Tax Laws &Tax Planning (Acc 613) Time: 4 hrs.
Candidates are required to give their answers in their own words as far as practicable.
The figures in the margin indicate full marks.
Attempt All the questions.
1. Write in brief the following terms as laid down under Income Tax Act 2058.
a. indirect tax. b. Natural resident person
c. Non-business chargeable asset d. Final withholding payment
[4×2 = 8] or
Explain briefly the tax exempt institutions under Income Tax Act 2058 [8]
2.(a) The Kamabinayak Company limited provided the following particulars of different assets used in business. You, as a tax consultant, is requested by the company administration to calculate the allowable amount of depreciation as per Income Tax act 2058 for the relevant income year
Beginning WDV as on 1st Shrawan |
Automobile | Rs,500,000 |
Computers | Rs. 3,00,000 |
Machinery | Rs. 1,500,000 |
Additional information:
1/2 of the automobile was not used for business purpose.
The book value of machinery worth Rs. 30,000 was disposed off for Rs. 40,000 on Magh
The computer worth Rs. 30,000 was purchased on Baishakh of previous year.
2.(b) The Income statement of a company showed a net income of Rs. 3,00,000 for the previous income year. An examination was made by tax. Authorities regarding the income statement and found the following facts.
The net income was derived after deducting fines and penalties of Rs. 30,000; donation tax exempt organization of Rs. 200,000 and pollution control cost (PCC) of Rs. 200,000.
The above net income was derived before adjusting the business loss of Rs. 20,000 was occurred in last four year .
Required: Taxable income and tax liability. [4+4=8]
3.(a) The following are the operating results of a company:
Year | 8 | 9 | 10 | 11 | 12 |
Profit/loss (Rs._ | 700,000 | 300,000 | (700,000) | 800,000 | 1,000,000 |
The total unrecovered loss stood of Rs. 400,000 at the end of year 3, out of which Rs. 500,000 was for year two and balance was for the year three. The profit of year 11 was derived before deduction allowable depreciation under income tax act of Rs. 50,000. The profit of year 12 was derived after deducting the donation of Rs. 30,000 was given for an ancient religious heritage with the pre-approval of IRD.
Required: Taxable income of the company giving explanation wherever necessary.
3.(b) Write the objectives of Value added tax. [4+4=8]
4.(a) A manufacturing company provided the following particulars:
Raw material purchased of Rs. 600,000.
Indirect material of Rs, 50,000; out of which Rs. 20,000 is excise tax on imports.
Freight on raw material purchased was Rs. 10,000 and Rs, 15,000 was incurred for selling expenses.
Operating and closing stock of raw materials were Rs. 60,000 and Rs. 50,000 respectively.
Manufacturing and management expenses amount to Rs. 1000,000 each.
Net profit of the company was Rs, 70,000.
Required: Factory price and amount of excise tax to be paid if tax rate is 18%.
4.(b) A business firm imported following goods from foreign country and included transportation cost US$ 2,000 up to Nepal's custom point.
Types of goods | Quantities | Unit price | Total cost | Rate of custom duty (assumed) |
Refrigerator | 30 | US$ 300 | US$ 6,000 | 30% |
Washing machine | 40 | US$ 400 | US$ 16,000 | 20% |
Micro oven | 50 | US$ 100 | US$ 5,000 | 30% |
Gas heater | 30 | US$ 150 | US$ 4,000 | 15% |
From investigation of good in custom form the view point of the custom authority found that the price of micro oven is US$ 200. In the same way the quantities of gas heater was 35 pieces in the place of 30 pieces.
Required: Custom duty [4+4=8]
5. (a) A company has the following expected operating results for the next five years
Years | 8 | 9 | 10 | 11 | 12 |
Exp.profit/Loss(Rs) | 200,000 | 400,000 | 550,000 | 700,000 | 900,000 |
On scrutiny it is found that is unrelieved past accumulated loss of Rs.575,000 . out of which Rs.200,000 was for the year 2 and Rs.200,000 for year 3 and rest was for year 4. regarding the above financial results the company would like to under take the following activities within the next 5 years period .
i. To purchase a patent right having life of 2 years and 4 months at a cost of Rs. 50,000.
ii. To borrow loan from a financial institution Rs.200,000 for 2 years at 15% interest rate p.a. loan is taken at the beginning of the year and repayable at the end of next year .
iii. To install a pollution control device at a cost of Rs. 200,000.
iv. To pay cash dividend of Rs.30,000 in year 11.
v. To give donation of Rs.150,000 to the fully admissible sector as per tax law. It is assumed that present tax policy of the government will not change for the next 5 years. the company seeks your advice to show the effect of tax planning for reducing tax burden of above activities .
Required : Timing of activities to minimize tax liability .
