Unit: Advanced Taxation
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Login to Access| Marine Sh.“000” | Motor vehicle Sh.“000” | Life insurance Sh.“000” | Rental activity Sh.“000” | |
| Management expenses | 4,460 | 3,500 | - | 15,480 |
| Gross premium received in the year | 194,640 | 345,500 | 76,690 | - |
| Claims paid | 16,420 | 84,440 | 23,450 | - |
| Rental income received in the year | - | - | - | 154,800 |
| Agency expenses | 685 | 1,248 | 272 | 12,680 |
| Allowance for credit loss | 5,670 | 1,200 | - | 26,400 |
| Reserve for unexpired risk January 2024 | 5,360 | 11,896 | - | - |
| Claims owing: 1 January 2024 | 10,380 | 5,970 | - | - |
| Claims owing: 31 December 2024 | 33,960 | 12,660 | - | - |
| Legal expenses | 1,782 | 648 | 1,230 | 12,789 |
| Commission on reinsurance accepted | 2,190 | 1,140 | - | - |
| Reserve for unexpired risk: 31 December 2024 | 1,680 | 890 | - | - |
| Telephone and postage | 480 | 360 | 640 | 1,320 |
| Premiums returned | 845 | 987 | 849 | - |
| Furniture and fittings | 389 | 680 | 920 | 1,280 |
| Interest income | 336 | 540 | - | - |
| Commission on reinsurance ceded | 8,450 | 4,380 | - | - |
| Premiums paid to reinsurance company | 980 | 1,120 | - | - |
| Income | Sh"000" |
| Revenue generated from carriage of passengers from Kenya to other countries | 851,580 |
| Revenue generated from carriage of cargo and mails from Kenya to China | 1,147,500 |
| Revenue from carriage of passengers and cargo from China to Kenya | 2,502,820 |
| Rebate received for meeting destination timelines | 12,220 |
| Income from the lease of a ship | 362,500 |
| 1. | The company started its operations on 1 April 2024 and acquired the following assets: |
| 1 | Sh.“000” | ||
| Ships: MV Border | 340 tonnes | 89,000 | |
| Ships: MV Queen | 100 tonnes | 28,000 | |
| Ships: MV Olympic | 490 tonnes | 20,000 | |
| Tools and implements | 6,000 | ||
| Pick up vans | 16,000 | ||
| Mobile cranes | 10,000 |
| 2 | The following expenses were incurred during the year: | Sh.“000” |
| 40,000 | |
| 132,400 | |
| 237,800 | |
| 1,118,000 | |
| 12,000 |
| 3 | Out of the revenue generated from carriage of passengers and cargo from China to Kenya, Sh.520,000,000 was in respect of passengers who embarked in Kenya as a result of transshipment. |
| Head Office Branch Sh. | Wekah Branch Sh. | Zurih Ltd Sh. | |
| Sales | 345,800,000 | 148,000,000 | 280,000,000 |
| Cost of sales | (123,678,000) | (73,890,000) | (136,800,000) |
| Gross profit | 222,122,000 | 74,110,000 | 143,200,000 |
| Other incomes: | |||
| Profit from sale of marketable securities | 3,800,000 | - | - |
| Dividend: Wezesha Co-operative Society (Net) | 800,000 | - | 640,000 |
| Interest: Banks (Net) | 300,000 | 250,000 | 160,000 |
| Total incomes | 227,022,000 | 74,360,000 | 144,000,000 |
| Expenses: | |||
| Repairs and maintenance | 17,400,000 | 3,850,000 | 8,900,000 |
| Finance charges | 20,700,000 | 12,680,000 | 7,560,000 |
| Legal fees | 560,000 | - | 300,000 |
| Depreciation | 9,345,000 | 5,890,000 | 11,890,000 |
| Computer software | - | 460,000 | - |
| Lorry - scrapped | 630,000 | - | - |
| Loss on investment | 640,000 | - | 890,000 |
| Travelling costs | 14,670,000 | 3,690,000 | 9,490,000 |
| Staff pension contribution | 26,890,900 | - | 13,670,000 |
| Intangible assets written off | 45,450,000 | 8,960,000 | 19,956,000 |
| Directors allowance | 28,670,000 | - | 6,850,000 |
| Rent and rates | 32,450,000 | 6,700,000 | 16,900,000 |
| Investors loss | - | 670,000 | - |
| Staff salaries | 23,469,700 | 9,880,000 | - |
| (220,875,600) | (52,780,000) | (96,406,000) | |
| Net income | 6,146,400 | 21,580,000 | 47,594,000 |
| Sh. | |
| Disposal of interest in a contract area | 7,890,000 |
| Exploration expenditure | 380,000,000 |
| Depreciation | 945,000,000 |
| Management and administrative expenses | 580,000,000 |
| Oil and gas storage facilities | 15,200,000 |
| Decommissioning costs | 580,610,000 |
| Amortisation of intangible assets | 680,760 |
| Instalment tax paid | 7,248,540,000 |
| Hire of saloon cars | 3,800,000 |
| Hire of tractors | 2,380,000 |
| Custom duty on drilling machines | 560,000 |
| Sale of natural gas | 975,800,000 |
| General expenses | 78,000,000 |
| 1. | Crude oil sold locally | 59,000 barrels |
| Crude oil sold to a company in UK | 1,920,000 barrels | |
| Crude oil sold to a company in USA | 3,381,000 barrels |
| 2. | The selling prices of crude oil was as follows during the year:
|
| 3. | The average exchange rates were as follows:
|
| 4. | The following details relate to capital expenditure: |
| 4. | Item | Date | Cost(Sh) | Location |
| Oil rig | 1 April 2022 | 12,800,000 | Offshore | |
| Telecommunication equipment | 1 January 2023 | 2,500,000 | Offshore | |
| Pipelines and storage tanks | 1 September 2023 | 10,480,000 | Offshore | |
| Computers | 1 January 2023 | 3,000,000 | Offshore |
| Balances as at 1 January 2023: | |
| Sh.“000” | |
| Material on site | 30,000 |
| Accrued wages | 2,000 |
| Rent prepaid (contract related) | 4,000 |
| Plant (written down value) | 20,000 |
Transactions during the year: | |
| Material sent to site | 100,000 |
| Plant purchased | 10,000 |
| Wages paid | 8,000 |
| Inspection fees | 2,000 |
| Subcontractors’ fee | 1,000 |
| Consultancy fee | 3,000 |
| Materials sold (cost) | 1,500 |
| Casual labour | 2,000 |
| Head office expenses | 3,000 |
| Depreciation (provision) | 4,000 |
| Rent paid (non-contract related) | 8,000 |
| Other expenses (allowable) | 2,000 |
| Value of work certified in the year | 120,000 |
| Cost of work uncertified | 20,000 |
| Cash received from client | 80,000 |
Balances as at 31 December 2023: | |
| Materials on site | 50,000 |
| Wages accrued | 4,000 |
| Rent accrued (contract related) | 5,000 |
| Sh.“000” | |
| Government securities | 1,172,000 |
| Loans and advances to customers | 2,973,200 |
| Cash and balances with central bank | 628,500 |
| Property, plant and equipment | 504,000 |
| Interest on loans and advances | 435,400 |
| Interest on government securities | 238,200 |
| Foreign exchange income | 72,000 |
| Fees and commission income | 170,200 |
| Deposits with other banks | 115,000 |
| Other fixed assets | 32,000 |
| Interest on placement and bank balances | 36,000 |
| Non-operating income | 17,000 |
| Customers deposits | 4,240,000 |
| Deposits and balances due to other banks | 215,000 |
| Depreciation expense | 42,000 |
| Directors emolument | 12,500 |
| Bad and doubtful debts expenses | 34,000 |
| Interim dividends paid | 25,000 |
| Staff costs | 295,000 |
| Interest on customers deposits | 115,000 |
| Interest on borrowed funds | 35,000 |
| Ordinary share capital | 250,000 |
| Auditors fees | 3,500 |
| Contribution to staff provident fund | 14,500 |
| Loss on sale of fixed asset | 21,800 |
| General administration expenses | 142,500 |
| Reserves | 529,000 |
| Legal and professional fees | 20,000 |
| 1. | Trading income before tax was reported to be Sh.38,400,000 which included net rental income from a commercial property of Sh.4,800,000. The rental income was after deducting the following expenses: |
| 1. | Sh. | |
| 400,000 | |
| 1,200,000 | |
| 360,000 |
| 2. | The trading income was before adjusting for the following transactions: |
| 2. | Sh. | |
| 1,926,000 | |
| 192,000 | |
| 144,000 |
| 2. |
|
| 3. | Other incomes of the company included: | |
| Sh.480,000 (gross) | |
| Sh.142,500 (net) | |
| Sh.204,000 (net) |
| 4. | Pembe Ltd. dividend payout ratio is 40% of trading income and 100% for any other income received during the year. |
| 5. | Total dividends paid for the year ended 31 December 2023 amounted to Sh.7,600,000. |
| 6. | Corporate tax rate is 30%. |
| Sh. | Sh. | |
| Dividend from investments | 1,407,400 | |
| Rental income | 2,495,000 | |
| Sundry provisions | 892,500 | |
| Interest income SBN Bank | 2,604,500 | |
| Interest income CMC Wealth Fund | 804,000 | |
| Revaluation reserve | 2,075,000 | |
| Statutory reserve fund | 1,374,000 | |
| Entrance fees | 430,000 | |
| Members deposits | 70,000 | |
| Share capital | 6,465,000 | |
| Sundry creditors | 340,815 | |
| Bank overdraft | 615,000 | |
| Interest received from members loans | 3,200,000 | |
| Travelling expenses: Staff | 88,030 | |
| Travelling expenses: Committee members | 210,015 | |
| Bank charges | 40,000 | |
| Bank interest | 280,500 | |
| Salaries and wages | 228,600 | |
| Committees education | 500,000 | |
