KnS School of Business Studies

Tax Practices (Spring 2022 Session) (Workshop Practical Questions – II)

Compiled by: Munir M. Shafi (FCA, FCCA)

Question – 1 (ICAP CAF Spring 2021)

Muhammad Asghar owns an industrial undertaking under the name and style of Asghar &
Company (AC) which is engaged in the business of manufacturing pharmaceutical products.
Following information is available for the year ended 31 December 20X1:
Rs. In ‘000’
Turnover 324,850
COGS (217,197)
Gross Profit 107,653
Administrative and distribution expenses (88,980)
Marketing Expenses (19,765)
Other Income 3,560
Profit before Tax 2,468

Additional information:
(i) Cost of goods sold includes:
raw materials of Rs. 7,800,000. No withholding tax was deducted at the time of payment.
accounting depreciation of Rs. 2,100,000 on plant and machinery.
provision for slow moving inventory of Rs. 1,800,000.
(ii) Administrative and distribution expenses include:
Rs. 676,500 paid to a local hotel for holding annual Eid-Milan party for the employees and
their families.
Rs. 1,235,000 paid as penalty to a customer in settlement of his claim for damages under a
contract for the supply of a batch of vaccines. Laboratory tests and in-house investigations
revealed that the level of impurities in the vaccines exceeded the acceptable level as agreed
in the contract.
Rs. 2,300,000 paid as donation to a hospital established by the local government.

(iii) Marketing expenses include a reward of Rs 500,000. The reward was paid in cash
to one of the salesmen for exceeding his sales target.
(iv) Other income includes:
dividend of Rs. 174,000. This amount was received from a listed company after deduction
of income tax at the rate of 15% and Zakat of Rs. 30,000 deducted under the Zakat and
Usher Ordinance, 1980.
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KnS School of Business Studies
Tax Practices (Spring 2022 Session) (Workshop Practical Questions – II)
Compiled by: Munir M. Shafi (FCA, FCCA)

gain of Rs. 660,000 on sale of shares in Akash (Pvt) Limited (APL) in November 20X1.
60% of the shares in APL are owned by the Federal Government. AC purchased these
shares in June 20X0.

Other information:
(i) A second hand plant was imported from France at a cost of Rs. 2,500,000.
Withholding tax of Rs. 150,000 was deducted at import stage. The plant was
installed in the month of September 20X1. AC incurred Rs. 375,000 on the
installation of plant which is included in administrative and distribution expenses.
(ii) Pre-commencement expenditures of Rs. 3,400,000 were charged to accounting
profit and loss for the year ended 31 December 20X0. However, for tax purposes, it
has to be amortized over the period of five years.
(iii) Tax depreciation other than imported plant amounted to Rs. 1,900,000.
(iv) Income tax deducted by the customers u/s 153 and advance income tax paid u/s
147 during the year amounted to Rs. 1,400,000 and Rs. 200,000 respectively.

Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
compute total income, taxable income and net income tax payable by or refundable to AC for
the tax year 20X2. (19)
Note:
Your computation should commence with profit before tax figure of Rs. 2,468K.
Ignore minimum tax under section 113.
Show all relevant exemptions, exclusions and disallowances.

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KnS School of Business Studies
Tax Practices (Spring 2022 Session) (Workshop Practical Questions – II)
Compiled by: Munir M. Shafi (FCA, FCCA)

Question – 2 (ICAP CAF Autumn 2021)

Abbas, a resident individual, is engaged in the business of manufacturing various consumer
goods under the name and style of ‘Kamyab Enterprises (KE)’. Following information has
been extracted from KE’s records for the year ended 30 June 2022:
Rupees
Sales 43,089,000
Cost of sales (26,042,000)
Gross profit 17,047,000
Administrative and selling expenses (7,800,000)
Financial charges (2,100,000)
Other income 5,560,000
Profit before tax 12,707,000

Additional information:
Cost of sales includes:
(i) accounting depreciation of Rs. 1,200,000. The tax written down values of KE’s fixed
assets on 1 July 2021 were:
Rupees
Plant and machinery 6,860,000
Computers and related products 800,000
Motor vehicles (80% for business 3,000,000
purposes)

A new computer was purchased on 1 April 2022 for Rs. 150,000.

