Practice Questions:

Depreciation

Employment income and business income

Deduction and included

Withhold threshold

1. When are a person, trust and a company resident in Nepal?

2. What is Tax and Taxation? How is Taxation governed? What are objectives and
principles of Taxation?
3. Explain different types of Tax.
4. What are the three types of Income Tax Assessment System?
5. What do you understand by public expenditures?
6. Explain cash and accrual basis of Tax Accounting system.
7. What is investment? Why is it different from speculation?
8. Explain the concept of Income Year and Assessment Year.
9. What do you understand by Capital and Revenue expenditure?
10. Abhram, a citizen of UK arrived Kathmandu on 15 Ashad 2071 and returned on 20 Poush
2071. What is residential status of Abhram for Income Year 2070/71 and 2071/72?
11. Mr. Ray has an employment income of Rs. 10,00,000 in Income Year 2074/75. Also, he
got the following allowances from his employer:
 Dearness Allowance Rs. 80,000.
 Conveyance Rs. 50,000.
 He was also provided a loan of Rs. 15, 00,000 @10% p.a. by his employer in that
income year. (Market Rate=15% p.a.)

Calculate his total employment income and tax liability thereon assuming he is a
resident for that Income Year.

[Hint: Add interest benefit received by employee in employment income]

12. Mr. Janak, an incapacitated person has a salary income of Rs. 1, 00,000 p.m. He also
receives local conveyance and dearness allowance of Rs. 50,000 and 2,50,000
respectively for the year. Contribution to Approved Retirement Fund amounts to Rs.
1,00,000 for the year. Calculate his income tax liability on employment income.

[Hint: Deduction of an additional 50% of the amount prescribed under first tax slab is
available to incapacitated person]
 13. What is the special provision of rebate that is available to female assesses in Income Tax
Act? [Hint: 10% of total income tax liability]
14. What items are includedin business income and what are excluded from it ?
15. When are actual expenses incurred in the business are allowed as deduction?
16. What is the amount of deduction available for Pollution Expenses and Research and
Development Costs?
17. Value of depreciable assets in the beginning of the year is Rs. 25,00,000. Rate of
depreciation is 15%. Repair and Improvement Costs for the year amounts to Rs. 8,00,000.
Calculate the depreciation allowed and the amount to be added to be added to the
depreciation base of relevant asset. [Only 7% of opening value of assets is allowed as
deduction in the present Income Year]
18. Shine Company is engaged in manufacturing business. Its business income for the
Income Year 2075/76 is Rs. 3,00,00,000. It incurres the following expenses:

a) Interest on loan taken for running business: Rs. 20,00,000

b) Salaries to employess: Rs. 15,00,000
c) Business Promotion expenses: Rs. 20,00,000
d) Cost of Goods sold: Rs. 1,00,00,000
e) Administrative expenses: Rs. 60,00,000
f) Computer and accessories costing Rs. 40,00,000 are purchased and put to use on 1st
Mangsir 2075.
Calculate tax on business income of Shine Company for the Income Year 2075/76.
[Hint: Deduct all expenses and calculate depreciation available for computer and accessories]

19. What is tax audit? What are its steps?

20. How does VAT help in removing cascading effect? Why is it different from Sales Tax?
21. Land purchased 8 years ago for Rs. 20,00,000 is sold for Rs. 25,00,000. Calculate gain on
disposal assuming it is sold by resident natural person. What happens if it is sold holding
for only 4 years?

[Hint: Exceeding 5 years gains ie. (Sales-Cost) is charged @ 2.5% and not exceeding 5 years
gains is charged @ 5%]

22. Explain concept of INPUT VAT and OUTPUT VAT.

23. What is tax credit? Explain its role in removing double taxation.
24. What is a tax invoice? What are its contents? How much copies of tax invoice are to be
prepared?
25. An importer imported a certain item for Rs. 1000. Then it was passed on to wholesaler
and retailer before reaching to the final consumer. Importer, wholesaler and retailer
charged 10% profit mark up on their costs each. Calculate:
 VAT payable at each stage
 Cost price of customer
26. An importer purchased a computer at Rs. 50,000. No VAT was paid on its import. The
item passes through wholesaler and retailer before reaching the final consumer. The
importer, wholesaler and retailer incurred Rs. 700, Rs. 800 and Rs. 900 respectively for
administrative expenses and charged 15% profit on their costs.
Required: Cost Price to consumer and Total VAT payable by consumer

27. A consumer paid VAT Rs. 4,000 while purchasing a radio. The radio was imported by
Mr. Basanta and it was sold to retailer. Profit margin of 20% on selling price was
included in all levels.
Required: Import price of the radio and VAT payable by retailer to the government