Business Income

NUMERICALS BUSINESS
ICAP PAST PAPER QUESTIONS
Question-1
Dr. Sona is a leading Eye Specialist. He manages a private clinic. A summary of his receipts and
payments for the latest tax year is as follows:
Receipts Note Rs. Payments Note Rs.
Consultation fees 4,400,000 Rent of clinic 300,000
Income from surgery 3,950,000 Household expenses 1,960,000
Purchase of motor car 640,000
Property income (i) 1,062,000 Surgical equipment 500,000
Other income (ii) 83,000 Salary to assistant 180,000
Clinic running expenses 240,000
Car expenses (iii) 200,000
Donation (iv) 300,000
Notes to the receipts and payments are presented below:
(i) Dr. Sona owns a commercial building which he has rented out. Details of net receipts is as
follows:
Rs.
Rent for the year 870,000
Non-adjustable security deposit:
- received from a new tenant 700,000
- paid to old tenant (received three years ago) (500,000)
Property tax on building (8,000)
Net receipts 1,062,000
(ii) The amount was received for writing an article in an international magazine on World
Health Day.
(iii) 60% of the motor car expenses were incurred in connection with his personal use.
(iv) Donation was given to a Government medical college for upgrading its library.
(v) Depreciation on motor car and surgical equipment, under the 3rd Schedule of the Income
Tax Ordinance, 2001 is Rs. 96,000 and Rs. 75,000 respectively.
Required: Compute the taxable income, tax liability and tax payable by Dr. Sona for the latest tax
year. Provide appropriate comments on the items which are not relevant for your computations.
(20)
(Q.1 March 2012)

Question-2
Beena Sikandar is a lawyer and owns a law firm under the name Beena & Co. She is also Director
Legal Affairs at Ayesha Foods Limited. Details of her income for the tax year 2012 are as follows:

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Business Income

(A) INCOME FROM BEENA & CO.

Income Statement
Note Rupees
Revenue (i) 8,500,000
Less: Expenses
Salaries (ii) 2,000,000
Gifts and donations (iii) 400,000
Lease charges (iv) 900,000
Professional fee (v) 400,000
Property expenses (vi) 350,000
Travel expenses 150,000
Other expenses (vii) 710,000
Income tax (Previous year) 90,000

Net profit
Notes to the Income Statement
(i) Revenue includes Rs. 750,000 recovered from Rafia in respect of bad debts that
had been written off while calculating the taxable income for the tax year 2010.
The amount was receivable against professional services rendered to Rafia.
(ii) Salary expenses include amounts of Rs. 50,000 and Rs. 75,000 per month paid to
Beena and her brother respectively. Her brother looks after administration and
financial matters of the firm.
(iii) Gifts and donations include gifts to clients, gift to her son and donation to approved
non-profit organization amounting to Rs. 100,000, Rs. 50,000 and Rs. 250,000
respectively.
(iv) A vehicle was obtained solely for official purposes on lease, from a bank. The lease
commenced on 1 March 2012. Lease charges include Rs. 500,000 paid as security
deposit to the bank.
(v) The professional fee includes an amount of Rs. 150,000 paid to a legal firm for
defending a law suit filed against Beena, in a family court.
(vi) Beena lives in an apartment situated above her office, and two-fifths of the total
property expenses relates to this apartment.
(vii) Other expenses include an amount of Rs. 260,000 paid for Beena‟s Golf Club
membership which
she exclusively used to promote her business interests. The payment to the club was made in
cash.
(B) DIRECTOR’S REMUNERATION FROM AYESHA FOOD LIMITED (AFL)
(i) Beena received monthly remuneration of Rs. 100,000 from AFL.
(ii) During the year, she also received two bonus payments of Rs. 100,000 each. One
of the bonus pertains to tax year 2011. It was announced last year but disbursed to
her in the current year.

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Business Income

(iii) Beena has also been provided a vehicle, by AFL, for her personal as well as business
use. The car was acquired by AFL in May 2007 at a cost of Rs. 2,000,000. The fair
market value of the car as at 30 June 2012 was Rs. 1,500,000.
(iv) She received a fee of Rs.150,000 from AFL for attending the meetings of the Board
of Directors (BOD).
(v) Details of tax deducted by AFL are as follows:
Rupees
From salaries 390,000
From fee received for attending the meetings of BOD 9,000
Required:
Compute the taxable income, tax liability and tax payable by Beena Sikandar for the tax year
2012. Provide appropriate comments on the items appearing in the notes which are not
considered by you in your computations. (17)
(Q.1 September 2012)

Question-3
On 1 July 20Y0, Tahir commenced business of selling garments. Income statement of the business
for the year ended 30 June 20Y1 is as follows:
Notes Rs. in
000
Sales 49,330
Less: Cost of sales (i) (39,150)
Gross profit 10,180
Less: Administrative and selling expenses (ii) (9,140)
Financial charges (iii) (2,500)
Other charges (iv) (1,358)
(12,998)
Add: Other income 3,875
Profit before taxation 1,057
Notes to the income statement:
(a) On 15 July 20Y0, used machinery was imported from China valuing Rs.1,500,000.
Depreciation @ 15% was charged on machinery for the whole year and is included in cost
of sales.
(ii) Administrative and selling expenses include:
• Rs.975,000 paid for the purchase of computer software. The software is likely to be
used for ten years.
• Cost of preparation of a feasibility study amounting to Rs.250,000 which was issued
prior to the commencement of business.
• Salary of Rs.50,000 per month was paid to Tahir‟s brother who handles the financial
matters of the business.

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Business Income

(iii) Financial charges include Rs.80,000 pertaining to a vehicle obtained on lease from a leasing
company. The cost of vehicle was Rs.1,300,000. Depreciation of Rs.260,000 has been
included in administrative and selling expenses. Lease rentals paid during the year
amounted to Rs.384,375.
(iv) Other charges include:
 running and maintenance expenses of vehicle amounting to
Rs.295,450. Use of vehicle for personal purposes was approximately
20%.
 provision for bad debts amounting to Rs.25,000.
Other information:
(i) Tahir was working in UAE for the past five years and had come back to Pakistan in April
20Y0. He received an amount equivalent to Rs.150,000 from his ex-employer as differential
amount on his final settlement in August 20Y0.
(ii) In December 20Y0 he sold a plot for Rs.5,500,000 which was inherited from his father in
September 20X9. His father purchased it for Rs.1,500,000.

