Question

At the end of the year 2018, Mr. Basam Hamed Al Hinai takeover his father’s business (sole trader) of trading Iron & Steel in Dank. For the year ended 31st Dec 2019, Income Statement shows a gross earnings (i.e., Gross Profit) of OR 110,000 and net earnings (i.e., Net Profit) of OR 42,000. As he was new to the accounting records, he made couple of errors in recording the business transactions.During the year Mr. Basam purchase a molding machine (to fulfill the requirements of different shapes and sizes of Iron sheets & rods of the customers in Dank) and a constructed warehouse (for storing the business inventory) on 1st January 2019. Both these purchases are treated differently in the books of accounts. He imported a moldings machine from Germany worth OR 5,500 and paid OR 500 towards its installation. He expensed the whole amount in his income statement. He spends OR 20,000 towards the purchase of a concrete building for storing his raw material and charged 10% depreciation on it in the Income Statement. As per Oman Tax Laws, molding machine shall be referred as heavy equipment and purchased concrete building shall be considered as permanent buildings. For transportation of Iron & Steel to and from various parts of Oman, Mr. Basam has transportation vehicle worth OR 15,000 at the beginning of this year. He has a practice of charging 15% depreciation on such assets in his accounting records.

One of Basam’s customer Mr. Mohammed has gone bankruptcy in the previous year and accountant has declared an amount of OR 1,000 as bad debts and deducted from the books in that year. In the current year Mr. Mohammed sold some of his property and settled all his debts including Mr. Basam’s one. But, Mr. Basam did not record this recovery in his books in the current year. To expand his business beyond Dank, Mr. Basam inaugurated a new shop outlet in Yanquel and incurred an expense OR 8,000 towards this. However, it is expected that an amount of OR 6,000 is considered as appropriate for the inauguration expenses as per the Oman Tax Laws. Due to lack of knowledge of Oman Tax Laws, Mr. Basam’s father did not settle any of the losses he incurred in the previous years. After detailed internal audit of previous years’ financial statements, he realized a loss of OR 1,500 in the year 2014 and OR 2,000 in the year 2013.

Calculate the Taxable Income and Tax Liability using the above information for Mr. Basam.