TRIBHUVAN UNIVERSITY

BIRENDRA MULTIPLE CAMPUS FM: 100

Model-2025 PM: 50
BBA/ Fifth Semester/ ACC 203: Taxation and Auditing

Group-A
Brief answer question [10x2=20]
1. Define direct tax with example.
A tax is which is paid by the person or entity who bears the tax burden is called direct tax. It is collected from the persons or
entities on their income. It is not shifted to others. Income tax, property tax are examples of direct tax.
2. Write about canon of equality.
According to the canon of equality, the tax burden must be distributed among the taxpayers fairly and equally but not equal.
Rich people have the capacity to pay more in taxes than poor people have.
3. Mention any two features of income tax act-2058.
All the provisions relating to income are including in one act
Pool system of charging depreciation
4. Mention two advantages of auditing.
Helps to detect and prevent errors and frauds
Helps to make alert towards staffs and others
5. Write difference between accounting and auditing.
Accounting Auditing
It is the process of recording, interpreting and reporting It is the process of examination of books of accounts
financial transactions.
It is maintained by staff of organization It is prepared by independent person
6. Mrs. Wasim citizen of Pakistan who was came in Nepal on 15 Poush and stayed up to previous year and involved in business
activities. Give her residential status with explanation.
Length = 15+ 6x30 = 195 days
Mrs. Wasim is resident because he stayed more than 183 days in Nepal.
7. Mr. Bhusal is a lecturer in TU, appointed on 1 st Shrawan, 2073 with a basic salary Rs. 30,000-2000-40,000-3,000-55,000.
Required: Total annual salary
Total salary = 30,000 +5 x 2000 + 1 x 3000 = 43,000 x 12 = 5,16,000
8. Beginning WDV of assets under pool-D was Rs. 4,00,000. Purchases made on Falgun and Jesth of Rs. 6,00,000 and Rs.
3,00,000 respectively and disposed having book value of 40,000 at Rs. 30,000. Calculate allowable depreciation.
Depreciation base = Opening WDV + Purchase-dispose
= 400,000 + 600,000 x 2/3+ 300,000 x 1/3 - 30,000 = 870,000
Allowable Depreciation = 870,000 x 15% = 130,500
9. Mr. Paudel is working in government office at salary Rs. 50,000 per month. The office has provided accommodation facility
and vehicle facility. You are required to give amount of such facility in employment income of Mr. Poudel.
Annual salary = 50,000 x 12 = 6,00,000
Accommodation facility = 2% of 6,00,000 = 12,000
Vehicle facility = 0.5% of 6,00,000 = 3,000
10. Assessable income before PCC and R&D Rs. 600,000
Previous unrecovered loss Rs. 50,000
Actual pollution control cost Rs, 3,00,000
Compute the allowable pollution control cost for the current income year.
Assessable income after loss = 600,000 - 50,000 = 550,000
50% of 5,50,000 = 2,75,000
Or actual PCC = 3,00,000 (LOWER)
Allowable PCC = 2,75,000
Group-B
Short answer question (Attempt any Six Questions) [6x5=30]
11. List out tax exempt organization.
• A Social, religious, educational or charitable organization of public character registered without having a profit
• A amateur sporting association formed for the purpose of promoting social or sporting amenities not involving the
acquisition of gain
• A political party registered with the election commission
• VDC, Municipality or DDC
12. Mention the amount excluded while computing income.
a. Income from agriculture
b. Received from public fund of a foreign country by an individual who is not a citizen of Nepal
c. Elder, widow, disable citizenship allowance
d. Tax deducted at a source / final withholding payments:-
e. Gilts, prizes, scholarship received except business, employment and investment
f. Pension income from foreign government
13. Classify the types of audit report.
1. Unqualified Report : It indicates that the auditor found the financial statements to be fairly presented, in all material respects,
in accordance with the applicable financial reporting framework.
2. Qualified Report: If there is a specific process or transaction within the organization that an auditor isn’t confident about, that
may prevent them from issuing an unqualified report. A qualified report means that a company must meet certain qualifications
to have a financial status approved by auditors.
3. Adverse Report: Adverse report usually indicates that the financial reports of the organizations contain gross misstatements
and irregularities and have the potential for fraud. Auditors who aren’t satisfied with the financial statements or who discover a
high level of misstatements will issue an adverse audit report.
4. Statutory Report: The report which is prepared before statutory meeting is called statutory report. The audit report should be
sent to shareholders before 21 days of general meeting.
14. The following are the operating result of a company for the last years.
Year 1 2 3 4 5 6 7
Profit and Loss a/c (40,000) (60,000) (20,000) 160,000 80,000 1,50,000 2,00,000
The company had donated of Rs. 10,000 and 25,000 in 1st and 6th year respectively to a TE organization and above profit of 4 th
year was derived before deducting interest on loan Rs. 15,000 and allowable depreciation of Rs. 40,000.
Required: Taxable income of the company giving explanation whenever necessary [5]
Statement showing taxable income
(Carry forward of losses)
Particulars/Years 1 2 3 4 5 6 7
Profit and loss account (40,000) (60,000) (20,000) 160,000 80,000 150,000 200,000
Add: Donation +10,000 +25,000
Less: Interest on loan (15,000)
Less: Allowable depreciation (40,000)
Adjusted P&L account (30,000) (60,000) (20,000) 105,000 80,000 175,000 200,000
Carry forward of losses:
Year 1 (30,000)
Year 2 (60,000)
Year 3 (15,000) (5,000)
Assessable income - - - - 75,000 175,000 200,000
Less: Donation (6th year)
5% or 175000 = 8,750 (8,750)
or actual = 25,000
or maximum = 100,000
Taxable income 75,000 166,250 200,000

