Practice Questions

1. The senior management of ABC Pvt. Ltd is considering following alternative business
proposal for its business expansion:
Proposal A: to establish trading business
Proposal B: to establish manufacturing business
The management expects to earn assessable income before charging depreciation from each
business Rs. 150,00,000 with same capital investment. It requires investment in fixed assets
falling in Block D is Rs. 100,00,000 for proposal B only and investment in fixed assets falling
in Block B is Rs. 50,00,000 for both proposal.
Corporate tax rate of manufacturing company: 20%
Normal corporate tax rate: 25%

Required: Suggests the senior management regarding the better proposal with supporting
from taxation approach.

2. A special industry is to be established by investing capital of Rs. 5,00,00,000. The industry

expects the following profit before tax without considering transportation expenses:

Year 1 2 3 4 5
Profit (Rs.) 50,00,000 60,00,000 70,00,000 80,00,000 1,00,00,000

There is no restriction from government to establish the industry in any area.

The alternative locations are Kathmandu, Ramechhap (Most Undeveloped area), Baglung
(undeveloped area) and Sindhuli (Underdeveloped area)
The industry fixes single prices for all products and the costs of transportation to Kathmandu
(main market area is Kathmandu) are as follows:
Ramechhap to Kathmandu Rs. 2,000 per 200 sq. ft.
Baglung to Kathmandu Rs. 1,500 per 200 sq. ft
Sindhuli to Kathamndu Rs. 5,00 per 200 sq. ft.

Average capacity of the factory is 50 truck of 200 sq. ft each.

Note: Tax rate for manufacturing industry is 20%, concession up to 90%, 80% and 70% in
applicable tax rate up to first 10-income year available to most undeveloped, undeveloped and
underdeveloped area.

Required:
Recommend to locate the factory from taxation approach.

3. After suffering a loss for the few past years, ABC Pvt. Ltd expects the following operating
results for the next three years:

Expected profits: Year 4: 30,00,000

Year 5: 40,00,000
Year 6: 70,00,000

Past losses were: Year 1: 40,00,000

Year 2: 20,00,000
Year 3: 5,00,000
 In the backdrop of the above-expected financial performance, the company would like to
undertake the following activities within the given period of three years. The company seeks
your advice to consider the effect of tax planning to reduce tax burden. The activities are:

To provide incentives to employees of Rs. 5,00,000 in year 4

To install pollution control device at a cost of Rs. 6,00,000 in year 5
To construct office building at a cost of Rs. 50,00,000 in year 6

Required:
Rearrange timing of activities and amount of tax payable in each year.

4. The following are the details of a company regarding its depreciable assets under Block D
Opening WDV as on 1st Shrawan Rs. 600,000
Assets purchased on 1st Kartik Rs. 300,000
st
Assets purchased on 1 Baisakh Rs. 200,000

Calculate the net gain to be included in income under each of the following conditions:
a. Company sold the part of the assets with the book value Rs. 100,000 at a price of Rs.
150,000.
b. Company sold all assets of the block at price of Rs. 15,00,000.
Also, discuss applicable tax rate for the above gain.

5. M/S Buddhi Ganga Hydropower Ltd. Is seeking your advice on various income tax related
matters. You are required to advice the company on the following issues:
a. If there is any exemption or concession on income tax if the company start generation of
power within 7 years.
b. If the company listed in stock exchange, whether the act offers any concessions?
c. Whether the loss can be carried forward?
d. Is accelerated depreciation is available for power generating company?
e. If the company started generating power from solar, will it get same facilities or
concession, which is provided, to power generation from hydro.

6. Mr. Saurav Dhakal purchased a house in Biratnagar in 2070 BS for Rs. 60 lakhs and incurred
Rs. 1 lakhs in registration. After staying for 6 months in house, he and his whole family went
to Australia where he got employment and worked there. After coming back, he sold this
house at Rs. 100 lakhs in 2074 BS. Mention the tax implication on the above dealings.

