The Institute of Cost and Management Accountants of Bangladesh

Management Level
Paper R2 Taxation
Knowledge Assessment Test

LESSON – 01

1. (a) What is Income?

(b) What is Income accrued or deemed to be accrued, Income raised or deemed to be raised and
Income received or deemed to be received in Bangladesh?
(c) Discuss the procedures of computation of total income.
2. What are the basic principles of charging income tax under the Income Tax Ordinance 1984?
3. What do you mean by source of income? What is the significance of the source of income?
4. “Income Tax is charged on the basis of citizenship” - Do you agree? If your answer is yes, please discuss
the basis of Taxation. If your answer is no, please discuss the basis of the Taxation.
5. What do you mean by unexplained income? Please discuss the types of Income that have been treated
as unexplained under section 19 of the Income Tax Ordinance, 1984.
6. (a) What do you mean by non-assessable income?
(b) What are the incomes that have been identified as non-assessable income in Part-A of the Sixth
Schedule?

LESSON – 02

1. Compute the total income and investment allowance of Mr. X for the latest assessment year from the
following particulars:

i. Basic Salary – Tk. 118,000

ii. Rent receipt from a house let out – Tk. 136,000
iii. Conveyance allowance in cash from employer – Tk. 10,000
iv. Interest on capital borrowed for construction of a new house which was completed last year and
could not be let out in the income year – Tk. 5,000
v. Interest on Government Securities – Tk. 6,222
vi. Employer’s contribution to an unrecognized Provident Fund – Tk. 12,500
vii. Life Insurance premium on policies :
a. In his own name - Tk. 13,000
b. In the name of a dependent – Tk. 14,500
viii. Dividend from a Tax-holiday enjoying company – Tk. 27,500
ix. Income from a fishery with a capital investment of Tk. 30,000 – Tk. 6,000
x. Income from winning in a prize bond draw – Tk. 10,000
xi. Purchase of Pratirakshya Sanchaypatra in the year, the sale proceeds in the earlier year Tk. 25,000 –
Tk. 42,000
xii. Receipt from writing articles in the Newspaper – Tk. 5,000

2. Compute total income and investment allowance of Prof. Ahmed of Dhaka University for the last year
ended 30th June.

(i) Salary p.m. Tk. 25,000, (ii) Entertainment allowance p.m. Tk. 3,600, (iii) Car allowance p.m. Tk. 6,000
(car owned by Prof. Ahmed), (iv) Unfurnished accommodation (provided by the University), (v)
Purchase of books, etc. Tk. 1,000, (vi) Medical allowance per month from the University Tk. 600, (vii) He
owned a house which was on rent for 9 months at the rate of Tk. 8,000 P.M., (viii) Honorarium as casual
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 lecturer in ICMAB Tk. 11,200, (ix) As Director’s fee Tk. 5,000, (x) Consultancy fee Tk. 50,000, (xi)
Purchase of ICB Mutual Fund Certificate Tk. 1,000. Give explanatory notes whatever appropriate.

3. Mr. Nazmul Hossain had the following income for the last year ended 30th June. As Chief Accountant of
M/S. XYZ & Co. Ltd. he drew basic salary Tk. 45,000 p.m. of which Tk. 5,000 represents dearness
allowance. In addition, house rent is Tk. 13,000 p.m. entertainment allowance is Tk. 1,400 p.m. and
conveyance allowance is Tk. 1,500 p.m. He was provided with a car by the company for his official use.
He contributed 10% of his basic to the provident fund to which his employer contributed a similar sum.

He earned honorarium Tk. 2,000 during the year from a professional institute as casual lecturer.

He owns a house which is let out at Tk. 23,000 per month. Expenses in connection with the house are
as follows:
(i) Repair Tk. 7,000.
(ii) Interest on House building loan Tk. 8,000
(iii) Municupal Tax Tk. 3,500

Mr. Nazmul Hossain received dividend from Bangladesh Oxyzen Ltd. Tk. 29,000 whose shares are listed
with the Dhaka Stock Exchange. During the year, Mr. Hossain paid Tk. 13,850 as insurance premium on
his own life insurance policy to Jiban Bima Corporation. He purchased 100 shares of Tk. 100 each of
Bata Shoe Co. Bangladesh Ltd. from Mr. Karim through Stock Exchange at a total price of Tk. 38,000.

