Unit: Public Finance and Taxation
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Login to Access| Income | Sh. | Sh. |
| Sale of poultry | 3,200,000 | |
| Sale of livestock | 4,400,000 | |
| Sale of milk | 3,450,000 | |
| Sale of manure | 560,000 | |
| Sale of sugarcane | 1,456,200 | |
| Discount received | 180,000 | |
| Dividend received (net) | 530,000 | |
| Insurance claim | 3,120,800 | |
| 16,897,000 | ||
| Expenses: | Sh. | Sh. |
| Cost of seeds | 670,000 | |
| Cost of cane tubers | 3,860,000 | |
| Salaries and wages | 1,250,000 | |
| Depreciation for the year | 120,000 | |
| Cost of billboards | 250,000 | |
| Machine repairs | 620,000 | |
| Mulching costs | 50,000 | |
| Animal vaccines | 28,000 | |
| Installment tax paid for the year | 200,000 | |
| Directors emoluments | 1,500,000 | |
| Legal fees | 960,000 | |
| Pesticides | 12,900 | (9,520,000) |
| 7,376,100 |
| 1 | Dividend received from: | Sh. |
| Ukulima Co-operative Ltd | 340,000 | |
| Waridi Ltd. | 190,000 | |
| 530,000 | ||
| 2 | Legal fees comprised the following: | |
| Parking fines | 120,000 | |
| Debt collection from customers | 360,000 | |
| Stamp duty on land | 480,000 | |
| 960,000 |
| 3 | Insurance claim relate to compensation from insurance company for the loss of crops through floods during the year. |
| 4 | Machine repairs include Sh.184,000 spent on purchasing of farm machines during the year. |
| 5 | The company had the following assets at the commencement of the farming activity: |
| 5 | Asset | Cost (Sh.) |
| Solar panels | 140,000 | |
| Computers | 420,000 | |
| Chicken shed | 188,000 | |
| Furniture | 250,000 | |
| Dog kennels | 230,000 | |
| 2 tractors | 8,900,000 | |
| 2 saloon cars | 6,800,000 | |
| Irrigation networks | 410,000 | |
| 3 pick-up motor vehicles | 6,600,000 | |
| Farmhouse | 3,240,000 |
| 6 | A cattle dip and silo were constructed at a cost of Sh.860,000 and Sh.620,000 respectively and put into use from 1 October 2024. |
| 7 | The following assets were acquired on 1 July 2024 |
| Sh. | ||
| Delivery van | 2,200,000 | |
| Loose tools | 120,000 | |
| Wheelbarrows | 360,000 |
| Sh. | Sh. | |
| Gross profit | 29,600,000 | |
| Profit on disposal of furniture | 324,000 | |
| Foreign exchange gain | 180,000 | |
| Insurance compensation for stolen motor vehicle | 2,093,800 | |
| Interest from fixed deposits - Foreign accounts | 150,000 | |
| Dividends from investment (gross) | 200,000 | |
| 32,547,800 | ||
| Less expenses: | ||
| Salaries and wages | 9,340,000 | |
| Interest on capital: | ||
| Interest:Wambua | 180,000 | |
| Interest:Baraza | 250,000 | |
| Legal expenses | 1,720,000 | |
| Conveyancing fees | 128,200 | |
| Purchase of office equipment | 360,000 | |
| Stamp duty on lease agreement (100 years) | 84,000 | |
| Depreciation | 736,000 | |
| General allowance for bad debts | 145,800 | |
| Partner’s medical expenses | 52,400 | |
| Donation to a non-charitable organisation | 35,000 | (13,031,400) |
| Net profit | 19,516,400 |
| 1 | The reported gross profit includes value added tax (VAT) at the rate of 16% on sales amounting to Sh.6,960,000. |
| 2 | Legal expenses included: | Sh. |
| 124,800 | |
| 832,000 | |
| 328,000 | |
| 230,000 | |
| 205,200 |
| 3 | Salaries and wages include salaries to Wambua and Baraza of Sh.400,000 and Sh.600,000 respectively. |
| 4 | Wambua made drawings of Sh.248,000 with interest on drawings of Sh.15,000 being included in the interest from fixed deposits. |
| 5 | General allowance for bad debts included bad debts written off of Sh.34,600. |
| 6 | Commission paid to Baraza of Sh.80,000 was completely omitted from the books of the firm. |
Required: | |
| (i) | Prepare a statement of adjusted taxable profit or loss for the year ended 31 December 2024. |
| (ii) | A schedule of allocation of taxable income for each partner for the year ended 31 December 2024. |
| 1 | Basic salary of Sh.198,000 per month (PAYE deducted Sh.44,600 per month). |
| 2 | He is provided with an accommodation by the employer where he contributed Sh.8,000 towards house rent. The house was connected with a telephone line where the average bill per month amounted to Sh.7,200. The telephone bill is paid by the employer. |
| 3 | He is a member of a registered pension scheme, where he contributed Sh.30,000 per month towards the scheme, with the employer contributing similar amount. |
| 4 | He was provided with a motor car a Land Cruiser of 3500cc whose cost as at 1 January 2024 was Sh.2,400,000. |
| 5 | The house provided by the employer was fully furnished at a cost of Sh.380,000. |
| 6 | On 1 October 2024, he moved into his own private residence, which he had acquired on a 15% mortgage loan of Sh.6,000,000 on 1 April 2024. |
| 7 | On 1 April 2024, he obtained an insurance policy for his children’s education at a monthly premium of Sh.8,000. |
| 8 | He was out of his work station for five (5) days in the month of September 2024 on official duties. The employer paid him a per diem of Sh.4,700 per night. |
| 9 | His other incomes included:
|
| 10 | Assume the following in computation of taxable income and tax purposes:
|
| Sh. | |
| Trading profit before tax | 76,000,000 |
| Investment income | 16,990,000 |
| Rental income from commercial property | 6,920,000 |
| Leasing of photocopying machine | 1,000,000 |
| 1 | The following expenses were deducted in arriving at the trading profit before tax: |
| 1 | Sh. | |
| Salaries and wages | 1,400,000 | |
| Contribution to retirement fund | 2,000,000 | |
| Depreciation | 4,000,000 | |
| Bank interest | 1,800,000 | |
| Estimated debts (5% of total debts at year end) | 400,000 | |
| Legal and professional fees | 1,080,000 | |
| Repairs and maintenance | 400,000 | |
| Miscellaneous expenses | 1,500,000 | |
| Donations | 1,000,000 | |
| Instalment tax paid | 2,200,000 |
| 2 | Salaries and wages comprised of directors emoluments Sh.3,000,000, salary to directors domestic servants Sh.1,400,000 and salary to other staff Sh.5,000,000. |
| 3 | Bank interest include that of an overdraft taken by a senior manager of Sh.400,000 and mortgage interest for a director’s house Sh.600,000. |
| 4 | Legal and professional fees comprised of: |
| Sh. | ||
| Recovery of trade debts | 200,000 | |
| Renewal of lease - 100 years | 30,000 | |
| Tax penalties and interest | 500,000 | |
| Tax consultancy fees on tax appeals | 300,000 | |
| Directors loan collection | 50,000 | |
| 1,080,000 |
| 5 | Miscellaneous expenses include staff end of year party Sh.170,000 and parking fines Sh.30,000. |
| 6 | Donations were towards political campaign kitty. |
| 7 | Wear and tear allowance was agreed at Sh.2,800,000 for the year 2023 with the revenue authority. |
| 8 | Investment income comprised of: |
| 9 | Interest income: | Sh. |
| Fedha Bank (K) Ltd. | 2,760,000 (Gross) | |
| Fixed deposit in Lubandah Bank in Uganda | 4,930,000 (Gross) | |
| Sanlam money market fund | 3,400,000 (net) | |
| Dividend income: Dell Co. Ltd | 4,000,000 (net) | |
| Dividend income:Mtandao Cooperative Society | 1,900,000 (net) | |
| 16,990,000 |
| 9 | Rental income was arrived at after deducting the following expenses: |
| 9 | Sh. | |
| Mortgage interest | 400,000 | |
| Water meters installation | 860,000 | |
| Staff salaries | 720,000 | |
| Replacement of iron sheets roofs with roofing tiles | 2,400,000 |
| 1 | He received a monthly basic salary from Salab Insurance Group Ltd. of Sh.244,800 net of PAYE. The total PAYE deducted during the year amounted to Sh.607,200. |
| 2 | He received a monthly bonus of 20% of his basic salary during the year. |
| 3 | He attended a five day training for investment analysts organised by the professional body. The employer paid Sh.70,000 for his training and also paid a daily subsistence allowance of Sh.14,000 to cater for his expenses while in the training. |
| 4 | He has a life insurance policy where the annual premiums amount to Sh.180,000. He pays 30% of the premiums whereas the balance is paid by the employer on his behalf. |
| 5 | On 1 September 2023, he was provided with a leased saloon vehicle of 2600cc by the employer. The vehicle was acquired in January 2023 at Sh.2,800,000. The employer paid Sh.36,000 per month as lease charges for the vehicle. |
| 6 | Salab Insurance Group Ltd. has a medical cover for all senior management. He was entitled to a maximum cover of Sh.2,500,000 per annum although he utilised Sh.280,000 on medical bills during the year. |
| 7 | He paid subscription fees to his professional body amounting to Sh.18,000 during the year. |
| 8 | He has invested Sh.2,500,000 with Salab Insurance Group Ltd. money market fund. He received interest at the rate of 12% per annum in the year 2023. |
| 9 | His other incomes during the year include:
|
| 1 | Basic salary of Sh.300,000 per month net of pay as you earn (PAYE) of Sh.50,000 per month. |
| 2 | The employer paid for her passage of Sh.200,000 during the year. She used 30% of the amount to visit local tourist sites. |
| 3 | In March 2023, she bought 15,000 shares of the company at a price of Sh.30 per share although the market price was Sh.35 per share. At the end of the year she received a dividend of Sh.6,000. |
