Business Taxation and Auditing

We got the financial statements of Bashir Cotton Mills Ltd and discuss different issues of these
statements. These statements are Balance sheet, Income statement, Cash Flow statement, and
changes in equity. These statements portray the clear idea about the past financial performance
of the Bashir Cotton Mills for the year 2008 and 2009. So we are discussing the main heads of
the company for year 2009.

Balance Sheet:

This statement consists of two sides Asset sides and Liability side. The Asset side of Bashir
Cotton Mills comprises of current and non-current assets. From the previous years the property,
plant and equipment increases by 100 % due to the installation of new buildings, plants and
machinery like electric installations, humidification plant and generators. Maintenance and
normal repairs contributed a large amount to this head. The amount of trade receivables
considered good because they are trying to sell their goods on cash. But other receivables are
high which reflects that the Bashir Cotton Mills have no more cash in hand to run their day to
day operations. Due to this factor the cash and bank balance head was decreasing. The decrease
in cash affects to the stock in trade was also decreasing due to the prices of the raw material were
increasing. All these issues affect the loans and advances because it was 2 times more than the
year 2008. Then the liability side comes in this long term borrowing decreases which is good for
the company and they borrow from Habib Metropolitan and The Bank of Punjab.

The overall current liabilities were increasing more than the current assets which are bad for the
company because mark up is increasing; borrowing was increasing and on asset side cash and
bank balances was decreasing.

Profit and loss Account:

This statement shows that the Bashir Cotton Mills incurred a loss at the end of the year which
was increase by 2 times from the previous year. This loss incur due to the increase in operating
and administrative expenses. In this salaries and freight cost are increasing, finance cost was also
increasing which shows that mark up was increasing. Due to the increase in all the expenses the
company shows the loss at the end of the year.
Cash Flow Statement:

This statement shows cash flow from their operations, investment and financing activities. In
operating activities financial charges are increasing from the last year which decreases the cash
flow at the end of the year. The tax was paid by the company was very high which was
approximately 2 times from the last year. Due to the decrease in current assets they had less
financing their assets so this also decrease the cash from the financing activities. So cash and
cash equivalents at the end of the year was decreasing to half which shows that the cash and bank
balance was decreasing.

Taxable profit from the accounting Profit:

Accounting profit/loss

Item Amount
Net sales 777401005
Cost of sales (791538124)
Gross loss (14137119)
Gross receipts (15805817)
Expenses 95734571
Net Loss/Accounting Loss (125677507)

Taxation Loss/Profit:

Items Amount
In admissible expenses 48520033
Admissible deductions 38740745
Tax loss (115898219)
Inadmissible include depreciation accounting= 48292840 and lease charges=227193. And
admissible include tax depreciation = 37889552 and others= 851193. Others include lease
principle=624000 and lease charges=227193.

Reconciliation Factor:

Net Loss/Accounting Loss 125677507

Items Amount
In admissible expenses 48520033
Admissible deductions 38740745
Reconciliation Factor: 9779288

Types of payment made by the company and Withholding Tax:

On import of goods under section no 148. The tax rate is applied 6 % and the value comes out to
be= 784649.

On payments of goods against resident under section no, 153(a) , the tax rate is 3.5 % and the
value comes out to be =164325

On cash withdrawal under section no. 231(A)(A), tax rate is 0.3% on the amount and tha value
comes out to be=209611(the total cash with drawal from different banks)

On electricity bill under section no 235, the tax rate is 10 % and the value of the taxable amount
is=2415863

On registration of token money of cars under section no 234, the amount is= 5500(for two cars)

On telephone bill under section no. 236, tax rate is 10 % and the value =11633

Tax calculations for the two employees:

Return of total income of the final taxation of Employee No. 1:

Employee name: Hamed Dawood

Gender: M

Tax year: 2009

Person: individual

Residential status: Resident

Filling section: u/s 114

Business Name: Bashir cotton.

Post: Accounting Charge

Items Amount
Basic Salary 260000
Bonus 15000
Rent Allowance 30000
Utility Bills 20000
Car use 30000
Medical Allowance 20000
Travel Allownce 10000
Total income per year 385000
Monthly Salary 385000/12=32083

Tax chargeable on Taxable income @ 1.5= 385000*1.5 %= 5775

Total Tax payment if section taken under 149= 9625

Tax Payable/Refund adjustments=5775-9625= (3850)

Return of total income of the final taxation of Employee No. 2:

Employee name: Usman Baig

Gender: M

Tax year: 2009

Residential status: Resident

Filling section: u/s 114

Business Name: Bashir cotton.

Post: Assistant Manager

Items Amount
Basic Salary 300000
Bonus 20000
Rent Allowance 35000
Utility Bills 20000
Car use 35000
Medical Allowance 25000
Travel Allownce 10000
Total income per year 445000
Monthly Salary 445000/12=37083

Tax chargeable on Taxable income @ 2.50= 445000*2.50 %=11125

Building on Rent:

Application of sales tax with regard to that company:

All the purchases and sale of the company like cotton, polyester and yarn are zero rated for
example

The company makes purchases of 100000 and sales of 110000

100000 (purchases)* 0%= zero

110000 (sales) * 0%= zero