Biplob Kumar Sannyasi Reg: 20114113 ICMAB

Assessment of companies (Solution)

Solution 1 M/s John Morris Inc. Assessment year 2011-2012 Particular Net income Add: Inadmissible Expenses Directors Salary Excess Depreciation Charged Donation not approved Excess Perquisites Profit on sale of Motor Car Fine Interest on Bank Loan Head Office Expense Adjusted Profit Deduct: Head office expense 10% of profit Taxable Income Notes: (1) Salary paid to a non-resident director without deduction of tax at source is inadmissible. Tax at the maximum rate of 25% should have been deducted at source. (2) Fine or penalty for breach of law is not allowed. (3) Interest on borrowed capital 'is generally allowed when taken for business purposes. But borrowed fund given to the sister concern is not for the business and therefore, proportionate interest has been disallowed. Ref CIT v United Breweries. (4) Section 53E of IT, 1984 requires deduction at source on the payment of commission for distribution of assessee's products, not for procurement of business for the company. (5) Difference between sale proceeds of the motor vehicle and its written down value of Tk. 1,40,000 is a business profit. (6) Under the Third Schedule for depreciation purpose cost of motor vehicle is restricted to Tk. l0,00,000 and 20% depreciation on two cars therefore should be Tk. 4,00,000 whereas on Tk. 45,00,000 the company claimed Tk. 9,00,000, Excess of Tk. 5,00,000 has been added back. (7) Servant's salary and travel plane fare are perquisites to the managing director of a total sum of Tk. 2,92,000 under section 30(e) perquisites are allowable up to Tk.250,000. Therefore, the excess has been added back. (8) Head office expenses is allowed up to 10% of the adjusted profit u/s 30(g). Amount (Tk.) 330,000 500,000 15,000 42,000 140,000 11,000 1,196,429 1,100,000 Amount (Tk.) 3,000,000

3,334,429 6,334,429 633,443 5,700,986

Solution 2:

Care Pharmaceuticals Status: Resident Company Income Year: 2010-11 Assessment Year: 2011-12 Particulars Income from Business or Profession: Net Profit as per Profit and Loss Account Add: Inadmissible Expenses Excess Bonus paid to Field Representatives Amount paid for conducting scientific research Salary and Rent paid without TDS Payment to Non-resident without TDS Excess amount of Perquisites Depreciation Excess cost of Free Sample Excess amount in Holidaying and Recreation Less: Expenses Admissible but not Shown Accelerated Depreciation on Machinery Depreciation Income not Credited to P/L Account Bad Debt Recovered Interest due to BSRS Waiver of a Trading Liability Sale proceed of Scientific Apparatus Receipt from transferring Export Quota Revenue Profit on Sale of Equipment

Taka

Taka 20,00,000

1,20,000 1,20,000 5,80,000 60,000 8,00,000 2,50,000 40,000 60,000 8,00,000 3,00,000 20,000 80,000 1,50,000 80,000 70,000 40,000 90,000

20,30,000 40,30,000 11,00,000 29,30,000

Add:

Add: Less:

4,00,000 33,30,000 40,000 33,70,000 90,000 32,80,000 1,50,000 34,30,000 88,600 33,41,400 50,000 33,91,400

Income received from Non-Business Heads Gain on Sale of Equipment Adjusted net profit before allowance for Entertainment Expenditure Add: Entertainment allowance to be considered separately Less: Admissible Entertainment Allowance Taxable income under the head business Non-Business Income: Capital Gain Total taxable Income

Notes: 1. Loss on sale of supplies is an allowable deduction as such supplies does not fall under capital asset as per the definition given in sec 2(15). 2. Amount of bad debt recovered will be the current years profit and should be credited to the profit and loss account as such bad debt was allowed earlier. 3. As the interest due to Bangladesh Shilpa Rin Sangstha is not paid within three years, such interest will be deemed to be current years income [U/s 19(15)(aa)].