Required: Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income
and tax liability of Tahir for the tax year 20Y1. Provide comments in respect of items which do not
appear in your computation.
(Ignore minimum tax)
(18)
(Q.1 March 2015)

Question-4
Mushtaq is a sole proprietor of Mushtaq Enterprises (ME) engaged in the business of selling
different products. ME‟s profit and loss account shows profit before taxation of Rs. 1.8 million for
the year ended 30 June 20Y1. A review of ME‟s records has revealed the following information.
(i) ME employs two salesmen. Rs. 46,000 per month were paid to each salesman in cash
which includes reimbursement of Rs. 6,000 per month incurred on entertainment of
customers at the business premises.
(ii) Administrative expenses include Rs. 150,000 which were paid to a research institute in
China for the purpose of developing a new product.
(iii) Accounting loss on the sale of patents was Rs. 65,000. The tax written down value of these
patents at the beginning of the year was Rs. 430,000 and these were sold for Rs. 524,000.
Amortization charged to the profit and loss account on these patents for the current year
was Rs. 25,000.
(iv) Receivables from Atif and Aslam which had been written off in the previous year were
recovered. Details are as follows:
Atif Aslam
-----Rupees-----
Claimed bad debts in last tax return 800,000 1,200,000

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Business Income

Allowed by tax authorities last year 550,000 600,000

Amount recovered during the year 700,000 400,000
(v) ME has opened a sales office in Dubai. In this respect, furniture costing Rs. 850,000 with
written down value (WDV) of Rs. 650,000 was shifted to Dubai office. The tax WDV of the
furniture at the beginning of the year was Rs. 610,000.
(vi) Accounting depreciation for the year is Rs. 580,450. However, no depreciation has been
provided on the following fixed assets purchased on 1 March 20Y1:
Rupees
Furniture 400,000
Used machinery imported from Germany 500,000
(vii) Tax depreciation for the year, prior to the adjustments mentioned in (vi) above, amounted
to Rs. 484,525.
(viii) Advance tax paid u/s 147 was Rs. 200,000.
(ix) The assessed business losses of tax year 20X5 brought forward in year 20Y1 are Rs.
830,000. These include unabsorbed tax depreciation amounting to Rs. 705,000.
Other transaction of Mushtaq
On 1 June 20Y1, he sold 6,000 shares for Rs. 432,000 out of 15,000 shares which he received on 1
May 20X8, on the death of his father. His father purchased those shares for Rs. 25 per share.
Required:
Under the provisions of Income Tax Ordinance, 2001 and rules made thereunder, compute taxable
income and net tax payable by or refundable to Mushtaq for the year ended 30 June 20Y1.
(16)
(Q.1, March 2017)

Question-5
Mr. Qateel, a resident individual, is engaged in the manufacturing 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 2023.
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.

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Business Income

accounting depreciation of Rs. 2,498,940 (including depreciation on leased assets).

(ii) Operating expenses include:
• Rs. 450,000 paid for renewal of a licence for fifteen years.
• vehicle tax paid in cash amounting to Rs. 255,000 for eight office cars.
• Rs. 185,000 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 Zakat of Rs. 1,401,060 paid
under Zakat & Ushr Ordinance.
• penalty of Rs. 25,000 imposed by the Commissioner Inland Revenue for late filing of
annual return of income for the tax year 2022.
• 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 2016.
(iv) On 30 June 2023, 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 2018.
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.
4,888,000. No accounting depreciation has been recorded on it.
(vi) Tax depreciation for the tax year 2023 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 2023. (18)
Note:
• Ignore minimum tax under section 113
• Show all the relevant exemptions, exclusions and disallowances

Question-6

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By: Zahid Qavi. FCA
Business Income

Saleem is a resident taxpayer and runs a fitness centre in DHA Karachi. He files his return of income
regularly. Following information pertains to his business for the tax year 2026:
(i) Accounting profit before tax amounted to Rs. 2,162,500.
(ii) Administrative expenses include annual rent of the premises used for fitness centre
amounting to Rs.1,560,000. Withholding tax of Rs. 144,000 was deducted from the rent
payment but was not deposited in the government treasury.
(iii) A passenger transport vehicle used for pick and drop of employees of fitness centre was
disposed of for Rs.8,000,000. The vehicle was purchased for Rs. 8,500,000 in tax year 2025.
No accounting depreciation was provided during the year 2026. Accounting gain of Rs.
400,000 has been recorded in the profit or loss account.
(iv) On 1 July 2025, a car was acquired on finance lease. The vehicle has been used 70% for
business purposes and 30% for Saleem’s personal use.
Accounting depreciation of Rs. 600,000 and financial charges of Rs. 462,000 were recorded
in the profit or loss account. Lease rentals paid during the year amounted to Rs. 857,000.
(v) During the year, Saleem recorded gain of Rs. 50,000 on disposal of shares. Details are
asunder:
Purchased Gain/(loss) on
Name of investee company Sold on
On disposal (Rs.)
Sun (Private) Limited 1 Aug 2025 1 Sep 2020 500,000
Moon Limited – a listed company 15 Sep 2025 1 Jan 2023 (700,000)
Planet Limited - a listed company 1 Feb 2026 1 Jan 2023 250,000
50,000
Required:
Compute Saleem’s taxable income under appropriate head of income and tax liability for the tax
year 2026. (12)
(Q.5 September 2018)
Question-7
For the purpose of this question, assume that the date today is 31 August 2022.
Shahid is engaged in the business of manufacturing and supplying of auto parts. Following is the
extract of his profit or loss statement for the tax year 2022:
Rs. in ‘000’
Sales 29,058
Cost of goods sold (18,724)
Gross profit 10,334
Operating expenses (3,137)
Financial charges (2,030)
Other income 760
Profit before tax 5,927
Additional information:

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Business Income

(i) The above accounts have been prepared on cash basis and stock-in-trade has been valued
on prime cost method. However, Shahid wants to change the method of accounting from
cash basis to accrual basis. In this respect, following information has been gathered:

Opening balances Closing balances

-----------Rs. in ’000-----------
Stock-in-trade using prime cost method 1,800 2,800
Stock-in-trade using absorption cost method 2,300 3,200
(ii) Cost of goods sold includes:
▪ purchase of packing material of Rs. 2,200,000 from Nasir Traders. No withholding
tax was deducted at the time of payment.
▪ freight charges of Rs. 285,000. These were paid in cash for transporting goods from
suppliers.
(iii) Operating expenses include:
▪ salary of Rs. 80,000 per month paid to Shahid's brother who handles administrative
matters of the business.
▪ expenditure of Rs. 950,000 incurred on the development of a product which is
expected to generate revenue for five years.
▪ penalty of Rs. 465,000 for late filing of income tax return.
(iv) Financial charges include profit on debt of Rs. 450,000 earned on fixed deposit account
maintained with a bank. The bank withheld income tax and Zakat amounting to Rs. 45,000
and Rs. 93,750 respectively.
(v) Other income includes:
▪ capital gain of Rs. 45,000 received, net of withholding tax of Rs. 6,750 on sale of
20,000 shares in Metal Limited (ML) in November 2021. ML is listed on PSX. On 1
January 2020, Shahid purchased these shares for Rs. 200,000 at initial public
offering.
▪ rent of Rs. 980,000 received from an agriculture land in Badin. No withholding tax
was deducted at the time of receipt.
(vi) Tax depreciation for the year amounts to Rs. 680,000.
(vii) Tax deducted at source by customers amounts to Rs. 875,000.
(viii) The unabsorbed tax depreciation brought forward from tax year 2021 amounts to
Rs.568,000.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute
total income, taxable income and net tax payable by or refundable to Shahid for the tax year
2022. (Use accrual basis of accounting)
Note: ▪ Your computation should commence with profit before tax figure.
▪ Show all relevant exemptions, exclusions and disallowances. (18)
(Q.1 March 2020)

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Business Income

Question-8
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
Cost of goods sold (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.
• 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.

