1

Accounting Care
Mobile: 01915 87 68 61
wVKvbvt `wÿb wewkj, †ivW-6 (XvKv gW©vb K‡j‡Ri wecixZ cv‡k), wgicyi-1, XvKv|
Jony Sir
Mobile: 01915 87 68 61
Corporate tax Planning
Chapter-1 (Introduction)
Formula
(i) Receive now = I(1 − Tr)[1 + r(1 − Tr)]
(ii) Defer receipts after one year = I(1 − Tr2 )
r
Format-1 (iii) Indifferent interest Rate (r) = (1−Tr × 100)
(iv) Indifferent Income Tax Rate:
I(1 − Tr1 )[1 + {r(1 − Tr2 )}] = I(1 − Tr2 )
Capital gain−Partnership Spends
(i) Pre-Tax Rate of return, (R) = Partnership Spends
× 100
Format-2 Capital gain (1−Tr)
(ii) After tax rate of return (R) = {Partnership Spend (1−Tp) − 1} × 100

Problem-1: Suppose the taxpayer can time the receipt of Tk. 1,00,000 in income that is fully taxable.
Current interest rates are 10% on fully taxable securities and the taxpayer faces a current tax rate of
31%. If the taxpayer delays receipt the amount will grow to Tk. 1,10,000 at the end of year 2. The
tax payer must decide whether to receive the money today or at the end of year 2.
a. When should the taxpayer elect to receive the income?
b. At what interest rate would the taxpayer be indifferent between the two options?
c. If the taxpayer expects tax rates to increase to 35% in year 2, when the best time to receive the
income?
d. At what tax rate year 2 is the taxpayer indifferent between the two options?
Solution:
Req-(a):
Receive now = I(1 − Tr)[1 + {r(1 − Tr)}]
= Tk. 1,00,000(1 − 0.31)[1 + {. 10(1 − 0.31)}]
= Tk. 73,761
If defer receipt then after-tax will have two year.
We know that,
Defer receipts after one year = I(1 − Tr2 )
= Tk. 1,10,000 (1 − .31)
= Tk. 1,10,000×.69
= Tk. 75,900
Comment: As the Income of defer after one year is higher, So the taxpayer elects to receive after one
year.
Required—(b): Calculation of interest rate (r):
r
Indifferent interest Rate (r) = (1−Tr × 100)

Leo Marten Jony Sir, BBS Hons (Accounting)-1st Class, MBS (Accounting)-DC
Writer: Principles of Accounting, Management Accounting and Cost Accounting. Mobile: 01915-87 68 61
 2

0.10
= 1−0.31 × 100
= 14.49 % Ans.
Comment: The interest rate would be 14.49% taxpayer be indifferent between the two options.
Required—(c):
Calculation of Receive now and invest after-tax proceeds.
We know that,
Receive now = I(1 − Tr)[1 + {r(1 − Tr2 )}]
= Tk. 1,00,000 (l − .31)[1 + (. 10 (1 − .35)}]
= Tk. 73,485
Defer receipts after one year = I(1 − Tr2 )
= Tk. 1,10,000 (1 − .35)
= Tk. 1,10,000×.65
= Tk. 71,500
Comment: We should take receipt now, do not defer because it is worth more.
Required—(d): Calculation of indifferent tax rate:
We know that,
Indifferent Income Tax Rate : I(1 − Tr)[1 + {r(1 − 𝐓𝐫𝟐 )}] = I(1 − 𝐓𝐫𝟐 )
⇒ 1,00,000 (1 − .31)[1 + {. 10 (1 − Tr2)}] = 1,10,000(1 − Tr2)
⇒ (1,00,000 × 0.69)[1 + {. 10 (1 − Tr2)}] = 1,10,000(1 − Tr2)
⇒ 69,000 [1 + {. 10 (1 − Tr2)}] = 1,10,000(1 − Tr2)
⇒ 69,000 + 69,000 {.10 (1 − Tr2)} ] = 1,10,000(1 − Tr2)
⇒ 69,000 + 69,000 {.10 − 0.10Tr2)} ] = 1,10,000(1 − Tr2)
⇒ 69,000 + 6900 − 6900Tr2)} ] = 1,10,000 − 1,10,000 Tr2)
⇒ 69,000 + 6900 − 1,10,000 = −1,10,000 Tr + 6900Tr2
⇒ −34,100 = −103,100Tr2
−34,100
⇒ −1,03,100 = Tr2
⇒ 0.3307 = Tr2
⇒Tr2 = 33%
Problem-3:
Suppose a taxpayer invests $1,00,000 in a partnership. The taxpayer faces a personal tax rate of 70% and a tax
rate on capital gains of 30%. In the first year, the partnership spends the entire $1,00,000 on research, which the
taxpayer can claim as a deduction against other income. In the second year the partnership sells the developed
technology, and the taxpayer’s share of the sale price is $50,000, which is taxed as a capital gain. (Ignore the
time value of money in your answer).
a. What is the pretax rate of return to the taxpayer?
b. What is the after-tax rate of return to the taxpayer?
Solution:
Given that,
Partnership spends = 1,00,000
Capital gain = 50,000
Tp = 70%
Tr = 30%