Motor vehicle which was purchased on 15 June 2020 at the cost of Rs. 1,000,000
was sold for Rs. 750,000 on 31 May 2022. Carrying value of this motor vehicle was
equal to sale proceeds.

(ii) an amount of Rs. 40,000 paid to factory supervisor on 23 March 2022 as advance
salary for the month of April. Since he was in urgent need of the amount and the
banks were closed on 23 March 2022 due to the Pakistan Day, he was paid in cash.
Administrative and selling expenses include:
(i) expenditure on ‘In-house scientific research’ related to KE’s business. It includes salaries
of Rs. 880,000 paid to scientists, material of Rs. 230,000 used in the research and Rs.
700,000 paid to a company in China for supporting KE’s scientists in the research work. This

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KnS School of Business Studies
Tax Practices (Spring 2022 Session) (Workshop Practical Questions – II)
Compiled by: Munir M. Shafi (FCA, FCCA)

expenditure was not recorded as intangible asset as it could not provide an advantage for a
period of more than one year.
(ii) an expense of Rs. 650,000 paid as an instalment towards the purchase price of an
industrial plot.
(iii) purchase of goats worth Rs. 225,000 for sacrifice on Eid-ul-Azha. The payment was made
through cross cheque.
(iv) donations of Rs. 1,000,000 to approved non-profit organisations. 40% of this amount was
donated to organisations listed on the Thirteenth Schedule of the Income Tax Ordinance,
2001. All donations were made through crossed cheques.
(v) an insurance premium of Rs. 200,000 paid to a registered insurance company for health
insurance of Abbas and his dependents.
Other income includes:
(i) an amount of Rs. 720,000 received from income tax department on account of tax
refund related to tax year 2019. This amount includes an additional payment of Rs.
80,000 due to delay in tax refund.
(ii) capital gains of Rs. 430,000 and Rs. 250,000 on sale of investments in shares of
Manzil Limited, a public unlisted company and Himmat Limited, a public listed
company respectively on 20 June 2022. Both investments were made on 1 January
2020.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
compute total income, taxable income and net income tax payable by or refundable to Abbas
for the tax year 2022. (18)
Note:
Your computation should commence with profit before tax figure of Rs. 12.707 million.
Ignore minimum tax under section 113.
Show all relevant exemptions, exclusions and disallowances.

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KnS School of Business Studies
Tax Practices (Spring 2022 Session) (Workshop Practical Questions – II)
Compiled by: Munir M. Shafi (FCA, FCCA)

Question – 3 (ICAP CAF Spring 2018)

Mr. Qateel, a resident individual, is engaged in the manufacture of various consumer goods
under the name and style ‘Qateel Enterprises (QE)’. The following information has been
extracted from the records of QE for the financial year ended 30 June 2022.

Rupees
Total turnover 28,500,000
Cost of sales (26,155,000)
Gross profit 2,345,000
Operating expenses (4,500,000)
Operating Loss (2,155,000)
Finance charges on lease of machinery (35,703)
Other income 5,000,000
Profit Before tax 2,809,297

Additional information:
(i) Cost of sales includes:
- Rs. 45,000 paid as fine for violation of contract with a customer for delay in supply of
goods.
- Accounting depreciation of Rs. 1,900,000 (including depreciation on leased assets).

