Q :4 Spring 2013

Intelligent Technologies Limited (ITL) earned profit before tax amounting to Rs. 11
million, during the year ended 31 December 2012. The following information is
available for calculation of tax liability:
(i)
Accounting depreciation for the year is Rs. 30 million, whereas tax
depreciation is Rs. 25.6 million.
(ii)
The accounting and tax written-down values of the fixed assets as at 31
December 2012 were Rs. 90 million and Rs. 102.4 million respectively.
(iii)
During the year, ITL realised capital gain of Rs. 2 million on sale of
shares of listed companies. This income is exempt from tax.
(iv)
It is expected that taxation authorities would add back expenses
amounting to Rs. 0.9 million of which Rs. 0.5 million would be allowed in
2015.
(v)
During the year, expenses amounting to Rs. 3 million that pertained to
year ended 31 December 2011 were disallowed. ITL had initially
expected that the entire expense would be allowed but now has decided
not to file an appeal against the decision.
(vi)
As at 31 December 2011, ITL had assessed brought forward losses of Rs.
21 million.
(vii)
Deferred tax asset as on 01 January 2012 amounted to Rs. 10.15 million.
(viii)
Applicable tax rate for the company is 35%.
Required:
Prepare a note on taxation (expense) for inclusion in ITLs financial statements for
the year ended 31 December 2012 giving appropriate disclosures relating to
current and deferred tax expenses and a reconciliation to explain the relationship
between tax expenses and accounting profit. (Ignore comparative figures
and minimum turnover tax)
Q.5 Spring 2012
The following information relates to Apricot Limited (AL), a listed company, for the
financial year
ended 31 December 2011:
(i) The profit before tax for the year amounted to Rs. 60 million (2010: Rs. 45
million).
(ii) The accounting and tax written down value of fixed assets as on 31 December
2010 was Rs. 95 million and Rs. 90 million respectively. Accounting depreciation for
the year is Rs. 10 million
(2010: Rs. 9 million) whereas tax depreciation for the year is Rs. 8 million (2010: Rs.
7 million).
(iii) During the year, AL sold a machine for Rs. 3 million and recognized a profit of
Rs. 0.5 million. The tax written down value of the machine as on 31 December 2010
was Rs. 2 million. There were no other additions/disposals of fixed assets in 2010
and 2011.

(iv) AL earned capital gain of Rs. 6 million (2010:Nil) on sale of shares of a listed
company. This
income is exempt from tax.
(v) Bad debt expenses recognized during the year was Rs. 5 million (2010: Rs. 7
million).
(vi) Bad debts written off during the year amounted to Rs. 3 million (2010: Rs. 4
million).
(vii) Deferred tax liability and provision for bad debts as on 31 December 2009 was
Rs. 18.90
million and Rs. 9 million respectively.
(viii) The companys assessed brought forward losses up to 31 December 2009
amounted to Rs. 19.25 million.
(ix) Applicable tax rate is 35%.
Required:
Prepare a note on taxation for inclusion in ALs financial statements for the year
ended 31 December 2011 giving appropriate disclosures relating to current and
deferred tax expenses including comparative figures for 2010 and a reconciliation to
explain the relationship between tax expense and accounting profit.
(21 marks)
Q.5 Autumn 2012
Awesome Industries Limited (AIL) manufactures components for textile machinery. It
purchased a plant on 1 July 2008 at a cost of Rs. 200 million. It has an estimated
useful life of five years and no residual value. The tax authorities allow wear and
tear at 20% per annum on straight line method. The normal tax rate is 30%. AIL
revalues its plant on an annual basis. The details of revaluations performed by
Supreme Valuation Service, an independent firm of valuers, are as follows:
Fair value - 1 July 2009 Rs. 180 million
Fair value - 1 July 2010 Rs. 108 million
Fair value - 1 July 2011 Rs. 88 million
Required:
Prepare relevant extracts from the following notes to the financial statements of AIL
at 30 June
2012:
(a) Property, plant and equipment
(b) Deferred taxation
Show comparative figures
(22 marks)
Q.3 Spring 2011
The following information relates to Galaxy International (GI), a listed company,
which was
incorporated on January 1, 2009.

(i) The (loss) / profit before taxation for the years ended December 31, 2009 and
2010 amounted to (Rs. 1.75 million) and Rs. 23.5 million respectively.
(ii) The details of accounting and tax depreciation on fixed assets is as follows:
2010
2009 Rs. in million
Accounting depreciation
15
15
Tax depreciation
6
45
(iii) In 2009, GI accrued certain expenses amounting to Rs. 2 million which were
disallowed by
the tax authorities. However, these expenses are expected to be allowed on the
basis of payment in 2010.
(iv) GI earned interest on Special Investment Bonds amounting to Rs. 1.0 million
and Rs. 1.25
million in the years 2009 and 2010 respectively. This income is exempt from tax.
(v) GI operates an unfunded gratuity scheme. The provision during the years 2009
and 2010
amounted to Rs. 1.7 million and Rs. 2.2 million respectively. No payment has so far
been made on account of gratuity.
(vi) The applicable tax rate is 35%.
Required:
Prepare a note on taxation for inclusion in the companys financial statements for
the year ended December 31, 2010 giving appropriate disclosures relating to
current and deferred tax expenses including a reconciliation to explain the
relationship between tax expense and accounting profit.
(20 marks)
Q.5 Autumn 2011
Mercury Water Limited (MWL) is a listed company and is engaged in the business of
purifying
and marketing of bottled water.
MWL purchased a bottling plant on 1 July 2006 at a cost of Rs. 90 million. The plant
has a
useful life of ten years with no residual value. Depreciation is provided on straightline method
over the plants useful life. MWL revalues its plant at the end of every two years.
The revalued amounts determined by Jet Valuers, an independent firm of valuers,
are as follows:
(i) On 30 June 2008: Rs. 64 million
(ii) On 30 June 2010: Rs. 60 million
However, there was no change in the expected useful life and residual value of the
plant. Profit before tax for the years ended 30 June 2011 and 2010 was Rs. 80
million and Rs. 60 million respectively. The tax authorities allow tax depreciation at

20% on reducing balance method. There are no temporary or permanent differences

other than those apparent from the above information. The tax rate applicable on
MWL is 40%.
Required:
(a) Prepare journal entries to record the effect of revaluation and deferred tax, at
the end of
each year, up to 30 June 2011.
(14 marks)
(b) Prepare a note on taxation for the year ended 30 June 2011 in accordance with
International Financial Reporting Standards.
(07 marks)
(Comparative figures are required. Accounting policies are not required.)