(a) Following are the details of the fixed assets of XYZ Company. Beginning written down value block C Rs. 400,000 Beginning written down value block D Rs. 500,000 The company has purchased a new…

Solution to Question (a): Allowable Depreciation and End-of-Year Fixed Asset Value

Given Data:

• Block C (Plant & Machinery):

  • Beginning written-down value (WDV) = Rs. 500,000
  • Purchase of new plant & machinery on 10th Jestha (FY 2079/80) = Rs. 600,000
  • Repair & maintenance cost = Rs. 60,000
  • Sale of a part of plant & machinery (book value = Rs. 90,000, sold for Rs. 100,000)

• Block D (Motor Vehicles):

  • Beginning WDV = Rs. 500,000
  • Purchase of two second-hand Maruti cars on 1st Ashwin (FY 2079/80) = Rs. 300,000 each
  • Repair & maintenance cost = Rs. 100,000

Depreciation Rates (as per Income Tax Act, Nepal):

• Block C (Plant & Machinery): 15%
• Block D (Motor Vehicles): 20%

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(a) Calculation of Allowable Depreciation

Block C (Plant & Machinery):

1. Opening WDV (FY 2078/79): Rs. 500,000
2. Depreciation for FY 2078/79 (15%): $$500,000\times 15\%=\text{Rs. }75,000$$
3. Closing WDV (before new purchase): $$500,000-75,000=\text{Rs. }425,000$$
4. New Plant & Machinery Purchased (10th Jestha):
   • Since the purchase was made after the start of the fiscal year (1st Baisakh), depreciation is allowed pro-rata for the remaining months (from Jestha to Chaitra, i.e., 8 months).
   • Pro-rata depreciation rate (8/12): $$15\%\times \frac{8}{12}=10\%$$
   • Depreciation on new asset: $$600,000\times 10\%=\text{Rs. }60,000$$
5. Total WDV before sale: $$425,000+600,000=\text{Rs. }1,025,000$$
6. Sale of Plant & Machinery (Book Value = Rs. 90,000):
   • Depreciation allowed on sold asset (15%): $$90,000\times 15\%=\text{Rs. }13,500$$
   • Gain on sale: $$100,000-90,000=\text{Rs. }10,000(\text{taxable as income})$$
7. Remaining WDV after sale: $$1,025,000-90,000=\text{Rs. }935,000$$
8. Depreciation on remaining WDV (15%): $$935,000\times 15\%=\text{Rs. }140,250$$
9. Total Allowable Depreciation (Block C): $$60,000(\text{new asset})+140,250(\text{remaining})=\text{Rs. }200,250$$

Block D (Motor Vehicles):

1. Opening WDV (FY 2078/79): Rs. 500,000
2. Depreciation for FY 2078/79 (20%): $$500,000\times 20\%=\text{Rs. }100,000$$
3. Closing WDV (before new purchase): $$500,000-100,000=\text{Rs. }400,000$$
4. Purchase of Two Second-Hand Cars (1st Ashwin):
   • Since the purchase was made after the start of the fiscal year, depreciation is allowed pro-rata for the remaining months (from Ashwin to Chaitra, i.e., 5 months).
   • Pro-rata depreciation rate (5/12): $$20\%\times \frac{5}{12}\approx 8.33\%$$
   • Depreciation on each car: $$300,000\times 8.33\%=\text{Rs. }25,000(\text{per car})$$
   • Total depreciation on two cars: $$25,000\times 2=\text{Rs. }50,000$$
5. Total WDV before considering repairs: $$400,000+600,000=\text{Rs. }1,000,000$$
6. Repair & Maintenance Cost (Not Depreciable):
   • Repair & maintenance costs are not added to the WDV for depreciation purposes.
7. Depreciation on total WDV (20%): $$1,000,000\times 20\%=\text{Rs. }200,000$$
8. Total Allowable Depreciation (Block D): $$50,000(\text{new cars})+200,000(\text{remaining})=\text{Rs. }250,000$$