Compute Total income.

LESSON – 03

1. Discuss the scope of income under the head “Interest on Securities”.

2. What do you mean by transfer of securities-cum-interest or ex-interest?
3. (a) What are allowable deductions for the computation of income from interest on securities?
(b) What is meant by Bond washing transaction?
4. Discuss the assessment procedure of income from interest on securities.
5. Enumerate the securities the income of which is not assessable under the head “Interest on Securities”.
6. Enumerate interest income which is not computed under the head “Interest on Securities”.

LESSON – 04

1. (a) What is the basis of imposing tax on income from house property?
(b) How would you determine “Annual Value” of a house property?
(c) Discuss the allowable deductions from such annual value under section 25 of the Income Tax
Ordinance.
2. (a) On what principle is the income from house property determined when a house is owned by more
than one person?
(b) X has purchased a plot of land for Tk. 2 lakhs. He and his wife ‘Y’ jointly built the house at a cost of
Tk. 7 lakhs which included Tk. 1 lakh collected as advance from a prospective tenant who will use the
house for commercial purpose. In respect of the balance of Tk. 6 lakhs, the wife has advanced Tk. 4
lakhs out of sale price of another house property received as gift from her father at the time of her
marriage and balance Tk. 2 lakhs was provided by the husband “X”.
The annual value of the property is Tk. 120,000. Determine the income from the house property.
3. (a) Discuss the provisions relating to assessment of “Income from house properties”.
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 (b) A house property in Gulshan, the construction of which required five years, was let out from 1st
January in the last income year for residential purpose on monthly rent of Tk. 15,000. The plinth area is
4,000 sq. ft. and cost of construction excluding the value of land is Tk. 15 lakh. Determine the income
from this property for the relevant assessment year assuming that there is no other deduction except
for repair. Is the Income from the said house property taxable or it ranks for tax exemption? Explain.
(c) Which house property is exempted from tax and under what circumstances?

4. Mr. Hassan Askari, a business executive derived income from the following sources in the last financial
year :
(a) Salary of Tk. 96,000, (b) bonus of Tk. 13,600 (c) dividend of Tk. 26,500 from a tax holiday enjoying
company, (d) debenture interest of Tk. 35,000, (e) income from bridge card competition Tk. 3,000, (f)
payment received from a publishing house for writing ten short stories amounted to Tk. 10,000, not
being a professional writer, (g) net house property income of Tk. 48,000, (h) income from agricultural
sources in India not-brought was Tk. 12,000, (i) share of profit from partnership firm amounted to Tk.
8,000.
He resides in his own house occupying one-fourth of the house. Other part of the house was let out
annually for Tk. 72,000. He paid interest of Tk. 24,000 to the House Building Finance Corporation for
loan taken to build the house. Ground rent of Tk. 5,000 and Municipal Tax of Tk. 3,200 were also paid.
He purchased Protirakshya Sanchaypatra of Tk. 80,000 and paid Life Insurance premium of Tk. 15,000
for a life policy on his minor son. He purchased some technical books worth 5,000. Compute the total
income of Mr. Askari for the relevant assessment year.

5. From the following information compute the total income of Mr. A. Rahman for the last year ended 30th
June.
(i) His monthly consolidated salary was Tk. 12,000.
(ii) He is the owner of a big house with municipal valuation of Tk. 86,000 per annum. He has let out
one-third of this house on a monthly rent of Tk. 22,000 and the remaining portion was occupied by
him during the year for his own residence. The entire house is subject to a local tax of Tk.8,000 per
annum. He paid during the year Tk.7,800 as insurance premium against risk of damage and Tk.1,900
as ground rent.

6. Mr. Reza furnished the following particulars of his income for the year ending on 30th June :

He is employed at Tk.21,600 basic salary per month. He contributes 10% of his basic salary to a
recognized provident fund while the employer’s contribution is also 10%. Taka 6,900 has been credited
to his account as interest on accumulated balance standing to his credit in the said fund at an interest
rate of 12%. He is the owner of a house which he occupied for his own residence. Its municipal
valuation is Tk.73,000. He has paid Tk.1,300 as municipal taxes in respect of his house. He also paid
Tk.1,150 against fire insurance of the said house.