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Business Income

(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. 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.
(19)
(Q.3 March 2021)
Question-9
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 2025:
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. 1,400,000. The tax written down values of KE‟s fixed assets
on 1 July 2024 were:
Rupees
Plant and machinery 6,860,000
Computers and related products 800,000
Motor vehicles (80% for business purposes) 3,000,000

A new computer was purchased on 1 April 2025 for Rs. 150,000.

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Business Income

Motor vehicle which was purchased on 15 June 2023 at the cost of Rs. 1,000,000 was sold
for Rs. 750,000 on 31 May 2025. 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 2025 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 2025 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 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 organizations. 40% of this amount was
donated to organizations listed on the 13th Schedule of the Income Tax Ordinance, 2001.
All donations were made through crossed cheques.
Other income includes:
(i) an amount of Rs. 720,000 received from income tax department on account of tax refund
related to tax year 2022. 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 2025. Both investments were made on 1 January 2023.
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 2025. (18)
(Q.4 September 2021)
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.

Question-10
For the purpose of this question, assume that the date today is 31 August 2022.
Aakash Kumar owns an industrial undertaking under the name and style of Premjee & Co. (PJC)
which is engaged in the business of manufacturing fast moving consumer goods. Following
information is available from PJC‟s records for the year ended 30 June 2022:
(i) Loss before tax for the year was Rs. 87 million.

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(ii) Operating expenses include:

• a penalty of Rs. 2 million for late delivery of goods to a customer.
• commission of Rs. 2.5 million which was paid to a distributor, Liaquat Bashir, on sale
of PJC‟s products of Rs. 50 million. These products are covered in the Third Schedule
of the Sales Tax Act, 1990. Name of Liaquat Bashir is not appearing in the active
taxpayers‟ list under the Income Tax Ordinance, 2001.
• freight charges of Rs. 1.2 million which were paid in cash to a freight forwarding
company in Karachi.
• accounting depreciation of Rs. 40 million. (iii) Other income includes:
• an insurance claim of Rs. 6 million, equivalent to accounting book value, received on
8 November 2021 in respect of a vehicle which was completely destroyed by fire. The
cost and fair market value of the vehicle before fire incident were Rs. 10 million and
Rs. 8 million respectively. This vehicle was purchased on l October 2019.
• amounts recovered during the year from two debtors i.e. Shameem and Faheem.
These amounts had been written off in the last year. Details are as follows:

Shameem Faheem
— Rs. in million —
Bad debts claimed in the last tax return 19.2 28.8
Bad debts allowed by tax authorities 13.2 14.8
last year
Amounts recovered during the year 16.8 10.6
• rent of Rs. 21.6 million. On 1 July 2021, Aakash leased one of its factory buildings
alongwith the plant to Kamran at a monthly rent of Rs. 1.8 million, payable in advance.
The building was purchased for Rs. 85 million on 16 August 2019 whereas a second
hand locally purchased plant was installed at a cost of Rs. 34 million on 1 July 2021.
During the year, Aakash incurred Rs. 3.2 million on repair and maintenance of the
factory building.
(iv) PJC‟s liabilities include amounts of Rs. 14 million and Rs. 17 million in respect of purchases
made on 18 March 2018 and 1 August 2018 respectively. These purchases were allowed
as admissible deductions while computing income from business in their relevant tax
years.
(v) During the year, outstanding financial charges of Rs. 2.8 million were waived by the bank
on rescheduling the loan. These charges were claimed as admissible deduction in the tax
year 2020.
(vi) Tax depreciation for the year on all fixed assets, other than factory building and plant which
were leased out to Kamran, amounted to Rs. 48 million.
Other information:
(i) On 15 August 2021, Aakash entered into a derivative contract for the purchase of
gold. The contract was to be expired on 15 November 2021. Aakash sold the contract
before the settlement date and earned a net gain of Rs. 23 million on the contract.
(ii) On 30 June 2022, Aakash earned capital gains of:

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Business Income

• Rs. 20 million on sale of his plot which was purchased on 1 June 2019.
• Rs. 3.6 million on sale of shares in a private company. These were acquired on 1
June 2021.
(iii) During the year, Aakash received his share of profit from an AOP of Rs. 70 million.

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 Aakash for the tax
year 2022. (18)
(Q.3 March 2022)
Note: Ignore minimum tax under section 113.
Show all relevant exemptions, exclusions and disallowances.

Question-11
Azaadi & Co. (AC) is an association of persons engaged in the business of manufacturing
disposable products. Following information has been extracted from AC’s records for the
year ended 30 June 2022:

Rs. in million
Sales 380
Less: Sales tax (45)
Less: Trade discount (15)
Net sales 320
Less: Cost of sales (240)
Gross profit 80
Less: Operating expenses (146)
Loss before tax (66)

Additional information:
(i) Cost of sales includes:
payment of Rs. 12 million (including sales tax of Rs. 2 million) to Hashim Limited (HL)
for the purchase of a new machine for making plastic container in exchange of an old
machine having a book value and a fair market value of Rs. 5 million and Rs. 4 million
respectively on exchange date. The transaction was carried out on 1 July 2021.

Old machine was purchased on 1 January 2020. Disposal of old machine and
depreciation of new machine were not recorded in AC’s books of accounts. Tax WDV
of old machine was the same as accounting WDV on the disposal date.
purchase of raw materials of Rs. 40 million against which no withholding tax was
deducted at the time of payment. During the year, AC purchased total raw material of
Rs. 120 million.

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Business Income

closing inventory of damaged finished goods of Rs. 18 million. Due to heavy rain, these
goods were damaged and it is expected to fetch Rs. 12 million only.

(ii) Operating expenses include:

ry of Rs. 0.275 million paid to office boy in cash. He was paid a monthly salary of Rs.
25,000 for eleven months.
warehouse rent of Rs. 1.6 million paid through credit card linked to notified business
bank account.
bad debt of Rs. 2.8 million written off against receivable from a customer on his
insolvency.
commission of Rs. 3.2 million paid to one of the members of AC, by crediting the
amount to his bank account.
scholarship of Rs. 4.5 million paid to Sara, one of AC’s staff members, for higher
studies in accordance with the terms of the employment. \
payment of Rs. 6.4 million for the purchase of a specialized software foAC’s
manufacturing department on 1 April 2022. The software is expected to be used for five
years. Although the software is available for use from the date of purchase,
AC’s members have decided to implement this software from 1 July 2022.

depreciation and financial charges of Rs. 2.1 million and Rs. 1.5 million respectively
in respect of a car which was acquired on financial lease.
On 1 July 2021, AC entered into a lease agreement with a bank for a car of
Rs. 10.5 million against the annual lease rentals of Rs. 3.0 million, payable in arrears.
The car has been used 80% for business purposes and 20% for personal use of members.

Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder: compute
the total income, taxable income and tax liability of Azaadi & Co. for the tax year 2022. (15)
(Q1 September 2022)

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Business Income

Question-12
For the purpose of this question, assume that the date today is 31 August 2023.
Faith Brothers (FB) is engaged in the business of manufacturing tools and equipment.
Following information has been extracted from FB’s records for the year ended 30 June 2023:

Rs. in million
Revenue 1,400
Expenses (1,270)
Other income 47
Net profit 177

Additional information:

(i) Expenses include:

accounting depreciation of Rs. 188 million.
cash payment of Rs. 1 million for purchasing the ten air tickets.
payment of Rs. 4 million to shipping line on account of demurrages for
containers blocked at port. Moreover, penalties of Rs. 9 million were also paid
to various clients on delaying their orders because of closure of production
plant for two weeks during the year.
payment of Rs. 50 million to a builder for the construction of a building. The
work is still in progress at the year end.
payment of AED 100,000 equivalent to Rs. 5 million to a research institute in
UAE for the purpose of developing a new product.

a foreign exchange loss of Rs. 15.8 million in respect of amount payable to

FB’s associated company in Qatar. This liability arose on 1 January 2022 from
the import of a second-hand plant at a cost of QAR 400,000. As per the
agreement, the payment would be made on 1 January 2024. Relevant exchange
rates are as follows:

1 January 30 June 2022 30 June 2023

2022
Rs. per QAR 45 40 79.5

(ii) Other income comprises of:

recovery of bad debts of Rs. 16 million. The amount of Rs. 30 million was
written off three years ago, out of which only Rs. 10 million was allowed by
the tax authorities.

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By: Zahid Qavi. FCA
Business Income

capital gain of Rs. 40 million on sale of following securities on 1 March 2023:

Capital gain
Date of purchase
(Rs. in million)
Modaraba certificates 10 July 2022 8
Shares of an unlisted company 20 February 2022 12
Shares of a listed company 15 January 2019 20

a loss of Rs. 9 million in respect of an insurance claim. The claim was lodged
against damage of a new machinery during the shipment that rendered it unfit
for use.

(iii) Tax depreciation for the year on all fixed assets, other than imported second-hand plant,
amounted to Rs. 214 million.

(iv) Following are the details of losses brought forward from previous years:

Rs. in million
Loss from business relating to tax year 2021 52
Loss from speculation business relating to tax year 2022 14
Unabsorbed tax depreciation 168
Capital losses on sale of listed securities relating to:
 tax year 2019 8
 tax year 2020 6

Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder:
compute total income, taxable income and income tax liability of FB for the tax year 2023. (17)
Ignore minimum tax under section 113.
Show all relevant exemptions, exclusions and disallowances. (Q 3 March 2023)

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By: Zahid Qavi. FCA
Business Income

Question-13
Sweet Bakers (SB) is a bakery business owned by Mariam and her two brothers, Ehsan and
Ghulam, who share profits in the ratio of 60:20:20, respectively. SB has three retail outlets located
in Karachi, and it alsoowns agriculture land that is rented to a chicken farmer. SB is registered
with sales tax authorities as a Tier
1 retailer.
The following information has been extracted from the records of SB for the year ended
30 June 2023:
Rs. in million
Net sales 500
Less: Cost of sales (350)
Gross profit 150
Less: Operating expenses (73)
Profit before tax 77

Additional information:
(i) Net sales include rental received from the chicken farmer, as detailed below:
i. A monthly payment of Rs. 0.5 million.
ii. Supply of 120 paitis of eggs (agriculture produce) every month. Each paiti holds
a market value of Rs. 7,200. SB consumed these eggs in the production of various
bakery items, but they are not accounted for in the abovementioned cost of sales.

(ii) Cost of sales include:

i. purchase of various raw materials worth Rs. 24 million on which no withholding
tax was deducted at the time of payment. SB made total purchases of Rs. 200
million during the year.
ii. purchase of milk powder worth Rs. 10 million, of which 10% is delivered to
the homes of the three partners for their personal use.
iii. salaries of Rs. 8.2 million, Rs. 6 million, and Rs. 4.8 million to Mariam, Ehsan,
and Ghulam, respectively.
iv. purchase of a new bakery plant worth Rs. 15 million.
(iii) Operating expenses include:
i. purchase of point-of-sale machines worth Rs. 0.4 million which wereinstalled
on 1 July 2022 in all outlets to integrate with FBR’s computerized system for
real time reporting of sales.
ii. payment of Rs. 5.5 million on 1 January 2023 to an IT company for the
development of an application to facilitate online orders from customers. The
useful life of this application is expected to be five years and is available for
use from 1 October 2023.
(iv) On 1 February 2023, Mariam contributed her personal van to the business,
i. which she had purchased at a cost of Rs. 6 million on 1 January 2022. The fair
market value of the van at the time of transfer was Rs.9 million.

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By: Zahid Qavi. FCA
Business Income

Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute
under the correct head of income, the total income, taxable income, and tax liability of SB for
the tax year 2023. (16)
▪ Ignore minimum tax under section 113.
Show all relevant exemptions, exclusions and disallowances.
(Q.4 September 2023)

18
By: Zahid Qavi. FCA
Business Income

ICAP PAST PAPER SOLUTIONS

Answer-1
Dr. Sona
Computation of Income and Tax Thereon

Income from Business (W-1) 7,436,600

Income from Other source (W-2) 83,000
Income from property (W-3) 732,000
Taxable income under NTR 8,251,600
Tax liability on income under NTR (765,000 + 4,251,600 x 35%) (1) 2,253,060
Less: Tax credit on donation [S.61] (2,253,060/8,251,600) x (81,914)
300,000
C is lower of: 300,000 or 30% of 8,251,600
Tax payable to Government 2,171,146
Note: It is assumed that charitable donation is paid through crossed cheque.

(W-1) Income from business

Revenues
Consultation fees [S.18(1)(a)] 4,400,000
Income from surgery [S.18(1)(a)] 3,950,000
8,350,000
Less: Expenses
Rent of clinic [S.20(1)] 300,000
Depreciation motor car (96,000 x 40%) 38,400
Depreciation surgical equipment 75,000
Salary to assistant [S.20(1)] 180,000
Clinic running expenses [S.20(1)] 240,000
Car expenses [S.20(1)] (200,000 x 80,000
40%)
(913,400)
7,436,600
(W-2) Income from other sources
Article writing [S.39] 83,000

(W-3) Income from property

Income
Rentals 870,000

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By: Zahid Qavi. FCA
Business Income

Non- adjustable amount received [S.16(3)] 700,000

Less: Already taxed
In TY - - (50,000)
In TY - - (50,000)
In TY - - (50,000)
550,000
Amount to be taxed (550,000/10) 55,000

925,000
Less: Admissible deductions
Repair allowance (925,000 x 1/5) (185,000)
Property tax (8,000)
Income from property 732,000
Items not included:
- House hold expense is not an allowable deduction.[S.21(h)]
- Cost of car and surgical equipment is not an allowable deduction, rather their depreciation
will be allowed as deduction.