Capital gain−Partnership Spends

a. Pre-Tax Rate of return (R) = Partnership Spends
× 100
50,000−1,00,000
= 1,00,000
× 100
= −50%
Capital gain (1−Tr)
b. After tax rate of return (R) ={ − 1} × 100
Partnership Spend (1−Tp)
50,000 (1−0.30)
= {1,00,000 (1−0.70) − 1} × 100
= 16.67%

Leo Marten Jony Sir, BBS Hons (Accounting)-1st Class, MBS (Accounting)-DC
Writer: Principles of Accounting, Management Accounting and Cost Accounting. Mobile: 01915-87 68 61
 3

Chapter-2
Intertemporal Tax Planning
Problem C-1: A Taxpayer can invest Tk. 1,000 in a money market fund that yields an annual pretax
rate of return of 8%, or buy an acre of land for Tk. 1,000 that appreciates at a 7% annual rate. The
taxpayer plans to sell the land after 20 years and faces a 25% tax rate each year.
(a) What is the after-tax accumulation at the end of 20 years and faces a 25% tax rate each year?
(b) What is the annualized after-tax rate of return from-each investment?
Solution:
Req-(a): After Tax Accumulation:
For Money Market:
ATA = I[1 + R(1 − Tr)]n
= 1,000[1 + 0.08(1 − 0.25)]20
= Tk. 3,207
For Land Market:
ATA = I(1 + R)n (1 − Tr) + (Tr × I)
= 1,000(1 + .07)20 (1 − 0.25) + (0.25 × 1,000)
= Tk. 3,153

Req-(b): After Tax Rate of return:

For Money Market:
ATR = R(1 − Tr)
= 0.08(1 − 0.25)
= 6%
1
ATR = [(1 + R)n (1 − Tr) + Tr]n − 1
1
= [(1 + 0.07)20 (1 − 0.25) + 0.25]20 − 1
=7%
Problem C-3: MBA (NU)-2014
Calculate after Tax Accumulation (ATA) Considering following Information-
(i) Chaina Bangla Food Ltd. Invested Tk. 20,000 in money market for 10 year that yields 8% return.
Tax Rate is 45%.
(ii) The Company invested in SPDA Tk. 50,000 for 15 years that gives 10% return each year. Tax
Rate 40%.
(iii) The company invested Tk. 25,000 in mutual fund for 10 years which gives 15% return each
year. Tax Rate 30% (Capital Gain Tax Rate).
(iv) The company invested Tk. 50,000 in foreign subsidiary fund that appeases 12% annual return.
Investment period 20 years and tax rate 50% (Capital Gain Tax Rate).
(v) The company invested Tk. 20,000 in insurance policy fund which gives annual 10% return and
investment holding period 15 years. Tax rate 40%.
Solution:
Requirement
Vehicle -i ATA = I[1 + R(1 − Tr)]n
(i) = 20,000[1 + 0.08(1 − 0.45)]10
= Tk. 30,763
Vehicle -ii ATA = 𝐈(𝟏 + 𝐑)𝐧 (𝟏 − 𝐓𝐫) + (𝐓𝐫 × 𝐈)
(ii) = 50,000(1 + 0.10)15 (1 − 0.40) + (0.40 × 50000)
= Tk. 1,45,317
n
Vehicle - ATA = I[1 + R(1 − Tcg )]
(iii) iii = 25,000[1 + 0.15(1 − 0.30)]10

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= Tk.67,852
Vehicle - ATA = I(1 + R)n (1 − Tcg ) + (Tcg × I)]
(iv) iv = 50,000(1 + 0.12)20 (1 − 0.50) + (0.50 × 50,000)]
= Tk. 2,66,157
Vehicle - ATA = I(1 + R)n
(i) V = 20,000(1 + 0.10)15
= Tk. 83,545
Problem C-4: Arafat and sons, Dhaka, purchased an asset on 1st March, 2012. He sold out it on 30th
June, 2015 at Tk. 12,50,000. Its Cost Was Tk. 10,00,000 when Purchased. Its allowed depreciation up
to the date of sell was Tk. 1,10,000. As at January, 2014, for increasing its capacity, an important part
was replaced by Tk. 70,000. His income from other sources was Tk. 3,00,000. Determine total
income for the income year 2014-2015.
Solution:
1. Calculation of Capital Gain:
Tk. Tk.
Sales value of Assets 12,50,000
Less: Purchase value of Assets 10,00,000
Add: Capital Cost 70,000 10,70,000
Capital gain 1,80,000
2. Calculation of Profit
Tk. Tk.
Sales value of Assets 12,50,000
Less: Depreciable value:
Purchase Price 10,00,000
Less: Depreciation 1,10,000 8,90,000
Gross Profit 3,60,000
Less: Capital Gain 1,80,000
Profit from Business 1,80,000
Add: Other Income 3,00,000
Total Profit before Capital Gain 4,80,000
Add: Capital Gain 1,80,000
Total Profit/Taxable Income 6,60,000

