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THE ASSOCIATION OF ACCOUNTING TECHNICIANS OF SRI LANKA

FINAL EXAMINATION – JANUARY 2015

(58) TAXATION
17-01-2015
Morning
Time: 03 hours [9.00 – 12.00]

Instructions to candidates: No. of Pages : 06

No. of Questions : 05
(1) All questions should be answered.
(2) Answers should be in one language, in the medium applied for, in the booklets provided.
(3) Use of calculators is permitted.
(4) Attach all workings and computations. State clearly assumptions made by you, if any.
(5) 100 Marks.

01. Good Life (Pvt) Ltd. which is a resident company incorporated in April 2009 is engaged
in the business of operating a dairy farm. The company is having its registered office in
Colombo, and the farm at Nuwara Eliya.

The net profit before tax of Good Life (Pvt) Ltd. for the year ended 31st March 2014,
after charging all expenses and crediting all income, was Rs.8,498,120/-. Total turnover
for the year was Rs.398,325,000/-.

The following information is provided in respect of the Year of Assessment 2013/2014.

Notes to the accounts:

Note 1

Details of some of the expenses charged in arriving at the net profit for the year ended
31st March 2014 were as follows:

(1) The provision for gratuity made in the financial statements amounted to
Rs.1,653,000/-, and, Rs.875,000/- was paid as gratuity for retired employees
during the year.

(2) Cost of TV commercials of Rs.1,520,000/-, and the cost of Rs.25,000/- for paper
notices published to recruit new workers were included in advertising expenses.

(3) Legal fees of Rs.52,000/- has been incurred for a labour case in the district court.

(4) During the year, the company has paid Rs.150,000/- as fines for violating rules
and regulations of health authorities.

(5) Donation made in cash to a charity, which is not an approved charity, was
Rs.20,000/-.

(6) During the year the company has carried out an industrial research for the
upgrading of its business and Rs.150,000/- was paid to a private research
institution in this regard.

(7) The Managing Director has visited Malaysia to inspect the new machine. The
company has incurred Rs.325,000/- for his tour.

(8) The company bears the income taxes of Senior Managers and Rs.236,000/- has
been incurred during the year.

(9) The company has made a general provision of Rs.675,000/- for doubtful debts.
(10) Finance expenses were as follows:
Rs.
Lease interest 91,600
Overdraft interest 245,000

Note 2
Summary of other income:
Rs.
Net interest income on Fixed Deposits (10% WHT
148,770
has been deducted)

Rent income (giving additional space in the office

300,000
building to another party)

Note 3

Property, Plant and Equipment

Cost
Balance as at Balance as at
Additions Disposals
Particulars 01.04.2013 31.03.2014
(Rs.) (Rs.)
(Rs.) (Rs.)
Freehold Assets:
Land 12,650,000 - - 12,650,000
Buildings 11,875,000 - - 11,875,000
Furniture 856,000 - - 856,000
Plant and Machinery 2,744,650 1,500,000 1,226,250 3,018,400
Office Equipment 688,000 420,000 - 1,108,000
Computer Hardware 840,000 - - 840,000
Motor Vehicles 2,900,800 - - 2,900,800
Computer Software - 340,000 - 340,000
Leased Assets:
Motor Vehicle - 2,850,000 - 2,850,000
Total 32,554,450 5,110,000 1,226,250 36,438,200

Depreciation
Balance as at Charge for Balance as at
Disposals
Particulars 01.04.2013 the year 31.03.2014
(Rs.)
(Rs.) (Rs.) (Rs.)
Freehold Assets:
Buildings 3,365,000 370,000 - 3,735,000
Furniture 385,200 128,400 - 513,600
Plant and Machinery 1,646,790 603,680 490,500 1,759,970
Office Equipment 516,000 129,000 - 645,000
Computer Hardware 504,000 168,000 - 672,000
Motor Vehicles 2,325,600 575,200 2,900,800
Computer Software - 68,000 - 68,000
Leased Assets:
Motor Vehicle - 570,000 - 570,000
Total 8,742,590 2,612,280 490,500 10,864,370

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(1) Construction of the office building was completed and used in the year of
assessment 2011/12, and the cost of construction was Rs.9,250,000/-.
Construction of other buildings had been completed and used in the Year of
Assessment 2009/10.

(2) The company has sold a machine for Rs.675,000/- on 01st May 2013 and this
machine was purchased during the year of assessment 2011/12. The company had
purchased a new machine in August 2013 for Rs.1,500,000/- to replace the sold
one.

(3) Motor vehicles consist of trucks used in the farm to transport goods and animals.

(4) During the year, the company purchased a locally developed software system for
Rs.340,000/-.

(5) A truck was acquired under a finance lease agreement for a period of 4 years
commencing from 05th April 2013. Monthly installment of the lease is Rs.68,000/-,
and 12 installments were paid during the year.

(6) Unless stated otherwise, all items of Property, Plant and Equipment as at
01st April 2013 had been acquired in the year of assessment 2009/10.

Note 4

(1) Taxable business loss brought forward from the year of assessment 2012/13 was
Rs.4,350,000/-.

(2) Self assessment tax payments for the year of assessment 2013/14 were
Rs.500,000/-.