(ii) Operating expenses include:

- Rs. 450,000 paid for renewal of a manufacturing licence for fifteen years.
- Vehicle tax paid in cash amounting to Rs. 55,000 for eight office cars.
- Rs. 200,000 paid as security deposit to K-Electric (KE) for replacement of transformer
at the factory.
- Rs. 300,000 collected by KE as advance tax through monthly electricity bills.
- Cash donation to poor families amounting to Rs. 64,600 and donation of Rs. 2,000,000
paid through cheque to Edhi Foundation, which is listed in Thirteenth Schedule of the
Income Tax Ordinance, 2001.
- Penalty of Rs. 25,000 imposed by the Commissioner Inland Revenue for late filing of
annual return of income for the tax year 2021.
- Entertainment expenditure of Rs. 128,000 incurred on arrival of foreign customers for
business purposes.

(iii) Other income includes:

- Dividend of Rs. 580,000 received from listed companies. The amount is net of income
tax at the rate of 15% and Zakat of Rs. 100,000 deducted under the Zakat and Usher
Ordinance, 1980.
- Capital gain of Rs. 1,200,000 from sale of shares of a private limited company. Shares
were acquired on 1 August 2017.
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KnS School of Business Studies
Tax Practices (Spring 2022 Session) (Workshop Practical Questions – II)
Compiled by: Munir M. Shafi (FCA, FCCA)

(iv) On 30 June 2022, leased machinery was transferred to Qateel on maturity of lease. The
leasing company was asked to adjust the amount of security deposit against the residual
value of Rs. 100,000. The date of commencement of lease was 1 July 2017.

Lease rentals paid during the year amounted to Rs. 270,000. On the date of maturity, the
accounting written down value and market value of the machinery was Rs. 590,490 and Rs.
800,000 respectively.

(v) During the year, a warehouse was constructed for storage of goods at a cost of Rs.
1,040,000. No accounting depreciation has been recorded on it.

(vi) Tax depreciation for the tax year 2022 without considering the effect of para (iv) and (v)
above, amounted to Rs. 1,560,000.

(vii) Advance income tax paid during the year amounted to Rs. 480,000.

Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
compute the total income, taxable income and net tax payable by or refundable to QE for the
year ended 30 June 2022. (18)

Q.4 ICAP CAF Autumn 2018

Abid Khan is registered for sales tax purposes and is engaged in the manufacturing of electrical
appliances in Multan. His sales and purchases for the month of August 20X8 are summarized below:

Supplies Rupees
Taxable goods to registered customers 15,118,000
Taxable goods to un-registered customers 10,150,000
Exports 5,000,000
Exempt supplies 4,500,000

Purchases
Taxable goods from registered suppliers - for taxable supplies 25,000,000
Taxable goods from registered suppliers - for exempt supplies 1,500,000
Packing materials from un-registered suppliers 9,500,000

Additional information:

(i) Supplies of taxable goods to registered customers include:

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KnS School of Business Studies
Tax Practices (Spring 2022 Session) (Workshop Practical Questions – II)
Compiled by: Munir M. Shafi (FCA, FCCA)

• an amount of Rs. 4,225,000 against sale of electric toasters at a trade discount of 35%. As per
normal business practice, he allows a discount of 10% only.
• goods supplied against which advance payment of Rs. 2,500,000 had been received in June
20X8.

(ii) Taxable supplies returned by different registered customers amounted to Rs. 900,000. Proper
debit and credit notes were raised within the specified time.

(iii) A plant costing Rs. 2,700,000 was commissioned into operation on 15 August 20X8. The plant is
being used for taxable supplies only.

(iv) An electricity bill of Rs. 2,600,000 was paid in cash which includes sales tax amounting to Rs.
350,000.

(v) Input tax brought forward from July 20X8 is Rs. 595,000.

All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable at the
rate of 17%.