Aa¨vq-3 (K‡c©v‡iU K‡ii djvdj)

Problem C-6: N.U. (MBA Final) Accounting-2015
Following is the income statement of Bimal and Brothers' Company for the year ended on 30 June
2020:-
Particulars Taka Particulars Taka
Salaries 3,00,000 Gross profit 15,00,00
0
General expenses 1,60,000 Profit on sale of Machinery 20,000
Director fees 14,000 Transfer fees 10,000
Audit fees 5,000 Profit on reissue of shares 15,000
Under Writing Commission 20,000 Dividend income 25,000
Contribution to staff provident fund 10,000 Bank interest 4,500
Repairs of Machinery 5,000
Research Expenses 6000
Traveling Expenses 6,000
Donation 10,000

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Writer: Principles of Accounting, Management Accounting and Cost Accounting. Mobile: 01915-87 68 61
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Commission 3,000
Fire insurance premium 5,000
Interest on debenture 10,000
Debenture redemption 12,000
Managing Agent commission 15,000
Loss on sale of securities 4,000
Reserve for Bad Debts 30,000
Income Tax Reserve 40,000
Fines and Penalties 6,500
Net income 9,04,000
15,74,500 15,74,500
Additional information:
(a) General expenses include Tk. 15,000 as preliminary expenses and Tk. 5,000 as cost of
construction of workman's canteen.
(b) Salaries included Tk. 10,000 paid as pension to retired manager.
(c) Depreciation as per income tax rules amounts to Tk. 10,000.
(d) A sum of Tk. 1,000 in respect of travelling expenses is not support by legal vouchers.
(e) A sum of Tk. 12,000 written off in the past as bad debt and allowed previously was recovered in
the year.
(f) Commission include Tk. 1,500 as secret commission paid to the Managing Director.
(g) Percentage of dividend declared by the company is 5% cash and 10% stock dividend.
Compute the total income and tax liability of the company.
Solution:
Calculation of Taxable Income
Tk. Tk.
Net Profit as per income Statement 9,04,000
Add: Inadmissible expenses (Abby‡gvw`Z e¨q/ †h e¨q Aby‡gvw`Z bq wKš‘
jvf-‡jvKmvb wn‡m‡e †WweU Kiv n‡q‡Q| )
Preliminary expenses 15,000
Cost of construction of workman's canteen 5,000
Travelling expenses 1,000
Secret commission 1,500
Under Writing Commission 20,000
Donation 10,000
Debenture redemption 12,000
Loss on sale of securities 4,000
Reserve for Bad Debts 30,000
Income Tax Reserve 40,000
Fines and Penalties 6,500 1,45,000
10,49,000
Less: Admissible expenses (Aby‡gvw`Z e¨q/ †h mKj Aby‡gvw`Z e¨q jvf -
‡jvKmvb wn‡m‡e †WweU Kiv nqwb|)
Depreciation 10,000
10,39,000
Add: Business Income:
Recovery of bad Debt 12,000
10,51,000
Less: Non-Business Income:
Profit on sale of Machinery 20,000
Transfer fees 10,000
Profit on reissue of shares 15,000

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Writer: Principles of Accounting, Management Accounting and Cost Accounting. Mobile: 01915-87 68 61
 6

Dividend income 25,000

Bank interest 4,500 74,500
9,76,500
Add: Non-Business Income:
Profit on sale of Machinery 20,000
100
Dividend income (25,000 × 80 ) 31,250

Bank interest (4,500 ×

10
) 5,000 50,000
9
Taxable Income 10,26,500
General Tax Liabilities
% Tk.
Taxable Income other the Capital gain and dividend 30%
(10,26,500 − 25,000) =10,01,500
Dividend Income of Tk. 31,250 20%
Total tax Liabilities
Less: Tax for source:
Dividend 5,000
Bank interest (5,000 − 4,500) 500
Tax Payable
Problem C-7: D.U. (MBA Final) Accounting-2016
The income statement for the year ended June 30, 2020 of Robin Ltd is given below:
Income Statement
Particulars Tk. Tk.
Gross profit 1,00,00,000
Dividends 5,00,000
Share transfer fee 1,00,000
Gain on sale of machine 4,00,000
Total income 1,10,00,000
Less: Expenses:
Salaries 20,00,000
Commission 1,00,000
Office rent 10,00,000
Donation 4,00,000
Advertisement 8,00,000
Interest on loan 3,00,000
Provisions for debts 3,00,000
Trademarks 5,00,000
Audit fee 3,00,000
Legal expenses 3,00,0000
Income tax 6,00,000
Share discount 2,50,000
Fine & penalty 3,00,000
Loss on embezzlement 2,00,000
Dividend equalization fund 2,00,000
Depreciation 4,00,000
Total expenses 79,50,000
Net Income 30,50,000
Additional information:
(i) The advertisement expenses were made for five years.
(ii) Allowable depreciation as per tax rule Tk. 3,00,000.
(iii) The salaries include Tk. 3,00,000 as a contribution to recognized provided fund.