| Interest on mortgage for rented property | 482,000 | |
| Printing and stationery | 316,500 | |
| Annual general meeting expenses | 1,070,000 | |
| Entertainment | 105,000 | |
| Audit fees | 613,650 | |
| Legal fees | 440,000 | |
| Cash in hand | 1,054,000 | |
| KUSCCO deposits | 2,438,000 | |
| SBN Bank savings | 3,240,000 | |
| Loans to members | 69,333,420 | |
| Receivables (members) | 2,268,500 | |
| Investment in CMC Wealth Fund | 5,540,000 | |
| Receivables (non-members) | 2,250,000 | |
| Other investments | 2,115,000 | |
| Furniture and office equipment | 90,000 | |
| 90,703,215 | 90,703,215 |
| 1. | The management committee has proposed the payment of honoraria amounting to Sh.1,120,000. |
| 2. | Outstanding rental income as at 31 December 2023 amounted to Sh.86,000 and as at 1 January 2023 Sh.124,000. |
| 3. | Dividend from investment companies: | Sh. |
| Dividend received from Kenya Union of Saving and Credit Co-operatives (KUSCCO). | 1,200,000 | |
| Dividend received from Weka Ltd. | 86,050 | |
| Dividend received from Apex Ltd. – Uganda. | 121,350 |
| 4. | Staff salaries amounting to Sh.315,000 had not been paid as at 31 December 2023. |
| 5. | Members are to be paid dividend at the rate of 10% per share. |
| 6. | Accrued interest on members loans as at 31 December 2023 amounted to Sh.480,000. Interest and dividends were stated at the gross amount. |
| Motor vehicle Sh.“000” | Life assurance Sh.“000” | ||
| Gross premium | 757,000 | 189,000 | |
| Claims paid | 124,900 | 128,000 | |
| Management expenses | 112,640 | 36,000 | |
| Specific provision for bad debts | 728 | 2,500 | |
| Reserve for unexpired risk: | 1 January 2023 | 968 | - |
| 31 December 2023 | 716 | - | |
| Claims owing: | 1 January 2023 | 119,700 | - |
| 31 December 2023 | 115,120 | 1,000 | |
| General expenses | 1,280 | - | |
| Interest on policy holders outstanding premiums | 240 | - | |
| Office utilities | 300 | 120 | |
| Premiums returned | 696 | - | |
| Commission on reinsurance ceded | 684 | - | |
| Commission on reinsurance accepted | 600 | - | |
| Agency expenses | 344 | - | |
| Premiums paid to reinsurance company | 4,720 | - | |
| 1. | Life assurance fund balance was valued by an actuary at Sh.270,000,000 as at 31 December 2023. 5% of this fund balance was recommended to be transferred for the benefit of shareholders. As at 1 January 2023, the life fund had been valued at Sh.240,000,000. 15% of the surplus was recommended to be transferred for the benefit of shareholders. |
| 2. | Premiums outstanding for life insurance business were as follows:
|
| 3. | Masterway Ltd. owns the building which houses its offices and has let extra space to other tenants. The company received net rental income of Sh.1,800,000 for the year ended 31 December 2023. Property management fees amounting to Sh.2,600,000 relating to the rented space for the year had not been deducted. |
| 4. | The company had invested in fixed deposits and shares and in the year 2023, the following incomes were earned: Sh.
|
Required: | |
| (i). | Compute the total taxable income or loss for Masterway Insurance Company Ltd. for the year ended 31 December 2023. |
| (ii). | Tax payable (if any) from the income computed in (b) (i) above. |
| 1. | SmartTech Ltd. buys the laptops at Sh.40,000 each |
| 2. | The hire purchase price per unit comprises of a deposit of Sh.12,000 plus eight quarterly installments of Sh.6,000. The cash price per unit is Sh.50,000. |
| 3. | For the year ended 31 December 2023, a total of 2,460 laptops were sold and the company had received total cash of Sh.86,600,000 from the sales. |
| 4. | During the last quarter of the year 100 laptops were repossessed and the students had already paid Sh.2,400,000 on the repossessed laptops. This amount was included in the total cash collections for the year. |
| 5. | Expenses incurred in the course of the year comprised of:
|
| 6. | SmartTech Ltd. had agreed with the revenue authority that profits for tax purposes should be computed on the basis of proportionate cash collected from the customers for the year sales. |
| 7. | Other incomes of SmartTech Ltd. included:
|
| Sh.“000” | Sh.“000” | |
| Income: | ||
| Interest on loans and advances to customers | 936,480 | |
| Royalty income (net of withholding tax) | 11,400 | |
| Rebate on bills discounted | 1,800 | |
| Interest on Treasury bills and bonds | 168,000 | |
| Interest on placement with Central Bank | 51,240 | |
| Fees and commission income | 43,440 | |
| Investment revaluation surplus | 11,232 | |
| Profit on sale of motor vehicle | 5,256 | |
| 1,228,848 | ||
| Expenses: | ||
| Rent and rates | 75,250 | |
| Staff costs | 347,720 | |
| Impairment of intangible assets | 10,440 | |
| Depreciation | 42,800 | |
| Deposit protection fund contribution | 16,360 | |
| Interest on deposits from other banks | 62,800 | |
| Directors remuneration | 26,600 | |
| Interest on customer deposits | 184,200 | |
| Audit fees | 2,040 | |
| 10% debenture stock | 200,000 | |
| Redemption reserve | 3,240 | |
| Purchase of delivery van vehicle | 3,500 | |
| Installation of online banking system | 32,600 | |
| Finance lease rentals | 14,860 | |
| Loss on sale of equipment | 19,640 | |
| Finance costs | 70,200 | |
| Allowance for bad and doubtful debts | 98,160 | (1,210,410) |
| 18,438 |
| 1. | Staff costs include: | Sh.“000” |
| Provision for proposed tax increment | 480 | |
| Ex-gratia payment | 1,240 | |
| Negotiating loans for staff | 1,000 | |
| Retrenchment costs | 1,680 | |
| Provision for staff leave arrears | 8,680 | |
| 2. | Directors remuneration include: | |
| Education trip cost for directors children | 1,600 | |
| Entertainment allowance for clients | 1,560 | |
| Air tickets for expatriate directors | 720 |
| 3. | Allowance for bad and doubtful debt analysis: | |||
| Specific provision Sh.“000” | General provision Sh.“000” | Total Sh.“000” | ||
| Balance brought forward 1 January 2022 | 684,000 | 888 | 684,888 | |
| Charge in the year | 108,000 | 8,640 | 116,640 | |
| Reduction in the year | (18,480) | - | (18,480) | |
| Balance carried forward 31 December 2022 | 773,520 | 9,528 | 783,048 | |
| Sh.“million” | Sh.“million” | |
| Revenue | 106,115 | |
| Operating expenditure | 66,564 | |
| Fleet ownership | 13,653 | (80,217) |
| Gross profit | 25,898 | |
| Other income: | ||
| Interest income (net) | 558,025 | |
| Bonus shares from associate company | 174 | |
| Fair value gains on fuel derivatives | 7,482 | |
| Gain on hedged exchange differences: | ||
| 1,920 | |
| 597 | 10,731.025 |
| Total income | 36,629,025 | |
| Expenses: | ||
| Overheads | 24,898.5 | |
| Finance costs | 2,228 | |
| Realised losses on fuel derivatives | 5,656 | |
| Other losses | 752 | |
| Deferred taxation on cash flow hedges | 755 | (34,289.5) |
| Net profit for the year | 2,339.525 |
| 1. | Revenue comprises of: | Sh.“million” |
| Cargo freight revenue | 8,151 | |
| Passenger revenue | 94,257 | |
| Handling | 1,968 | |
| Miscellaneous revenue | 1,739 | |
| 106,115 | ||
| 2. | Operating expenditure analysis: | Sh.“million” |
| Direct expenses | 13,938 | |
| Aircraft fuel and oil | 12,795 | |
| Aircraft landing, handling and navigation | 21,832 | |
| Passenger services | 6,668 | |
| Commission on sale of air ticket | 4,869 | |
| Aircraft passenger and cargo insurance | 549 | |
| Crew expenses | 2,613 | |
| Central reservation system | 2,708 | |
| Other miscellaneous expenses | 592 | |
| 66,564 | ||
| 3. | Fleet ownership costs analysis: | Sh.“million” |
| Hire of aircrafts | 8,880 | |
| Depreciation on aircrafts and engines | 4,641 | |
| Depreciation on rotables and equipment | 393 | |
| Aircraft purchase subsidy from government | (261) | |
| 13,653 | ||
| 4. | Analysis of overhead costs: | Sh.“million” |
| Administration expenses | 15,262.5 | |
| Staff costs | 522 | |
| Legal and professional fees | 110 | |
| Directors remuneration | 16 | |
| Audit fees | 2.238 | |
| General maintenance and supplies | 2,094 | |
| Depreciation of buildings and office equipment | 1,290 | |
| Amortisation of intangible assets | 546 | |
| Selling | 997 | |
| Advertising and publicity | 413 | |
| Bad debts written off | 1,410 | |
| 24,898.5 |
| 5. | The company purchased two aircrafts in the course of the year at a total cost of Sh.560 million. This excludes the aircraft purchase subsidy from the government. |
| Incomes | Sh.“000” |
| Rent: Apartment | 1,248,450 |
