Bilal: business income, capital allowances and tax

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• Initial allowance on the new plant and machinery = 25% x Rs. 2,400,000 = Rs. 600,000.
• The WDV of the new plant and machinery for depreciation = 2,400,000 - 600,000 = Rs. 1,800,000.
• Depreciation on the new plant and machinery = 15% x 1,800,000 = Rs. 270,000.
• Depreciation on the opening plant and machinery = 15% x 1,000,000 = Rs. 150,000.
• Depreciation on the motor vehicle = 15% x 2,000,000 = Rs. 300,000.
• Depreciation on computers = 30% x (150,000 + 300,000) = Rs. 135,000. No initial allowance is claimed on computers, because the table gives it only for plant and machinery.
• Total allowances = Rs. 1,455,000.
• The accounting depreciation of Rs. 400,000 is not allowed for tax and must be replaced by the tax allowances.

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Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• Start with the accounting profit of Rs. 3,000,000.
• Add back the accounting depreciation of Rs. 400,000.
• Add back the penalty of Rs. 100,000, because penalties for non-compliance are not an allowable deduction.
• Deduct the tax allowances of Rs. 1,455,000.
• Income from business = 3,000,000 + 400,000 + 100,000 - 1,455,000 = Rs. 2,045,000.
• The adjustments are shown in a clear layout, with a total at each stage.

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Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• Bilal has no salary income, so the rates for non-salaried individuals apply. The salaried rates apply only if salary is more than 75 percent of taxable income.
• Taxable income is Rs. 2,045,000 (there are no other heads of income, and no allowances are given).
• The income is in the band from Rs. 1,600,001 to Rs. 3,200,000, where the tax is Rs. 170,000 plus 30 percent of the amount over Rs. 1,600,000.
• Tax = 170,000 + 30% x (2,045,000 - 1,600,000) = Rs. 303,500.
• The first Rs. 600,000 is taxed at 0 percent, and the bands above are 15 percent, 20 percent and 30 percent, so the average rate is lower than the marginal rate of 30 percent.
• The surcharge, if it applied, would be 10 percent for non-salaried persons, but the question says to ignore it.

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