Answer -2
Beena Sikandar
Computation of Income and Tax
Thereon
For Tax Year 2012
Income from business (W-1) 5,540,000
Income from salary (W-2) 1,650,000
Taxable Income 7,190,000

Tax liability on income falling under NTR (765,000+ 3,190,000 x 35%) 1,881,500
(1)
Less: Tax credit u/s 61 (1,881,500/7,190,000) x (65,421)
250,000
C is lower of: 250,000 or 30% of 7,190,000
1,816,079
Less: Taxes deducted at source
From salaries 390,000
From fee received for attending the meetings of BOD 9,000
(399,000)
Tax payable to Government 1,417,079

(W-1) Income from business

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By: Zahid Qavi. FCA
Business Income

Accounting profit 3,500,000

Add: Deductions not allowed
Tax Bad debt recovery (W-3) 750,000
Salaries [S.21(h)] (50,000 x 12) 600,000
Gifts and donation [S.21(h)] (50,000 + 250,000) 300,000
Lease security deposit 500,000
Professional fees [S.21(h)] 150,000
Property expenses [S.21(h)] (350,000 x 40%) 140,000

Other expenses [S.21(l)] 260,000

Income Tax (Previous year)[S.21(a)] 90,000
2,790,000
Less: Accounting bad debt recovery 750,000
Salary to brother -
Gifts to client
-
Travel expenses
-
(750,000)
5,540,000
(W-2) Income from salary
Remuneration [S.12(2)(a)] (100,000 x 12) 1,200,000
Bonus (taxed on receipt basis) [S.12(2)(a)] (100,000 x 2) 200,000
Car benefit [S.13(3)] (2,000,000 x 5%) 100,000
Board meetings [S.12(2)(a)] 150,000
1,650,000
(W-3) Tax Bad debt Recovery
Amount Recovered 750,000
Less: Actual Bad debt 750,000
Less: Previously allowed as deduction (750,000) (0)
Tax Bad debt Recovery 750,000

Answer-3
Mr. Tahir
Income and Tax Thereon
TY 20Y1
Income from business (W-1) 1,855,465
Income from capital gain

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By: Zahid Qavi. FCA
Business Income

- Gain on disposal of immoveable property (W-2) 4,000,000

Total Income 5,855,465
Less: Income from capital gain – taxable separately (4,000,000)
Taxable income under NTR 1,855,465
Tax liability on income falling under NTR (75,000 + 655,465 x 206,093
20%)
Add: Tax on disposal of immoveable property (4,000,000 x 12.5%) 500,000
Payable to Government 706,093
(W-1) Income from business
Profit before tax 1,057,000
Add: Accounting depreciation (1,500,000 x 15%) 225,000
Computer software wrongly included in expenses 975,000
Cost of feasibility wrongly included in expense 250,000
Financial charges on leased asset 80,000
Depreciation on leased asset 260,000
Personal car expenses [S.21(h)] (295,450 x 59,090
20%)
Provision for bad debt [S.29 (1)] 25,000
1,874,090
Less: Initial allowance on machinery [S.23(1)] (1,500,000 x 375,000
25%)
Tax depreciation [S.22] (1,500,000- 168,750
375,000)x15%
Amortization on computer software [S.24(4)] (975,000/10 97,500
years)
Amortization on pre-commencement Exp. S.25(2)] 50,000
(250,000 x 20%)
Salary of Tahir brother -
Lease rentals paid [S.28 (1)(b)] 384,375
(1,075,625)
1,855,465

(W-2) Gain on disposal of immoveable property (5,500,000 –

1,500,000) 4,000,000

Items not included

1. Any foreign- source income derived by a citizen of Pakistan in a tax year who was not a resident
individual in any of the 4 tax years preceding the tax year in which the individual became a
resident shall be exempt from tax in the tax year in which the individual became a resident
and in the following tax year. Therefore income of Tahir from UAE is exempt from tax. [S.51]

22
By: Zahid Qavi. FCA
Business Income

Answer-4
Notes for students:
Adj.(i) As reimbursement of Rs. 6,000 is for official purpose so it is not a part of salary, hence
ignored.
Mr. Mushtaq
Income and tax thereon
TY 20Y1
Income from Business (W-1) 1,508,675
Capital gain (W-5) 282,000
Taxable income 1,790,675
Tax liability on income under NTR (75,000 + 590,675 x 20%) (1) 193,135
Less: Advance Tax Paid u/s 147
(200,000)
Payable to Government / (Refundable) (6,865)

(W-1) Income from business

Profit before tax 1,800,000
Add: Salary paid in cash [S.21 (m)] (46,000- 6,000) x 12 months x 2
960,000
employees
Research paid outside Pakistan [S.26 (1)] 150,000
Accounting Loss on patent 65,000
Tax Gain on Patent [S. 24 (9)] (524,000 – 430,000) 94,000
Accounting amortization 25,000
Tax bad debt recovery – Atif [S.29 (3) (a)] (W-2.1) 450,000
Tax gain on disposal of furniture [S. 22 (14)] (W-3) 240,000
Accounting depreciation 580,450
2,564,450
Less: Accounting bad debt recovery – Atif 700,000
Accounting bad debt recovery – Aslam 400,000
Tax bad bedt – Aslam [S. 29 (3) (b)] (W-2.2) 200,000
(1,300,000)
Profit before Tax Depreciation, tax amortization and Initial Allowance 3,064,450
Less: Loss before depreciation ( -830,000 + 705,000) (125,000)
2,939,450
Less: Tax depreciation (b/f) (725,775)
2,213,675
Less: Tax Depreciation, tax amortization and Initial Allowance (c/y) (W-4) (705,000)
1,508,675

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By: Zahid Qavi. FCA
Business Income

(W-2.1) Tax Bad debt Recovery-Atif

Amount Recovered 700,000
Less: Actual Bad debt 800,000
Less: Previously allowed as deduction (550,000) (250,000)
Tax Bad debt Recovery 450,000

(W-2.2) Tax Bad debt Recovery-Aslam

Amount Recovered 400,000
Less: Actual Bad debt 1,200,000
Less: Previously allowed as deduction (600,000) (600,000)
Tax Bad debt Recovery (200,000)

(W-3) Tax Gain on Disposal of Furniture

Consideration 850,000
Less: WDV (610,000)
240,000

(W-4) Tax Depreciation, amortization and Initial Allowance[S.22 & 23]

Tax Depreciation as per adjustment (vii) 484,525
Tax Depreciation on furniture 400,000 x 15% 60,000
Initial allowance on machinery (500,000 x 25%) 125,000
Tax Depreciation on machinery (500,000 – 125,000) x 15% 56,250
725,775

(W-5) Income from Capital Gain

Consideration Received 432,000
Less: Cost (6,000 x 25) (150,000)
282,000

Answer-5
Qateel Enterprises
Income and Tax Thereon
TY 2023
Income from business (W-1) 3,625,800
Income from Capital Gain (share disposal) 1,200,000
Income from other sources - FTR dividend income (W-3) 800,000
Total Income 5,625,800
Less: Income from other sources - FTR dividend income (800,000)