He earned profit from a grocery shop amounting to Tk.60,000. He has also won a cash prize in Red
Cross lottery amounting to Tk.24,000 after a tax deducted @ 20%. He has also earned net agricultural
income of Tk.13,600 during the period. He has paid Tk.15,000 per annum as premium on the policy of
Tk.12 lakh. He has three school going children. The ages of the three children are 21, 18 and 14 years
respectively. He has spent Taka1,000 per month per child. He claims to have brought forward loss from
the grocery shop amounting to Tk.25,000 from the last assessment year.

Compute his total income for the relevant assessment year.

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 LESSON – 05

1. (a) What do you mean by Agricultural Income?

(b) What are allowable deductions for the calculation of taxable Agricultural Income?

2. “Any income of a farmer is to be treated Agricultural Income”. Do you agree? Give your opinion
regarding the above comment.
3. Mr. Jamal is rich farmer of a village of Islampur under Tangail District. He did not file any return of
Income for the last year ended 30 June within 30 September and also within extended time. DCT issued
a notice under section –77 requesting for submission of Annual Return of Income giving 22 days. Mr.
Jamal submits the return of Income for the year as on 15 December. The particulars of Income in the
return are given below:-

a. He produced 240 M. Tons IRRI Paddy last year. He sold only 140 M. Tons out of 240 M. Tons Paddy
last year @ Tk.10,000 per M. ton.
b. He produced 100 M. Tons Aman Paddy. He sold 60 M. Tons Paddy @ Tk. 15,000 per M. Ton.
c. He sold vegetable products for Tk. 40,000.00.
d. He contracted with Mr. Azam Ali to harvest the paddy from the agricultural land. For this contract,
he got Tk. 20,000.00 but he spent Tk. 16,000.00 for implementation of the contract.
e. He had 10 milching cows. He got 10 litres milk per day. His family consumed. 4 litres per day and
the remaining was sold @ Tk. 16 per litre.
f. He has two ponds for fishing. One is in front of his house and another is in Haor Area. He cultivated
fish in the Income year. He sold fish for Tk. 60,000.00.
g. He sold a big wild tree for Tk. 25,000.00.
h. He got Tk. 5,000.00 for renting some places for processing of IRRI paddy.

From the above information, calculate Agricultural Income of Mr. Jamal.

LESSON – 06

1. State giving reasons if the following losses are allowable against business income and if so, when?
a. A cashier on the way to bank to deposit the cash of Tk.20,000.00 after office hours was robbed.
b. Cashier absconded. The safe when opened had Tk. 10,000 less.
c. The robbers took away cash and goods at night at an amount of Tk. 25,000.

2. Are the following expenses claimed admissible in Income Tax Assessments? State briefly with reasons.

(a) Amount paid by the company to a retiring Director in consideration of his agreement with the
company.
(b) Payment by a private limited company upon changing hands to retiring Directors a part of the
profits as compensation for loss.
(c) Premium paid by a Lessee for the renewal of a lease.
(d) Amount of money stolen from the assessee’s employee who was carrying it to the Bank.
(e) Expenses incurred in litigation brought against the assessee restraining him from the use of a
trademark.
(f) Cost of new edition of a law book incurred by a lawyer to replace outdated ones.
(g) Payment made for legalizing unauthorized occupation of premises.

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3. Discuss the provisions made in the Income Tax Ordinance regarding depreciation and development
allowance of assets used for the purpose of business, profession or vocation. Is there any limitation
regarding carry-forward of loss due to depreciation?
4. (a) What are the legal conditions with regard to the allow ability of depreciation as an expense against
business income?
(b) State the legal provisions under Income Tax Ordinance in respect of obsolescence allowance.
(c) Work out the depreciation, the obsolescence allowance and balancing charge, as the case may be,
in respect of the following assets for the last financial year ended 30th June:
i. Original cost of the machinery was Tk.1,50,000, depreciation charged up to the preceding year
was Tk.57,881 and it was sold for Tk.1,60,000.
ii. Original cost of motor car for office use of a company is Tk.2,20,000. Depreciation charged up
to the preceding year was Tk.1,47,713. It was sold for Tk.3,00,000.
iii. Original cost of office furniture was Tk.50,000. Depreciation charged up to the preceding year
was Tk.17,680 and it was sold for Tk.35,000.