15. Mr. Mainali as a lawyer and his summarized Receipt and Payment Account as follows.
Receipts Amount Payment Amount
To Balance b/d 20,000 By Salary to staff 1,20,000
To Consultation fee 2,00,000 By Rent of office 80,000
To Legal fee after TDS 3,40,000 By Telephone Expenses 5,000
To Directors fee 30,000 By Furniture (Chaitra) 3,00,000
To Dividend received 20,000 By Office expenses 70,000
To Loan from bank 1,40,000 By Car expenses 40,000
To Lottery income (net) 45,000 By Interest on loan 35,000
To Royalty from natural resource 80,000 By Domestic expenses 50,000
To Sundry income 25,000 By Repair of furniture 20,000
By Donation to TEO 30,000
By Balance c/d 1,50,000
9,00,000 9,00,000
Additional information;
• Lawyer had received a special commission Rs. 25,000 from clients but had not shown in the above account
• Charge depreciation and repair on furniture as per rules.
• 60% of car expenses was related to his resident purpose.
• Office expenses includes Rs, 35,000 for Life insurance premium (Own)
Required: i. Assessable (net) income from profession ii. Statement of taxable income [3+2]
 Computation of Income from Profession of Mr. Mainali for the previous income year
Particulars Rs
Consultation fee 2,00,000
Legal fee (340,000/0.85 x100) 400,000
Dorector fee 30,000
Sundry income 25,000
Special commission 25,000
Total (Gross) income 680,000
Less: Allowable deductions:
- Allowable depreciation (300,000x2/3)=200,000 @25% 50,000
- Allowable repair ( 200,000 @7% =14,000 or actual 20,000) 14,000
- Car expenses ( 40,000x40%) 16,000
- Office expenses (70,000-35,000) 35,000
- Salary to staff 120,000
- Rent of office 80,000
- Telephone charge 5,000
- Interest on loan 35,000 3,55,000
Assessable income from profession 3,25,000
Statement of taxable income
Particulars Rs.
Assessable income from profession: 3,25,000
Assessable income from investment:: Royalty from natural resources 80,000
Total Assessable income 4,05,000
Less: Allowable deductions:
- Donation to TE Organization:
Actual donation = 30,000 Or, 5% of 4,05,000= 20,250 Or, Maximum limit =1,00,000 (20,250)
- LIP = 25,000 or Maximum limit = 40,000 (35,000)
Taxable income 3,49,750
16. A importer purchased a laptop at Rs. 25,000 and importer and retailer both incurred Rs. 2,000 expenses on its sales and sold at
profit 10% an 20% on selling price respectively.
Required: a. Cost price of the customer b. VAT at each level
Computation of VAT
Stages or Cost Value Added SP without VAT SP with VAT
Channel Price Expenses + Profit VAT @13% VAT Paid to government
Importer 25,000 x x 3250 x 3250
Importer to Retailer 25,000 2000 + 3000 30,000 3900 33900 650
Retailer to Consumer 30,000 2000 + 8000 40,000 5200 45,200 1300
Profit by Importer = 27,000/90 x 10 = 3000 Profit by Retailer = 32,000/80 x 20 = 8000
17. A Company provided the following details of its assets under different block.
Pools D B
Opening WDV of the assets 4,00,000 3,00,000
New addition of assets:
On 1st Aswin 3,00,000 1,00,000
On 11st Falgun 6,00,000 -
Assets disposed of during the year:
Book value at beginning 2,50,000 3,00,000
Disposable value 3,00,000 3,97,500
Actual repair expenses 80,000 -
Required: i. Allowable depreciation ii. Closing depreciation base of assets for the year [3+2]
Pools D B
Opening WDV of the assets 4,00,000 3,00,000
Add: New addition of assets: On Aswin (3/3) 300,000 100,000
On Falgun (2/3) 400,000 x
Less: Disposed (3,00,000) (397,500)
Depreciation base 800,000 2,500
Rate 15% 25%
Allowable depreciation 120,000 2,500
Depreciation base after depreciation 680,000 -
Add: Unabsorbed purchase on Falgun 200,000 -
Add: Unabsorbed repair 24,000 x
Closing depreciation base of assets for the year 9,04,000 -
 Allowable depreciation of block D is 2,500 and entire pool is dissolved and depreciation base is less than 2,000.
Allowable repair = 7% of 800,000 = 56,000
Actual repair = 80,000
Unabsorbed repair = 24,000
Group-C
Long Answer Question (Attempt any Three questions) [3x10=30]
18. List out the expenses which is disallowed for deduction while computing assessable income.