| Rent: Office block | 7,244,200 |
| Expenses: | |
| Garbage collection | 75,864 |
| Sewerage | 92,8090 |
| Repairs and maintenance (outsourced to local company) | 144,420 |
| Housing agents fee (5% of income) | ? |
| Security firm (eight day and eight night guards) | 464,000 |
| Insurance | 580,000 |
| Interest on bank loan | 139,200 |
| Caretakers’ salaries | 92,800 |
| Webhosting (by South Africa-based company) | 67,280 |
| Audit and assurance fee | 1,334,000 |
| Telephone and electricity | 52,952 |
| Other staff salaries | 992,496 |
| Architect’s fee (based in France) | 184,730 |
| 1. | Analysis of the bank account for the year ended 31 December 2022 revealed the following: | |||
| DR | CR | |||
| Sh. | Sh. | |||
| Balance brought forward 1 January 2022 | 1,940,000 | Fixtures and fittings (cost) | 366,000 | |
| Cheques from customers | 1,299,200 | Suppliers of goods | 1,392,000 | |
| Refund from suppliers | 83,530 | Bank charges | 29,600 | |
| Rental income | 1,040,000 | Delivery van at cost | 1,000,000 | |
| Sale of fixtures | 96,000 | Salaries and wages | 1,060,000 | |
| Cash sales | 8,816,000 | Computers at cost | 480,000 | |
| - | - | Rent and rates | 124,000 | |
| - | - | Electricity | 116,000 | |
| - | - | Telephone and postage | 125,800 | |
| - | - | Refunds to customers | 74,250 | |
| - | - | Computer software cost | 120,000 | |
| - | - | Balance carried forward | 8,387,090 | |
| - | 13,274,730 | - | 13,274,730 | |
| 2. | Other information obtained from the books of accounts included: | ||
| 1 January 2022 Sh. | 1 December 2022 Sh. | ||
| Inventory | 4,320,000 | 2,250,000 | |
| Suppliers of goods | 478,200 | 239,200 | |
| Trade debtors | 348,000 | 960,000 | |
| Accrued electricity | 66,000 | 116,000 | |
| Lorry | 1,400,000 | 1,400,000 | |
| Prepaid wages and salaries | 320,000 | 140,000 | |
| Rent and rates owing | 45,000 | 17,000 | |
| 3. | All non-current assets were acquired in the course of the year. The cost of fixtures sold was Sh.220,000. |
| 4. | Opening and closing inventories were undervalued and overvalued by 20% and 10% respectively. |
| 5. | Cash purchases amounted to Sh.2,400,000. All sales and purchases are inclusive of value added tax (VAT) at the rate of 16%. |
| 6. | The business issued credit notes of Sh.34,800 for goods returned by credit customers and received discount from suppliers of Sh.52,000. |
Required: | |
| (i) | Prepare a statement showing the correct adjusted taxable income and tax payable (if any) for the year ended 31 December 2022. |
| (ii) | Advise the director on the action to take on the demand notice. |
| 1. | Cost of acquisition of land where the houses were constructed was Sh.10,000,000. The company had incurred the following costs in relation to land acquisition; stamp duty Sh.1,800,000, brokerage fees Sh.800,000 and legal fees to facilitate the purchase Sh.360,000. |
| 2. | The following costs were incurred on construction:
|
| 3. | Other costs incurred included:
|
| 4. | All the houses were sold by 31 December 2022 at a selling price of Sh.12,500,000 per house. The following costs were incurred in selling the houses:
|
| Commercial buildings: | |
| 1. | The trustee reported a trading profit of Sh.160,000,000 for the year. This was after deducting the following expenses: Printing and stationery Sh.1,000,000.
|
| 2. | The trading profit was before taking into account the following capital expenditure: | ||
| Asset | Date of first use | Amount (Sh.) | |
| Warehouse | 1 April 2022 | 3,500,000 | |
| Delivery truck | 5 March 2022 | 1,750,000 | |
| Saloon vehicle | 1 January 2022 | 3,800,000 | |
| Sports pavilion | 1 September 2022 | 1,200,000 | |
| 3. | The trustees received gross rental income from commercial properties of Sh.120,000,000 and gross interest income from fixed deposits of Sh.20,000,000. Fee paid to investment managers in charge of the rental properties and fixed deposits amounted to Sh.12,000,000. |
| 4. | Additional information:
|
Required: | |
| (i). | Compute the income tax payable on the trust income for the year ended 31 December 2022. |
| (ii). | Compute the amount due to each beneficiary for the year ended 31 December 2022. |
| Sh.“000” | |||||
| Sales | : A | 2,000,000 | |||
| : B | 2,500,000 | ||||
| Disposal of interest (gross) 54% of A | 5,400,000 | ||||
| Development expenditure | : A | ||||
| : B | |||||
| : C | |||||
| Cost of disposal of interest | 1,200,000 | ||||
| Exploration expenditure | : A | 210,000 | |||
| : B | 175,000 | ||||
| : C | 100,000 | ||||
| Loose tools | : A | 90,000 | |||
| : B | 76,000 | ||||
| Decommissioning expenditure | : A | 80,500 | |||
| : C | 33,200 | ||||
| Decommissioning refund from account | : B | 66,300 | |||
| Machinery for exploration operations | : A | 154,900 | |||
| : B | 208,400 | ||||
| : C | 110,000 | ||||
| Sh.“000” | |
| Interest income: BOSA (from members) | 1,300,000 |
| Interest income: FOSA | 820,000 |
| Commission received from Visa Card (FOSA) | 80,000 |
| Rental income (net of allowable expenses) | 30,000 |
| Dividends from Cooperative Bank (net) | 78,375 |
| Foreign exchange gains realised | 16,000 |
| Capital gains | 9,000 |
| Other operating income | 23,000 |
| Administration and governance expenses | 79,000 |
| Salaries and wages | 168,000 |
| Interest on deposits: BOSA | 420,000 |
| Interest on deposits: FOSA | 280,000 |
| Sales and marketing costs | 53,800 |
| Insurance expense | 25,000 |
| Allowance for doubtful debts | 300,000 |
| Asset impairment | 226,000 |
| Repairs and maintenance | 8,000 |
| Computers and printers | 25,500 |
| Software | 12,800 |
| Furniture and fittings | 9,700 |
| Audit and accounting fee | 5,600 |
| Motor vehicle running expenses | 1,300 |
| Rent and rates | 84 |
| Interest on loans (BOSA and FOSA) | 12,540 |
| Sh.“000” | |
| Income from cargo freight: Country A/Country B | 567,720 |
| Income from passengers’ freight: Country A/Country C | 765,000 |
| Income from passengers’ freight: Country C/Country A | 1,001,880 |
| Income from cargo loaded into aircraft on other routes | 630,000 |
| Salaries and other costs | 1,530,000 |
| Depreciation | 288,000 |
| General allowance for credit loss | 72,000 |
| Capital expenditure (cost Sh.2,000,000,000) | 1,750,000 |
| Compensation costs for stolen baggage | 23,600 |
| 1. | Salaries and other costs include: | Sh.“000” |
| Purchase of twin engines | 117,000 | |
| Use of airport facilities | 32,400 | |
| Hotel bills for passengers | 37,800 | |
| Accommodation for airline crew | 9,000 | |
| Gift to airport staff | 10,800 |
| 2. | Investment allowances were agreed with the Revenue Authority at 85% of depreciation charged in the account. |
| 3. | Assume a corporation tax rate of 30%. |
| Contract X Sh. | Contract Y Sh. | |
| Gross Contract Price | 22,500,000 | 20,900,000 |
| Direct costs incurred in the year 2021: | ||
| Materials | 2,500,000 | 1,800,000 |
| Direct labour | 2,000,000 | 3,600,000 |
| Consultancy fee | 300,000 | 260,000 |
| Subcontracting fee | 1,420,000 | 2,030,000 |
| Other direct costs | 34,500 | 45,500 |
| 1. | Contract X’s material cost includes material costing Sh.240,000 that remained at the site as at 31 December 2021, while under contract Y, material costing Sh300,000 was sold during the year. |
| 2. | The company estimates that costs to be incurred to complete the contract work will be 150% of the contract costs incurred in the current year for both contracts. |
| 3. | The company computes taxable revenue on the basis of the percentage of completion method for the two contracts. |
| 4. | Analysis of general and administrative expenses for the year is as follows: | |
| Sh. | ||
| Office salaries | 850,000 | |
| Renewal of construction license | 186,600 | |
| Pension contributions | 236,000 | |
| Billboard cost and billboard erection cost | 202,000 | |
| Purchase of computers and software (of which software cost amounted to Sh.30,000) | 210,000 | |
| Depreciation | 29,500 | |
| Subscriptions due to contractors association | 35,680 | |
| Interest on overdue loan | 22,000 | |
| Legal fee on defense against claim of breach of contract | 80,000 | |
| Rent for the office premises | 614,000 | |
| Utilities | 245,600 | |
| 5. | Other income received by the company included: | Sh. |
| Interest income from Upland Bank | 348,800 (Gross) | |
| Dividend income from Lima Co-operative Society | 360,000 (Gross) | |
| Royalties income (net of tax) | 695,000 |