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By: Zahid Qavi. FCA
Business Income

4,825,800
Less: Zakat [S. 60] (100,000 + 1,401,060) (1,501,060)
Taxable Income 3,324,740
Tax liability on income falling under NTR (465,000 + 324,740 x 30%) 562,422
Add: Tax on Dividend ((W-2) 800,000 x 15%) 120,000
682,422
Less: Tax on Dividend ((W-2) 800,000 x 15%) (120,000)
Advance Tax paid to KE (300,000)
Advance tax paid (480,000)
Tax refundable to QE (217,578)

(W-1) Income from Business

Profit before tax 2,809,297

Add:
Accounting depreciation (including on leased assets) 2,498,940
Renewal of license – intangible 450,000
Security deposit to KE 185,000
Advance tax collected by KE 300,000
Donation – poor families – not allowed 64,600
Zakat 1,401,060
Penalty paid to Govt. [S. 21(g)] 25,000
Finance charges on lease 35,703
4,960,303
Less:
Fine for violation of contract (allowed not being paid to
-
Government) [S. 20(1)]
Amortisation on license [S. 24(4)] 30,000
Vehicle tax paid (allowed even if paid in cash) [S. 20(1)] [S.
-
21(l)(v)]
Entertainment (allowed because wholly and exclusively for
-
business) [S. 21(d)]
Dividend Income – falling under FTR [S. 5] 580,000
Capital Gain on sale of shares 1,200,000
Lease Rentals [S. 28(1)(b)] 270,000
Tax depreciation [S. 22] (W-2) 2,063,800
(4,143,800)
3,625,800

(W-2) Calculation of tax depreciation

25
By: Zahid Qavi. FCA
Business Income

Depreciation on ware house (4,888,000 x 10%) 488,800

Depreciation on machine purchased (100,000 x 15%) 15,000
Tax Depreciation (given) 1,560,000
2,063,800

(W-3) Calculation of gross amount of dividend

Net Dividend = Gross dividend - Tax Deducted - Zakat Paid
580,000 =X - 15% of X - 100,000
X = 8000,000

Answer-6
Mr. Saleem
Computation of Taxable Income and Tax Liability
TY 2026
Income from Business (W-1) 4,418,424
Income from Capital gain – NTR (W-2) 500,000
Income from Capital gain – securities (Note-1) -
Total Income 4,918,424
Less: Gain on disposal of securities – taxable separately -
Taxable income under NTR 4,918,424
Tax liability on income under NTR (765,000 + 918,424 x 35%) 1,086,448
Add: Tax on gain on disposal of securities [Note-1]
- Moon limited -
- Planet limited -
Tax payable to Government 1,086,448

Items not included in computation of taxable income

[Note-1] There is a net loss of Rs. 450,000 on the disposal of securities as computed below:
Loss on sale of shares of Moon Limited [S. 37A(5)] (700,000)
Gain on sale of shares of Planet limited [S. 37A(5)] 250,000
Loss (450,000)
Loss of Rs. 450,000 shall be carried forward to subsequent 3 tax years.

(W-1) Income from Business

Accounting profit 2,162,500
Add:
Annual rent [S.21(c)] 1,560,000
Accounting depreciation of car 600,000
Financial charges 462,000

26
By: Zahid Qavi. FCA
Business Income

Tax Gain on disposal vehicle 683,824

3,305,824
Less:
Accounting gain on vehicle 400,000
Lease rentals paid [S.28 (1)(b)] (857,000 x 70%) 599,900
Net accounting Gain on the sale of all shares 50,000
(1,049,900)
Income from business 4,418,424

(W-1.1) Disposal of passenger transport vehicle [S. 22(13)(a)]

Consideration on disposal [8,000,000 x 7,058,824
(7,500,000/8,500,000)]
Less: Tax Written down value on Disposal (W-1.2) (6,375,000)
Tax Gain on disposal 683,824

(W-1.2) Tax Written down value (WDV)

Restricted cost -TY 2025 7,500,000
Less: Tax depreciation -TY 2025 (7,500,000 x 15%) (1,125,000)
Tax WDV 6,375,000

(W-2) Income from Capital gain

Sun (Private) Limited 500,000

Answer -7
Note for students:
If method of accounting is changed from cash to accrual basis, opening stock of current year will
actually be the closing of previous year (calculated using prime cost method) thus there will be
no error in the opening stock given in question. However at year end, the closing stock should be
calculated using absorption cost method.

Shahid Enterprises
Income and Tax Thereon
For the tax year 30 June 2022
Rs. ‘000’
Income from business (W-1) 5,269
Income from capital gain – securities (45 + 6.75) 51.75
Income from other sources – FTR profit on debt 450
Exempt income – agriculture income 980

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By: Zahid Qavi. FCA
Business Income

Total income 6,750.75

Less: Gain on disposal of securities – taxable separately (51.75)
Less: Income from other sources – FTR profit on debt (450)
Less: Exempt income – agriculture income (980)
5,269
Less: Zakat [S.60] (93.75)
Taxable income 5,175.25
Tax liability (765,000 + 1,175,250 x 35%) 1,176.34
Add: Tax liability on separate block
Tax on disposal of securities (51.75 x 12.5%) 6.47
Add: Tax on profit on debt (450 x 15%) 67.5
Total tax liability 1,250.31
Less: Tax already deducted:
Tax deducted by customers (875.00)
Tax deducted on profit on debt (45)
Tax deducted on securities (6.75)
Tax payable/(refundable)
323.56

(W-1) Income from business

Profit before tax 5,927
Add: Inadmissible deductions/Adjustments
Adjustment of closing stock (3,200 - 2,800) [S.35] 400
Payment without deduction of tax [S.21(c)] (W-2) 400
Capital expenditure [S.21(n)] 950
Penalty [S.21(g)] 465
Less: Admissible deductions/Adjustments
Freight charges paid in cash of Rs. 85(Allowed) [S.21(l)] -
Salary paid to shahid brother of Rs. 80 p.m.(allowed) -
Capital gain (45)
Profit on debt (450)
Rent from agriculture land [S.41] (980)
(1,475)
Profit before depreciation 6,707
Less: Tax depreciation (b/f) (870)
5,837
Less: Tax depreciation (c/y) [W-3] (568)
Income from business 5,269

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By: Zahid Qavi. FCA
Business Income

(W-2) Packing Material

Purchases disallowed (lower of):
- Purchases on which tax not deducted; or 2,200
- 20% of total purchases (20% x 2,200) 440 440