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Writer: Principles of Accounting, Management Accounting and Cost Accounting. Mobile: 01915-87 68 61
 7

(iv) The company sold machine for Tk. 9,00,000. The initial cost of the machine Tk. 6,50,000 with
written down value of Tk. 5,00,000.
(v) The company is not a publicly traded company.
Required: Calculate the total income and tax liability of the company.
Solution:
Workings:
Capital gain = (9,00,000 − 6,50,000) = Tk. 2,50,000
Revenue gain = (6,50,000 − 5,00,000) = Tk. 1,50,000
Calculation of Taxable Income
Tk. Tk.
Net Profit as per income Statement 30,50,000
Add: Inadmissible expenses (Abby‡gvw`Z e¨q/ †h e¨q Aby‡gvw`Z bq wKš‘
jvf-‡jvKmvb wn‡m‡e †WweU Kiv n‡q‡Q| )
Differed Advertisement expenses (8,00,000 × )
4 6,40,000
5
Depreciation 4,00,000
Donation 4,00,000
Provisions for debts 3,00,000
Trademarks 5,00,000
Income tax 6,00,000
Share discount 2,50,000
Fine & penalty 3,00,000
Loss on embezzlement 2,00,000
Dividend equalization fund 2,00,000 37,90,000
68,40,000
Less: Admissible expenses (Aby‡gvw`Z e¨q/ †h mKj Aby‡gvw`Z e¨q jvf -
‡jvKmvb wn‡m‡e †WweU Kiv nqwb|)
Depreciation 3,00,000
65,40,000
Less: Non-Business Income:
Dividends 5,00,000
Share transfer fee 1,00,000
Gain on sale of machine 4,00,000
10,00,000
55,40,000
Add: Revenue Profit:
Gain on Sales of Assets 1,50,000
56,90,000
Add: Non-Business Income:
Dividends 5,00,000
Gain on sale of machine (capital gain) 2,50,000
7,50,000
Taxable Income 64,40,000
General Tax Liabilities
% Tk.
Taxable Income other the Capital gain and dividend 19,91,500
35%
(64,40,000 − 2,50,000 − 5,00,000) = 56,90,000
Dividend Income of Tk. 5,00,000 20% 1,00,000
Capital gain of Tk. 2,50,000 15% 37,500
Total tax Liabilities 21,29,000

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Writer: Principles of Accounting, Management Accounting and Cost Accounting. Mobile: 01915-87 68 61
 8

Less: Tax for source:

Dividend 1,00,000
Tax Payable 20,29,000

Problem-C11: N.U. (MBA Final) Accounting-2015.

Real Tech expects earnings before interest and taxes (EBIT) of Tk.12,00,000 every year into
propriety. The firm currently has no debt but it can borrow at 12 percent per annum. Firms cost of
equity (Keu) is 22% and corporate tax rate is 36%.
(a) Find out the value of the firm
(b) What will the value of real Tech be if it borrows Tk.10,00,000 and uses the proceeds to repurchase
equity.
Solution:
EBIT (1−T)
1. Value of Unleveled firm (𝐕𝐔 ) = Keu/K
0
12,00,000(1−0.36)
=
0.22
= Tk. 34,90,909
2. Value of levered firm (VL) = VU + (Debt × T)
= 34,90,909+(10,00,000 × 0.36)
= Tk. 38,50,909

Formula:
TC (r×D)
(a) Pv of tax Shield = (1+r)
(Single Amount/year)
TC (r×D) 1
(b) Pv of Tax Shield = r
× {1 − (1+𝑟)𝑛 } (Installment/long term)
TC (r×D)
(c) Pv of Tax Shield = (Perpetual)
r
Problem C-13: N.U. (MBA Final) Accounting 2014
Determine the present value of interest tax shields generated by the following three debt issues.
The marginal tax rate is Tc = 0.40
(a) Tk. 2,000 one-year loan at 10%;
(b) Six years loan of Tk. 2,000 at 10%. Assume no principal is repaid until maturity.
(c) Tk. 2,000 perpetuity at 10%.
Solution:
T (r×D)
(a) Pv of tax Shield = C(1+r)
0.40(0.10×2,000)
= (1+0.10)
= Tk.72.73 (ans)