| 4 | She was provided with accommodation by the employer. The employer leased the house at a monthly rental charge of Sh.120,000. The house was fully furnished at a cost of Sh.400,000. She had a house servant whom the employer pays a salary of Sh.20,000 per month. |
| 5 | In the month of October 2023, she worked in the company’s headquarters in South Africa where she was tasked with a responsibility of training employees in a newly installed finance software. She received her salary for the month from the Kenya branch. |
| 6 | She was provided with a leased vehicle of 2000cc by the employer. The vehicle was leased from Betalite Motors at a monthly charge of Sh.60,000. Betalite Motors had bought the vehicle in January 2022 for Sh.3,200,000, but the value of the vehicle in January 2023 was Sh.2,400,000. |
| 7 | The employer paid for her life insurance cover amounting to Sh.240,000 during the year. |
| 8 | During the year, she fell sick and was admitted at a local private hospital. She paid a bill of Sh.180,000 which was reimbursed by the employer. The company has a policy that covers all senior managers and it provides for a maximum reimbursement of Sh.1,000,000 in a year. |
| 9 | Due to the nature of her work, the employer entered into an agreement with Laserbite hotel to be delivering her meals to the office from 1 April 2023. The cost of the meals was Sh.15,000 per month. |
| 10 | Her salary was adjusted upwards by Sh.30,000 per month on 1 November 2023 and backdated to 1 September 2023. |
| 11 | The employer contributed 15% of her basic salary to a registered pension scheme and she also contributed 7.5% to the same scheme. |
| 12 | She invested in the real estate and financial sector during the year where she earned the following incomes: |
| 12 | Sh. | |
| 1,200,000 | |
| 85,000 | |
| 255,000 | |
| 114,000 |
| Sh. | Sh. | |
| Sales | 5,780,000 | |
| General bad debts recovery | 75,000 | |
| Anticipated foreign exchange gain | 180,000 | |
| Capital gain on sale of land | 352,000 | |
| Insurance recovery on stolen vehicle | 320,000 | |
| Release of liability | 122,000 | |
| Interest from Ulinzi Sacco Ltd. | 34,000 | |
| Total income | 6,863,000 | |
| Less expenses: | ||
| Purchases | 3,706,000 | |
| Purchase of computers | 216,000 | |
| Repairs expenses | 682,000 | |
| Legal and professional fees | 816,000 | |
| Rent and rates | 244,000 | |
| Interest expenses | 166,000 | |
| General expenses | 642,000 | |
| Motor vehicle expenses | 560,000 | |
| Insurance | 187,000 | |
| Welfare expenses | 1,035,000 | |
| Audit and accounting fees | 95,000 | |
| Computer software and programs | 1,200,000 | |
| Travelling expenses | 64,000 | (9,613,000) |
| (2,750,000) |
| 1 | Legal and professional fees comprised: | ||
| Sh. | |||
| Legal fees on defense against alleged breach of trade contract | 180,000 | ||
| Legal fee on tax appeals | 64,800 | ||
| Land conveyance fees | 72,400 | ||
| Stamp duty | 36,600 | ||
| Negotiating a business loan | 25,400 | ||
| Recovery of bad debts | 45,000 | ||
| Signing a 100 year lease agreement | 128,400 | ||
| Purchase of partners private vehicle | 137,400 | ||
| Legal fee on renewal of patents | 126,000 | ||
| 816,000 | |||
| 2 | Repairs expenses comprised: | ||
| Sh. | |||
| Purchase of furniture | 260,000 | ||
| Designing and partioning a new office block | 341,000 | ||
| Repainting of old office block | 81,000 | ||
| 682,000 | |||
| 3 | General expenses included: | ||
| Sh. | |||
| Impairment of patent rights | 120,000 | ||
| Provision for general bad debts | 208,000 | ||
| Drawings of goods by partners | 314,000 |
| 4 | Purchases and sales were inclusive of value added tax (VAT) at the rate of 16%. |
| 5 | Closing inventory was valued at Sh.1,200,000 while opening inventory was valued at 10% of sales net of value added tax. Both opening and closing stocks were undervalued by 10% |
| 6 | Interest expenses include interest on partners’ capital of Sh.120,000 which was shared according to profit and loss sharing ratio. The partners agreed that they would not receive salaries until the business starts making profits. |
| Sh. | Sh, | |
| Turnover (inclusive of VAT at the rate of 16%) | 9,744,000 | |
| Profit on sale of motor vehicle | 260,000 | |
| Insurance compensation for stock destroyed by fire | 374,200 | |
| 10,378,200 | ||
| Less expenses: | ||
| Purchases | 2,880,000 | |
| New furniture | 400,000 | |
| Salaries and wages | 380,000 | |
| Legal expenses | 420,000 | |
| General expenses | 1,560,000 | |
| Corporation tax | 464,000 | |
| Advertisement | 520,000 | |
| Audit fees | 194,000 | |
| Office rent | 240,000 | |
| Purchased goodwill | 90,000 | |
| Repairs and maintenance | 360,000 | (7,508,000) |
| 2,870,200 |
| 1 | Purchases were overstated by 20% and includes carriage cost of Sh.20,000 for furniture for use in the business. |
| 2 | Legal expenses comprised: | Sh. |
| Conveyance fees - Company land | 40,000 | |
| Defending the company against tax evasion case | 68,000 | |
| Registration of trade mark | 42,000 | |
| Negotiation of goodwill | 40,000 | |
| Renewal of 100-year lease agreement | 36,000 | |
| Loan negotiation fees | 74,000 | |
| Defending company against trade dispute | 20,000 | |
| Negotiating employee salaries with Union | 100,000 | |
| 420,000 | ||
| 3 | General expenses included: | Sh. |
| General allowance on bad debts | 38,400 | |
| Office partitions | 60,000 | |
| Purchase of photocopier | 180,000 | |
| Purchase of computers | 350,000 | |
| Donations to charitable organisations | 124,000 | |
| Construction of sewerage plant | 680,000 | |
| 4 | Repairs and maintenance included: | Sh. |
| Purchase of metallic doors | 28,200 | |
| Purchase of motor vehicle engine | 54,000 | |
| Purchase of plastic tank | 60,000 | |
| Construction of fire exit | 184,000 | |
| 5 | Advertisement costs include software expenses for office computers at a cost of Sh.190,000. |
| 1 | He was entitled to a basic salary of Sh.400,000 per month (PAYE of Sh.120,000 per month was deducted). |
| 2 | He was also entitled to an annual bonus of Sh.120,000 during the year. The bonus for the year 2023 was however not paid until February 2024. |
| 3 | The employer provided him with a motor vehicle of 2600cc that had cost the company Sh.3,200,000 in the year 2021. The vehicle was valued at Sh.2,500,000 at the beginning of the year 2023. |
| 4 | His annual mortgage repayment of Sh.820,000 inclusive of interest of Sh.180,000 was settled by the employer. The loan was obtained from Elite Bank on 1 January 2023 to purchase own residential house. |
| 5 | The following deductions were made from his salary during the year: ...................................................................................... Sh. Subscription to Jenga Golf club 66,000 Contribution to a registered pension scheme 180,000 |
| 6 | He received a gross dividend of Sh.80,000 from his shares in Safari Real Estate Ltd. where the withholding tax was paid by the company. |
| 7 | His wife Janet Musyoka is employed by Bright Farmers Co-operative Society as a general manager at a basic salary of Sh.160,000 per month. |
| 8 | She is housed within the co-operative society’s farm where she contributes 5% of her basic salary as rent. She received free farm produce worth Sh.24,000 during the year. |
| 9 | Her other income comprised of:
|
| 10 | John Musyoka and his wife Janet Musyoka have been filing separate tax returns to the revenue authority. |
| 11 | Ignore computation of affordable housing levy. |
| Sh. | Sh. | |
| Sales | 93,800,000 | |
| Rental income (commercial properties) | 750,000 | |
| Dividend income (gross) | 560,000 | |
| Sundry receipts | 200,000 | |
| Gain on foreign exchange realised | 65,000 | |
| Interest on deposit with foreign bank | 48,000 | |
| Profit on disposal of machinery | 35,000 | |
| 95,458,000 | ||
| Less expenses: | ||
| Cost of goods sold | 66,750,000 | |
| Registration of patents | 145,000 | |
| Hosting of business website | 72,000 | |
| Purchase of a computer | 220,000 | |
| Staff salaries and wages | 5,620,000 | |
| Partners salary: James | 1,150,000 | |
| Partners salary:.Patrick | 1,140,000 | |
| Audit fees | 225,000 | |
| Insurance | 350,000 | |
| Purchase of office machinery | 480,000 | |
| Commission to partners: James | 2,120,000 | |
| Commission to partners:.Patrick | 2,180,000 | |
| Stamp duty | 126,000 | |
| Impairment of goodwill | 114,000 | |
| Bank charges | 65,000 | |
| Fixing of neon sign | 80,000 | |
| VAT paid | 180,000 | |
| Repair of machinery | 18,000 | |
| Purchase of telephone equipment | 53,000 | |
| Legal fees | 280,000 | |
| Gift to employees for meeting target | 160,400 | |
| Loan to employees written off | 138,400 | |
| Cost of relocating to new premises | 275,600 | |
| Redundancy payments to employees | 1,184,300 | |
| Investment seminar for retired employees | 325,500 | |
| Depreciation | 185,000 | (83,712,200) |
| Net profit | 11,745,800 |
| 1 | Insurance comprises: | Sh. |
| Insurance cover for imported machinery against loss on transit | 150,000 | |
| Insurance cover for business premises | 200,000 | |
| 350,000 |
| 2 | Legal fees include Sh.25,000 incurred on drafting a loan arrangement between the partnership and a bank. |