| Head office Sh. | Branch Sh. | |
| Gross profit | 12,200,000 | 7,000,000 |
| Gain on shares sold | 30,000 | - |
| Insurance recovery | 30,000 | 9,000 |
| Gain on sale of land and building | - | 600,000 |
| Interest income: Lex Bank | 180,000 | - |
| Bonus shares | 120,000 | - |
| Interest income: Beta Microfinance | 200,000 | - |
| Total gross income | 12,760,000 | 7,609,000 |
| Expenses: | ||
| Staff salaries | 240,000 | 90,000 |
| Maintenance expenses | 80,000 | 58,000 |
| Preliminaries expenses | 100,000 | 30,000 |
| Retrenchment costs | 2,500,000 | 1,300,000 |
| Rent, rates and insurance paid | 410,000 | 110,000 |
| Goodwill written off | 20,000 | - |
| Legal and accountancy fees | 330,000 | 120,000 |
| Depreciation | 180,000 | 70,000 |
| Interest on overdue tax | 80,000 | - |
| Subscription to golf club for directors | 105,000 | 109,000 |
| Donations | 100,000 | 70,000 |
| General administrative expenses | 360,000 | 140,000 |
| Purchase of a lorry | 3,200,000 | - |
| Loss of stock | 200,000 | 500,000 |
| Loan interest | 360,000 | - |
| Directors’ remuneration | 1,500,000 | 830,000 |
| Pension contribution | 685,000 | 155,000 |
| Total expenses | (10,450,000) | (3,582,000) |
| Net profit | 2,310,000 | 4,027,000 |
| 1. | Goods worth Sh.600,000 were transferred from the head office to the branch at 10% below the normal selling price. |
| 2. | 70% of insurance recovery was in respect of stocks destroyed by fire, the balance was on compensation on capital items. |
| 3. | Staff salaries include provision for leave accruals equal to a third of the total salaries for head office and the branch. |
| 4. | The interest income recorded in the books of Bale Ltd. was gross although Bale Ltd. received net of withholding tax. |
| 5. | Bonus shares were from a company where Bale Ltd. has 30% control. |
| 6. | Rent, rates and insurance paid for the branch: At the beginning of the year, rent accrued amounted to Sh.24,000 and as at 31 December 2021 rent prepaid was Sh.42,000. These had not been adjusted for in the accounts. |
| 7. | The lorry purchased was imported and duty paid was Sh.130,000. This was omitted from the cost of the lorry. |
| 8. | Retrenchment cost analysis. | ||
| Head office Sh. | Branch Sh. | ||
| Provision for staff gratuity | 800,000 | 500,000 | |
| Pension payments | 1,700,000 | 800,000 | |
| 2,500,000 | 1,300,000 |
| 9. | Loss of stock: Fire razed down a warehouse where goods are stored before they are transported to the head office and branch. VAT at 16% was included in the stocks destroyed by fire. |
| 10. | 20% of loan interest relates to a loan obtained to finance purchase of shares. |
Required: | |
| (i) | Compute the combined adjusted taxable profit or loss for the year ended 31 December 2021. |
| (ii) | Compute the tax payable (or refundable) for the year ended 31 December 2021 based on your results in (a) (i) above. |
| Sh. | Sh. | |
| Property, plant and equipment | 10,200,000 | - |
| Provision for depreciation | 805,000 | - |
| Investment in government securities | 1,200,000 | - |
| Gross premiums received from direct clients: Motor vehicle | - | 3,000,000 |
| Gross premiums received from direct clients: Fire | - | 2,500,000 |
| Gross premiums received from agents: Motor vehicle | - | 2,000,000 |
| Gross premiums received from agents: Fire | - | 1,200,000 |
| Commission on reinsurance accepted: Motor vehicle | 600,000 | - |
| Commission on reinsurance accepted: Fire | 200,000 | - |
| Commission on reinsurance ceded: Motor vehicle | - | 700,000 |
| Commission on reinsurance ceded: Fire | - | 300,000 |
| Sundry receivables | 750,000 | - |
| Bank balance | 90,000 | - |
| Directors’ fees | 495,000 | - |
| Reinsurance premiums paid: Motor vehicle | 400,000 | - |
| Reinsurance premiums paid: Fire | 150,000 | - |
| Unearned premiums as at 1 January 2021:Motor vehicle | - | 4,800,000 |
| Unearned premiums as at 1 January 2021:Fire | - | 2,500,000 |
| Claims outstanding as at 1 January 2021:Motor vehicle | - | 1,100,000 |
| Claims outstanding as at 1 January 2021:Fire | - | 840,000 |
| Claims paid: Motor vehicle | 2,770,000 | - |
| Claims paid:Fire | 2,110,000 | - |
| Legal costs on claims: Motor vehicle | 280,000 | - |
| Legal costs on claims: Fire | 130,000 | - |
| Sundry expenses on motor vehicle claims | 220,000 | - |
| Provision for bad and doubtful debts:Motor vehicle | 370,000 | - |
| Provision for bad and doubtful debts:Fire | 320,000 | - |
| Management expenses: Motor vehicle | 450,000 | - |
| Management expenses: Fire | 380,000 | - |
| Investment income | - | 4,150,500 |
| Premiums returned: Motor vehicle | 800,000 | - |
| Premiums returned: Fire | 700,000 | - |
| Profit and loss account | - | 329,500 |
| 23,420,000 | 23,420,000 |
| 1. | Claims intimated and outstanding as at 31 December 2021 amounted to Sh.750,000 for motor vehicle insurance and Sh.480,000 for fire insurance. |
| 2. | Unearned premium is maintained at 80% and 50% of the net premiums received for motor vehicle and fire insurance respectively. |
| 3. | Investment allowances have been agreed with the Commissioner at Sh.1,200,000 for the year ended 31 December 2021. |
| 4. | Investment income analysis: | Sh. |
| 2,040,000 net | |
| 760,500 net | |
| 450,000 gross | |
| 900,000 net |
| 5. | Fees paid to investment managers amounted to Sh.750,000 for the year ended 31 December 2021. |
Required: | |
| (i) | Taxable income or loss for Riziki Insurance Company for the year ended 31 December 2021 |
| (ii) | Compute the tax payable, if any. |
| Sh. | |
| Geophysical staff salaries | 789,000 |
| Legal costs for title deeds | 562,400 |
| Dry hole contributions | 448,000 |
| Drilling and test development costs | 942,600 |
| Capital losses from previous year | 192,800 |
| Memorandum of understanding credit | 2,840,000 |
| Royalties on domestic sales | 3,600,000 |
| Royalties on export sales | 5,760,000 |
| Non-productive rent | 2,374,800 |
| Customs duty on plant and equipment | 672,300 |
| Purchase of assets for offshore operations | 7,840,000 |
| Provision for restoration of wells | 1,575,000 |
| Petroleum investment allowance | 9,262,000 |
| 1. | Receipts | Sh. | Payments | Sh. |
| Balance brought forward | 288,000 | Salaries and wages | 254,000 | |
| Subscriptions | 2,500,000 | New equipment | 690,000 | |
| New members entrance fee | 600,000 | Repairs and maintenance | 124,000 | |
| Dividend: Weco Co-operative Society | 884,000 | Furniture | 240,000 | |
| Interest: Excel Bank Kenya | 2,140,000 | Office expenses | 415,000 | |
| Dinner dance | 723,000 | Printing and stationery | 168,000 | |
| Beverage sales-members | 657,000 | Purchase of beverages | 497,000 | |
| Investment income | 2,400,000 | Dinner dance expenses | 315,000 | |
| Refund of subscriptions | 45,000 | |||
| Legal fee on acquisition of investment | 25,000 | |||
| Transport | 248,000 | |||
| Fee to investment managers | 1,100,000 | |||
| Balance carried forward | 6,071,000 | |||
| 10,192,000 | 10,192,000 | |||
| 2. | Extracts from the statement of financial position as at 31 December 2021 were as follows: | |||
| Sh. | ||||
| Furniture and fittings (cost) | 240,000 | |||
| Equipment (cost) | 690,000 | |||
| Investment (cost) | 3,500,000 | |||
| Subscription in arrears | 300,000 | |||
| Accrued salaries | 68,000 | |||
| Stock of beverages | 184,000 | |||
| Subscriptions in advance | 85,000 | |||
| 3. | The dividend and interest income were stated at the gross amount. | |||
| 4. | Stock of beverages at the beginning of the year were Sh.162,000. | |||
| 5. | Subscription in arrears written off in the year amounted to Sh.288,000. | |||
| 1. | The company leased the following assets in the course of the year.
|
| 2. | Haraka Ltd. incurred the following expenses in the course of the year: |
| 2. | Sh. | |
| General administration expenses | 1,600,000 | |
| Legal expenses | 480,000 | |
| Repairs and servicing | 320,000 |
| |
| 3. | Investment allowances have been agreed with the revenue authority to be Sh.620,000 for the year. |
| 4. | Haraka Ltd. had other incomes as follows:
|
Required: Compute: | |
| (i) | The taxable income or loss for Haraka Ltd. for the year ended 31 December 2021. |
| (ii) | The tax payable (if any) by Haraka Ltd. for the year ended 31 December 2021. |
Bandari Realtors’ Ltd. provided the following information relating to the sale of their properties in the year 2020.
