Question

a- A tax payer acquires an asset through manufacturing it and he incurred the following costs: direct material SR 100,000, direct labor SR 50,000 and manufacturing overhead SR 50,000. After 3 years the taxpayer disposed of that assets for SR250,000 cash

Required: Compute the taxable gain or loss.

b- A tax payer acquired a non-depreciable asset for SR 200,000 and he incurred subsequent expenses for SR 30,000 to alter and improve that asset, after 2 years the tax payer disposed of that asset for SR 215,000 cash.

Required: Compute the taxable gain or loss.

c- A tax payer acquired an asset for SR 100,000 and subsequently he disposed of that assets as a gift.

Required: how much is taxable gain if the market value of that assets at date of disposing for SR120,000.

d- A tax payer acquired an asset for SR 150,000 through borrowing and he subsequently disposed of that assets when the market value of the asset was SR 140,000 and value of the debt was SR 150, 000.

Required: Compute the taxable gain or loss.

e- A tax payer incurred expenses of SR 75,000 to purchase equipment used for research and development and incurred Research and development expenses connected with the earning of taxable of SR 50,000.

Required: which of the two expenses are deductible under Saudi Tax law?

Answer 1

a. Discription of Asset is not given so it is assumed that it falls in 10% bracket (All other tangible or intangible assets not included in previous categories, such as furniture, planes, ships and trains, and goodwill)

Total cost for manufacturing Machine = SR 2,00,000

Cost of Machinery in 1st Year = SR 2,00,000

Less: Depreciation @ 10% = SR 20,000

Value of Machinery in 2nd Year= SR 1,80,000

Less: Depreciation @ 10% = SR 18,000

Value of Machinery in 3rd Year = SR 1,62,000

Less: Depreciation @ 10% = SR 16,200

Value of Machinery at the end of 3rd year = SR 1,45,800

Machinery sold at SR 2,50,000

Value of Machinery after 3 years = SR 1,45,800

Gain/(loss) = Sale Value Less Value of Machiery after 3 years

= SR 2,50,000 Less SR 1,45,800

= SR 1,04,200

b. Computation of taxable gain or loss

Non depreciable Asset = SR 2,00,000

Add: Expenses incurred = SR 30,000

Total Cost of Asset = SR 2,30,000

After 2 years Asset was disposed off at SR 2,15,000

Gain/(loss) = Sale Value Less Non depreciable Asset

= SR 2,15,000 Less SR 2,30,000

= SR 15,000 (Loss)

c. Computation of taxable gain:

Value of Asset disposed off as Gift = SR 1,00,000

Market Value at the time of Disposal = SR 1,20,000

Taxable gain = SR 20,000 (SR 1,20,000 Less SR 1,00,000)

d. Computation of taxable gain/loss:

Asset acquired at SR 1,50,000 (through Borrowing)

Less : Asset Sold at SR 1,40,000 (Repaid borrowed amount of SR 1,50,000)

Gain/(loss) = SR 10,000 (loss)

e. Which of two expenses are deductible under Saud Tax Law:

A deduction is allowed for R&D expenditure incurred during the tax year in connection with the generation of income that is subject to tax. Therefore, allowable expense is SR 50,000.

Expenses incurred for acquisition of land and facilities, or to equipment used for research are NOT ALLOWABLE. Such facilities and equipment are subject to depreciation under the law.