5.(b) Mr. X is interested to invest his capital on his own business. He is in confusion whether to establish sole trading concern or private company under company act 2063. From both business transactions he is expected to earn net assessable income of Rs. 300,000 per annum. he is also planning his retirement scheme, for the purpose he wanted to contribute Rs.30,000 to citizen investment trust (CIT) .
Required: You, as tax planer, suggest him which business he has to establish with supporting calculations from the view point of minimising tax liabilities. [4+4=8]
6. Explain the provisions of business exemptions and concessions as laid down under Income Tax Act, 2058. [10]
or
(a) Mr. B Furnished the following incomes and expenditures for the previous year.
House rent received Rs. 45,000 (net).
Income from writing articles in Republica Daily Rs. 20,000.
Total income from joint investment Rs. 40,000 (B's share is 25%).
Excess amount received with respect to investment due to exchange rate variation of Rs. 5000.
Gift received relating to investment Rs.45000.
Gain from investment Insurance (net) Rs.190,000.
Royalty from books (net) Rs.42,500.
Rent received by sub-letting room of Rs.150,000.
He earned net assessable income from business Rs.200,000.
Income from agriculture Rs.40,000.
Interest from unorganized sector Rs.68,000 (net).
Bad debts recovered (related to investment) Rs.50,000 (40% was not allowed previously).
Amount received for accepting investment restrictions Rs.35,000.
Net again from disposal of non-business chargeable assets (building) of Rs.200,000.
Gain from disposal of depreciable assets used in investment of Rs.50,000.
He had claimed the following expenses for deduction.
Total expenses relating to joint investment of Rs.20,000.
House rent collection charges of Rs.3000.
Collection charges of remuneration relating to article published in Republic Daily Rs.2000.
Donation was given to Nepal eye hospital of Rs.10,000.
Allowable depreciation relating to building of Rs. 15,000.
Repairs expenses relating to building of Rs.5000.
Medical expenses incurred Rs.10,000 but approved by IRO only Rs.5000.
Required : Net assessable income from investment .
(b) Mr. S.a Pakistani citizen came to Nepal on 20th poush of previous year and he had declared following incomes while stayed in Nepal during the previous year .
- Net assessable income from business of Rs.300,000.
- Net assessable income from investment of Rs. 150,000.
- Winning from lottery (net) of Rs.75,000.
He claimed following expenses for deductions:
- Donation to a Private Nursing home Rs.15,000.
- Purchase of lottery ticket of Rs.500.
Required :
i. Residential status of Mr. S
ii. Taxable income and tax liability [6+2+2=10)
7.(a) Describe the provisions of physical control system as laid down under excise act 2058.
(b) Explain the provisions of import and export procedures as stated in custom Act 2064. [5+5=10]
8.(a) Mr. Pant is a practicing lawyer has submitted his Receipts and Payments. Account prepared on cash basis for the previous year.
Dr. Receipts and Payments Account Cr. |
Receipts | Rs. | Payments | Rs. |
To Balance b/d | 200,000 | By Purchase of computer (on 15th Bhadra) | 200,000 |
To Legal fees (net) | 340,000 | By salary to staffs | 50,000 |
To Consultation fees | 200,000 | By Interest on bank loan | 30,000 |
To Commission received |
50,000 | By Vehicle expenses | 20,000 |
To Gift from clients | 25,000 | By Domestic expenses | 25,000 |
To Rent for house (net) | 27,000 | By Medical expenses (self) | 15,000 |
To Dividend from Nepal Bank Limited (net) |
38,000 | By Find paid to Nepal Telecom office for late payment of telephone bill amount |
5,000 |
To Sales of newspaper& Journals | 4,000 | By Office expenses | 27,000 |
To15% bank loan | 200,000 | By Donation | 8,000 |
To Gain on sale of securities |
100,000 | By Balance c/d | 804,000 |
Total | 1,184,000 |
| 1,184,000 |
Additional information:
i. Depreciation and repairs on computer is to be charged as per Income Tax Act.
ii. Vehicle was used eq1ually for personal and professional purpose.
iii. Consultation fees included Rs, 25,000 received in advance.
iv. Life insurance premium of Rs 20,000 was paid to insurance company but omitted to record in account.
Required:
i. Net Assessable income form profession
ii. Statement of total taxable income
8.(b) An importer imported certain taxable goods form outside the country paying Vat to the Nepal Government amounted to Rs,70 ,000. These goods were sole to the final customer through two businessmen i.e. wholesaler and retailer. The importer has spent Rs, 2,000 as freight and sold charging 15% margin on cost price. Both businessmen wholesaler and retailer incurred Rs. 1,500 and1,000 as carrying cost and sold to their customers charging 10% and 15% margin on their cost price respectively.