Required:
Compute the capital gains tax.
| Statement of comprehensive income for the year ended 31 December 2020 | ||
| Sh.“million” | Sh.“million” | |
| Turnover | - | 70,743 |
| Direct cost | 44,376 | |
| Fleet ownership | 9,102 | (53,478) |
| Gross profit | - | 17,265 |
| Other incomes | ||
| Interest income (net) | 372 | |
| Fair value gains/losses on fuel derivatives | 6,140 | |
| Shares of results of associated company | 77 | |
| Gain/loss on hedged exchange differences: | ||
| On borrowings | 1,280 | |
| Gain on hedged fuel contacts | 398 | 8,267 |
| Total income | - | 25,532 |
| Less: Expenses | ||
| 15,426 | |
| 1,485 | |
| Realised losses on fuel derivatives | 3,771 | |
| Other losses/gains | 501 | |
| Deferred taxation on cash flow hedges | 503 | (21,686) |
| Total profits/loss | - | 3,846 |
| 1. | Turnover includes | Sh.“million” |
| Passenger revenue | 63,838 | |
| Freight and mail | 5,434 | |
| Handling | 1,312 | |
| Others | 1,159 | |
| 70,743 | ||
| 2. | Analysis of operating expenditure: | |
| Direct cost | 9,292 | |
| Aircraft fuel and oil | 8,530 | |
| Aircraft landing, handling and navigation | 14,555 | |
| Commissions on sales | 3,246 | |
| Aircraft passenger and cargo insurance | 366 | |
| Crew route expenses | 1,742 | |
| Central reservation system (net) and frequent flier programme | 1,805 | |
| Others | 395 | |
| 44,376 | ||
| Fleet ownership costs | ||
| Hire of aircraft and engines | 5,920 | |
| Depreciation on air craft and engines | 3,094 | |
| Depreciation on rotables and other equipment | 262 | |
| Amortisation of refurbishment costs | - | |
| Air craft purchases subsidy | (174) | |
| 9,102 | ||
| Overheads | ||
| Administration | 10,175 | |
| Employee costs | 348 | |
| Legal and professional fees | 73 | |
| Director’s remuneration | 11 | |
| Audit fees | 1,492 | |
| 12,099 | ||
| Establishment | ||
| General maintenance and supplies | 1,163 | |
| Depreciation of buildings vehicle and other equipment | 860 | |
| Amortisation of intangible assets and prepaid operating lease | 364 | |
| 2,387 | ||
| Selling | ||
| Advertising and publicity | 665 | |
| Bad debts expense | 275 | |
| 940 | ||
| Total overheads | 15,426 |
| Sh.“million” | |
| Received during the year | 120 |
| Outstanding as at: 1 January | 60 |
| Outstanding as at: 31 December | 40 |
| General insurance | Life assurance | |
| Sh. "000" | Sh. "000" | |
| Profit on sale of investments | 14,200 | - |
| Premium received in the year | 15,450 | 100,000 |
| Commission ceded | 8,000 | - |
| Premium returned | 374 | - |
| Recovery from reinsurance company | 1,200 | - |
| Premiums paid to reinsurance company | 7,680 | - |
| Commission expenses | 1,050 | 2,960 |
| Management expenses | 2,034 | 25.000 |
| Travelling expenses | 1,200 | - |
| Marketing expenses | 314 | 1,820 |
| Fees paid to investment managers | 900 | - |
| Legal expenses relating to claims | 740 | 120 |
| General expenses | 8,490 | 4,640 |
| Bad and doubtful debts | 468 | 1,280 |
| Claims paid in the year | 9,800 | - |
| Bonus utilised in reduction of premiums | 180 | - |
| 1. | Claims outstanding for general business were as follows:
|
| 2. | General expenses under general insurance include cost of computers Sh. 800,000 and cost of saloon car Sh.3,260,000. |
| 3. | Reserves for unexpired risks for general insurance were as follows:
|
| 4. | The Life assurance fund balance was valued by an actuary at Sh. 310,000,000 as at 31 December 2020. 8% of this fund balance was recommended to be transferred for the benefit of shareholders. At the beginning of the year, the fund had been valued at Sh.250,000,000. 10% of the surplus was recommended to be transferred for the benefit of shareholders. |
| 5. | Outstanding premiums in respect of life insurance business were as follows:
|
| 6. | Other income received by Triplecom Insurance Company Ltd. comprised:
|
| Income statement for the vear ended 31 December 2020 | ||
| Income | Sh. "000" | Sh. "000" |
| Interest from members' loans | 16,200 | |
| Interest from Treasury bills | 3,200 | |
| Interest from government infrastructure bonds: (5 years) | 1,800 | |
| Interest from ABA Bank | 1,500 | |
| Rental income | 3,200 | |
| Dividend from Mazao Sacco | 1,000 | |
| Dividends from Sopa Co-operative Ltd. | 600 | |
| Gross income | 27,500 | |
| Expenditure: | ||
| Office expenses | 5,600 | |
| General expenses | 1,400 | |
| Credit loss (bad debts) | 60 | |
| Repairs of rental property | 1,300 | (8,360) |
| Net profit | 19,140 | |
| 1. | Office expenses include: | |
| Sh. "000" | ||
| 1,200 | |
| 200 | |
| 400 |
| 2. | General expenses include depreciation of Sh. 484,000 and non-performing loans to members of Sh. 620,000 which were written off. |
| 3. | Corporate tax rate during the year was 25%. |
Required: | |
| (i). | Adjusted taxable profit or loss for the year ended 31 December 2020. Hint: Start with the reported profit. |
| (ii). | Таx liability for the year ended 31 December 2020. |
| Sh."000" | |
| Interest on advances | 697,200 |
| Contribution to deposit protection fund | 147,000 |
| Operating lease rentals | 9,720 |
| Interest on government securities | 21,900 |
| Interest paid on deposits | 7,110 |
| Interest on placement and bank balances | 3,990 |
| Loss on disposal of collaterals | 1,260 |
| Fees and commission expenses | 2,130 |
| Losses from investment in securities | 1,185 |
| Purchase of equipment | 1,800 |
| Depreciation | 744 |
| Transfer to statutory reserves | 939 |
| Losses on stock brokerage dealings | 522 |
| Gain on foreign exchange dealings | 2,205 |
| Discounts on bills purchased | 493.5 |
| Auditors remuneration | 1,179 |
| Provision for bad and doubtful debts | 810 |
| Investments in government securities | 2,775 |
| Bills receivable and for collection | 471 |
| Guarantees and performance bonds | 567 |
| Interest accrued and paid | 2,961 |
| Bills for collection, acceptances and endorsements | 705 |
| Rebates on bills discounted | 438 |
| Provision for taxation | 600 |
| General charges recovered | 375 |
| Commission on exchange and brokerage | 1,176 |
| 1. | The company purchases the machines at Sh.600,000 each. |
| 2. | The hire purchase price per unit comprises of a deposit of Sh.160,000 and eight quarterly instalments of Sh.80,000. Cash price per unit is Sh.700,000. |
| 3. | During the year ended 31 December 2020, the company sold 4,080 manufacturing machines of which collections of Sh.569,600,000 were received at year end. |
| 4. | During the year, the company repossessed 80 machines which had been sold earlier in the year. The customer had already paid Sh.6,400,000 on the units which was included in the total cash collections for the year. The repossessed units were valued at Sh.520,000 each at year end. |
| 5. | Expenses incurred in the course of the year included: | ||
| Sh. | |||
| Rent expenses | 420,000 | ||
| Legal expenses | 1,200,000 | (of which Sh.320,000 was in respect of defence against illegal importation of a machine). | |
| Advertising and marketing | 525,000 | ||
| Salaries and management expenses | 890,000 | ||
| Purchase of a mobile forklift (in August 2020) | 2,800,000 | ||
| 6. | Other incomes included:
|
| 7. | The Revenue Authority has reached an agreement with the company whereby profit for tax purposes will be determined on the basis of proportionate cash collected from the customers for the year's sales. |
| • | Crude oil exported 140,000 barrels. |
| • | Domestic crude oil sales 50,000 barrels. |
| • | Posted price per barrel for crude oil exported Sh.505. |
| • | Posted price per barrel for domestic crude oil Sh.102. |
| • | Miscellaneous income Sh.800,000. |
| • | Administrative expenses Sh.8,850,000. |
| • | Income from oil refinery business Sh.1,000,000. |
| • | Royalty on oil exported Sh.5,000,000. |
| • | Royalties on local sales Sh.1,060,000. |
| • | Value of chargeable oil sold as per audited financial statements Sh.60,000,000. |
| • | Customs duty on plant and machinery essential to the company in its operation Sh.150,000. |
| • | Capital expenditure on petroleum tanks Sh.19,000,000. |
| • | Intangible drilling costs Sh.5,000,000. |
| • | Losses from previous year are classified as follows:
|
| • | Administrative expenses of Sh.8,850,000 included above comprised:
|
Required: A statement of taxable profit or loss of Oils Merchants Ltd. for the year ended 31 December 2020. | |
| 1. | Assets leased in the course of the year:
|
| 2. | Poxmax Enterprises incurred the following expenditure in the course of the year: | |
| Sh. | ||
| Purchase of manufacturing machine for leasing | 6,000,000 | |
| Installation costs and repairs of the manufacturing machine before use | 240,000 | |
| Purchase of two saloon cars each at Sh.2,100,000 | 4,200,000 | |
| Purchase of a lorry (4 tonnes) | 1,800,000 | |
| Administration expenses | 2,400,000 | |
| Legal expenses of Sh.240,000 out of which Sh.100,000 was in respect of defence of an alleged breach of lease agreement. | |