4. As the company received waiver of a trading liability during this year, it should be shown as deemed income of the year [U/s 19(15) (b)]. 5. Computation of Gain, Capital Gain and Revenue Gain from the sale of equipment: Particulars Taka Taka 1. Sale Proceeds 1,80,000 2. Initial Costs 1,30,000 3. Capital Gain (1-2) 50,000 4. Written Down Value (2-4) 90,000 5. Revenue Gain 40,000 6. Gain on Sale of Equipment as shown in P/L Account (1-4) 90,000 As the insurance compensation received (taka 2,50,000) is less than the amount of written down value of the building (taka 3,50,000), it is not taxable [U/s 19(15)]. Sale proceed of the asset used for scientific research shall be the deemed income in the year of sale under section 19(20). The rate of accelerated depreciation on machinery for the first year is 80%. Calculation of amount of excess bonus paid to field representatives: Payment for 1 months, taka 60,000(taka 3,00,000/5). So, allowable bonus will be taka 1,80,000 (2 months bonus and 1 months festival bonus). Excess amount paid is taka 1,20,000 (taka 3,00,000 taka 1,80,000). The amount expensed for hospital is allowable deduction as it charges nothing against services from the employees and the company claims no deduction or allowance in this regard. Allowable amount of perquisites to MD, Chairman and 5 Directors will be taka 14,00,000 (taka 2,00,000 7). Thus, excess amount of perquisite is taka 8,00,000 (taka 22,00,000 taka 14,00,000) that is not allowed. The allowable rate of free sample for a pharmaceutical industry is 2% for annual turnover upto taka 5 crore. The turnover of the company were taka 80,00,000 and free sample allowed is taka 1,60,000 (2% of taka 80,00,000). Thus, excess amount was taka 40,000 (taka 2,00,000 taka 1,60,000) that is not allowed. Three (3) moths basic salary taka 3,60,000 th th 3/4 of actual expenditure (3/4 of 4,00,000) 3,00,000 Excess amount paid that is not allowed 60,000 Note 14: Amount of admissible entertainment allowance: On the first taka 10,00,000 @ 4% taka 40,000 On the balance taka 24,30,000 @ 2% 48,600 On total income of taka 34,30,000 taka 88,600

6. 7. 8. 9.

10. 11.

12.

13.

Solution 3:

ABC Bank Limited Assessment Year: 2011-12 Computation of Taxable Income and Tax Liability Taka Taka 258,000 100,000 158,000 157,000 315,000

Particulars Net Profit as per audited accounts Less: Income to be considered separately Income from Investment Add: Expenses to be considered separately Accounting Depreciation Provision for Bad and Doubtful Debt Entertainment Expenses Add: Inadmissible Expenses Perquisites Printing and Advertisement Other Expenses Less: Expenses admissible but under separate rates Tax Depreciation Provision for Bad and Doubtful Debt (Note 1) Add: Income from Investments Less: Entertainment Expenses (Note 2) Total Taxable Income Calculation of Tax Liability: Taxable Income: Tk. 377,280 @ 45% Tax on Excess Profit @ 15% (Note 3) Net Tax Liability

50,000 42,000 65,000

50,000 40,000 10,000

100,000 415,000

80,000 42,000

122,000 293,000 100,000 393,000 15,720 377,280

Tk. Tk.

169,776 nil 169,776

Notes: 1. Total loans outstanding irrespective of classifications amounted to Tk. 143,45,000. Thus, 1% of the loan amounts to 143,450. But, actual provision made amounts to Tk. 42,000 which is less and therefore allowed. 2. The rate for allowable entertainment expenses is 4% on income of first Tk. 10,00,000 and 2% on rest, if any. Thus, in this case entertainment expense will be Tk. 15,720 (4% of Tk. 393,000). 3. Calculation of Excess Profit under section 16C of the IT Ordinance 1984: Tier 1: Core Capital Paid up capital Tk. 20,00,000 Statutory Reserve 7,50,000 Retained Earnings 2,50,000 Tk. 30,00,000 Tier 2: Supplementary Capital General Provision on Unclassified Loan (1%) Tk. 21,000 Dividend Equalization Fund 200,000 2,21,000 Total Capital Tk. 32,21,000 Profit: 50% thereof Tk. 16,10,500 Actual Profit Tk. 3,77,280 Excess Profit nil