5. The Rainbow & Co. Ltd. being an Industrial Company producing pharmaceutical goods owned and
managed by Bangladeshi residents and having its registered office in Bangladesh fulfils the prescribed
conditions set by the Board. It has debited the following items to its P & L A/C for the last income year
ending on 30th June. State, by giving reasoning, if these items are admissible deductions or not, while
computing the total income of the Company for income taxation purposes for the relevant assessment
year.

(b) Tk.10,000 paid to brokers for raising debenture.

(c) Tk.1,00,000 spent on establishing a permanent bill-board for advertisement.
(d) Tk.8,000 paid to Legal Consultant as fees to protect Trade Marks and design.
(e) Tk.5,00,000 provided towards claim for destruction of raw materials and finished products by fire
and the fire claim was rejected by the General Insurance Co. on suspicious cause. The company has
however, instituted a suit in the court of law against such rejection. The matter is still subjudice.
(f) Claimed accelerated depreciation at 100% and a further Investment allowance at 25% of the actual
cost of a machinery costing Tk.1,00,00,000 in the year when commercial production was started.
(g) Tk. 5 lakhs contributed and transferred to Employees’ Benevolent Fund held under irrevocable
trust.
(h) Tk. ten lakhs paid as a price for purchase of patent and technology rights.
(i) Tk. 5 lakhs loss sustained as a result of conversion of foreign currency denominated debts into local
currency equity.

6. M/S XYZ Co. Limited engaged in the manufactures of garments was private limited company with its
registered office at Dhaka. The Company filed its return of income for the last year ended on 30th June
declaring loss of Tk.2,50,000.

From the particulars furnished by the company, the following information was available:
a. Bad debt of Tk.2,00,000 was realised during the year. The amount was allowed in the assessment
for the income year before the concerned income year.
b. Tk.1,00,000 was paid as bonus to the employees.

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 c. Tk.50,000 was charged in the P & L account as contribution to Workers Profit Participation Fund.
d. Tk.1,00,000 received as claim from the insurance company was credited in the Workmen’s
Compensation Reserve Account.
e. The Company received dividend of Tk.1,00,000 from a Company not listed with any stock exchange.
f. Sundry creditors included unpaid salary of Tk.1,00,000 and there was an unpaid loan of Tk.1,00,000
taken in the assessment year preceding the concerned assessment year.

Compute the total income of the company and determine tax liability.

7. The Profit & Loss Account of Z. Co. Ltd. for the last income year ended 31st December was prepared as
follows :-

Profit & Loss Account

Taka Taka
To Salaries 6,000 By Gross Profits 32,500
“ General Expenses 7,500 By Interest from taxable Govt.
“ Fines 500 Securities 250
“ Provision for bad debts 1,250 By Interest from tax-free Govt.
“ Depreciation charges 1,000 Securities 1,000
“ Contribution to RPF 2,500
“ Insurance Premium 1,250
“ Legal charges 550
“ Purchase of Plant 3,700
“ Embezzlement
“ Loss on sale of Govt. Security 250
“ Net Profit 8,650
Tk. 33,750 Tk.33,750

The following further particulars have been furnished:

(a) General expense includes Tk.2,000,00 paid as Zakat.
(b) Represents the payment of the imposed upon motor car driver of the company for road accident.
(c) Insurance premium of Tk.1,250.00 was paid against life insurance policy of the Managing Director.
(d) The Company has Tk.1,00,000 in fixed deposit of which 6 months’ interest at 9% is due but this was
not accounted for.
(e) The debit balance of the Profit and Loss A/C of the company as on 31st December of the preceding
income year was Tk. 10,560 (loss) of which Tk.290.00 was for depreciation charge.
(f) Depreciation allowable by the Tax-authorities would Tk.900 for current income year.

Required:
Calculate the total income of the company for the relevant assessment year.

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