| 3 | Cost of goods sold include carriage cost of a machine to the business premises amounting to Sh.34,000. |
| 4 | Closing inventory was overvalued by Sh.25,000 and opening inventory undervalued by Sh.48,000. |
| 5 | Dividend income was from investment in share in a local Farmers Cooperative Society. |
| Bright Decor Ltd. Statement of profit or loss for the year ended 31 December 2022 |
| Sh.“000” | Sh.“000” | |
| Sales | 95,000 | |
| Cost of sales: | ||
| Opening inventory | 6,000 | |
| Purchases | 40,000 | |
| Closing inventory | (10,000) | (36,000) |
| Gross profit | 59,000 | |
| Other incomes: | ||
| Interest from Bestway Bank (gross) | 1,800 | |
| Insurance recovery - Pick-up | 1,000 | |
| Profit from sale of marketable securities | 900 | |
| Dividend from Tea Co-operative Society (net) | 600 | |
| Income from sale of saw dust | 2,100 | |
| 65,400 | ||
| Less expenses: | ||
| Finance charges | 500 | |
| Insurance | 2,000 | |
| Salary and wages | 4,800 | |
| NHIF contributions - Staff | 300 | |
| Intangible assets written off | 1,400 | |
| Legal expenses | 2,000 | |
| Bad debts | 200 | |
| Repairs and maintenance | 2,500 | |
| Floating expenses | 1,400 | |
| Pick up scrapped in an accident | 2,000 | |
| Depreciation | 3,400 | |
| Donations to local church | 800 | |
| Rates and licenses | 4,000 | |
| Directors allowances | 4,000 | |
| Travelling expenses | 6,000 | |
| Pension to retired staff | 8,700 | |
| Entertainment | 1,100 | |
| Computer software purchase | 300 | |
| Telephone expenses | 200 | (45,600) |
| Net profit for the year | (19,800) |
| 1 | Directors allowances include Sh.1,200,000 paid to defend one of the directors in a private legal suit. |
| 2 | Legal expenses comprise: | Sh.“000” |
| Preparing lease for 100 years | 800 | |
| Collection of business debts | 200 | |
| Defence against claims of breach of trade agreement | 800 | |
| Purchase of directors private residence | 200 | |
| 2,000 |
| 3 | 40% of entertainment expenses relate to one of the directors entertainment while on a family holiday in Paris. |
| 4 | Inventories were valued at 10% below the cost price consistently. |
| 5 | The cost of floating shares was in respect of a private placement where 30% of the shares were sold. |
| 6 | Capital allowances were agreed at Sh.2,000,000. No investment allowance had been claimed in respect of the computer software. |
| 7 | Bad debts include an estimated default of Sh.80,000. |
| 1 | She received a monthly basic salary of Sh.204,000 from United Homes and a bonus equal to one month basic salary for her exemplary performance. PAYE deducted during the year was Sh.607,200. |
| 2 | Terminal dues received from her previous employer for services not rendered amounted to Sh.1,400,000. Her 4-year contract of employment was terminated after 2 years in December 2021 and payment was made as per the employment contract. |
| 3 | A commission of Sh.100,000 was paid to her for promoting the sale of houses where two houses were sold to the customers she had referred to the business. |
| 4 | She attended a five day master class for financial analysts organised by her professional body and the employer paid Sh.100,000 for the seminar and she was paid daily subsistence allowance of Sh.12,000 by the employer. |
| 5 | She was given an offer to buy a house from United Homes at 20% below the market selling price. She accepted the offer and bought one house whose market selling price was Sh.8,000,000. |
| 6 | She has a fixed deposit account of Sh.2,500,000 at Maisha Bank Ltd. from which she received interest of Sh.150,000 during the year. |
| 7 | She has a life insurance policy where she pays 60% of the premiums while the employer pays the balance. Annual premiums as per the insurance policy was Sh.240,000 for the year. |
| 8 | She was provided with a leased saloon car of 2000cc by the employer for both personal use and official duties on 1 September 2022. The saloon car had an initial cost of Sh.2,800,000 and lease charges were Sh.36,000 per month. |
| 9 | United Homes has a medical cover for all management staff. She was entitled to a maximum cover of Sh.880,000 per year although she utilised Sh.420,000 on medical costs during the year. |
| 10 | She paid subscription fees to her professional body amounting to Sh.24,000 during the year. |
| 11 | Her other incomes include:
|
| 1 | His basic salary was Sh.120,000 per month net of PAYE of Sh.48,000 per month. |
| 2 | He was provided with lunch by the employees from 1 August 2022 of Sh.6,000 per month. |
| 3 | He enjoyed a medical allowance from the company which is only available to senior managers. The allowance was Sh.12,500 per month. |
| 4 | The company paid for him Life Insurance premiums of Sh.4,800 per month for each member of his family from 1 September 2022. This included himself, wife and the daughter. |
| 5 | During the year, the employer paid a total of Sh.200,000 as school fees for his daughter. This amount was allowed in the company’s income statement. |
| 6 | He was provided with a fully furnished house with electricity and water. The employer paid monthly rent of Sh.50,000 for the house and deducted 5% of his basic salary for rent. The cost of furniture was Sh.240,000 while the monthly electricity bill and water bill amounted to Sh.1,800 and Sh.1,000 per month respectively. |
| 7 | On 1 October 2022, the company provided him with the following:
|
| 8 | He contributed 15% of his monthly basic salary towards a registered pension scheme while the employer contributed 10% of his basic salary towards the same scheme. |
| 9 | Other incomes for the year include: He has invested in the real estate and from his rental houses, he reported a net rental income of Sh.2,400,000 after deducting the following expenditure: |
| Sh. | ||
| 9 | Caretaker wages | 420,000 |
| Fencing cost | 640,000 | |
| Loan repayment | 320,000 | |
| Monthly rental income tax | 487,820 | |
| Insurance, rent and rates | 248,000 | |
| Advertising | 360,000 | |
| Partitioning and CCTV cameras | 222,000 | |
| Repairs and maintenance | 268,200 | |
| 2,966,020 |
| 10 | Dividend received from United Millers Co-Operative Society was Sh.306,000 net and interest received from Fanaka Bank Ltd. was Sh.240,000 net. |
| Sky Rift Growers Ltd. Statement of profit or loss for the year ended 31 December 2022 |
| Sh. | Sh. | |
| Sales | 28,000,000 | |
| Dividend income | 270,000 | |
| Interest income (net) | 264,000 | |
| Surplus from pension scheme | 120,000 | |
| 28,654,000 | ||
| Expenses | ||
| Administration expenses | 1,570,000 | |
| Clearing land and planting roses | 8,940,000 | |
| General insurance | 200,800 | |
| Bad debts | 460,000 | |
| Lease expenses | 600,000 | |
| Donations | 42,000 | |
| Repairs and renewals | 252,000 | |
| Loss on sale of investment | 96,000 | |
| Legal and professional fees | 300,000 | |
| Transport costs | 296,000 | |
| Depreciation | 840,000 | |
| Farm works | 12,640,000 | |
| Loan repayment | 280,000 | |
| Pension contribution | 350,000 | |
| Compensation to staff for work injury | 420,600 | |
| Motor vehicle expenses | 186,000 | (27,473,400) |
| 1,180,600 |
| 1 | The company’s main activity is growing flowers for local and export market. |
| 2 | The company has leased the land on which it grows flowers from Enkalop Roses Ltd. One of its shareholders, Enkalop Roses Ltd. owns 25% of the share capital in Sky Rift Growers Ltd. |
| 3 | Donations were made to the National Flowers Council to support its activities. |
| 4 | The loss on sale of investment relates to sale of shares that Sky Rift Growers Ltd. held in a quoted company |
| 4 | Bad debts comprise: | Sh. |
| General provision | 220,000 | |
| Specific provision | 240,000 |
| 5 | The surplus from pension scheme arose after an actuarial valuation was carried out by a firm of actuaries. |
| 6 | Dividend income was received from Enkalop Roses Ltd. |
| 8 | Repairs and renewals were analysed as follows: |
| 8 | Sh. | |
| Repair of plough | 97,200 | |
| Repair of green house | 34,800 | |
| Office partitions | 120,000 | |
| 252,000 |
| 9 | Farmworks cost comprises: | Sh. |
| Farmhouse where the farm manager resides | 5,100,000 | |
| Irrigation system (including water pump Sh.120,000) | 800,000 | |
| Electrification network | 1,200,000 | |
| Construction of gabions | 300,000 | |
| Construction of godowns at the firm | 2,400,000 | |
| Plough and lawn mower | 380,000 | |
| Labour quarters for workers | 1,800,000 | |
| Farm implements | 540,000 | |
| Surveillance cameras | 120,000 | |
| Total | 12,640,000 |
| Sh. | Sh. | |
| Gross profit | 4,200,000 | |
| Sale of delivery van proceeds | 1,400,000 | |
| Expenses: | ||
| Advertisement | 380,000 | |
| Depreciation | 140,000 | |
| Rent and rates | 120,000 | |
| General expenses | 450,000 | |
| Value added tax (VAT) | 150,000 | |
| Bad debts | 250,000 | |
| Purchase of furniture | 620,000 | |
| Salaries and wages | 900,000 | |
| Legal fees | 540,000 | |
| Goodwill written off | 225,000 | |
| Interest on capital - Mambo | 80,000 | |
| Interest on capital - Moto | 140,000 | (4,003,000) |
| Net profit | 1,597,000 |
| 1 | Advertisement expenses include Sh.120,000 spent on acquisition of a neon sign. |