(W-3) Current Year Tax Depreciation and Amortization

Tax Amortization (950/5) [S.24] 190
Tax depreciation 680
870

Answer-8
Asghar & Company
Income and Tax thereon
TY 20X2
Rupees
Income from business (W-1) 6,647
Income from Capital Gain – Separate block 660
Income from other source - FTR dividend income (W-4) 240
Total Income 7,547
Less: income from capital gain – separate block (660)
Income from other source - FTR dividend income (240)
Total Income – NTR 6,647
Less: Zakat [S. 60] (30)
Taxable income – NTR 6,617
Tax liability [765,000 + (35% x 2,617,000)] 1,681
Less: Donation to hospital established by local government
(1,681/6,617) x 1,985 (504)
C is lower of 2,300 or 30% x 6,617 = 1,985
Tax liability – NTR 1,177
Tax on separate block income:
Tax on gain on disposal of shares of public company (660 x 12.5%) 83
Tax on FTR income:
Tax on dividend income (240 (W-4) x 15%) 36
1,296
Total tax liability
Less: Tax already paid/deducted:
- Tax collected at import stage (150)
- Advance tax paid (200)
- Withholding tax deducted (1,400)
- Tax deducted on dividend (36)

29
By: Zahid Qavi. FCA
Business Income

Tax refundable to Asghar & Company (490)

(W-1) Income from Business

Rs. in ‘000
Profit before tax 2,468

Add: Raw material and finished goods disallowed (W-2) 1,560

Accounting depreciation 2,100
Provision for slow moving inventory 1,800
Donation paid to hospital established by local government 2,300
Reward paid in cash to salesman [Total – Allowed] (W-3) = [19,765 500
– 19,265]
Installation charges of imported plant 375
8,635
Less: Expenditure on eid Milan party (allowed as deduction) -
Penalty paid to a customer (allowed being not paid to govt.) -
Dividend received from listed company (174)
Gain on sales of shares of APL (660)
Initial allowance of imported plant (2,500 + 375) = 2,875 x 25% (719)
Tax depreciation of imported plant (2,875 – 719) x 15% (323)
Amortisation of pre-commencement expenditure (3,400 x 20%) (680)
Tax depreciation on other assets (1,900)
(4,456)
6,647

(W-2) Purchase disallowed (lower of)

- Purchase on which tax is not deducted 7,800
- 20% of purchase (7,800 x 20%) 1,500

(W-3) Advertisement allowed (lower of)

- Actual (19,765 – 500) 19,265
- 10% of sale (324,850 x 10%) 32,485

(W-4) Calculation of gross amount of dividend

Net Dividend = Gross dividend - Tax Deducted - Zakat Paid
174 =X - 15% of X - 30
x (Dividend) = 240

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By: Zahid Qavi. FCA
Business Income

Answer-9
Kamyab Enterprises
Income and Tax Thereon
TY 2025
Rs.
Income from business (W-1) 13,680,450
Income from capital gain (W-2) 430,000
Income from capital gain – separate block (W-3) 250,000
Income from other sources (W-4) 80,000
Total income 14,440,450
Less: income from capital gain – separate block (250,000)
Taxable Income – NTR 14,190,450
Tax liability on income falling under NTR (765,000 + 10,190,450 x 35%) 4,331,658
Less: Tax credit on donation [S.61] (4,331,658/14,190,450) x 1,000,000 (305,252)
C is lower of:1,000,000 or 30% of 14,190,450 = 4,257,135
Net tax liability – NTR 4,026,406
Add: Tax on separate block – Shares of Himmat Ltd (250,000 x 10%) 25,000
Tax payable by KE 4,051,406

(W-1) Income from Business

Rs. in ‘000
Profit before tax 12,707,000

Add: Accounting depreciation 1,400,000

Salary paid in cash 40,000
Scientific research expense paid outside Pakistan 700,000
Instalment of industrial plot (capital expenditure) 650,000
Purchase of goats for Eid-ul-Azha (personal expenditure) 225,000
Donation to approved non-profit organization 1,000,000
4,015,000
Less: Tax depreciation [S. 22] (W-5) 1,613,550
Tax Loss on disposal of motor vehicle (W-6) 28,000
Salaries to scientist (allowed) -
Material cost (allowed) -
Tax refund 720,000
Capital Gain on sale of shares (430,000 + 250,000) 680,000
(3,041,550)
13,680,450

(W-2) Income from Capital Gain

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By: Zahid Qavi. FCA
Business Income

Gain on disposal of shares of Manzil Limited 430,000

(W-3) Income from Capital Gain – Separate Block

Gain on disposal of shares of Himmat Limited (Separate Block) 250,000

(W-4) Income from other source

Additional payment on delay in tax refund 80,000

(W-5) Calculation of tax depreciation & initial allowance

Depreciation on plant & machinery 6,860,000 x 15% 1,029,000
Depreciation on computer & related products
- Opening (800,000 x 30%) 240,000
- Additions during the year
- Initial allowance (150,000 x 25%) 37,500
- Depreciation (150,000 – 37,500) x 30% 33,750
Depreciation on motor vehicles ((3,000,000 – 722,500 (W-6.1)
x 15% x 80%) 273,300
1,613,550

(W-6) Tax Gain/loss on disposal of motor vehicles

Consideration received 750,000
Less: Tax written down value (W-6.1) 722,500
Add: Deductions not allowed
TY2023 30,000
TY2024 25,500 (778,000)
Loss on disposal (28,000)

(W-6.1) Calculation of Tax WDV

Depreciation Normal Depreciation
Calculation Depreciation not allowed
Allowed
@15% Dep * 80% Dep * 20%
Cost (15.6.23) 1,000,000
Depreciation (1,000,000 x 15%) (2023) (150,000) 120,000 30,000
WDV as on 30.6.23 850,000
Depreciation (850,000 x 15%) (2024) (127,500) 102,000 25,500
WDV as on disposal 722,500

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Business Income

Answer-10

Aakash
Computation of total income, taxable income and net tax payable/refundable
For tax year 2022
Rs. in million
Income from Business (W-1) (101.6)
Income from Capital Gain (W-2) 7.7
Income from Other Sources (W-3) 8.9
Total Income (90.0)
Less: Capital gain on sale of property (separate block of income) (5.0)
Taxable income (85.0)

Since Aakash’s taxable income for tax year 2022 is negative, his share of profit from
associate is ignored.
Tax Liability (5×3.5%) 0.175
Tax on capital gain on sale of property (separate block of income)

(W-1) Income from Business

Rs. in
million
Income from business
Loss before tax (87.0)
Add: Inadmissible expenses / admissible income
Commission expense disallowed due to sale to inactive tax payer 2.4
[2.5 0.1(50×0.2%)]
Accounting depreciation 40.0
Bad debts recovered from Shameem [16.8 6(19.2 13.2)] 10.8
Outstanding payments for more than 3 years 14.0
Financial charges waived by the bank 2.8
70.0
Less: Admissible expenses and inadmissible / FTR income
Penalty -
Freight charges paid in cash -
Tax depreciation (48.0)
Insurance claim received (6.0)
Loss on disposal of vehicle (W-1.1) (1.2)
Reversal of Bad debts recovered recorded as other income (16.8+10.6) (27.4)

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By: Zahid Qavi. FCA
Business Income

Bad debts recovered from Faheem [10.6 14(28.8 14.8)] (3.4)

Rental income – Chargeable under income from other sources (21.6)
(107.6)
Income from non-speculation business (124.6)

Income from speculation business

Net gain from derivative contract 23.0
Income from business (101.6)

Capital gain (W-2)

Sale of property (20÷4) 5.0
Sale of private company shares (3.6×3/4) 2.7
7.70

Income from other sources (W-3)

Rental income from leasing of property comprised of building and 2nd
hand locally purchased plant (1.8×12) 21.6
Less: Deductions
Repair and maintenance (actual) (3.2)
Depreciation of building (85×90%×90%×10%) (6.9)
Depreciation of plant (34×15%×50%) (2.6)
8.90

W-1.1: Loss / Gain on disposal of vehicle Rs. in million

Insurance claim 6.0
Cost 10
Depreciation TY 2020 (10× 15%) (1.5)
TY 2021 (10×85%×15%) (1.3)
TY 2022 -
7.2
Loss on disposal of vehicle (1.2)

Note: Answers in which loss has been computed by treating the vehicle as passenger
transport not plying for hire, has also been considered correct.