Total Allowable Depreciation for the Year:

$$200,250(\text{Block C})+250,000(\text{Block D})=\boxed{\text{Rs. }450,250}$$

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(b) Value of Fixed Assets at the End of the Fiscal Year

Block C:

1. Opening WDV: Rs. 500,000
2. Depreciation (FY 2078/79): Rs. 75,000
3. Closing WDV (before new purchase): Rs. 425,000
4. New Plant & Machinery Added: Rs. 600,000
5. Sale of Plant (Book Value): Rs. 90,000
6. Depreciation on remaining WDV: Rs. 140,250
7. Ending WDV (Block C): $$425,000+600,000-90,000-140,250=\boxed{\text{Rs. }794,750}$$

Block D:

1. Opening WDV: Rs. 500,000
2. Depreciation (FY 2078/79): Rs. 100,000
3. Closing WDV (before new purchase): Rs. 400,000
4. New Cars Added: Rs. 600,000
5. Depreciation on total WDV: Rs. 200,000
6. Ending WDV (Block D): $$400,000+600,000-200,000=\boxed{\text{Rs. }800,000}$$

Total Fixed Asset Value at End of FY 2079/80:

$$794,750(\text{Block C})+800,000(\text{Block D})=\boxed{\text{Rs. }1,594,750}$$

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Solution to Question (b): Taxable Income Calculation

Given Data:

Additional Information:

1. Profit of 9th Year (FY 2079/80) was before deducting:
   • Research & Development (R&D) Expense = Rs. 132,500
   • Donation = Rs. 50,000
2. Unabsorbed Losses from Previous Years:
   • 1st Year: Rs. 600,000
   • 2nd Year: Rs. 75,000
   • 3rd Year: Rs. 50,000
   • 4th Year: Rs. 25,000

Step-by-Step Calculation:

1. Adjust Profit of 9th Year (FY 2079/80):

   • Original Profit: Rs. 600,000
   • Deduct R&D Expense: Rs. 132,500
   • Deduct Donation: Rs. 50,000
   • Adjusted Profit (Taxable Income for FY 2079/80): $$600,000-132,500-50,000=\boxed{\text{Rs. }417,500}$$

2. Set-Off of Unabsorbed Losses:

   • Total Unabsorbed Losses (Years 1-4): $$600,000+75,000+50,000+25,000=\text{Rs. }750,000$$
   • Available Profit Before Set-Off (Years 5-8): $$20,000+80,000+155,000+170,000=\text{Rs. }425,000$$
   • Losses Set-Off Against Years 5-8:
     • Year 5: Rs. 20,000 (fully absorbed)
     • Remaining Loss: Rs. 750,000 - Rs. 20,000 = Rs. 730,000
     • Year 6: Rs. 80,000 (fully absorbed)
     • Remaining Loss: Rs. 730,000 - Rs. 80,000 = Rs. 650,000
     • Year 7: Rs. 155,000 (fully absorbed)
     • Remaining Loss: Rs. 650,000 - Rs. 155,000 = Rs. 495,000
     • Year 8: Rs. 170,000 (partially absorbed)
       • Absorbed: Rs. 170,000
       • Remaining Loss: Rs. 495,000 - Rs. 170,000 = Rs. 325,000
   • Unabsorbed Loss Carried Forward to FY 2079/80: $$\text{Rs. }325,000$$
   • Final Taxable Income for FY 2079/80 (After Set-Off): $$417,500-325,000=\boxed{\text{Rs. }92,500}$$

Summary of Taxable Income:

• FY 2079/80 (9th Year): Rs. 92,500 (after set-off of unabsorbed losses and deductions)
• Previous Years (5-8): No taxable income (fully absorbed by losses).

Explanation:

• Research & Development (R&D) and Donation are deductible from gross profit as per Income Tax Act, Nepal.
• Unabsorbed losses from previous years are set off in sequence (Year 1 first, then Year 2, etc.) until fully absorbed or until profit is exhausted.
• Any remaining unabsorbed loss after set-off against available profits is carried forward and set off against future taxable income.

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