| 2 | General expenses comprised the following: | Sh. |
| Partners end year party | 150,000 | |
| Staff catering services | 90,000 | |
| Embezzlement by cashier | 210,000 |
| 3 | Bad debts represented the general provision made for the year. |
| 4 | Legal fees comprised the following: | Sh. |
| Parking fines | 130,000 | |
| Settling a dispute with a customer | 200,000 | |
| Appeal on a tax assessment | 210,000 |
| 5 | Investment allowances were agreed at Sh.380,000 with the Commissioner of domestic taxes. |
| 1 | Sales for the year were reported as follows: |
| 1 | Sh. | |
| January - April | 1,800,000 | |
| May - August | 2,200,000 | |
| September - December | 3,200,000 |
| 2 | The business purchased goods four times during the year as follows: |
| Sh. | ||
| January | 600,000 | |
| May | 800,000 | |
| September | 200,000 | |
| December | 500,000 |
| 3 | Expenses incurred during the year were as follows: |
| Sh. | ||
| Salaries and wages | 260,000 | |
| Electricity expenses | 180,000 | |
| Legal expenses | 100,000 | |
| Stationery | 60,000 | |
| Water expenses | 28,000 | |
| Rent expenses | 280,000 |
| 1 | He was entitled to a basic salary of Sh.1,200,000 per annum net of PAYE of Sh.250,000 per annum. |
| 2 | The employer provided him with a motor vehicle of 2600cc that had cost Sh.2,800,000, from 1 August 2022. |
| 3 | Sitting allowance for attending the university meetings at the head office for the year amounted to Sh.120,000 out of which 30% was in relation to reimbursement of travel costs incurred between the month of January 2022 to July 2022. This amount was paid in January 2023. |
| 4 | The employer had provided him with a house within the university where he lived up to 30 June 2022. The market rental value of the house was Sh.45,000 per month and he contributed Sh.10,000 per month towards the rent. |
| 5 | On 1 July 2022, he moved to his residential house which he purchased using his savings from Home Ownership Savings Plan (HOSP) where he was contributing Sh.8,000 per month up to 30 June 2022. He also obtained a mortgage loan from Technology SACCO to top up the savings from HOSP. For the 6 months up to 31 December 2022 he had paid Sh.360,000 (inclusive of interest Sh.100,000) for the mortgage loan. Half of this amount was reimbursed by the employer at year end. |
| 6 | Technology SACCO paid him Sh.24,000 net as dividend on his shares and interest of Sh.48,000 gross on his deposits. |
| 7 | The following deductions were made from his salary during the year: |
| 7 | Sh. | |
| Family life insurance premiums | 48,000 | |
| Subscription to ICT Association | 16,000 | |
| Contribution to registered pension scheme | 300,000 |
| 8 | He enrolled for an online Cyber Security Certification course in September 2022 and the employer paid his fee of Sh.60,000. |
| 9 | His wife Erica Ebala works for an IT Consultancy firm where she received a basic salary of Sh.60,000 per month and other benefits from employment as follows:
- Part time IT Consultancy (Sh.120,000) - Royalties on sale of literature books Sh.95,000 net of tax at source. |
| 10 | Oscar Ebala and his wife have a tradition of filing tax returns separately to the Revenue Authority. |
Required: | |
| (i) | Compute the separate taxable income for Oscar Ebala and his wife for the year ended 31 December 2022. |
| (ii) | Determine tax payable (if any) on income computed in (c) (i) above. |
| Sh. “000” | Sh. “000” | |
| Turnover | 760,000 | |
| Cost of sales | (296,000) | |
| Gross profit | 464,000 | |
| Other income | ||
| Provision for foreign exchange gain | 84,000 | |
| Gain on sale of motor vehicle | 28,000 | |
| Release of liability | 32,000 | |
| Refund of excise duty | 16,000 | |
| Investment income (gross) | 24,000 | |
| 648,000 | ||
| Less expenses | ||
| Purchase of trademark | 48,800 | |
| Design of company website | 12,400 | |
| Directors fees | 28,000 | |
| Donations to charitable institutions | 2,400 | |
| Depreciation expense | 3,240 | |
| Marketing expenses | 5,900 | |
| Management and professional fees | 1,896 | |
| General expenses | 6,000 | |
| Legal costs | 5,400 | |
| Loan repayment | 2,600 | |
| Allowance for doubtful debts | 2,250 | |
| Impairment loss of property | 1,500 | (120,386) |
| Net profit for the year | 527,614 |
| 1 | On 1 April 2022, the company acquired the following assets: | Sh.“000” |
| Factory building | 28,800 | |
| Warehouse | 2,800 | |
| Processing machinery | 16,000 | |
| Lorry (4 tonnes) | 3,500 | |
| Drainage system | 2,600 | |
| Saloon car | 4,840 | |
2 | Management and professional fees comprised | Sh.“000” |
| Development of a strategic plan | 1,280 | |
| Tax consultancy fees | 208 | |
| Audit fees | 152 | |
| Environmental assessment fees | 256 | |
| 1,896 | ||
3 | General expenses included: | Sh.“000” |
| Installation of neon sign | 820 | |
| Car grant to a director | 2,800 | |
| Installation of processing machine | 1,560 | |
| Staff Christmas party | 240 | |
| Retrenchment costs | 580 | |
| 6,000 | ||
4 | Legal fees comprised: | Sh.“000” |
| Defence against claims of breach of trade agreement | 1,450 | |
| Renewal of Kenya Association of Manufacturers Membership | 680 | |
| Negotiating a bank loan | 1,250 | |
| Preparation of employment contracts | 1,250 | |
| Drafting lease agreement – 60 years | 852 | |
| 5,400 |
| 5 | Release of liability was in respect of a loan obtained from one director who decided to write off the loan as it was due for over four years. |
| Sh. | |
| Valuation costs | 247,000 |
| Advertisement | 52,000 |
| Commission to buyer-seeking agents | 1,850,000 |
| Sh. | ||
| Salary (sales person) | 1,050,000 | |
| VAT paid | 180,000 | |
| Rent | 680,000 | |
| Electricity | 30,000 | |
| Furniture and fittings | 250,000 | |
| Computers | 300,000 |
| Sh. | Sh. | |
| Sales | 64,000,000 | |
| Less: Cost of sales | (42,400,000) | |
| Gross profit | 21,600,000 | |
| Other incomes: | ||
| Gain on disposal of property | 280,000 | |
| Dividend income | 800,000 | |
| Sundry income | 450,000 | |
| Interest income | 420,000 | |
| Total income | 23,550,000 | |
| Expenditure: | ||
| Preliminary expenses | 1,540,000 | |
| General insurance | 424,600 | |
| Legal costs | 820,000 | |
| Medical expenses | 36,200 | |
| Donations | 980,000 | |
| General provision for bad debts | 360,000 | |
| Household expenses | 845,000 | |
| Depreciation | 148,200 | |
| Salaries and wages | 1,560,000 | |
| Miscellaneous expenses | 236,000 | |
| Advertising expense | 192,400 | (7,142,400) |
| Net profit | 16,407,600 |
| 1 | Dividend income was received from: | |
| Sh. | ||
| Apex Ltd. (Associate company) | 240,000 Gross | |
| Jijenge Co-operative Society | 180,000 Net | |
| Tawah Ltd. Company (Uganda) | 380,000 Gross | |
| 2 | Interest income was received from: | |
| Sh. | ||
| Tenzi Sacco Ltd. | 285,000 Net | |
| Tilda Limited | 135,000 Gross |
| 3 | Donations include Sh.340,000 made to a golf club during a national golf tournament. The balance was made to an organisation involved in household poverty reduction campaigns, and it is a tax exempt organisation. |
| 4 | Inventories at each year end has consistently been undervalued by 20%. Closing inventory amounted to Sh.2,600,000 and included a photocopy machine of Sh.180,000. |
| 5 | Sundry income represents recovery of bad debts previously allowed as a deduction against taxable income of Sh.200,000 and insurance recovery on stolen cash while in transit of Sh.250,000. |
| 6 | Miscellaneous expenses comprised of tools and implements of Sh.180,000 and computer software purchased at a cost of Sh.56,000. |
| 7 | Advertising expense includes annual trade fair fee of Sh.40,000 and Sh.50,000 fee for renewing billboards advertising license. |
| 8 | Legal costs include Sh.236,000 incurred in successfully defending the company against allegations of breach of contract, Sh.180,000 in respect of renewal of trademark, and Sh.40,000 in respect of an appeal against VAT assessment by the revenue authority. |
| 9 | Sales and purchases are quoted inclusive of VAT at the rate of 16%. Purchases for the year amounted to Sh.43,600,000 while opening inventory was valued at Sh.1,400,000. |
| 10 | Medical expenses represent reimbursements to staff for medical bills paid. The medical scheme only covers senior employees. |
| 1 | His employment contract provided for the following: | |
| Sh. | ||
| Basic monthly salary | 182,500 | |
| Transport allowance per month | 12,000 | |
| Leave pay (paid in December) | 60,000 |
| 2 | He was accommodated in a company owned house where he was deducted Sh.25,000 per month as nominal rent. If the house had been rented at market value, the company could have been charging monthly rentals of Sh.45,000. The company furnished the house for him at Sh.260,000. |
| 3 | He was paid Sh.120,000 as a labour day award by the company for being the most hard working and committed employee during the year. |
| 4 | The company has a registered pension scheme for its employees where it contributes 15% of each employees’ basic salary. Henry Musoki contributed 10% of his monthly basic salary towards the scheme. |
