. A manufacturing company has furnished the following accounting information for tax year Compute taxable income and tax thereon: - Gross Income from normal business, Rs.2,500,000 - Expenditures on normal business Rs. 1,000,000

Income from Business Exercise – 4 on Speculation Business - Gross income from speculation business Rs. 600,000 - Expenditures on speculation business Rs.300,000 - Loss carried forward on normal business Rs. 200,000 - Loss Carried forward on speculation business Rs. 900,000 - Advance Tax Paid Rs. 200,000

Income from Business Solution of E-4 Tax Payer : ABC Ltd. Tax Year: 2007 Particulars Speculation Normal Total Operations Business Gross inc. 600,000 2,500,000 3,100,000 Expenditures (300,000) (1,000,000) (1,300,000) Net Income 300,000 1,500,000 1,800,000 C/F Loss (900,000) (200,000) (1,100,000) Taxable income (600,000) 1,300, N-1

Income from Business Solution of E-4 Contd… Taxable Income- normal business Rs.1,300,000 Tax payable (1,300,000 x 35%) Rs. 455,000 Note-1: Loss of Rs. 600,000 from speculation business can not be set off against business income, it can be set off against speculation business income, hence this loss of Rs. 600,000 shall be carried forward to next year.