TC (r×D) 1
(b) Pv of Tax Shield = r
× {1 − (1+𝑟)𝑛 }
0.40(0.10×2,000) 1
= 0.10
× {1 − (1+0.10)6 }
= Tk. 348.42 (Ans)
T (r×D)
(c) Pv of Tax Shield = Cr
0.40(0.10×2,000)
= 0.10
= Tk. 800 (ans)
Problem C-14: N.U. (MBA Final) Accounting 2016
Glaxo BD Ltd has Tk. 16,00,000 debt. Their expected net operating income is Tk. 5,20,000. Rate of
interest is 8%, overall cost of capital is 13%. The company has 5,000 ordinary shares. You are asked
to determine:

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Writer: Principles of Accounting, Management Accounting and Cost Accounting. Mobile: 01915-87 68 61
 9

(i) Market value the firm.

(ii) Market value of the equity.
(iii) Cost of equity
(iv) Market price per share
Solution:
Given that,
Debt (B) = Tk. 16,00,000
EBIT (Net Profit) = Tk. 5,20,000
K d (cost of Debt) = 0.08
K 0 (overall cost) = 0.13
N = 5,000 Shares
I (Interest) = (16,00,000 × 8%)
= Tk. 1,28,000

EBIT
(i) Value of the firm (V) = K0
5,20,000
= 0.13
= Tk. 40,00,000
(ii) Market value of the equity
(S) = V−B
= 40,00,000−16,00,000
= Tk.24,00,000
(iii) Cost of equity
EBIT−I
Ke = S
5,20,000−1,28,000
= × 100
24,00,000
= 16.33%
S
(iv) Market price per share (MPPS) =
N
24,00,000
= = Tk. 480 (Ans)
5,000

Chapter-5
(Non-tax Costs of tax planning)
Formula:
(i) Profit after tax = I (1 −T)
(ii) Tax Payable = I × T
(iii) Pre-tax profit/Profit = Investment × IRR
Profit before tax
(iv) Pre-tax profit rate = Investment × 100
Profit after tax
(v) After-tax profit rate = Investment × 100
If 50% Change of profit and 50% Change of Loss
1 1
(vi) Pre-tax profit = (Profit × 2) + (Loss × 2)
1 1
(vii) After-tax profit = [Profit(1 − T) × 2] + [Loss(1 − T) × 2]
Here,
T = Tax Rate.
I = Income before tax.
IRR = Internal rate of return.

Problem B-1: N.U. (MBA Final) Accounting-2014

Leo Marten Jony Sir, BBS Hons (Accounting)-1st Class, MBS (Accounting)-DC
Writer: Principles of Accounting, Management Accounting and Cost Accounting. Mobile: 01915-87 68 61
 10

XYZ Company has Tk. 3,00,000 to invest. If taxable income is positive then tax rate is 30% and tax rate is 0%
when taxable income is negative. There are two projects i. e. (i) Riskless that yielding fixed income Tk. 40,000
and (ii) Risky project that yielding Tk. 2,00,000 profit half the time and a loss of Tk. 1,00,000 half the time.
Required :
(a) Calculate pre-tax profit of both projects;
(b) Calculate after-tax profit of both projects.
Solution:
Req-(a): Pre-tax profit of both projects
Project-(i):
Pre-Tax Profit = Tk. 40,000
Project-(ii):
1 1
Pre-tax profit = (Profit × 2) + (Loss × 2)
1 1
= (2,00,000 × 2) + (−1,00,000 × 2)
= Tk. 50,000
Req-(b): After-tax profit of both projects.
Project-(i): Profit after tax = I (1 −T)
= 40,000 (1 − 0.30)
= Tk. 28,000
Project-(ii):
1 1
After-tax profit = [Profit(1 − T) × 2] + [Loss(1 − T) × 2]
1 1
= [2,00,000(1 − 0.30) × ] + [−1,00,000(1 − 0) × ]
2 2
= Tk. 90,000.
Problem C-6: N.U. Affiliated (MBA Final) Accounting-2017
M company has Tk. 40 lacs to invest. There are two projects. A is risk less yielding a certain profit 20%.
Another project B is risky, yielding a profit of Tk. 40,00,000 half the time and a loss of Tk. 30,00,000. The
corporate tax rate 40%.
Requirement:
(i) What is the pre-tax profit of A and B project?
(ii) What is the pre-tax profit rate of both project?
(iii) What is the after-tax profit of both project?
(iv) What is the after-tax profit rate of both project?
(v) Total tax payable and which project M Company should invest?
Solution:
Given that,
Investment (I) = Tk. 40,00,000
Req-(i): Pre-Tax Profit of both Project:
Project -A = Investment ×IRR
= 40,00,000×20%
= Tk. 8,00,000
1 1
Project-B = (Profit × 2) + (Loss × 2)
1 1
= (40,00,000 × 2) + (−30,00,000 × 2)
= Tk. 5,00,000

