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Class Work: Lecture - 57 CAF-06: Question-1

Mr. Qateel operates a manufacturing business called QE. For the financial year ending June 30, 2021: - QE reported a profit before tax of Rs. 2,809,297 which included an operating loss, finance charges, and other income from capital gains. - In determining taxable income, certain expenses must be added back and income items excluded, such as depreciation, donations, fines, and penalties. - The taxable income and net tax payable by QE must be calculated according to the Income Tax Ordinance of 2001.

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57 views

Class Work: Lecture - 57 CAF-06: Question-1

Mr. Qateel operates a manufacturing business called QE. For the financial year ending June 30, 2021: - QE reported a profit before tax of Rs. 2,809,297 which included an operating loss, finance charges, and other income from capital gains. - In determining taxable income, certain expenses must be added back and income items excluded, such as depreciation, donations, fines, and penalties. - The taxable income and net tax payable by QE must be calculated according to the Income Tax Ordinance of 2001.

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huzaifah malik
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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Class Work: Lecture -57 CAF-06

Question-1
Mr. Qateel, a resident individual, is engaged in the manufacture of various consumer goods under the name and style
Qateel Enterprises (QE). The following information has been extracted from the records of QE for the financial year
ended 30 June 2021.
Rupees
Total turnover 28,500,000
Cost of sales (26,155,000)
Gross profit 2,345,000
Operating expenses (4,500,000)
Operating loss (2,155,000)
Finance charges on lease of machinery (35,703)
Other income 5,000,000
Profit before tax 2,809,297

Additional information:
(i) Cost of sales includes:
 Rs. 45,000 paid as fine for violation of contract with a customer for delay in supply of goods.
 accounting depreciation of Rs. 1,900,000 (including depreciation on leased assets).
(ii) Operating expenses include:
 Rs. 450,000 paid for renewal of a manufacturing licence for fifteen years.
 vehicle tax paid in cash amounting to Rs. 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 donation of Rs. 2,000,000 paid through
cheque to Edhi Foundation, which is listed in Part 1 of the Second Schedule of the Income Tax
Ordinance, 2001.
 penalty of Rs. 25,000 imposed by the Commissioner Inland Revenue for late filing of annual return of
income for the tax year 2020.
 entertainment expenditure of Rs. 128,000 incurred on arrival of foreign customers for business
purposes.
(iii) Other income includes:
 Capital gain of Rs. 1,200,000 from sale of shares of a private limited company. Shares were acquired
on 1 August 2016.
(iv) Lease rentals paid during the year amounted to Rs. 270,000.
(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 2021 without considering the effect of para (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 2021. (16)
Note:
 Ignore minimum tax under section 113
 Show all the relevant exemptions, exclusions and disallowances

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