| 5 | He was enrolled to a medical scheme with Bahati Insurance Ltd. where he spent Sh.230,000 on medical bills during the year. The medical scheme catered for senior employees only. |
| 6 | His wife was given goods worth Sh.180,000 by the company during the Christmas season. |
| 7 | The company provided him with a cook and a security guard from 1 October 2021 where it paid them monthly salaries of Sh.15,000 and Sh.20,000 respectively. |
| 8 | On 1 July 2021, he secured an education insurance policy for his child at an annual premium of Sh.150,000 payable by the company. |
| 9 | He was out of the work station in the month of September 2021 for 8 days for which he was paid a daily per diem allowance of Sh.5,000. |
| 10 | PAYE deducted by the company from his salary was Sh.46,500 per month. |
| Sh. | ||
| Gross profit | 32,000 | |
| Less: General expenses | 1,400 | |
| Loan repayment | 1,600 | |
| Directors fees | 4,200 | |
| VAT paid | 2,700 | |
| Depreciation | 5,700 | |
| Salaries and wages | 2,400 | |
| Donations to a political party | 780 | |
| Interest expense | 4,200 | |
| Instalment tax paid | 600 | |
| Dividends paid | 1,005 | |
| Repairs and maintenance | 2,250 | (26,835) |
| Net profit for the year | 5,165 |
| 1 | On 1 January 2021, Parkim Ltd. purchased an industrial building from Samba Ltd., a contractor for Sh.200 million. The following details were availed that comprised the total purchase price for the industrial building: |
| 1 | Sh.“000” | |
| Land | 22,000 | |
| Demolition of old building site | 10,000 | |
| Labour quarters | 60,000 | |
| Factory building | 90,000 | |
| Perimeter wall | 5,000 | |
| Drainage and sewerage system | 13,000 | |
| 200,000 |
| 2 | The factory building above houses a warehouse costing Sh.7,000,000, administration block costing Sh.7,000,000 and a showroom at a cost of Sh.4,000,000. |
| 3 | Parkim Ltd. purchased and installed a processing machinery in the factory at a cost of Sh.40,000,000 on 2 January 2021 and started manufacturing leather products. The cost of processing machinery included workshop machine and a boiler at a cost of Sh.5,000,000 and Sh.6,000,000 respectively. |
| 4 | The following additional assets were acquired during the year ended 31 December 2021:
|
| 5 | Interest expense include: | |
| - Hire purchase interest for the computers | 140,000 | |
| - Interest on overdue loan | 200,000 | |
| - Provision for interest on a loan to be obtained to expand the business | 752,000 | |
| - Interest on unpaid tax | 448,000 |
| 6 | Gross profit included anticipated foreign exchange gain of Sh.2,000,000 and a reduction in general bad debts of Sh.620,000. |
| Sh. | Sh. | |
| Gross profit | 7,020,000 | |
| VAT refund | 102,500 | |
| Foreign exchange gain | 485,000 | |
| Dividend income (net) | 562,500 | |
| Profit on disposal of furniture | 591,000 | |
| Rental income | 415,000 | |
| 9,176,000 | ||
| Less expenses: | ||
| Insurance premiums | 480,000 | |
| Legal fees | 1,556,250 | |
| Depreciation | 575,000 | |
| Repairs and maintenance | 2,250,000 | |
| VAT paid | 233,750 | |
| Sundry expenses | 2,702,500 | |
| Interest on capital: Kamala | 407,500 | |
| Interest on capital: Susan | 185,000 | |
| Interest on capital: Kubasu | 146,000 | |
| Motor vehicle expenses | 528,500 | |
| Custom duty | 227,500 | |
| Accountancy fees | 575,000 | |
| Bad and doubtful debts | 155,000 | |
| Rates and rent | 410,000 | |
| Salaries and wages | 1,700,000 | (12,132,000) |
| Net loss | (2,956,000) |
| 1 | Insurance premiums include Sh.282,500 paid to insure Susan’s private car. |
| 2 | Legal fees include: | |
| Sh. | ||
| Parking fines | 150,000 | |
| Settling a dispute with a customer | 102,500 | |
| Appeal against a tax assessment | 62,500 | |
| Court expenses for breach of a contract | 400,000 | |
| Preparation of tender documents | 235,000 | |
| 3 | Sundry expenses include: | |
| Sh. | ||
| Interest charged on hire purchase | 425,000 | |
| Cash embezzled by the cashier | 565,000 | |
| Registration of a trade mark | 281,250 | |
| 4 | Repairs and maintenance comprised the following: | |
| Sh. | ||
| Repair of furniture | 22,500 | |
| Installation of surveillance cameras | 812,500 | |
| Cost of office furniture | 525,000 |
| 5 | The partners took goods for personal use which had a cost price Sh.225,000. The gross profit margin was 20%, as recorded in partnership books of account. |
| 6 | The investment allowances were agreed with the revenue authority at Sh.1,475,000 during the year ended 31 December 2021. |
| 7 | Salaries and wages included salaries to partners as follows: Sh. Kamala 600,000 Susan 450,000 Kubasu 225,000 |
| Sh. | ||
| Commuter allowance | 180,000 | |
| Meals | 35,000 | |
| Residence telephone bills | 60,000 | |
| Entertainment allowance | 120,000 |
| Sh. | Sh. | |
| Sales | 17,940,000 | |
| Opening stock | 1,245,000 | |
| Purchases | 9,887,000 | |
| Closing stock | (2,162,000) | (8,970,000) |
| Gross profit | 8,970,000 | |
| Profit on sale of furniture | 1,359,300 | |
| Insurance compensation for stolen car | 713,000 | |
| Discount received | 382,100 | |
| Farming income | 192,050 | |
| Dividend income (net) | 517,500 | |
| 12,133,950 | ||
| Less Expenses: | ||
| Mortgage interest | 552,000 | |
| Furniture at cost | 138,000 | |
| Depreciation | 529,000 | |
| General expenses | 3,243,000 | |
| Salaries and wages | 4,357,000 | |
| Custom duty | 209,300 | |
| Conveyance fee | 195,500 | |
| Legal expenses | 1,867,500 | |
| Repair and maintenance | 2,070,000 | |
| Value Added Tax (VAT) paid | 94,300 | |
| Interest on capital | 959,100 | |
| Bank charges | 138,000 | |
| Rent and rates | 377,200 | |
| Auditing and accountancy fees | 529,000 | |
| Motor vehicle expenses | 486,220 | |
| Insurance premiums | 441,600 | (16,186,720) |
| Net loss | (4,052,770) |
| 1 | Mortgage interest related to a partners residential house. |
| 2 | Insurance premiums include Sh.259,900 paid to insure Wekesa's private car. |
| 3 | The investment allowances were agreed with the revenue authority at Sh.1,357,000 during the year ended 31 December 2021. |
| 4 | The partners took goods for personal use which have recorded as sales which had a cost price of Sh.207,000. The gross profit margin was 20%. |
| 5 | Salaries and wages included: | Sh. |
| Kalebu | 1,035,000 | |
| Wekesa | 1,380,000 | |
| Babu | 1,150,000 | |
6 | Interest on capital comprised: | Sh. |
| Kalebu | 374,900 | |
| Wekesa | 170,200 | |
| Babu | 414,000 | |
7 | Legal fees included: | Sh. |
| Preparation of tender document | 287,500 | |
| Parking fines paid to county government | 138,000 | |
| Court charges for breach of contract | 368,000 | |
| Appeal against tax assessment | 75,000 | |
| Defending a partner in a local committee | 216,200 | |
8 | General expenses included: | Sh. |
| Embezzlement by cashier | 678,000 | |
| Registration of trademark | 337,500 | |
| Office partition | 510,000 | |
| Directors' christmas party | 575,000 | |
9 | Repairs and maintenance comprised of: | Sh. |
| New office tables | 280,000 | |
| Laptops and computers | 430,000 | |
| Fixing broken chairs and tables | 116,000 |
| Sh. | Sh. | |
| Sales | 8,678,000 | |
| General bad debts reduction | 112,000 | |
| Unrealized foreign exchange gain | 270,000 | |
| Capital gain on sale of shares | 528,000 | |
| Recovery from insurance on stock stolen | 480,000 | |
| Discount received | 184,000 | |
| Dividends from Safari Cooperative Society | 51,000 | |
| Total income | 10,303,000 | |
| Less Expenses: | ||
| Purchases | 4,263,000 | |
| Purchase of computers software | 324,000 | |
| Partners salaries | 1,296,000 | |
| Legal expenses | 1,224,000 | |
| Repairs expenses | 1,023,400 | |
| Rent and rates | 366,900 | |
| Interest on loan | 249,300 | |
| General expenses | 964,000 | |
| Motor vehicles expenses | 840,000 | |
| Insurance | 280,800 | |
| Preliminary expenses | 473,000 | |
| Directors fees | 1,080,000 | |
| Audit and accountancy fees | 142,000 | |
| Debenture interest | 1,800,000 | |
| Travelling expenses | 96,000 | (14,422,400) |
| Net loss | (4,119,400) |
| 1 | Purchases and sales were inclusive of value added tax at a rate of 16%. |
| 2 | Closing stock was valued at Sh. 1, 840,000 while opening stock was at 10% of sales net of value added tax. Both stocks were undervalued by 10%. |
3 | Legal expenses comprised: | Sh. |
| Legal fee on defense against alleged breach of trade contract | 180,000 | |
| Legal fee on tax objection and appeals | 164,800 | |
| Conveyance fees of business premises | 72,400 | |
| Stamp duty | 136,600 | |
| Negotiating a business loan | 120,800 | |
| Recovery of bad debts | 145,000 | |
| Signing a 100-year lease agreement | 128,400 | |
| Purchase of partner’s private residence - Jessica | 150,000 | |
| Legal fee on renewal of patents | 126,000 | |
| 1,224,000 | ||
4 | Repairs expenses comprised: | Sh. |
| Purchase of furniture | 460,000 | |
| Installation of neon sign | 260,000 | |
| Designing an office block | 140,000 | |
| Cost of partitioning office block | 141,000 | |
| Repainting of office block | 22,400 | |
| 1,023,400 |
| 5 | General expenses included, impairment of patent rights Sh.144, 000, provision for general bad debts Sh.148, 000 and drawings of goods by partners Sh.568, 000. |