From the foregoing information,

You are required to compute:

(a) Statutory Income from each source of income,

(b) Total Statutory Income,

(c) Assessable Income,

(d) Taxable Income,

(e) Gross Income Tax Payable,

(f) Balance Income Tax Payable,

of Good Life (Pvt) Ltd. for the year of assessment 2013/14.

(Ignore implications of VAT, NBT and tax on under-distributed profits)

Note: Allowing or disallowing any expenditure should be clearly stated. (35 marks)

3
02. Ranasinghe who is an Architect serves as a lecturer of a Private university. He also
provides professional services to his clients from his house.

The following information relating to Ranasinghe is provided in respect of the year of

assessment 2013/14 (hereinafter referred to as the ‘year’).

(1) Gross monthly salary is Rs.120,000/- and he was paid a bonus of Rs.240,000/-
during the year. In addition to these, he was paid a travelling allowance of
Rs.40,000/- per month by the university.

(2) Net profit for the year from his private professional services was Rs.1,200,000/-
which was arrived at after deducting the following expenses:

(i) Depreciation on his car (he had purchased his - Rs.800,000/-

car on 01st April 2012 for his personal use)

(ii) Book-keeping charges, to his wife - Rs.10,000/- per month

(3) He lives with his family in a house inherited from his parents. Floor area of the
house is 3,000 Square feet and rating assessment is Rs.90,000/-. The House was
entirely renovated in the year 2013.

(4) Construction of his new house in Colombo was completed in January 2013, and it
was rented for Rs.80,000/ per month from April 2013. Net Annual Value (NAV) is
Rs.93,000/- and rates are paid at 30%. Floor area of the house is 3,500 square
feet.

(5) (i) Interest received by him on an investment in Treasury Bills was Rs.120,000/-.

(ii) Interest Income on a fixed deposit in a finance company was Rs.200,000/-.

WHT was not deducted on this Interest.

(6) He received a dividend from Creations PLC, and the following particulars were
stated in the dividend warrant counterfoil.
Rs.
Dividends out of profits liable for tax:
Net dividend 144,000
Dividend tax 16,000
Gross dividend 160,000
Dividends paid out of exempt profits 72,000
232,000

(7) Ranasinghe has paid an Interest of Rs.74,000/-, and capital of Rs.95,000/- on a

loan obtained from Sampath Bank to renovate his old house.

(8) He has donated Rs.48,000/- to poor students at the University.

(9) Annual premium paid by him on a policy of life insurance was Rs.85,000/-.

(10) PAYE deduction for the year was Rs.70,000/-.

(11) Self assessment income tax payment for the year of assessment 2013/14 was
Rs.300,000/-.

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 From the foregoing information,

You are required to compute Ranasinghe's:

(a) Statutory Income from each source of income,

(b) Total Statutory Income,

(c) Assessable Income,

(d) Taxable Income,

(e) Gross Income Tax payable,

(f) Balance Income Tax Payable / Refund Due, and,

(g) Exempt income, if any

for the Year of Assessment 2013/14. (30 marks)

03. Vanamal (Pvt) Ltd. is a VAT registered company engaged in manufacturing artificial
flower arrangements.

The following financial information of the company is given for the quarter ending
31st March 2014.

(1) All the figures given below are exclusive of VAT, unless otherwise stated:

Rs.
Revenue:
Sales to local market 12,200,000
Direct Exports 15,775,000
Sales made to exporters as suspended supplies 10,625,000
Sale proceeds on sale of a machine (inclusive of VAT) 10,640,000

(2) Input VAT

Rs.
On imports 519,175
On material purchases from local suppliers registered for VAT 1,585,200
On lease rentals paid for car used for travelling 64,800

(3) The company has received Simplified VAT Credit Vouchers (SVCV) amounting to
Rs. 1,275,000/- in respect of suspended supplies made.

You are required to, compute the Value Added Tax (VAT) payable for the quarter
ended 31st March 2014. (15 marks)

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04. Soorya (Pvt) Ltd. is in the business of manufacturing lighting equipment. During the
Year of Assessment 2012/13, the company has incurred a taxable loss of Rs.265 Million.
Turnover of each quarters of the year of assessment 2013/14 is given below:

Rs.
Quarter ending 30th June 2013 39,600,000
th
Quarter ending 30 September 2013 76,450,000
st
Quarter ending 31 December 2013 24,500,250
st
Quarter ending 31 March 2014 102,657,000
243,207,250

You are the accountant of Soorya (Pvt) Ltd. The management has asked you to
provide the following information:

(a) Economic Service Charge (ESC) liability for each quarter. (04 marks)

(b) Due date for the payment of Economic Service charge of each quarter. (04 marks)
(Total 08 marks)

05. (a) You are the newly appointed accountant to handle the payroll system of Fashion
Garments (Pvt) Ltd. You are required to provide the answers for the following to
the management:

(i) What are responsibilities / duties of the employer in the operation of the PAYE
system? (08 marks)

(ii) If the directors are not included in the payroll prepared for PAYE purposes,
what are the applicable rates for the deduction of tax from the Directors of
the company for the year of assessment 2013/14? (02 marks)

(b) Name two(02) persons who can be authorized representatives under the Inland
Revenue Act. (02 marks)
(Total 12 marks)

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