• Personal or domestic expenses
• Income tax payable
• Fine and penalties paid to the government & local bodies for breach of any law and regulation
• Expenses incurred to derive the tax exempted amount or final withholding payments
• Cash payment over Rs. 50,000 by individual or entity having annual turnover more than 2 million
• Distribution of profits by entity like provision, dividend, reserves or funds……
19. Define value added tax. Write any thee objectives.
Value added tax is an indirect tax which is imposed by government in the increasing value of goods & services. It is collected at
each level or stage of production and distribution channel.
Objectives of VAT
▪ Increase in revenue
▪ Reduced in tax evasion
▪ Mass participation
▪ Avoids cascading (double tax) effect
20. Following details of ABC company for the previous year are provided;
• Rent from house after TDS Rs. 90,000
• Rent received by letting computers Rs. 50,000
• Interest on private money lending Rs. 1,60,000
• Royalty income after TDS Rs. 2,55,000
• Dividend from resident Company after TDS Rs. 38,000
• Natural resources payment received after TDS Rs. 1,70,000
• Compensation received relating to investment Rs. 40,000
He claimed the following expenses;
Collection charges related to: - House rent Rs. 1,200
- Natural resources expenses Rs. 2,500
- Money lending transaction Rs. 1,500
Purchase price Rs. 75,000 on Chaitra and depreciation and repair expenses of Computer to be charged as per rules
Donation to political party Rs. 20,000
Required: a. Net (assessable) income from investment b. Statement of taxable income c. Tax liability [5+3+2]
Computation of Income from Investment of ABC company for the previous income year
Particulars Rs
Rent from house (90,000/90 x100) It is taxable in case of of entity 1,00,000
Rent received by letting computers 50,000
Interest on private money lending 160,000
Royalty income (255,000/85 x100) 300,000
Natural resources payment received (170,000/85 x100) 200,000
Compensation received 40,000
Total (Gross) income 850,000
Less: Allowable deductions:
Collection charges related to: 1,200
House rent 2,500
Natural resources expenses 1,500
Money lending transaction 12,500
Allowable depreciation (75,000x2/3)=50,000 @25% = 12,500 3,500 (21,200)
Allowable repair ( 50,000 @7% = 3500
Assessable income from profession 8,28,800
Statement of taxable income
Particulars Rs.
Assessable income from investment: 8,28,800
Assessable income from business: -
Total Assessable income 8,28,800
Less: Allowable deductions:
- Donation to TE Organization:
Actual donation = 20,000 Or, 5% of 8,28,800 = 41,440 Or, Maximum limit =1,00,000 (20,000)
Taxable income 8,08,800
21. Mr. Wagle is a lecturer in TU, appointed on 1 st Falgun, 2075 with a basic salary Rs. 50,000-1000-55,000-2,000-65,000. Besides
this, he received following;
Department head allowance 5,000 per month
Dearness allowance 2,000 per month
He contributes 10% of salary and also contributes an equal amount by TU.
Salary from BBA class as part time teacher Rs. 170,000 (net).
He was provided a vehicle along with fuel expenses 2,000 per month.
Accommodation facility provided by office with free of cost.
Traveling and daily allowance Rs. 15,000.
TU provided him loan Rs. 800,000 with interest rate @ 10% but market rate 14%.
Tuition fee of his daughter Rs. 80,000 reimbursed by his college.
Meal and tiffin expenses Rs. 1,000 per month provided by college to all lecturers.
Life insurance premium Rs. 40,000 paid by college.
Internet bill Rs. 2,000 per month by college but he used equally private and official purpose.
He received interest on deposit from NBL 47,500 after TDS.
Royalty received from natural resource Rs. 2,55,000 after TDS.
He claimed for deduction;
Purchase of laptop Rs. 65,000
His own life insurance premium Rs. 35,000
Approved medical bill Rs. 20,000
He donated to district hospital Rs. 25,000
Required:
i. Net assessable income from employment
ii. Statement of taxable income iii. Tax payable [5+3+2]