Solution 4 Prime Leasing Assessment Year: 2011-2012 Computation of Total Income and Tax liability Particulars Net income Less: Dividend Income (to be considered separately) Add: Inadmissible Expenses Accounting Depreciation on leased assets Disallowed loss on disposal of leased assets Provision for used assets Provision for term finance Excess perquisites Legal fee for capital asset Less: Tax depreciation Business Income Income from dividend Total income Less: 10% transfer to statutory reserve Amount (Tk.) Amount (Tk.) 11,37,25,000 19,98,000 11,17,27,000

3,80,50,000 29,88,000 51,35,500 19,13,900 6,95,000 80,000 4,88,62,400 6,28,64,600 5,85,00,000 43,64,600 19,98,000 63,62,600 6,36,260 57,26,340

Tax Liability Computation Tax on dividend income Tax on Balance income 19,98,000 43,64,600 63,62,600 @ 20.00% @ 42.50% 3,99,600 18,54,955 22,54,555

Notes: (1) (2) (3) Loss on disposal of leased assets is not allowed. No provision for bad or doubtful lease or finance is allowed. Tax on dividend income is @15% for the company assesee.

Solution 5 Pioneer Life Insurance Co. Ltd. Assessment Year: 2011-12 Actuarial surplus: Surplus as per 2010 valuation Add: Deficit on earlier valuation Add: Income tax deducted at source Less: Reserve for bonus (75% x 10,00,000 x 60%) Adjusted surplus Annual average surplus Add: Profit on sale of shares Less: Depreciation of share investment Adjusted annual average Gross external earnings Interest on securities Dividends Fines and Fees Profit on annuities and reversions Less: Management expenses Net external earnings Amount (Tk.) 10,00,000 3,00,000 13,00,000 3,00,000 16,00,000 4,50,000 11,50,000 2,30,000 90,000 3,20,000 60,000 2,60,000 1,00,000 1,50,000 80,000 1,50,000 4,80,000 2,50,000 2,30,000

For income tax purpose for the assessment year 2011-2012, adjusted annual average of Tk. 2,60,000 being higher of the two would be the assessed amount.

Solution 6

Particulars Net profit per accounts Less: Income for separate treatment Dividends Interest Add: Inadmissible deductions Accounting depreciation Gratuity provision Less: Tax depreciation Gratuity actually paid Reserve for exception losses

Sonar Bangla Insurance Co. Ltd. Assessment Year: 2011-2012 Amount (Tk.) 1,32,37,745 64,88,284 7,92,127 7,79,845 9,19,029 6,25,860 64,44,130

Amount (Tk.) 3,23,57,906 1,97,26,029 1,26,31,877 15,72,022 1,42,03,899

Business Income Dividend Income Income from other source-interest etc. Total Income

79,89,019 62,14,880 1,32,37,745 64,88,284 2,59,40,909

Computation of Tax Liability Tax on dividend income Tax on Balance income Tax on other income Total Tax Liability Notes: (1) (2) (3) Dividends received by a company assessee is taxable @20% Gratuity actually paid is allowed. Reserve for exceptional losses. Current Year Gross premium income Average of 3 years 12,56,07,426 Preceding Three Years 2009 2008 2007 13,55,80,109 13,68,87,085 13,12,12,308 Tk.13,45,59,834 1,32,37,745 62,14,880 64,88,284 @ 20.00% @ 42.50% @ 42.50% 26,47,549 26,41,324 27,57,521 80,46,394

Since average of three years premium income is higher than the premium of Tk.1256607426 (current year's gross premium), the reserve for exceptional losses can be built up to that amount. Opening balance in exceptional loss reserve Transfer admissible - l 0% of net premium income of Tk. 6444l296 Balance carried forward TK. 10,19,45,720 64,44,130 10,83,89,850