| 6 | Interest on loan includes interest on partners’ capital of Sh.120, 000 which was shared according to profit and loss sharing ratio. |
| 1 | He was entitled to a basic salary of Sh.2,500,000 per annum (PAYE Sh.250,000 per annum). |
| 2 | The employer provided him with a motor vehicle (2600 cc) which was leased from Unique Car Hire Services at Sh.32,000 per month. The cost of the vehicle was Sh.2800,000 in 2018 |
| 3 | His annual mortgage repayment of Sh.576,000 (including interest of Sh.120,000) was paid by the employer. The loan was obtained from Absa Bank in 2019 for the purpose of constructing own residential house. |
| 4 | He was entitled to a bonus of Sh.120,000 per annum, The bonus for 2020 was however not paid until February 2021. |
| 5 | The· following deductions were made from his salary during the year: |
| 5 | Sh. | |
| Life insurance premiums | 96,000 | |
| Subscription to Railway Golf Club | 56,000 | |
| Subscription to accountants professional body | 90,000 | |
| Contributions to registered pension scheme | 300,000 |
| 6 | During the year he received a dividend from Top Notch Ltd. of Sh.120, 000 (gross) since he holds 2% of the company’s share capital. The employer paid the Withholding tax on his behalf. |
| 7 | His wife Truphena Murunga works for a Taxation consultancy firm where she received a basic salary of Sh.80,000 per month. She is housed by the firm together with her family in a house where she contributes 3% of her basic pay as rent. She received the following additional benefits for the year ended 31 December 2020:
|
| 7 | Her other income comprised: | |
| Interest income: | Sh. | |
| Housing development bonds | 200,000 | |
| Treasury bonds | 120,000 | |
| Century Ltd. | 85,000 (net) | |
| Dividend income: Mapato Sacco Ltd. | 95,000 (net) | |
| Uwezo Co-operative Society | 150,000 (Gross) | |
| Rental income from residential property | 290,000 per month |
| 7 | Reported farming income was Sh.48,000 after deducting own consumption of Sh.20,000 which was equivalent to 18% of total farm produce. |
| 8 | Mr. Japtheth and his wife have agreed that each files his or her returns to the revenue authority. |
| Sh."000" | Sh."000" | |
| Sales (inclusive of VAT at 14%) | 114,000 | |
| Cost of goods sold | (75,690) | |
| Gross profit | 38,310 | |
| Decrease in provision for bad debts | 480 | |
| Dividends froma subsidiary company (Net) | 1,500 | |
| Rental income | 1,460 | |
| Foreign exchange gains realised | 240 | |
| Capital gain on sale of building | ......390 | |
| 42,380 | ||
| Less expenses: | ||
| Salaries and wages | 12,670 | |
| Subscriptions to trade association | 120 | |
| Legal and professional fees | 3,600 | |
| Audit fees | 720 | |
| Donations to women welfare association | 480 | |
| Estate management fees for rented property | 136 | |
| Impairment of rental property | 180 | |
| Purchase of furniture | 124 | |
| Purchase of computers | 150 | |
| Purchase of saloon car | 3,400 | |
| Rent and rates | 670 | |
| Advertisement expenses | 1,380 | (23,630) |
| Net profit | 18,750 |
| 1 | Two thirds of the cost of goods sold comprised of purchases, which are overcast by 20%. |
2 | Salaries and wages include: | Sh."000" |
| Redundancy payments to former employees | 4,800 | |
| Directors bonuses | 1,960 | |
| Christmas party for directors' families | 474 | |
| Directors allowances | 360 | |
3 | Legal and professional fees comprised: | Sh."000" |
| Processing of title deeds for company piece of land | 720 | |
| Registering of trade marks | 366 | |
| Renewal of 60-year lease | 284 | |
| Negotiating a bank loan | 460 | |
| Tax appeal against a tax assessment | 188 | |
| Settling customer's dispute | 320 | |
| Parking fines | 360 | |
| Defending a director for breach of law | 202 | |
| Instalment tax paid | ...700 | |
| 3,600 |
| 4 | Audit fees include Sh. 124,000 for penalties for late filing oftax returns with the Revenue Authority. |
| 5 | Advertisement expenses comprise; bill board for Sh.380,000, Neon sign Sh.240.000 and Sh. 150,000 for hosting the company website. |
| 6 | Purchases figure includes the cost of a forklift amounting to Sh.720,000 which was also inflated by 20% |
| 7 | Investment allowances were agreed with the Commissioner for Revenue Authority at Sh.2.840.000. |
| 8 | The corporate tax rate during the year was 25%. |
| 1 | Basic salary of Sh. 144,600 per month net of PAYE tax of Sh. 19,600. |
| 2 | He was provided with a land cruiser whose accumulated depreciation as at January 2020 was Sh.130,000 while the net book value was Sh.1,600,000. |
| 3 | He was provided with a fully furnished house. The cost of the furniture was Sh.250,000. The house had a fixed telephone. The average telephone bill paid by the employer per month was Sh.6,000. |
| 4 | On 1 September 2020, he moved into his own house which he had acquired through a 15% mortgage loan of. Sh.4,000,000 on 1 May 2020. |
| 5 | He is a member of a home ownership saving plan where he had contributed Sh.4,800 per month towards the scheme up to 30 April 2020. |
| 6 | On 1 July 2020, he obtained a loan of Sh.2,400,000 from his employer at an interest rate of 7% per annum. During this period the Revenue Authority prescribed interest rate was 12% per annum. |
| 7 | He was out of his workstation in the month of August for 10 days on official duty. The company paid him an out-of-pocket allowance of Sh.4,800 per day. |
| 8 | His salary was increased with effect from I September 2020 by Sh.8,000 and back dated to 1 May 2020. |
| 9 | The employer paid school fees for Alex Makali's children amounting to Sh.148.000. This expense was not taxed on the employer. |
| 10 | He is a member of a registered retirement pension scheme where he contributed Sh.30.000 per month towards the scheme. The employer contributed a similar amount. |
| 11 | His other incomes included:
|
| 12 | He secured a life insurance cover for his family of Sh.8,000 per month with effect from 1 October, 2020. |
| Revenue: | Sh. | Sh. |
| Sale of milk | 2,400,000 | |
| Sale of livestock | 1,800,000 | |
| Sale of manure | 540,000 | |
| Proceeds from sale of an old tractor | 820,000 | |
| Discount received | 180,000 | |
| 5,740,000 | ||
| Expenses: | ||
| General expenses | 430,000 | |
| Construction of water tank | 240,000 | |
| Vaccines for livestock | 640,000 | |
| Loan repayment | 350,000 | |
| Depreciation | 180,000 | |
| Electricity and water | 135,000 | |
| Conveyance fees | 156,000 | |
| Construction of chicken sheds | 480,000 | |
| Animal feeds | 200,000 | |
| Salaries and wages | 1,240,000 | |
| Bad debts provision | 150,000 | |
| Repairs and maintenance | 762,000 | |
| Professional fees | 620,000 | (5,583,000) |
| Net profit | 157,000 |
| 1 | Farm works acquired on 1 July 2020 comprised the following: |
| Sh. | ||
| Granary | 420,000 | |
| Labour quarters | 1,200,000 | |
| Cowshed | 160,000 | |
2 | General expenses include: | Sh. |
| Subscriptions to Farmers Association | 96,000 | |
| Acquisition of a 50 year lease | 180,000 | |
| Staff Christmas party | 25,000 | |
| Parking fines | 129,000 | |
3 | Repairs and maintenance comprise: | Sh. |
| Provision for fencing expenditure | 145,000 | |
| Repairs to machinery | 240,000 | |
| Other repairs | 377,000 |
| 4 | Professional fees include Sh.500,000 paid with regard to pursuing a dispute with the Revenue Authority's VAT department. |
| 5 | Assume the corporate tax rate during the year was 25%. |
| 1 | Basic salary per month (Net of PAYE of Sh.18,600 per month) Sh.61,400. |
| 2 | He was provided with a house by the employer which was furnished at a cost of Sh.200,000. |
| 3 | He is a member of a registered retirement pension scheme. His monthly contribution was Sh.30,000. The employer contributed Sh.32,000 per month. |
| 4 | He was provided with a company car of 2000 cc whose cost as at 1 January 2019 was Sh.800,000. |
| 5 | He was given per diem of Sh.10,000 for five days he was out of work station on official duties in the month of June 2020. |
| 6 | He is a pensioner and received a monthly pension of Sh.35,000. |
| 7 | He is a member of home ownership savings plan (HOSP) where he contributed Sh.16,000 per month up to 30 September 2020. |
| 8 | On 1 October 2020, he moved to his own house which he acquired through a 12% mortgage loan of Sh.3,600,000. |
| 9 | He has an education insurance policy for his children where he pays premiums of Sh.7,000 per month. |
| 10 | He enjoyed free company products during the year whose value was estimated at Sh.56,000. |
| 11 | The company gave him a 5% loan of Sh.2,000,000 on 1 December 2020 to assist in off-setting the mortgage loan. The market interest rate was at 12% per annum. |
| 12 | The company paid him monthly telephone allowance of Sh.5,000. |
| 13 | His other incomes included:
|
| Sh. | Sh. | |
| Sales | 15,300,000 | |
| Closing inventory | 2,000,000 | |
| Disposal gain on asset sold | 180,000 | |
| Discount received | 300,000 | |
| Compensation from insurance | 105,000 | |
| 17,885,000 | ||
| Less: Expenses: | ||
| Purchases | 9,000,000 | |
| Opening inventory | 1,500,000 | |
| Repairs and maintenance | 528,750 | |
| Rent and rates | 93,750 | |
| Bad debts | 311,250 | |
| Subscriptions and donations | 37,500 | |