Computation of Assessable Income from Employment for the previous income year 2080/81.
Particulars Rs
Salary (50000 x 12 + 7 months x 4 x 1,000 + 5 months x 5 x 1,000 6,53,000
Dashain allowance 54,000
Provident fund by TU 65,300
Department head allowance 5,000 x 12 60,000
Dearness allowance 2,000 x 12 24,000
Vehicle facility (6,53,000 x 0.5%) 3,265
Accommodation facility (6,53,000 x 2%) 13,060
Tuition fee reimbursed by college 80,000
Interest facility 800,000 @4% 32,000
Life insurance premium paid by college 40,000
Internet bill used for private 50% 12,000
Total (Gross) income 10,36,625

Statement of taxable income

Particulars Rs.
Assessable income from employment: 10,36,625
Assessable income from investment: Royalty received from natural resource (255,000/85 x100) 300,000
Total Assessable income 13,36,625
Less: Common deductions:
- Provident fund 1/3 of 13,36,625 = 3,45,542 or 300,000 or actual 20% of 6,53,000= 130,600 (130,600)
- Donation to Hospital:
Actual donation = 25,000 Or, 5% of 13,36,625-130,600= 60,301 or maximum 100,000 (25,000)
- LIP
Actual 35,000 Or, Maximum limit = 40,000 (35,000)
Taxable income 11,46,025