| Marketing costs were Sh.300,000 with Sh.80,000 being for erection of a billboard for advertising. | |
| 3. | The following additional information was provided: |
| A pickup vehicle whose written down value as at 1 January 2020 was Sh.420,000 was sold upon expiry of lease in 2020 for Sh.580,000. | |
| The written down values of the following assets as at 1 January 2020 were: |
| 3. | Sh. | |
| Lorries (4 tonnes) | 4,000,000 | |
| Computers | 420,000 | |
| Motor vehicles | 1,200,000 | |
| Furniture | 180,000 | |
| Other incomes of Poxmax Enterprises include: | ||
| 3. | (i). | Interest income from Ufanisi Deposit taking micro finance Sh.240,000 (net). |
| (ii) | Dividend income from Wananchi Sacco Sh.120,000 (net). | |
| (iii) | Royalties income of Sh.400,000 (net). | |
| Corporate tax rate applicable during the year was 25%. | ||
Required: The adjusted taxable income or loss and tax payable (if any) for Poxmax Enterprises for he year ended 31 December 2020. | ||
| Sh. "000" | Sh. "000" | |
| Turnover | 384,900 | |
| Cost of sales | \(\underline{(98,200)}\) | |
| Gross profit | 286,700 | |
| Other incomes: | ||
| Gain on foreign exchange transactions | 42,600 | |
| Capital gain on sale of motor vehicle | 14,200 | |
| Refund of import duty | 8,400 | |
| Investment income | 12,000 | |
| \(\overline{363,900}\) | ||
| Less expenses: | ||
| Purchase of copyright | 24,800 | |
| Design of company website | 1,200 | |
| Directors fees | 4,600 | |
| Donations to charitable institutions | 200 | |
| Depreciation expense | 1,640 | |
| Advertisement | 450 | |
| Professional fees | 448 | |
| General expenses | 3,640 | |
| Legal costs | 1,840 | |
| Loan repayment | 312 | |
| Provision for bad debts | 142 | |
| Impairment loss of a building | 280 | (39,552) |
| Net profit | 324,348 |
| 1. | On 1 July 2020, the company acquired Jilo Ltd., a manufacturing company for Sh.56,000,000 and took over all assets and liabilities, which included; |
| 1. | Assets | Sh."000" |
| 14,800 | |
| 1,400 | |
| 8,600 | |
| 1,500 | |
| 600 | |
| 840 | |
| Liabilities: | ||
| 6,000 | |
| 1,720 | |
| 1,480 |
| Jilo Ltd. had operated for only 6 months and had not claimed any investment allowances before it was closed down by the Environmental Authority. | |
| 2. | Turnover includes goods sold to the company's branch of Sh.72,000,000. It was established that at the end of the accounting period, 20% of these goods had not been sold by the branch. |
| 3. | Professional fees included: | Sh."000" |
| Management fees | 280 | |
| Tax consultancy fees | 148 | |
| Audit fees | 252 | |
| Preparing of tender documents | 185 | |
| Environmental assessment fees | 360 | |
| 4. | General expenses imcluded: | Sh."000" |
| Installation of Neon signs | 420 | |
| Car grant to a director | 1,800 | |
| Partition of an office block | 560 | |
| Directors Christmas party | 240 | |
| Branch closure costs | 180 | |
| Repayment of hire purchase loan | 120 | |
| 5. | Legal costs comprised: | Sh."000" |
| Drafting sale agreement between the company and Jilo Ltd. | 458 | |
| Defending a company against breach of contract | 386 | |
| Negotiating a bank loan | 168 | |
| Preparing copyright documents | 172 | |
| Drafting lease agreements (50 years) | 656 |
| 6. | Provisión for bad debts include 15% of debts amounting to Sh.600,000 from a company which was declared irrecoverable. |
| 7. | The corporate tax rate during the year was 25%. |
Required: | |
| (i) | A statement of adjusted taxable profit or loss for the year ended 31 December 2020. |
| (ii) | Tax liability and the instalments for the year 2020, assuming the actual profits were made. |
| 1. | The net loss for the year was Sh.22,160,000 after the following had been recorded: | ||
| Sh. | |||
| Income from trading activities of a foreign bank subsidiary | 980,000 | ||
| Gain on sale of shares | 294,000 | ||
| Fees and commission income | 1,460,500 | ||
| Interest from government treasury bills | 936,400 | ||
| Interest on deposits with other banks | 1,740,600 | ||
| Interest on loans and advances to customers | 12,460,300 | ||
| Contributions to deposit protection fund | 428,000 | ||
| Interest on customer deposits | 8,484,000 | ||
| Rent and rates | 864,000 | ||
| Directors emoluments | 1,480,000 | ||
| Income from foreign exchange dealings | 1,243,600 | ||
| Depreciation | 445,300 | ||
| Provision for interest expenses | 184,400 | ||
| Auditors fees | 236,800 | ||
| Loss on disposal of collaterals | 1,560,000 | ||
| Installment tax | 724,800 | ||
| Installation of a new online banking system | 1,820,000 | ||
| Staff costs | 1,680,000 | ||
| Operating lease rentals | 268,200 | ||
| Capital redemption reserve | 920,000 | ||
| 12% debenture stock | 1,200,000 | ||
| Purchase of double cabin pickup October 2020 | 2,400,000 | ||
| Profit and loss account | 964,000 | (Dr) | |
| Rebate on bills discounted | 296,000 | ||
| 2. | Staff costs include: | Sh. | |
| Provision for salary increase | 220,000 | ||
| Cost of negotiating loans for staff | 140,000 | ||
| Senior staff club membership | 360,000 | ||
| 3. | The online banking system was installed in May 2020 and it included the cost of computer software of Sh.200,000 and new computers at a cost of Sh.620,000. |
| Income | sh. |
| 25,000,000 |
| 125,000 |
| 190,000 |
| 160,000 |
| Expenditure | |
| 60,000 |
| 15,000 |
| 75,000 |
| 42,000 |
| 31,250 |
| 8,500 |
| 45,100 |
| 24,500,000 |
| 65,000 |
| 21,500 |
| General expenses | 65,000 |
| Balance as at 1 January 2018: | Hospital project Sh."000" | Office complex Sh."000" |
| Materials | 6,000 | 4,000 |
| Accrued salaries and wages | 1,500 | 1,200 |
| Plant (written down value) | 190,000 | 150,000 |
| Cost of work done | 200,000 | 200,000 |
| Value of works certified to date | 200,000 | 160,000 |
| Transactions undertaken during the year: | ||
| Material delivered to site | ||
| From store | 10,000 | 14,000 |
| From supplier | 100,000 | 128,000 |
| Plant purchased at cost | - | 120,000 |
| Sub contractors fee | - | 18,000 |
| Consultancy fees | 30,000 | 29,000 |
| Inspection fee | 10,000 | 5,000 |
| Salaries and wages | 120,000 | 180,000 |
| Head office expenses | - | 2,000 |
| Material transferred out | 10,000 | 17,000 |
| Material sales | - | 22,000 |
| Plant lease charges | 400 | 200 |
| Direct expenses | 3,000 | 2,000 |
| Cash received from sub contractor | 300,000 | 600,000 |
| Cumulative value of work certified as at 31 December 2018 | 700,000 | 860,000 |
| Value of work uncertified in the year | 30,000 | 42,000 |
| Balance carried forward: | ||
| Material on site | 40,000 | 50,000 |
| Material on site | 1,000 | 2,000 |
| 1 | Consultancy fees for the hospital project include Sh.40,000 prepaid for the year 2019. |
| 2 | Wear and tear allowance on plant was provided at the rate of 12.5% per annum. |
| 3 | Direct expenses accrued and not reflected above were as follows: |
| Hospital Sh."000" | Office Sh."000" | ||
| As at I January 2018 | 200 | - | |
| As at 31 December 2018 | 1,000 | 400 |
| Sh."000" | |
| Gross premiums received | 30,000 |
| Claims paid | 4,000 |
| Commission ceded | 800 |
| Commission accepted | 20 |
| Claims recovered on reinsurance | 3,000 |
| Foreign exchange gains realised | 3,500 |
| Dividends from life assurance fund | 2,000 |
| Rental income (commercial building) | 1,600 |
| Bad debts provision | 500 |
| Investment income | 1,200 |
| Reserve for unexpired risks (1 January 2018) | 1,000 |
| Legal expenses related to claims | 400 |
| Agency fees | 400 |
| Management fees | 120 |
| Repairs on rental properties | 200 |
| Entertainment expenses | 400 |
| Purchase of furnitur | 600 |
| Purchase of computer | 300 |
| Reinsurance premiums paid | 4,000 |
| Returned premiums | 5,000 |
| 1 | Reserves for unexpired risks on 31 December 2018 were Sh.200,000. |
| 2 | Claims outstanding on 1 January 2018 and 31 December 2018 were Sh.600,000 and Sh.900,000 respectively. |
| 3 | Premiums outstanding on 1 January 2018 and 31 December 2018 were Sh.6,000,000 and Sh.12,000,000 respectively. |
| 4 | Agency fees included Sh.200,000 relating to the life assurance business. |
| 5 | Legal fees included Sh.100,000 relating to settlement of a tax dispute. |
| 6 | Investment income comprised: |
| Sh. | ||
| Interest from bank | 850,000(net) | |
| Interest from treasury bonds | 350,000 (gross) |
| Sh. | |
| Rental income | 19,400,000 |
| Sale of timber used during construction | 288,600 |
| Sale of unused paint | 92,400 |
| Sh. | |
| Shops (cost) | 16,800,000 |
| Offices | 17,240,000 |
| Showroom | 9,460,000 |
| Sewerage system | 1,640,000 |
| 1 | A standby generator at a cost of Sh.600,000 and a powerhouse at a cost of Sh.280,000 were acquired. |
| 2 | CCTV surveillance cameras were installed at a cost of Sh.720,000. |
| 3 | A stone perimeter wall was constructed at a cost of Sh.1,480,000. |
| 4 | Electricity expenses incurred during the year amounted to Sh.492,800 while insurance expenses amounted to Sh.360,000. |