Req-(ii): Pre-tax profit rate of both project:

Profit before tax
Pre-tax profit rate = Investment × 100
8,00,000
Project-A = 40,00,000 × 100
= 20%
5,00,000
Project-B = 40,00,000 × 100
= 12.50%

Req-(iii): The after-tax profit of both project:

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 11

Project-A = I (1 −T)
= 8,00,000(1 − 0.40)
= Tk.4,80,000
1 1
Project-B = [Profit(1 − T) × 2] + [Loss(1 − T) × 2]
1 1
= [40,00,000(1 − 0.40) × 2] + [−30,00,000(1 − 0) × 2]
= − 3,00,000
Req-(iv): After-tax profit rate of both project:
Profit After tax
Pre-tax profit rate = Investment × 100
4,80,000
Project-A = 40,00,000 × 100
= 12%
3,00,000
Project-B = × 100
40,00,000
= 7.50%

Req-(v) Total tax payable:

Tax Payable =I×T
Project-A = 8,00,000 × 40% = Tk. 3,20,000
1
Project-B = (40,00,000 × ) × 40% = Tk. 8,00,000
2
Decision: Project-A Should be selected.
Problem C-2: D.U. Affiliated (MBA Final) Accounting-2015
The Orpita Ltd. has Tk. 2,00,000 to invest. There are two projects. Project-A is riskless yielding a certain profit
of 20%. The alternative project - B is risky, yielding a profit of Tk. 2,00,000 half of the time and a loss of Tk.
1,50,000 for rest of the time. The corporate tax rate is 40%.
Required :
(i) Calculate Pretax profit for both the projects;
(ii) Calculate Pretax profit rate for both the projects;
(iii) Calculate after tax profit for both the projects;
(iv) Calculate after tax profit rates for both the projects;
(v) Calculate tax payable.
(vi) Recommend in which project the Orpita Company should invest?
Solution:
Req-(i):
Pretax profit for both the projects:
Project A:
Profit = I × IRR
= 2,00,000 × 20%
= Tk. 40,000.
Project-B:
1 1
Pre-tax profit = (Profit × 2) + (Loss × 2)
1 1
=(2,00,000 × ) + (−1,50,000 × )
2 2
= 1,00,000−75,000
= Tk. 25,000
Req-(ii)
Profit before tax
We know, Pre-tax profit rate = Investment
× 100
40,000
Project -A = × 100
2,00,000
= 20%
25,000
Project -B = 2,00,000 × 100

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= 12.50%
Req-(iii):
After Tax Profit:
Project A:
Profit = I(1 − T)
= 40,000(1 − 0.40)
= Tk. 24,000.
Project-B:
1 1
After-tax profit = {Profit (1 − T) × 2} + {Loss(1 − T) × 2}
1 1
= {2,00,000 (1 − 0.40) × } + {−1,50,000(1 − 0.40) × }
2 2
= Tk. 15,000.

Req-(iv): Profit rate After Tax:

Profit After tax
We know, Pre-tax profit rate = Investment
× 100
24,000
Project -A = 2,00,000 × 100
= 12%
15,000
Project -B = 2,00,000 × 100
= 7.50 %
Req-(v): Tax Payable =𝐈×𝐓
Project-A = 40,000 × 40%
= Tk. 16,000
Project-B = (25,000 × 40%)
= Tk. 10,000
Req-(vi): As Profit of Project-A is Higher, so it should be selected.

Problem C-1: N.U. (MBA Final) Accounting-2016

Mum Ltd. has the following purchase at various costs for 2017 :—
Month Units Unit cost
January 1,250 Tk. 10
February 1,000 Tk. 15
April 1,000 Tk.20
October 850 Tk. 25
The company sold its units at Tk. 45 each on the following months :
Month Units Selling Price P.U.
March 750 Tk. 45
May 950 Tk. 45
June 800 Tk. 45
December 100 Tk. 45
Assume the company faces a marginal tax rate of 30%. If labor cost is Tk. 10,000 for sales, you are to
calculate-:
(a) Taxable income and taxes payable under FIFO method.
(b) Taxable income and taxes payable under LIFO method.
(c) Which method the company should accept and why?
Solution:
Req-(a):
Calculation of cost unit sold Under FIFO Method
Purchase Cost of goods sold Balance
Date Account Titles
Unit Rate Tk. unit Rate Tk. unit Rate Tk.
Jan Purchase 1250 10 12,500 1,250 10 12,500

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Feb Purchase 1000 15 15,000 1,250 10 12,500