| Permits and licences | 150,000 | |
| Depreciation | 670,000 | |
| Office and distribution expenses | 360,000 | |
| Travelling and transport | 252,000 | |
| Legal fees | 327,000 | |
| Accountancy fees | 97,500 | |
| Disposal loss on assets | 180,000 | |
| Discount allowed | 200,000 | |
| Salaries and wages | 1,500,000 | |
| Bank ledger fees | 67,500 | (15,275,250) |
| Net profit | 2,609,750 |
| 1 | Insurance compensation is in relation to communications equipment stolen during the year while being shipped to a client. |
| 2 | Office and distribution expenses comprise of the following: | Sh. |
| Club membership fee subscriptions for employees | 135,000 | |
| Private expenditure of directors | 102,000 | |
| 3 | 10% of the rent and rates relates to directors' private residences. | |
| 4 | Subscriptions and donations include: | Sh. |
| To the communications equipment traders association | 22,500 | |
| To the Kenya Red Cross-donations | 5,500 | |
| To the street children feeding program | 9,500 | |
| 37,500 | ||
| 5 | Legal fees include the following: | Sh. |
| Renewal of lease -100 years | 45,000 | |
| Staff employment contracts | 60,000 | |
| Counterfeit equipment suit in the High Court | 87,000 | |
| Debt collection | 50,000 |
| 6 | Capital deductions have been agreed at Sh.645,000 with the Commissioner of Domestic Taxes. |
| 7 | Bad debts include an increase in general provision for bad debts of Sh.21,250. |
| 8 | Salaries and wages include directors emoluments of Sh.500,000. |
| 9 | Repairs and maintenance includes the cost of erecting a signboard outside the dealership shop of Sh.28,750. |
| Mawah Enterprises Statement of profit or loss for the year ended 31 December 2020 |
| Sh. | Sh. | |
| Gross sales | 2,736,000 | |
| Unrealised foreign exchange gain | 16,000 | |
| Insurance recovery on stolen good | 300,000 | |
| Overprovision for bad debts | 34,000 | |
| Dividends from Haki Cooperative Society | 42,500 | |
| Interest on drawings | 45,000 | |
| 3,173,500 | ||
| Less expenses: | ||
| General expenses | 324,000 | |
| Legal expenses | 678,600 | |
| Salaries to partners | 450,000 | |
| Drawings by partners | 100,000 | |
| Commission to partners | 180,000 | |
| Interest on partners' capital | 250,000 | |
| Purchase of furniture | 96,000 | |
| Donations to poverty commission | 64,000 | |
| Construction of fire exit | 36,400 | (2,179,000) |
| Net profit | 994.500 |
| 1 | Gross sales include VAT at 14%. In addition, 10% of sales before VAT represents closing stock. The stock had been overstated by 20%. |
| 2 | The amounts due to partners are to be apportioned according to profit or loss sharing ratios. |
| 3 | General expenses comprise: | Sh. |
| Partition of business premises | 64,000 | |
| Debt collection expenses | 36,000 | |
| Purchase of office stationery | 14,000 | |
| Cash embezzled by partner's wife | 48,000 | |
| Bad debts written off | 24,800 | |
| Business premises rent | 31,200 | |
| Salaries to employees | 106,000 | |
| 324,000 | ||
| 4 | Legal expenses include: | Sh. |
| Acquisition of patent rights | 24,800 | |
| Drafting of sales agreement | 34,200 | |
| Negotiating sales contract | 60,000 | |
| Defending the business against trade dispute | 42,600 | |
| Mortgage interest for Mark | 140,000 | |
| Defending partners against wrong tax assessment | 94,600 | |
| Conveyance fees for business premises | 125,800 | |
| Tax consultancy fees | 72,500 |
| 5 | The purchases represent 40% of the gross sales figure Sh.2,736,000. The purchases had been understated by 25% and were omitted from the income statement. |
| - Assume a 52 weeks year. |
| Sh."000" | Sh."000" | |
| Income: | ||
| Gross profits | 7,500 | |
| Interest and drawings | 150 | |
| Discount received | 112 | |
| Rental income | 700 | |
| Profit on sale of old lorry | 390 | |
| 8,852 | ||
| Expenses: | ||
| Impairment loss | 340 | |
| Insurance and interest | 490 | |
| Rent and rates | 810 | |
| Deprecation | 263 | |
| Commission to Philip | 440 | |
| Purchase of saloon car | 3,500 | |
| Legal fees | 670 | |
| VAT paid | 1,200 | |
| Repairs to rental property | 510 | |
| Salaries and wages | 1,760 | |
| Medical expenses | 978 | (10,961) |
| Net loss | (2,109 |
| 1 | The partners' capital contributions were Sh.3,000,000 and Sh.1,800,000 for Albert and Philip respectively. |
| 2 | Salaries and wages include Sh.220,000 and Sh.180,000 paid to Albert and Philip respectively during the year. |
| 3 | Legal fees is made up of the following: |
| 3 | Sh. | |
| Renewal of 15 year lease contract | 200,000 | |
| Securing a bank overdraft | 95,000 | |
| Defending Philip for breach of contract | 180,000 | |
| Parking fines | 50,000 | |
| Handling tax disputes | 80,000 | |
| Collection of outstanding customers debts | 65,000 | |
| 670,000 |
| 4 | Partners' interest on capital was included in the insurance and interest expenses. |
| 6 | Half of the medical expenses relates to the medical bills paid for Albert during the year. The partnership has no medical scheme. |
| 7 | 40% of rent and rates relates to amount paid to county government as rates in relation to the partner's own residential houses. |
| 8 | The interest on drawings relates to the partners drawings during the year and should be apportioned according to their profit and loss sharing ratio. |
| 1 | His basic salary was Sh.120,000 per month (PAYE Sh. 48,000 per month). |
| 2 | He was provided with lunch by the employer from 1 August 2018 of Sh.4,800 per month. |
| 3 | He was provided with a fully furnished house fitted with water and electricity. The employer paid a monthly rent of Sh.45,000. He was deducted 10% of his basic monthly salary for rent. The cost of furniture was Sh.300,000 while the monthly electricity and water bills was Sh.3,500 and Sh.2,800 respectively. |
| 4 | The company paid for him life insurance premiums of Sh.6,000 per month for each member of his household from 1 September 2018. He had included himself, his wife and their son in the insurance policy. |
| 5 | He contributed 10% of his monthly pay towards a registered pension scheme while the employer contributed 15% of his basic pay towards the same scheme. |
| 6 | He enjoyed free medical treatment under a medical scheme operated by the company for all employees. His medical expenses were assessed at Sh.150,000 during the year. |
| 7 | During the year the company paid a total of Sh.35,000 as school fees for his son studying in a County School. This amount was not included in the company's income statement during the year. |
| 8 | On 1 August 2018, the company provided him with the following: - A Land Rover which was acquired at a cost of Sh.1,800,000 with an engine capacity of 3,000сc. - A gardener and a night watchman whose monthly salaries was Sh.12,500 and Sh.15,000 respectively. |
| 9 | He invested in real estate and earned a net rental income of Sh.72,000 after deducting the following expenditure: |
| Sh. | ||
| Caretaker's wages | 120,000 | |
| Fencing | 40,000 | |
| Loan repayment | 320,000 | |
| Insurance rent and rates | 48,000 | |
| Partitions | 60,000 | |
| Capital allowances | 22,000 | |
| Gross rental withholding tax paid | 68,200 |
| 10 | He received net dividends of Sh.42,500 from Maziwa Co-operative Society during the year. |
| Sh. | |
| Operating profit before tax and other income | 3,800,000 |
| Investment income | 849,500 |
| Leasing of electronic equipment | 50,000 |
| Rental income | 346,000 |
| 1 | Investment income comprises of the following: | ||
| Sh. | |||
| Interest income: | Post Bank (K) Ltd. | 138,000 | |
| Fixed deposit accounts with Luanda Bank | 246,500 (Net) | ||
| Savings accounts | 170,000 (Net) | ||
| 200,000 (Gross) | |||
| 95,000 (Net) | |||
| 849,500 | |||
| 2 | Rental income is arrived at after deducting the following expenses among others: |
| Sh. | ||
| Mortgage interest on property | 10,000 | |
| Purchase of water meters | 28,000 | |
| Caretaker's salary | 36,000 | |
| Replacing iron sheet roofing with the tile roofing | 120,000 | |
| Withholding tax on rental income | 60,000 |
| 3 | The following expenses were considered before arriving at the operating profit before tax and other income: |
| Sh. | ||
| Salaries and wages | 840,000 | |
| Retirement fund contribution (with Sh.80,000 to registered funds) | 150,000 | |
| Depreciation | 400,000 | |
| Bank interest | 180,000 | |
| Provision for bad debts | 10,000 | |
| Legal and professional fees | 108,000 | |
| Repairs and maintenance | 40,000 | |
| Sundry expenses | 150,000 | |
| Donations | 150,000 | |
| Compensation | 92,000 | |
| Instalment tax paid for the previous year | 900,000 | |
| Construction of the watchmen's booth at the gate | 240,000 |
| 4 | Salaries and wages comprised: Directors allowances Sh.300,000, director's watchmen salary Sh.40,000 and salaries to other staff Sh.500,000. |
| 5 | Bank interest includes that of an overdraft taken by a senior manager of Sh.40,000, on the managing director's residential house mortgage Sh.60,000 and the rest on bank loan. |
| 6 | Provision for bad debts is made up as follows: |
| Sh. | Sh. | |||
| Bad debts written off: Customers | 10,000 | Balance brought forward: 3% of accounts receivable | 8,000 | |
