Question No 4: (10 Marks)

PQR Flour Mills Co. is an Omani Company made its beginning in the year 1977 with a capacity to mill 150 metric tons per day of wheat flour and allied products. The company gradually increased our flour milling capacity over the years and today has a capacity of 800 Metric Ton per day. In 1983 the company set up an animal feed mill having milling capacity of 300 Metric ton per day. Today the company has a capacity of 1500 Metric ton per day for Animal Feed. Their trading results for the year ended 31st December 2018 are as follows: The Net Sales and Net Purchases of the company for the year ended 31st December 2018 were OMR 880,000 and OMR 642,500 respectively. The Opening inventory as on 1st January 2018 is OMR 120,500 and closing inventory at the end of the year is OMR 155,000. The current year income as follows: Bad debts recovered of OMR 5,000 and Gain on Sale of Office equipment of OMR 1,200. The following expenses were recorded by the Accountant: Donations of OMR 15,000 to an approved charitable institution, Capital Reserve of OMR 25,000, Purchased of Patent worth RO 60,000, Purchase of Land RO 90,000, Depreciation on permanent Building and Heavy equipment were RO 7,500 and RO 29,000 respectively and General expenses were RO 30,000, Business inauguration expense of RO 6,800.

Assuming that you have recently joined as an Accountant of the company and you were not aware about all the rules of Law of Income tax on Omani Companies. Indeed, you are not sure about the Business transactions that you have recorded in the company account books. On 31st December 2018, the company received an Assessment order from the Income tax office stating that the company should pay tax on or before the due date. Immediately Mr. Mohammed Al Rawahi an Internal Auditor was called by the company to finalize the accounts as per Omani tax Law requirements. The internal auditor analyzed the Profit & Loss Account prepared by the Accountant and discovered many transactions which are not recorded as per the income tax law requirements. Business Income of RO 35,000 earned during the tax year 2018 was completely ignored by the Accountant. At the end of the year 2018, the opening and closing inventory were undervalued by 30%. The company earned Gain of RO2300 on disposal of securities listed in MSM. Such gain was completely ignored by the Accountant.

The Additional informations provided by the company.

The Life of Patent is 15 years. The Net Book value of Permanent Building and Heavy Equipments as on 1st January 2018 are RO 50,000 and RO 60,000 respectively. The General expenses which includes personal Provision for bad and doubtful debts of RO 3,000 and Owner Leisure expense of RO 500. Bad debts recovered of OMR 5,000 in the current year 2018 which was allowed to write off in the concerned previous year 2017 profit. There is no documentary evidence for the business inauguration expense of RO 3,800.

Requirement:

a) you have been asked by the company to present a detailed report on net profit of the company for the year ended 31st December 2018. As an Accountant, how would you present such a report to the

company? (5 Marks)

b) The company would like to pay a tax on time. In this regard, the company asked you to discuss with the Internal Auditor regarding the Profit & Loss Account which you prepared. As an Accountant of the company, how would you assist with an internal auditor to finalize the accounts as per Omani Tax

Law requirements?