| 5 | Water tanks costed Sh.540,000 excluding the cost of water pumps of Sh. 248,000. |
| 6 | Land Cruiser motor vehicle of 3500cc whose cost was Sh. 2,800,000 was purchased and used for security surveillance purposes. |
| 7 | A parking bay for shoppers was constructed at a cost of Sh.4,670,000. |
| 8 | Other expenditure comprised purchase of fire extinguishers at Sh.182,000, county rates amounting to Sh.94,800, real estate agents commission amounting to Sh.138,400 and parking metres amounting to Sh.280,000. |
| Sh."000" | |
| Sale of crude oil - export | 834,900 |
| Sale of natural gas | 43,375 |
| Other incidental income | 4,537.5 |
| Production expenses | 217,800 |
| Administration costs | 290,000 |
| Intangible drilling costs | 45,375 |
| Non-productive rentals | 18,150 |
| Royalties on export | 4,537.5 |
| Royalties on local sales | 1,815 |
| Provision for restoration of wells | 136,125 |
| Custom duties on plant and machinery | 27,225 |
| Sh."000" | Sh."000" | |
| Turnover | 1,948,000 | |
| Cost of goods sold | (562,000) | |
| Gross profit | 1,386,000 | |
| Foreign exchange gain | 14,840 | |
| Goods transferred to a branch | 3,000 | |
| Insurance recovery for stolen motor vehicle | 968 | |
| Proceeds from sale of factory extension | 4,690 | |
| 1,409,498 | ||
| Less expenses: | ||
| Directors emoluments and staff costs | 16,890 | |
| Pension contribution for staff | 4,200 | |
| Staff recruitment costs | 1,148 | |
| Purchase of furniture | 420 | |
| Penalties on overdue VAT | 164 | |
| Impairment loss of factory extension | 150 | |
| Mortgage interest | 364 | |
| Goodwill written off | 162 | |
| Loan interest | 1,286 | |
| Depreciation | 1,480 | |
| General office expenses | 1,348 | (27,612) |
| Net profit | 1,381,886 |
| 1 | The cost of construction of the factory extension that was disposed of during the year was Sh.2,800,000. The factory extension was repainted at a cost of Sh.75,000 while the revaluation fee for disposal purposes was Sh.146,800. Impairment loss was due to increased insecurity in the area. |
| 2 | The branch sold 80% of the goods transferred from the head office, and 10% of these goods were sold to a customer who was later declared bankrupt. |
| 3 | Loan interest related to a loan advanced by Export Line Ltd. |
| 4 | Directors emoluments include management fees of Sh.4,840,000 paid to Export Line Ltd. |
| 5 | The capital expenditure records obtained from the company's books showed the following as at 1 January 2017: |
| Sh."000" | ||
| Factory building | 24,800 | |
| Perimeter wall around the factory | 6,820 | |
| Sewerage system | 2,400 | |
| Staff quarters | 7,600 | |
| Processing machinery | 3,700 | |
| Delivery van | 1,750 | |
| Forklift | 980 | |
| Parking and loading bay | 2,500 | |
| Furniture | 680 |
| The capital expenditure was incurred on 1 January 2016 when the company commenced operations in Kenya. The cost of the factory building includes a godown Sh.800,000, retail shop Sh.400,000, show room Sh.800,000 and staff canteen Sh.1,900,000. The capital allowances for year 2016 were claimed as appropriate. | |
| 6 | Cost of goods sold includes purchases of Sh.174,000,000 inclusive of value added tax at the rate of 16%. |
| Sh. | Sh. | |
| Gross profit | 11,520,000 | |
| Foreign exchange gain | 148,000 | |
| Dividends from Hazina Cooperative (net) | 68,000 | |
| Dividends from subsidiary company | 244,000 | |
| 11,980,000 | ||
| Less expenses | ||
| Directors emoluments | 6,480,000 | |
| Provision for depreciation | 250,000 | |
| Office furniture | 360,000 | |
| Computer software | 90,000 | |
| Donations | 25,500 | |
| Legal expenses | 648,000 | |
| Dividends paid | 120,000 | |
| Corporation tax | 375,000 | |
| Salaries and wages | 674,000 | 9,022,500 |
| Net profit | 2,957,500 |
| Sh. | |
| Income from cargo freight (Kenya/China) | 1,567,720 |
| Income from passengers and freight (Kenya/Middle East) | 1,765,000 |
| Income from passengers and freight (South Korea to Kenya) | 1,001,880 |
| Income from cargo loaded into aircraft on all routes | 630,000 |
| Salaries and other expenses | 1,548,000 |
| Accumulated depreciation on aircraft | 88,000 |
| General provision for bad debts | 72,000 |
| 1 | Salaries and other expenses include: | Sh."000" |
| Purchase of plane engines | 117,000 | |
| Use of airport facilities | 32,400 | |
| Hotel bills for first class passengers | 37,800 | |
| Accommodation for airline crew | 9,000 | |
| Gifts to airport staff | 10,800 |
| 2 | The airline has a fleet of four aircrafts whose total cost before accumulated depreciation Sh.360,000,000. |
| Crude oil exported | 1,400,000 barrels |
| Crude oil sold locally for further refining | 750,000 barrels |
| Exploration costs | Sh.16,000,000 |
| Incidental income from petroleum operations | Sh.1,250,000 |
| Management and administration expenses | Sh.14,000,000 |
| Depreciation | Sh.750,000 |
| Provision for bad debts (specific debts Sh.1,250,000) | Sh.2,450,000 |
| Non-productive rent | Sh.1,156,000 |
| Capital expenditure item | Date of acquisition | Location | Amount Sh. |
| Plant and machinery | July 2015 | Offshore | 6,000,000 |
| Fixtures and fittings | July 2015 | Offshore | 2,000,000 |
| Building | February 2016 | Offshore | 4,000,000 |
| Pipeline and storage tank | February 2017 | Offshore | 4,000,000 |
| Sh. "000" | Sh. "000" | |
| Turnover | 27,400 | |
| Less cost of goods sold | (11,000) | |
| Gross profit | 16,400 | |
| Add other income: | ||
| Capital gain on sale of assets | 468 | |
| Insurance recovery on motor vehicle | 450 | |
| Dividends from subsidiary company | 942 | |
| Foreign exchange gain | 124 | |
| Interest on fixed deposit | 300 | |
| 18,684 | ||
| Less expenditure: | ||
| General expenses | 4,840 | |
| Impairment loss | 390 | |
| Bad debts | 485 | |
| Advertising | 248 | |
| Donations to disaster fund | 150 | |
| Property tax | 136 | |
| Branch closure costs | 178 | |
| Legal expenses | 1,240 | |
| Staff costs | 3,496 | (11,163) |
| Net profit | 7,521 |
| 1 | The cost of goods sold includes opening stock valued at Sh.2,200,000, while closing stock was stated Sh.2,800,000. The opening stock was overcast by 10% and closing stock was undercast by 30%. |
| 2 | Legal expenses comprised: | Sh. "000" |
| Acquisition of bank loan | 90 | |
| Settling customers disputes | 42 | |
| Preparation of memorandum of association | 260 | |
| Liquidation costs | 468 | |
| Patent rights | 340 | |
| Notices to defaulting debtors | 40 | |
| 1,240 | ||
3 | General expenses comprised: | Sh. "000" |
| Purchase of processing machinery | 800 | |
| Purchase of factory building | 1,280 | |
| Provision for corporation tax | 394 | |
| Purchase of furniture | 360 | |
| Directors allowances | 480 | |
| VAT appeal | 120 | |
| Credit notes received | 135 | |
| Delivery van | 720 | |
| Debenture interest | 551 | |
| 4,840 |
| 4 | Bad debts analysis: |
| Bad debts account | ||||
| Sh. "000" | Sh. "000" | |||
| Bad debts | 178 | Balance brought down: Specific provision | 240 | |
| Balance carried down: Specific provision | 560 | General provision | 180 | |
| General provision | 167 | Profit and loss account | 485 | |
| 905 | 905 | |||
| 5 | Staff costs include: staff development cost Sh.96,000, staff welfare expenses Sh.200,000, pension contribution Sh.1,480,000 and personal computers Sh.360,000. |
| 6 | Advertising include: neon sign Sh. 129,000, depreciation of delivery van Sh.24,000, carriage outwards Sh.9,000 and hire of billboards Sh.86,000. |
| 1 | The company replaced all doors in the residential house with metaflic doors at a cost of Sh.96,000. |
| 2 | On 31 December 2016, the company sold the house at a price of Sh.8,000,000 after incurring the following expenses
|
| Sh. "000" | |
| Interest on advances | 464,800 |
| Contribution to deposit protection fund | 98,000 |
| Operating lease rentals | 6,480 |
| Interest on government securities | 14,600 |
| Interest paid on deposits | 4,740 |
| Interest on placement and bank balances | 2,660 |
| Loss on disposal of collaterals | 840 |
| Fees and commission expenses | 1,420 |
| Losses from investment in securities | 790 |
| Purchase of equipment | 1,200 |
| Depreciation | 496 |
| Transfer to statutory reserves | 626 |
| Losses on stock brokerage dealings | 348 |
| Gain on foreign exchange dealings | 1,470 |
| Discounts on bills purchased | 329 |
| Auditor's remuneration | 786 |
| Provision for bad and doubtful debts | 540 |
| Investment in government securities | 1,850 |
| Bills receivable and for collection | 314 |
| Guarantees and performance bonds | 378 |
| Interest accrued and paid | 1,974 |
| Bills for collection, acceptance and endorsement | 470 |
| Rebate on bills discounted | 292 |
| Provision for taxation | 400 |
| General charges recovered | 250 |
| Commission on exchange and brokerage | 784 |
| General insurance Sh. "000" | Life assurance Sh. "000" | |
| Investment income | 13,780 | - |
| Insurance premium received | 15,450 | 100,000 |