1,000 15 15,000
Mar Issue 750 10 7,500 500 10 5,000
1,000 15 15,000
April Purchase 1,000 20 20,000 500 10 5,000
1,000 15 15,000
1,000 20 20,000
May Issue 500 10 5,000 550 15 8,250
450 15 6,750 1,000 20 20,000
June Issue 550 15 8,250
250 20 5,000 750 20 15,000
Oct Purchase 850 25 21,250 750 20 15,000
850 25 21,250
Dec Issue 100 20 2,000 650 20 13,000
850 25 21,250
4100 68,750 2600 34500 1,500 34,250

Calculation of Taxable Income and Tax Payable:

Tk.
Sales (2600 × 45) 1,17,000
Less: Cost of goods sold 34,500
Gross Profit 82,500
Less: Labor Cost 10,000
Taxable Income 72,500
Tax Payable =I×T
= 72,500 × 30%
= 21,750
Req-(b)
Calculation of cost unit sold Under LIFO Method
Purchase Cost of goods sold Balance
Date Account Titles Unit Rate Tk. unit Rat Tk. unit Rate Tk.
e
Jan Purchase 1250 10 12,500 1,250 10 12,500
Feb Purchase 1000 15 15,000 1,250 10 12,500
1,000 15 15,000
Mar Issue 750 15 11,250 1,250 10 12,500
250 15 3,750
April Purchase 1,000 20 20,000 1,250 10 12,500
250 15 3,750
1,000 20 20,000
May Issue 950 20 19,000 1250 10 12,500
250 15 3,750
50 20 1,000
June Issue 50 20 1,000
250 15 3,750
500 10 5,000 750 10 7,500
Oct Purchase 850 25 21,250 750 10 7,500

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850 25 21,250
Dec Issue 100 25 2,500 750 10 7,500
750 25 18,750
4100 68,750 2600 42,500 1500 26,250
Calculation of Taxable Income and Tax Payable:
Tk.
Sales (2600 × 45) 1,17,000
Less: Cost of goods sold 42,500
Gross Profit 74,500
Less: Labor Cost 10,000
Taxable Income 64,500
Tax Payable =I×T
= 64,500 × 30%
= 19,350 (Ans)
Req-(c): As the Profit under FIFO Method is higher, so it should be taken.

Chapter -6 (cÖvwšÍK Ki nvi)-MTR

Formula:
Total Tax Liabilities
1. Average Tax Rate (ATR) = × 100
Total Taxable Income
Change in Tax Expenses
2. Marginal tax rate (MTR) = × 100
Change in Income
3. Net profit after tax = Taxable income − Total tax liability
Current Year Taxes
4. Effective Tax Rate (ETR) = × 100
Net Income
Current Year Taxes+deffered tax
5. Effective Tax Rate (ETR) = × 100
Net Income

Problem B-18: N.U. Affiliated (MBA Final) Accounting-2014

Zahin Ltd paid tax Tk. 10,000 for taxable income Tk. 1,00,000 and paid tax for taxable income Tk.
18,000 for next taxable income Tk. 1,20,000.
Required:
(a) Total taxable Income.
(b) Total tax liability.
(c) Average tax rate.
(d) Marginal tax rate.
Solution:
Req-(a): Total taxable income = 1,00,000 + 1,20,000
= Tk. 2,20,000
Req-(b): Total Tax Liabilities = 10,000 + 18,000
= Tk. 28,000
Total Tax Liabilities
Req-(c): Average Tax Rate = × 100
Total Taxable Income
28,000
= 2,20,000 × 100
= 12.73%
Change in Tax Expenses
Req-(d): Marginal tax rate = × 100
Change in Income

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18,000
= 1,20,000 × 100
= 15%
Or
Change in Tax Expenses
Req-(d): Marginal tax rate = × 100
Change in Income
18,000−10,000
= × 100
1,20,000−1,00,000
= 40%

Problem B-14: ABC Ltd. has following Information:

Taxable Income Taxes
Tk. 80,000 Tk. 8,000
Tk. 1,00,000 Tk. 12,000
Req.: Calculate Marginal Tax rate & Average Tax rate Income Tk. 1,00,000.
Solution:
Change in Tax Expenses
Marginal tax rate (MTR) = Change in Income × 100
12,000−8,000
= 1,00,000−80,000 × 100
= 20%

Total Tax Liabilities

1. Average Tax Rate (ATR) = × 100
Total Taxable Income
12,000
= 1,00,000 × 100
= 12%
Problem C-3: D.U. Affiliated (MBA Final) Accounting-2015
PQR Ltd. Purchase 4 Titles of assets namely O, P, Q & R. Which cost as follows:
Assets O P Q R
Price 1,00,000 1,20,000 1,50,000 1,60,000
After few months the company sold all times of assets at:
15% profit on assets—O 20% profit on assets—P
10% profit on assets—Q 14% profit on assets—R
Required: a. Calculate the Capital Gain.
b. Calculate the gain tax. If tax rate 40%.
Solution:
Req-(a) and (b)
Calculate the Capital Gain and gain tax.
Assets Capital Gain Gain Tax @40%
O 1,00,000 × 15% = 15,000 (15,000×40%) = 6,000
P 1,20,000 × 20% = 24,000 (24,000×40%) = 9,600
Q 1,50,000 × 10% = 15,000 (15,000×40%) = 6,000
R 1,60,000 × 14% = 22,400 (22,400×40%) = 8,960
Total = 30,560
Or
Req-(a):
Calculate the Capital Gain and gain tax.
Assets Sales Value Cost Price Gain
O 1,00,000× 115% = 1,15,000 1,00,000 15,000
P 1,20,000× 120% = 1,44,000 1,20,000 24,000
Q 1,50,000 × 110% = 1,65,000 1,50,000 15,000