34
By: Zahid Qavi. FCA
Business Income

Answer-11

Azadi and Co.

Computation of total taxable income and tax liability
for tax year 2022
Rs. In million
Income from business (W-1) (28.98)
Total income (28.98)
Computation of minimum tax:
Turnover (380 – 45 – 15) 320.00
Tax @ 1.25% 4.00

(W-1) Income from business

Rs. in million
Loss before tax (66.00)
Add: Inadmissible expenses / admissible income
Payment for purchase of machine 12.00
Purchase of raw material for which no withholding tax was deducted
(120×20%) 24.00
Salary paid to office boy in cash -
Warehouse rent -
Bad debt written off -
Commission paid to member of AOP 3.20
Payment for purchase of accounting software 6.40
Depreciation on leased car 2.10
Lease financial charges 1.50
49.20
Less: Admissible expenses and inadmissible income
Tax depreciation on machine [3.5(W-1.1)+0.79(W-1.1)] (4.29)
Loss on disposal of old machine (4–5) (1.00)
NRV adjustment (18–12) (6.00)
Scholarship given to Sara -
Amortization of ERP software [6.4÷5×(91÷365)] (0.32)
Lease rentals [0.71(3×2.5÷10.5)×80%] (0.57)
(12.18)
Total income (28.98)

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By: Zahid Qavi. FCA
Business Income

W-1.1: New Machine

Cost: Rs. in million
Payment through cheque 12.00
Sales tax on purchase (2.00)
Fair market value of old machine 4.00
14.00
Initial allowance @ 25% (3.50)
10.50
Depreciation for the year @ 15% [1.575×50%] (0.79)
9.71

Answer-12

Faith Brothers
Computation of total income, taxable income and tax payable/refundable
For the tax year 2023
Rs. in million
Income from business 57.4
Capital gain SBI 22
Capital gain 3
Total income 82.5
Less: Separate block of income
Capital gain on Modaraba (8.0)
Capital gain on listed company share (14.0)
Taxable income 60.4
Tax liability(765,000+(60,400,000-4,000,000)) 20.51
Tax on capital gain – on madaraba 8×15% 1.2
Gain– on listed company shares 14×12.5% 1.8
Total Tax liability 23.51

Rs. in million
(W.1)Income from business
Profit before tax 177.0

Add: Inadmissible expenses

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By: Zahid Qavi. FCA
Business Income

Accounting depreciation 188.0

Payment to builder 50.0
Payment to a research institute in UAE 5.0
Foreign exchange loss 15.8
Loss on disposal of a capital asset (new machinery damaged during
shipment) 9.0
267.8
Less: Admissible expenses
Cash payment for the purchase of ten air ticket -
Payment of demurrages -
Payment of penalties -
Bad debts recovered not allowed in the previous year (16.0)
Shortfall in recovery of bad debts 16–(30–10) (4.0)
Reversal of capital gain (40.0)
(60.0)
Income before tax depreciation 384.8

Less: b/f business loss (52.0)

Tax depreciation (214.0)
Tax depreciation on plant (W-1.1) (3.9)
(217.9) (269.9)
Income before unabsorbed tax depreciation 114.9
Less: Unabsorbed tax depreciation 114.9×50% (57.5)
Total business income 57.4

Capital gain
Shares of an unlisted company 12.0
Loss on disposal of a capital asset (new machinery damaged during
shipment) (9.0)
3.0
SBI
Shares of a listed company 20.0
Less: B/f capital loss (6.0)
14.0

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By: Zahid Qavi. FCA
Business Income

W-1.1: Cost of plant and depreciation thereon

Rs. in million

Purchase cost (400,000×45) 18.0

Foreign exchange gain – June 2022 400,000×5(45–40) (2.0)

16.0

Initial allowance @ 25% (4.0)

12.0

Depreciation – tax year 2022 12×15% (1.8)

10.2

Foreign exchange loss – June 2023 400,000×39.5(79.5– 15.8

40)
26.0

Depreciation – tax year 2023 26×15% (3.9)

22.1

(b) Amount of unutilized losses alongwith maximum period to which these losses can be
carried forward:
Given Utilized c/f Maximum
------- Rs. in million ------- period (TY)
Loss from business - Tax year 2021 52 52 - -
Speculation - Tax year 2022 14 - 14 2028
Unabsorbed tax depreciation 168 57.5 110.5 No time limit
Capital loss on sale of listed securities:
- Tax 2019 8 - - Already lapsed
- Tax 2020 6 6 - -

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By: Zahid Qavi. FCA
Business Income

Answer-13
Sweet Bakers
Computation of total income, taxable income and tax liability
For tax year 2023
Rs. in million
Income from Business (W-1) 108.37
Exempt Income 16.37
Total income 124.74
Less: Rent from agriculture land (16.37)
Taxable income 108.37
Tax liability: (765,000+(108,370,000-4,000,000)) 37.29

Rs. in
million
Income from business:
Profit before tax 77.00
Less: Rental income
- in cash (0.5×12) (6.00)
- in kind (120×7,200×12) (10.37)
(16.37)
Less: Market value of eggs received as a rent and used as a raw material
(10.37)
Add: Purchase of various raw material on which no withholding tax was
deducted [24 or 40 (20% of 200 i.e. total purchase, whichever is lower]
24.00
Add: Purchase of milk powder for personal use (10×10%) 1.00
Add: Salaries to partners (8.2+6+4.8) 19.00
Add: Purchase of new bakery plant 15.00
Less: Initial allowance (15×25%) (3.75)
Less: Normal depreciation [11.25(15–3.75)×15%] (1.69)
Add: Purchase of POS machines 0.40
Less: Depreciation on POS machines (cost of POS machines are allowed as a
tax credit) -
Add: Payment to IT company for development of an app. 5.50
Less: Amortization expense (App is available to use subsequent to the year-
end) -
Less: Depreciation of van (*9×15%) (1.35)
Total income 108.37

39
By: Zahid Qavi. FCA
Business Income

40
By: Zahid Qavi. FCA