Tax Liability
Exemption limit (single) Rs.
First up to Rs. 5,00,000 @ 1% 5,000
Next Rs. 2,00,000 @ 10% 20,000
Next Rs. 3,00,000 @ 20% 60,000
Balance Rs. 146,025 @ 30% 43,808
Tax liability 128.808
Less: Medical tax credit 15% of 20,000 = 3000 or maximum 750 (750)
Less: TDS on Royalty (45,000)
Tax payable 83,058
 Group-D
Comprehensive answer question [20]
22. Trading & Profit or Loss Account of a trader Mr. Agrawal for the previous year is given below.
Trading & Profit and Loss Account
Particulars Rs. Particulars Rs.
To Opening stock 7,70,000 By Sales 50,00,000
To Purchase 15,00,000 By Closing stock 5,50,000
To Wages 2,00,000 By Royalty received (net) 2,55,000
To Freight & custom duty 45,000 By Sundry income 1,50,000
To Office expenses 4,00,000 By Dividend received (net) 60,000
To Legal expenses 80,000 By Bad debts recovered 65,000
To General expenses 1,60,000 By Interest from on private money 75,000
To Depreciation of plant 70,000 By Rent from warehouse 1,75,000
To Repair for plant 35,000 By Refund of custom duty 20,000
To Provision for tax 20,000 By Received from business restriction 150,000
To Dividend paid 40,000
To Pollution control cost 2,50,000
To Donation 1,25,000
To Bad debts 25,000
To Advertising 50,000
To Staff welfare expenses 85,000
To Interest of loan 20,000
To General reserve 2,00,000
To Net profit 24,25,000
65,00,000 65,00,000
Additional information;
a. Both stocks were overvalued by 10 percent.
b. Purchase includes Rs.3,00,000 for the addition of plant on Magh 1, Opening depreciation base of block-D was Rs. 100,000.
c. Legal expenses include Rs. 15,000 incurred for defending title of personal property.
d. 40% bad debts recovered were not allowed previously.
e. Previous business loss of Rs. 50,000 was not included in above statement.
f. Gain on sale of share of listed company Rs. 114,000 not included in above statement
g. General expenses include 30,000 for his life insurance premium and Rs. 25,000 for income tax appeal.
Required:
i. Net (Assessable) Income from business
ii. Net (Assessable) Income from investment
iii. Statement of taxable income
iv. Tax liability [10+3+4+3]

Computation of Assessable Income from Business of Mr. Agrawal

Particulars Rs
Sales 50,00,000
Sundry income 1,50,000
Bad debts recovered (60%) 39,000
Rent from warehouse 175,000
Refund of custom duty 20,000
Received from business restriction 150,000
Total (Gross) income 55,34,000
Less: Allowable deductions:
Cost of trading stock 16,45,000
Allowable depreciation 45,000
Legal expenses (80,000-15,000) 65,000
Office expenses 4,00,000
General expenses (160,000-30,000-25,000) 1,05,000
Repair of plant (70,000 or 7% 0f 3,00,000 = 21,000) 21,000
Bad debts 25,000
Advertising 50,000
Staff welfare 85,000
Interest on loan 20,000
(25,11,000)
Business loss 50,000
Assessable income before PCC and RD 30,23,000
Less: Pollution control cost (2,50,000 or 50% of 30,23,000=15,11,500) (2,50,000)
Assessable income from business 27,73,000
 Assessable Income from Investment
Particulars Rs
Royalty received (255,000/85 x 100) 3,00,000
Interest from on private money 75,000
Gain on sale of share 1,14,000
Assessable income from investment 4,89,000

Statement of taxable income

Particulars Rs.
Assessable income from business: 27,73,000
Assessable income from investment: 4,89,000
Total Assessable income 32,62,000
Less: Common deductions:
- Donation:
Actual donation = 1,25,000 Or, 5% of 23,30,000 + 4,89,000= 1,75,600 or maximum 100,000 (100,000)
- LIP (Actual 30,000 Or, Maximum limit = 40,000) (30,000)
Taxable income 31,32,000
- capital gain -114,000
Taxable income after capital gain 3018,000

Tax Liability
Exemption limit (single) Rs.
First up to Rs. 5,00,000 @ 1% 0
Next Rs. 2,00,000 @ 10% 20,000
Next Rs. 3,00,000 @ 20% 60,000
Next Rs. 10,00,000 @ 30% 300,000
Balance Rs. 10,18000 @ 36% 3,66,480
Capital gain on share (114,000@ 5% 5,700
Tax liability 7,52,180
Less: TDS on Royalty (45,000)
Tax payable 7,07,180
Working notes:
1. cost of trading stock
Opening stock 770,000/110 x 100 = 7,00,000
Purchase 15,00,000 - 300,000 = 12,00,000
Wages = 2,00,000
Frieght = 45,000
Less: Closing stock 550,000/110 x 100 = (500,000)
2. Allowable depreciation
Opening WDV = 1,00,000
Purchase 3,00,000 x 2/3 = 2,00,000
Depreciation base = 300,000
Allowable depreciation 15% of 3,00,000 = 45,000