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R 1,60,000 × 114% = 1,82,400 1,60,000 22,400

Req-(b):
Assets Gain Gain Tax @40%
O 15,000 (15,000×40%) = 6,000
P 24,000 (24,000×40%) = 9,600
Q 15,000 (15,000×40%) = 6,000
R 22,400 (22,400×40%) = 8,960
Total = 30,560

Problem B-11: Walton Ltd. sales its legal product 300 per unit. Total sales unit 40,000; Variable
cost per unit Tk. 200. Fixed operating exp. Tk. 90,000. Interest expense Tk. 30,000.
Required:
(i) Calculate taxable income.
(ii) Calculate total tax.
(iii) Calculate Average tax rate.
(iv) Which rate is marginal tax rate. Assuming applicable tax rate will be as follows:
Income Applicable Tax
0 - 3,00,000 10%
3,00,001 − 8,00,000 15%
8,00,001 − 16,00,000 20%
Above Tk. 16,00,000 30%
Solution:
(i) Calculate taxable income.
Income Statement
Tk
Sales (40,000 × 300) 1,20,00,000
Less: VC (40,000 × 200) 80,00,000
CM 40,00,000
Less: Fixed operating exp 90,000
EBIT 39,10,000
Less: Interest 30,000
Net Income/ Net profit before tax 38,80,000
(ii) Calculate total tax
Range Tax Tax Amount (Tk)
Rate
1st Tk. 3,00,000 10% 30,000
nd
2 Tk.5,00,000 15% 75,000
rd
3 Tk. 8,00,000 20% 1,60,000
Rest (38,80,000 − 16,00,00) =Tk. 22,80,000 30% 6,84,000
Total = Tk. 9,49,000
Total Tax Liabilities
(iii). Average Tax Rate (ATR) = Total Taxable Income × 100
9,49,000
= × 100
38,80,000
= 24.46%.
(iv) MTR: As Taxable income lies in the range of Over Tk.16,00,000 therefore MTR = 30%.

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Writer: Principles of Accounting, Management Accounting and Cost Accounting. Mobile: 01915-87 68 61
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Problem B-17: Emu Auto Ltd. has taxable income Tk. 92,500 the corporate tax system explains that
Tk. 13,750 is paid for Corporate income Tk. 75,000 and 34% tax rate should be applied on remaining
taxable income.
Req.
(i) What is total tax liability?
(ii) Calculate after tax earnings.
(iii) Calculate Average tax rate.
(iv) What is marginal tax rate?
Solution:
Req-(i): Total tax Liabilities = 13,750 + (92,500 − 75,000) × 34%
= Tk. 19,700
Req-(ii) After tax earnings = 𝟗𝟐, 𝟓𝟎𝟎 − 𝟏𝟗, 𝟕𝟎𝟎
= Tk. 72,800
Total Tax Liabilities
Req-(iii) Average tax Rate = × 100
Total Taxable Income
19,700
= 92,500 × 100
= 21.30%
Change in Tax Expenses
Req-(iv): Marginal tax rate = × 100
Change in Income
13,750−5,950
= × 100
75,000−17,500
= 13.56%

Problem B-5: The X Ltd. has two types of Investment:

Project-A Project-B
Investment Tk. 4,00,000 5,00,000
Investment revenue 50,000 -
Dividend revenue - 70,000
Assume 60% dividend revenue is taxed. The common expenses of both investment maintenance Tk.
4,000. Req. (i): Calculate corporate tax if rate 40%.
Solution:
Calculation of Taxable Income:
Project-A Project-B
Investment revenue 50,000 -
Dividend revenue - 70,000
Less: Maintenance Cost 4,000 4,000
Income 46,000 66,000
Taxable Income:
Project-A = Tk. 46,000.
Project-B = Tk. 66,000×60%
= Tk. 39,600
Calculate corporate tax:
Project-A = 46,000 × 40% = Tk. 18,600.
Project-B = 39,600 × 40% = Tk. 15,840.

Leo Marten Jony Sir, BBS Hons (Accounting)-1st Class, MBS (Accounting)-DC
Writer: Principles of Accounting, Management Accounting and Cost Accounting. Mobile: 01915-87 68 61