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Q :4 Spring 2013

Intelligent Technologies Limited (ITL) earned proft beore tax amounting to Rs. 11million, during the year ended 1 !ecember "#1". The ollo$ing inormation is

a%ailable or calculation o tax liability&(i) 'ccounting depreciation or the year is Rs. # million, $hereas taxdepreciation is Rs. ". million.

(ii) The accounting and tax $ritten*do$n %alues o the fxed assets as at 1!ecember "#1" $ere Rs. +# million and Rs. 1#". million respecti%ely.

(iii) !uring the year, ITL realised capital gain o Rs. " million on sale o shares o listed companies. This income is exempt rom tax.

(i%) It is expected that taxation authorities $ould add bac- expensesamounting to Rs. #.+ million o $hich Rs. #. million $ould be allo$ed in"#1.

(%) !uring the year, expenses amounting to Rs. million that pertained toyear ended 1 !ecember "#11 $ere disallo$ed. ITL had initially

expected that the entire expense $ould be allo$ed but no$ has decidednot to fle an appeal against the decision.(%i) 's at 1 !ecember "#11, ITL had assessed brought or$ard losses o Rs.

"1 million.(%ii) !eerred tax asset as on #1 anuary "#1" amounted to Rs. 1#.1 million.(%iii) 'pplicable tax rate or the company is /.

Required:0repare a note on taxation (expense) or inclusion in ITLs fnancial statements orthe year ended 1 !ecember "#1" gi%ing appropriate disclosures relating tocurrent and deerred tax expenses and a reconciliation to explain the relationshipbet$een tax expenses and accounting proft. (Ignore comparative fgures

and minimum turnover tax)

Q.5 Spring 2012 The ollo$ing inormation relates to 'pricot Limited ('L), a listed company, or thefnancial yearended 1 !ecember "#11&

(i) The proft beore tax or the year amounted to Rs. # million ("#1#& Rs. million).

(ii) The accounting and tax $ritten do$n %alue o fxed assets as on 1 !ecember"#1# $as Rs. + million and Rs. +# million respecti%ely. 'ccounting depreciation orthe year is Rs. 1# million("#1#& Rs. + million) $hereas tax depreciation or the year is Rs. 2 million ("#1#& Rs.3 million).

(iii) !uring the year, 'L sold a machine or Rs. million and recogni4ed a proft o Rs. #. million. The tax $ritten do$n %alue o the machine as on 1 !ecember "#1#$as Rs. " million. There $ere no other additions5disposals o fxed assets in "#1#and "#11.

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(i%) 'L earned capital gain o Rs. million ("#1#&6il) on sale o shares o a listedcompany. Thisincome is exempt rom tax.

(%) 7ad debt expenses recogni4ed during the year $as Rs. million ("#1#& Rs. 3

million).

(%i) 7ad debts $ritten o8 during the year amounted to Rs. million ("#1#& Rs. million).

(%ii) !eerred tax liability and pro%ision or bad debts as on 1 !ecember "##+ $asRs. 12.+#million and Rs. + million respecti%ely.(%iii) The companys assessed brought or$ard losses up to 1 !ecember "##+amounted to Rs. 1+." million.

(ix) 'pplicable tax rate is /.

Required:0repare a note on taxation or inclusion in 'Ls fnancial statements or the yearended 1 !ecember "#11 gi%ing appropriate disclosures relating to current anddeerred tax expenses including comparati%e fgures or "#1# and a reconciliation toexplain the relationship bet$een tax expense and accounting proft.

("1 mar-s)

Q.5 Autumn 2012'$esome Industries Limited ('IL) manuactures components or textile machinery. Itpurchased a plant on 1 uly "##2 at a cost o Rs. "## million. It has an estimateduseul lie o f%e years and no residual %alue. The tax authorities allo$ $ear and

tear at "#/ per annum on straight line method. The normal tax rate is #/. 'ILre%alues its plant on an annual basis. The details o re%aluations perormed by9upreme :aluation 9er%ice, an independent frm o %aluers, are as ollo$s&;air %alue * 1 uly "##+ Rs. 12# million;air %alue * 1 uly "#1# Rs. 1#2 million;air %alue * 1 uly "#11 Rs. 22 million

Required:0repare rele%ant extracts rom the ollo$ing notes to the fnancial statements o 'ILat # une"#1"&(a) 0roperty, plant and e<uipment(b) !eerred taxation9ho$ comparati%e fgures ("" mar-s)

Q.3 Spring 2011 The ollo$ing inormation relates to =alaxy International (=I), a listed company,$hich $asincorporated on anuary 1, "##+.

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(i) The (loss) 5 proft beore taxation or the years ended !ecember 1, "##+ and"#1# amounted to (Rs. 1.3 million) and Rs. ". million respecti%ely.

(ii) The details o accounting and tax depreciation on fxed assets is as ollo$s&"#1# "##+ Rs. in million

'ccounting depreciation 1 1 Tax depreciation

(iii) In "##+, =I accrued certain expenses amounting to Rs. " million $hich $eredisallo$ed bythe tax authorities. >o$e%er, these expenses are expected to be allo$ed on thebasis o payment in "#1#.

(i%) =I earned interest on 9pecial In%estment 7onds amounting to Rs. 1.# millionand Rs. 1."million in the years "##+ and "#1# respecti%ely. This income is exempt rom tax.

(%) =I operates an ununded gratuity scheme. The pro%ision during the years "##+and "#1#amounted to Rs. 1.3 million and Rs. "." million respecti%ely. 6o payment has so arbeen made on account o gratuity.

(%i) The applicable tax rate is /.

Required:0repare a note on taxation or inclusion in the companys fnancial statements orthe year ended !ecember 1, "#1# gi%ing appropriate disclosures relating tocurrent and deerred tax expenses including a reconciliation to explain therelationship bet$een tax expense and accounting proft.

(20 marks)

Q.5 Autumn 2011?ercury @ater Limited (?@L) is a listed company and is engaged in the business o puriyingand mar-eting o bottled $ater.?@L purchased a bottling plant on 1 uly "## at a cost o Rs. +# million. The planthas auseul lie o ten years $ith no residual %alue. !epreciation is pro%ided on straight*line methodo%er the plants useul lie. ?@L re%alues its plant at the end o e%ery t$o years.

 The re%alued amounts determined by et :aluers, an independent frm o %aluers,are as ollo$s&(i) An # une "##2& Rs. million(ii) An # une "#1#& Rs. # million

>o$e%er, there $as no change in the expected useul lie and residual %alue o theplant. 0roft beore tax or the years ended # une "#11 and "#1# $as Rs. 2#million and Rs. # million respecti%ely. The tax authorities allo$ tax depreciation at

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"#/ on reducing balance method. There are no temporary or permanent di8erencesother than those apparent rom the abo%e inormation. The tax rate applicable on?@L is #/.

Required:(a) 0repare Bournal entries to record the e8ect o re%aluation and deerred tax, at

the end o each year, up to # une "#11. (1 mar-s)(b) 0repare a note on taxation or the year ended # une "#11 in accordance $ithInternational ;inancial Reporting 9tandards. (#3 mar-s)(Comparati%e fgures are re<uired. 'ccounting policies are not re<uired.)