| Insurance and management fees | - | 25,000 |
| Premium returned | 374 | - |
| Reinsurance commission received | 1,360 | - |
| Premiums paid to reinsurance company | 4,680 | - |
| Agency expenses | 1,350 | 1,960 |
| Management expenses | 1,934 | - |
| Travelling expenses | 1,800 | 2,400 |
| Advertising | 364 | 820 |
| General expenses | 8,490 | 4,640 |
| Bad debts (specific) | 368 | 1,080 |
| Income from exercise of subrogation rights | 1,250 | - |
| Recoveries of reinsurance | 150 | - |
| Sh. | |
| Cost of acquiring a half acre plot | 8,000,000 |
| Obtained a fixed 15% mortgage loan (1 January 2011) | 10,000,000 |
| Conveyance fees | 200,000 |
| Valuation fees | 360,000 |
| Building materials (including government subsidy) | 4,600,000 |
| Labour for construction workers | 560,000 |
| Painting | 300,000 |
| Stamp duty | 320,000 |
| Received government subsidy on building materials | 600,000 |
| 1 | After two years of stay, Ms Chemu opted to sell the house. On 1 March 2015, she secured a buyer at а purchase price of Sh. 20,000,000. |
| 2 | The following expenses were incurred in the process of finding a buyer: |
| Sh. | ||
| Agent's commission | 400,000 | |
| Advertising expenses | 48,000 | |
| Valuation fees | 240,000 | |
| Repainting of the house | 80,000 | |
| Legal fees | 160,000 |
| 3 | The capital deductions accumulated for the two years (2013 and 2014) in respect of wear and tear and industrial building deduction amounted to Sh.420,000. |
| 4 | The construction of the house was financed through the mortgage loan, with the balance from the mortgage loan used to buy a motor vehicle (saloon). She repaid the full mortgage on 31 December 2014. |
| Income | Sh. | |
| Gross rental income | 840,000 | |
| Interest on savings account | 160,000 | |
| Interest on members loans | 1,840,000 | |
| Interest on fixed deposit account | 560,000 | |
| Interest on treasury bills | 435,000 | |
| 3,835,000 | ||
| Less expenses: | ||
| 156,000 | |
| 114,000 | |
| 496,000 | |
| 72,000 | (838,000) |
| 2,997,000 |
| Sh. | |
| Gross premium | 14,890,000 |
| Reserves for unexpired risk (1 January 2015) | 486,000 |
| Re-insurance premiums paid | 384,000 |
| Claims paid | 9,364,000 |
| Claims due: 1 January 2015 | 670,000 |
| 31 December 2015 | 800,000 |
| Life assurance fund | 1,240,800 |
| Commission on reinsurance ceded | 760,200 |
| Commission on reinsurance accepted | 1,940,000 |
| Foreign exchange loss | 342,500 |
| Rent income | 678,300 |
| Purchase of computers | 300,000 |
| Cost of computer software | 150,000 |
| Claims recovered on reinsurance | 562,800 |
| Agency expenses | 1,380,700 |
| Investment income | 1,824,300 |
| Management salaries | 948,200 |
| Repair of rented property | 28,800 |
| Neon signs | 48,000 |
| Depreciation | 150,400 |
| Legal expenses relating to claims | 64,800 |
| Rent and rates | 760,400 |
| ............................................................ | Sh. "000" | Sh. "000" |
| Gross profit | 59,220 | |
| Less: | ||
| Depreciation | 4,872 | |
| Legal expenses | 508 | |
| Loan interest | 819 | |
| Electricity | 378 | |
| Salaries and wages | 9,387 | |
| Telephone | 357 | |
| Patent royalties paid | 756 | |
| Travel expenses | 785 | 17,862 |
| 41,358 | ||
| Other income | ||
| Patent royalties received | 2,772 | |
| Loan interest received | 193 | |
| Dividend received from Shamba Ltd. | 5,628 | 8,593 |
| Net income | 49,951 |
| 1 | The loan interest paid included the following:
|
| 2 | Salaries and wages include passages of Sh.1,008,000 paid to a director who relocated to another country. |
| 3 | Travel expenses include Sh.155,000 paid to a new employee hired from a foreign country. |
| 4 | The loan interest received relates to a loan issued to an employee of the company to purchase a residential house. |
| 5 | Not included in other income was rent received of Sh.1,638,000 from one lease, gross of a loss of Sh.397,000 made on another lease. |
| 6 | An operating loss of Sh.189,000 had been carried forward for the previous eight years. This loss was included in salaries and wages expense as at 31 December 2014. |
| 7 | Royalties of Sh.145,000 were due for receipt as at 31 December 2014 but had not been recorded in the books. |
| 8 | Legal expenses included:
|
| 9 | Patent royalties received were from Shamba Ltd. while those paid were to a Ugandan company. |
| 10 | Capital allowances for the year ended 31 December 2014 were agreed with the commissioner Sh.1,932.000. |
| Sh."000" | |
| Geological costs | 84,680 |
| Exploratory drilling costs | 146,400 |
| Acquisition costs | 19,800 |
| Lifting costs | 12,600 |
| Lease operating costs | 64,780 |
| Costs of refining crude oil | 18,240 |
| Oil and natural gas revenue | 9,840,000 |
| Depletion and depreciation | 34,980 |
| Share based compensation | 24,670 |
| General and administrative expenses | 78,340 |
| Reversal of litigation expenses | 9,680 |
| Finance expenses | 6,400 |
| Decommissioning costs | 4,280 |
| Drilling machines | 18,300 |
| Investment income | 464,000 |
| Impairment losses | 5,680 |
| Intangible drilling costs | 3,420 |
| Professional fees | 2,600 |
| Loan repayment | 840 |
| Tractor | 1,500 |
| Derivatives oil losses | 480 |
| Restructuring expenses | 848 |
| Forklift | 1,800 |
| Fire Insurance | Motor Insurance | |
| Sh. | Sh. | |
| Gross premiums | 9,800,000 | 7,420,000 |
| Commission on re-insurance accepted | 400,000 | 180,000 |
| Claims recovered on re-insurance | 360,400 | 442,600 |
| Bad debts | 46,200 | 36,800 |
| Investment income | 240,000 | 380,000 |
| Purchase of furniture | 150,000 | 120,000 |
| Returned premiums | 840,000 | 560,000 |
| Re-insurance premium paid | 460,000 | 320,000 |
| Rent income on premises | 296,500 | - |
| Unrealised foreign exchange losses | 37,400 | 32,600 |
| Management salaries | 472,000 | 260,000 |
| Agency fees | 645,600 | 284,900 |
| Reserves for unexpired risk 1 January 2014 | 96,000 | 74,200 |
| Commission on re-insurance ceded | 248,600 | 384,700 |
| Repairs of rental premises | 64,900 | - |
| Claims paid | 1,640,000 | 1,200,000 |
| Claims outstanding: 1 January 2014 | 578,000 | 384,000 |
| 31 December 2014 | 682,000 | 470,000 |
| Legal expenses relating to claims | 64,000 | 82,000 |
| Dividends from life assurance fund | 167,800 | 140,800 |
| Purchase of motor cars (Saloon) | 2,400,000 | 2,500,000 |
| Deka Ltd Statement of income for the year ended 31 December 2014: | ||
| Sh. "000" | Sh. "000" | |
| Sales | 97,440 | |
| Less:cost of sales | (44,940) | |
| Gross profit | 52,500 | |
| Less: Expenses | ||
| Wages | 30,000 | |
| Depreciation | 7,500 | |
| Interest | 1,500 | |
| General expenses | 9,000 | (48,000) |
| 4,500 | ||
| (600) | ||
| 3,000 | ||
| Statement of Financial Position as at 31 December 2014 | ||
Fixed assets (net) | Sh."000" | Sh."000" 93,000 |
| Current asset | ||
| Stock | 6,000 | |
| Trade debtors | 2,250 | |
| Bank balance | 15,000 | 23,250 |
| Total assets | 116,250 | |
| Capital and liabilities | ||
| Ordinary share capital | 87,000 | |
| Debentures | 13,500 | |
| Retained profits | 10,000 | |
| Current liabilities | ||
| Trade creditors | 4,775 | |
| Accrued wages | 375 | |
| Proposed dividend | 600 | 5,750 |
| Total capital and liabilities | 116,254 | |
| Bank account for the year ended 31 December 2014 | |||
| Sh,"000" | Sh,"000" | ||
| Balance brought forward | 1,500 | Wages | 30,375 |
| Receipts from customers | 98,250 | General expenses | 90,000 |
| Payment to suppliers | 43,125 | ||
| Interest | 1,500 | ||
| Dividend | 750 | ||
| Balance carried down | 15,000 | ||
| 99,750 | 99,750 | ||
| 1 | Included in sales was Sh. 2,100,000 representing goods sold to the parent compa All sales to the parent company are made at 10% below normal selling price. |
| 2 | General expenses include: |
| Sh. | ||
| Floatation cost on issue of debentures | 1,400,000 | |
| Stamp duty on issue of debentures | 800,000 | |
| Conveyance fees on purchase of land | 2,000,000 | |
| Foreign exchange losses relating to the parent company's transactions | 560,000 |
| 3 | The written down values of fixed assets extracted as at 1 January 2014 Were follows |
| Sh. | ||
| Industrial Wilding | 17,100,000 | |
| Computers | 900,000 | |
| Processing machinery (imported from UK) | 19,906,250 | |
| Office partition | 400,000 | |
| Lorries (each 3 tonnes) | 4,500,000 | |
| Delivery vans | 3,600,000 | |
| Pick ups | 2,500,000 | |
| Furniture and fittings | 600,000 | |
| Office equipment | 800,000 |
| The company did not claim investment deduction on industrial building and processing machinery in year 2012 However, the company erroneously claimed industrial building deduction and wear and tear (Class IV) allowances on the industrial building and processing machinery respectively for years 2012 and 2013 Other assets were not included in computing the capital deductions. | |
| 4 | Included in the cost of processing machinery was import duty Sh. 1,200,000 and freight charges Sh. 400,000. |