Required:
i. Added value of wholesaler and retailer
ii. Vat collected by government at each level of sales [4+1=5)
7
9. The following Trading and Profit & Loss Account of a company for the previous year is given below
Dr. Trading and Profit & Account Cr. |
Particulars | Rs. | Particulars | Rs. |
To Opening stock | 200,000 | By sales | 3,500,000 |
To Purchase | 1,500,000 | By Closing stock | 30,000 |
To Carriage on purchase | 200,000 |
|
|
To Customs duty | 50,000 |
|
|
To Gross profit c/d | 1,850,000 |
|
|
| 3,800,000 |
| 3,800,000 |
To Salaries for staffs | 300,000 | By Gross profit b/d | 1,85,000 |
To Administrative expenses | 150,000 | By Discount received | 30,000 |
To Contribution to retirement fund | 40,000 | By Bad debts recovered | 20,000 |
To Staff welfare expenses | 20,000 | By Gain on disposal of business liabilities | 50,000 |
To General expenses | 25,000 | By Gm received (business) | 20,000 |
To Fire insurance premium | 10,000 | By Income from natural resources | 130,000 |
To Sinking fund | 15,000 | By Rent form staff quarters | 40,000 |
To General reserve | 10,000 | By Dividend (net) | 38,000 |
To Telephone & electricity charges | 40,000 | By Refund of custom duty | 30,000 |
To Loss of trading goods | 10,000 |
|
|
To Pollutions control cost (PCC) | 250,000 |
|
|
To Miscellaneous | 150,000 |
|
|
To Interest on bank loan | 30,000 |
|
|
To Fines & penalties | 15,000 |
|
|
To Depreciation as machinery | 60,000 |
|
|
To Donation | 120,000 |
|
|
To Income tax paid in advance (current year) | 5,000 |
|
|
To Net profit c/d | 958,000 |
|
|
| 2,208,000 |
| 2,208,000 |
Additional information:
a. Both opening and closing stock were over valued by 20% .
b. Purchase included Rs.200,000 the cost of machinery purchased on Bhadra 25th of previous year. the beginning WDV of Rs.100,000 was sold at a loss of Rs.20,000 during the previous year. Provide depreciation on it under IT Act .
c. one fourth of the bed debts recovered was not allowed previously.
d. forty percent of donation was given for the promotion of religious heritage and rest for pubic school .
e. The loan was borrowed at an interest rate of 8% on 1st shrawan of previous year. the prevailing interest rate was 12% p.a.
f. Miscellaneous expenses included Rs. 40,000 actual repair expenses of the machinery .
g. Unrecovered business loss of Rs. 20,000 for the past 5th year was to be adjusted .
Required:
i. Net (Assessable) Income from business.
ii. Net (assessable) income from investment.
iii. Statement of total taxable income.
iv. Tax liability. [10+2+2+1].
10. Tax planning is scheme where by a taxpayer can manage his cash outflow properly. Describe this statement in the light of selecting industrial setup.
[15]
or
(a) XYZ company limited needs Rs.1,500,000 capital outlay for its future expansion programme . the company had the following financing plan to manage required capital.
Plan 1 : | 100% | equity financing |
Plan 2 : | 50% | equity and rest 10% debenture financing |
Plan 3 : | 50% | Debenture and rest 12% bank loan financing |
Further information :
Bank loan could be available within 20 days - whereas it takes two months and one month by issuing shares and debentures
respectively.
It is expected that expansion work is completed within 25 days .
The company expected income before interest, present loss, brokerage commission is Rs. 3,500 par day .
Flotation cost for both issuing shares and debentures is 1.5% and brokerage charge to obtain bank loan is 2% (assumed revenue cost).
Present loss suffered by the company is Rs.500 per day.
Company falls under special group with the assets under block-D.
Out of total capital 20% is used for working capital.
Required: You, as a tax planner, suggest the management which financing plan is the best.
(b) A company is interested to invest a capital outlay of Rs.6,000,000 in an industry of special nature. the company expects the following profit before transportation cost and corporate tax.
Years | 1 | 2 | 3 | 4 | 5 |
PBTCT (Rs) | 800,000 | 1,000,000 | 1,200,000 | 1,400,000 | 1,600,000 |
There is not restriction from the government to establish the factory any where however, the income tax act 2058 has provided the following concessions for location at different places . there are three alternatives location viz. Katmandu, banglung and dang .
a. No tax rebate will be allowed if factory is located at Katmandu.
b. 30% tax rebate if located at baglung .
c. 25% tax rebate if located at dang .
The company would like to fix a single price for its product. the major market of the finished product would be Katmandu. All the raw materials are available locally.
The budgeted production and sales of the factory is 30,000 units in the first years however there will be at 10% increase in production and sales per year respectively as compared to the preceding year in order to meet the targeted demand of the market. the transportation cost of finished product to Katmandu would be Rs.5 and Rs.10 respectively from Baglung and dang .
Required: As a tax planner where would you recommend to establish the factory and why ? [7+8=15]
Best of Luck