Required:
Compute sales tax payable by or refundable to Abid Khan along with input tax to be carried
forward/refundable, if any, in the sales tax return for the month of August 20X8.
Note : Show all relevant exemptions, exclusions and disallowances. (14)

Q.5 ICAP CAF Spring 2020

Following information has been extracted from the records of two different persons
registered under the Sales Tax Act, 1990 for the month of February 2020:
REGISTERED PERSONS
PURCHASES -------------RUPEES----------
- Taxable supplies from registered persons - 11,000,000
- Taxable supplies from unregistered persons 3,500,000 -
- Exempt goods - 3,000,000
- Fixed assets (machinery) from a registered 5,000,000 6,000,000
supplier (Note A)
SUPPLIES
- Taxable supplies to registered persons - 10,000,000
- Taxable supplies to unregistered persons 2,000,000 -
- Exempt supplies to registered persons 3,800,000 5,500,000
- Zero rated supplies 2,500,000 -

Note A:
In case of Taha, the machinery has been used for exempt as well as zero rated supplies.
In case of Shan, the machinery has been used for taxable supplies only.
All the above figures are exclusive of sales tax. Sales tax is payable at the rate of 17%.

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KnS School of Business Studies
Tax Practices (Spring 2022 Session) (Workshop Practical Questions – II)
Compiled by: Munir M. Shafi (FCA, FCCA)

Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder,
compute the amount of sales tax payable by or refundable to each of the above registered
persons and input tax to be carried forward, if any, for the tax period February 2020. (13)

Q.6 ICAP CAF Autumn 2021:

Mehrban Associates (MA) is registered under the Sales Tax Act, 1990. MA is engaged in the
business of manufacturing and supplying of various consumer goods. Following information is
available from MA’s records for the month of August 2021:
Rupees
Purchases
Taxable goods from registered persons 4,960,000
Taxable goods from unregistered persons 1,400,000
Exempt goods from unregistered persons 520,000
Supplies
Taxable goods to registered persons 8,650,000
Taxable goods to unregistered persons 1,560,000
Exempt goods to local unregistered persons 1,740,000
Export of taxable goods to UAE 1,300,000
Export of exempt goods to UAE 1,900,000

Additional information:
(i) Taxable goods from registered persons include:
materials worth Rs. 296,000, which were exclusively used for manufacturing exempt
supplies.
materials worth Rs. 675,000, which were exclusively used for manufacturing export related
goods.
goods worth Rs. 150,000 which were purchased in cash from a supplier.
500 kg of tea purchased at a cost of Rs. 360,000 in one kg packing, covered under Third
Schedule. Retail price of tea per kg is Rs. 900. By end of August 2021, 300 kg were supplied
to an unregistered wholesaler at a price of Rs. 790 per kg.
(ii)Taxable goods supplied to unregistered persons include goods worth Rs. 320,000 which were sold
to a customer who did not provide his CNIC or NTN details. These goods were purchased from a
registered supplier for Rs. 275,000 during August 2021.
(iii) Following fixed assets were purchased during the month of August 2021:

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KnS School of Business Studies
Tax Practices (Spring 2022 Session) (Workshop Practical Questions – II)
Compiled by: Munir M. Shafi (FCA, FCCA)

Fixed assets Purchase cost (Rs.) Usage

Machine A 2,000,000 To ensure quality standards of
packing for exports
Machine B
3,000,000 To manufacture taxable (local)
as well as exempt (local)
goods

Furniture and fittings 1,000,000 To use in office premises

(iv) Electricity bill of Rs. 959,450 was paid in cash. The bill was inclusive of sales tax of Rs. 154, 250.
(v) Sales tax credit brought forward from last month amounted to Rs. 1,137,580.
(vi) Input tax of Rs. 186,000 pertaining to purchase made on 1 February 2021 was inadvertently
remain unclaimed.
All the above figures are exclusive of sales tax, except where it is specified otherwise. Sales tax is
payable at the rate of 17%.
Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute the
amount of sales tax payable by or refundable to MA and input tax to be carried forward, if any, for the
tax period August 2021. (Show all relevant exemptions, exclusions and disallowances) (17)