7. Fat Ltd. has following transactions during the month of Baisakh 2074, find the amount of
VAT credit available for the month of Jestha:
Particulars Amount in Rs.
Opening Credit available 12,000
Purchase (excluding VAT) 1,000,000
Salary for the month 150,000
Telephone expenses including VAT 13,560
Car Purchase (including VAT) 1,130,000
Purchase of Office Supplies 150,000
Total Sales for the month 1,500,000
 Additional Information

 All the sales were VAT applicable

 Out of Office Supplies, Rs. 20,000 were purchased from abbreviated tax invoice.
 Of the total purchase, Rs. 375,000 represents the invoice related to import of goods. Such
goods were valued at Rs. 450,000 for the custom purpose.
 Fuel expenses consist of petrol used for office vehicle. (Page-121)

8. Sharma & Sharma has been a self-employed VAT registered trader since 2064, and is in the
process of completing the VAT return for the month ended on 31 st Baisakh 2074. The
following is relevant information in relation to the completion of VAT return:
 Sales invoice totaling of Rs. 4,400,000 (ex. VAT) were issued to VAT registered customer in
respect of taxable sales. The firm offers a 5% discounts in prompt payment.
 Sales invoice totaling Rs. 1,692,000 (ex. VAT) were issued to unregistered customer, of
which Rs. 51,700 was in respect of Zero rated sales.
 During the month of Baisakh, goods amounting Rs. 1,120,000 were purchased. Of this, goods
worth Rs. 80,000 were used for Mr. Sharma’s private purpose.
 On 15th Baisakh, a Toyota Hilux Vehicle was purchased for Rs. 7,800,000 inclusive of VAT.
 A total of Rs. 40,000 was incurred as telephone expense of which 30% relates to private call
during month.
 On 17th Baisakh, Office equipment was purchased for Rs. 600,000. The purchase was partly
financed by bank loan of Rs. 500,000.
Unless stated otherwise, all of the figures as above are exclusive of VAT.
Calculate the amount of VAT payable by the firm for the month of Baisakh. (Page-122)

9. Satellite Telecom P. Ltd, a telecom operator company in Nepal, seeks your advice whether it
can take credit of VAT paid on the following transactions.
 Payment of VAT of Rs. 18,000 while purchase petrol for the purpose of operation of vehicle.
 Payment of VAT of Rs. 1,000,000 at Birgunj Custom Office while importing
telecommunication.
 The company deposited VAT amount of Rs. 175,000 in IRO on service charges payable to
Satellite bandwidth provider and desires to input credit on the whole amount.
 Payment of VAT of Rs. 10,000 while purchasing beverages on its annual day.
 Payment of VAT of Rs. 13,000 while purchasing beverages to be used for operation of
generator at its BTS sites. (Page-128)

10. Given below is the trading and profit and loss account of Mr. S., a Trader, for the previous
year.
 Particular Rs. Particular Rs.
To opening stock 150000 By sales 1850000
To purchase 750000 By closing stock 250000
To Freight 100000
To Custom duty 50000
To gross profit 1050000
2100000 2100000
To staff salaries 4000000 By gross profit b/d 1050000
To Office expenses 50000 By gain on sales of business 100000
assets
To bonus to staff 20000 By income from natural 100000
resource
To commission on sales 10000 By amount accepted for 50000
business restriction
To bad debts 4000 By bad debts recovered 20000
To telephone charges 10000 By commission 2000
To pollution control 300000
cost
To discount 20000
To advertisement 20000
expenses
To donation to Bir 200000
Hospital
To traveling and daily 50000
expenses
To advance income tax 40000
for the year
To net profit 198000
Total 1322000 Total 1322000

Additional information:

 Office expenses include Rs. 10000 spent by the proprietor for his domestic use.
 25% of bad debts have no evidence.
 A car was purchased in Kartik of previous year at a cost of Rs. 1200000. It was used
equally for private as well as official purpose. Depreciation of car is charged.
 Only 30% of bad debts recovered was allowed previously.

Required:
a. Assessable income from business
b. Assessable income from investment
c. Statement of Total taxable income
d. Tax liability ( assuming couple status )