| Staff | 14,000 | Balance brought forward: Specific bad debts | 30,000 | |
| Balance carried down: | ||||
| 2% of accounts receivable | 9,000 | Bad debts recovered | 5,000 | |
| Specific bad debts | 20,000 | Income statement | 10,000 | |
| 53,000 | 53,000 |
| 7 | Legal and professional fees comprise: |
Collection of trade debts | Sh. 20,000 | |
| Renewal of lease (99 years) | 3,000 | |
| Accounting fee | 35,000 | |
| Auditing fee | 15,000 | |
| Tax appeal | 30,000 | |
| Staff loan collection | 5,000 | |
| 108,000 |
| Auditing fee relates to an enquiry by the Revenue Authority which revealed discrepancies that led to higher tax liability and penalties. | |
| 8 | Sundry expenses constitute staff Christmas party Sh.17,000, tax penalty for late filing Sh.3,000, school fees Sh.40,000 and other allowable expenses of Sh.90,000. School fees was for a director's son and the company agreed not to debit it in the income statement. |
| 9 | Donations were to the County Governor's political campaign kitty. |
| 10 | Compensation was to a staff member who had not been issued with safety equipment and uniform as he carried out work at a client's premise leading to him being badly injured. |
| Sh. | |||
| Salaries and wages | 280,000 | Gross profit | 2,300,000 |
| Rent, rates and taxes | 150,000 | Miscellaneous income | 150,000 |
| Office expenses | 204,000 | Discounts | 80,000 |
| Printing and stationery | 64,000 | Farming income | 132,000 |
| Instalment tax paid | 45,000 | Profit on sale of shares | 100,000 |
| Advertising | 73,000 | Interest on deposits | 120,000 |
| Interest on capital: | |||
| Teddy | 60,000 | ||
| Racheal | 70,000 | ||
| Michael | 80,000 | ||
| Michael | |||
| Commission to partners: | |||
| Teddy | 45,000 | ||
| Michael | 35,000 | ||
| Depreciation | 92,000 | ||
| Bad debts | 68,000 | ||
| General expenses | 99,000 | ||
| Donation to famine relief | 100,000 | ||
| General reserve | 120,000 | ||
| Local taxes on property | 12,000 | ||
| Electricity | 46,000 | ||
| Showroom expenses | 117,000 | ||
| Net profit | 1,040,000 | ||
| 2,882,000 | 2,882,000 | ||
| Income: | Sh. | Sh. |
| Gross profit | 6,290,000 | |
| Dividends (net) | 675,000 | |
| Foreign exchange gain | 175,000 | |
| Rent received (commercial building) | 580,000 | |
| Interest received from Fahari Bank Ltd. (net) | 289,000 | |
| Bad debts recovered | 370,000 | |
| Insurance claim | 785,000 | |
| Profit on sale of equipment | 88,000 | |
| Sale of debentures | 4,200,000 | 7,162,000 |
| 13,452,000 | ||
| Less expenses: | ||
| Salaries and wages | 1,450,000 | |
| Increase in provision for bad and doubtful debts | 145,000 | |
| Contribution to N.S.S.F. | 78,000 | |
| Advertising | 710,000 | |
| Stationery | 400,000 | |
| Depreciation | 280,000 | |
| Subscriptions | 1,140,000 | |
| Trading loss | 390,000 | |
| Interest | 760,000 | |
| Transport | 150,000 | |
| Legal costs | 365,000 | (5,868,000) |
| 7,584,000 |
| 1 | Dividends comprise: | Sh. | Sh. |
| Dividends from Beta Ltd. | 505,000 | ||
| Dividends from Bona Cooperative Society | 170,000 | ||
| 2 | Foreign exchange gain comprise: | ||
| Amount of realised foreign exchange gain | 125,000 | ||
| Amount of unrealised foreign exchange gain | 50,000 | ||
| 3 | Bad debts recovered related to: | ||
| Bad debts on sale of furniture | 130,000 | ||
| Bad debts on credit sale of goods | 240,000 | ||
| 4 | Insurance claim related to: | ||
| Insurance compensation on loss of profit | 380,000 | ||
| Insurance claim on loss of motor vehicle | 405,000 | ||
| 5 | Advertising comprise: | ||
| Advertising through daily newspapers | 280,000 | ||
| Advertising on passenger sheds at bus stops | 230,000 | ||
| 6 | Subscriptions related to: | ||
| Annual subscription fee to chamber of commerce and industry | 530,000 | ||
| Subscriptions to employees' sports club | 610,000 | ||
| 7 | Interest comprise: | ||
| Interest on debentures | 580,000 | ||
| Interest on loan acquired to build commercial rental houses | 110,000 | ||
| Interest on money borrowed to pay tax and penalties | 70,000 | ||
| 8 | Legal costs comprise: | ||
| Appeal to tax tribunal | 155,000 | ||
| Defending business property rights | 120,000 | ||
| Registration of lease agreement (100 years) | 90,000 | ||
| 9 | Capital allowances were agreed with the commissioner of revenue authority at Sh.960,000. |
| Income: | Sh. | Sh. |
| Sale of fruits | 1,050,000 | |
| Sale of livestock | 1,550,000 | |
| Profit on sale of tractor | 45,000 | |
| Sale of milk | 480,000 | |
| Insurance claim | 510,000 | |
| Discount received | 80,000 | |
| Sale of manure | 170,000 | |
| Interest received | 90,000 | |
| Rental income | 200,000 | |
| 4,175,000 | ||
| Less expenses: | ||
| Salaries | 540,000 | |
| Transport | 70,000 | |
| Drawings: Soi | 350,000 | |
| Timothy | 460,000 | |
| Fertilizers | 510,000 | |
| Construction of gabion | 120,000 | |
| Purchase of milking machine | 200,000 | |
| Subscriptions to agricultural research institute | 155,000 | |
| Interest | 480,000 | |
| Mulching | 60,000 | |
| Fuel | 140,000 | |
| Rates | 30,000 | |
| Presumptive tax | 45,000 | |
| Legal costs | 80,000 | |
| Wages | 620,000 | |
| Clearing land for planting fruits | 210,000 | |
| Depreciation | 15,000 | |
| Repairs and maintenance | 54,000 | (4,139,000) |
| 36,000 |
| 1 | Sale of fruits and sale of milk include own consumption of Sh.30,000 and Sh.50,000 for Soi and Timothy respectively. |
| 2 | Interest received relates to interest earned from Kenya Post Office Savings Bank (Postbank). |
| 3 | Insurance claim is in connection with a partial destruction of the farm house. |
| 4 | Salaries relate to salaries paid to partners as follows: Sh. Soi. 240,000 Timothy 300,000 |
| 5 | Rates relate to the rental income from commercial building. |
| 6 | Interest expense include interest on capital to partners as follows: Sh. Soi 105,000 Timothy 125,000 |
| 7 | Legal costs related to: |
| Sh. | ||
| Tax appeal | 35,000 | |
| Recovery of bad debts | 22,000 | |
| Defending Soi for breach of contract | 23,000 |
| 8 | The following farm works were constructed and put to use on 1 July 2018: Sh. Silo 40,000 Irrigation network 75,000 Cattle dip 150,000 |
| 9 | Interest on drawings was charged at the rate of 10%. |
| Sh. | |
| Factory building | 5,200,000 |
| Processing machinery | 2,400,000 |
| Furniture and fittings | 980,000 |
| Godown | 1,800,000 |
| Water pump | 360,000 |
| Motor vehicle (saloon) | 1,600,000 |
| Computers | 450,000 |
| Drainage system | 320,000 |
| Staff canteen | 960,000 |
| 1 | On 1 May 2018, the company imported a forklift for Sh.1,200,000 before VAT at the rate of 16% and import duty at 25% |
| 2 | A sports pavilion was constructed and utilised with effect from 1 October 2018. The total construction cost was sh 650,000 |
| 3 | A borehole was drilled at a cost of Sh.680,000 and utilised with effect from 1 November 2018. |
| 4 | On 2 December 2018, the company acquired the following additional assets: |
| Sh. | ||
| Photocopier | 180,000 | |
| Pick-up | 1,900,000 | |
| Cash registers | 120,000 | |
| Conveyor belts | 780,000 | |
| Fax machine | 200,000 | |
| Office cabinets (wooden) | 160,000 | |
| Boilers | 920,000 |
| 5 | The saloon car was disposed of for Sh.1,200,000 in October 2018 and replaced with a delivery van costing Sh.1,500,000. |
| 6 | Labour quarters were constructed at a cost of Sh.2,600,000 and the employees moved in the houses on 1 October 2018. |
| 1 | Her employment contract indicated the following: |
| Sh. | ||
| Basic monthly salary | 250,000 | |
| Monthly hardship allowance | 45,000 | |
| Monthly responsibility allowance | 50,000 | |
| Monthly commuter allowance | 25,000 |
| 2 | During the year, she received Sh.90,000 as a bonus for the previous years' reported profits. |
| 3 | She made a donation of Sh.50,000 to the National Kidney Fund during the year. |
| 4 | She was provided with a fully furnished apartment by the employer. The employer paid a monthly rent of Sh.80,000 and the cost of furniture was Sh.320,000. |
| 5 | The employer paid her monthly medical insurance premiums of Sh.5,000 during the year. |
| 6 | PAYE deducted from her monthly salary was Sh.68,000. |
| 7 | The company provided her with a 2,500cc saloon car on 1 October 2018 for official and private use. The car had been purchased for Sh.1,800,000. |
| 8 | She contributed Sh.15,000 per month towards a registered pension scheme. |
| 9 | She obtained a mortgage loan for the purpose of constructing her residential house from the National Savings Bank. The loan amount was Sh.4,000,000 with a monthly repayment of Sh.232,000. During the year, the total interest paid on the loan was Sh.144,000. |
| 10 | The company has a medical scheme for its managers. She was reimbursed Sh.380,000 during the year respect of medical bills. |
| 11 | During the year, she was voted as the best employee and the company rewarded her with a cash of Sh.60,000. |
| 12 | The company paid her son's college fees amounting to Sh.120,000 during the year. This amount was treated as an allowable expense in the company's books of account. |
| 1 | Basic salary and other allowances: | |
| Sh. | ||
| o Basic salary per month | 160,000 (Monthly PAYE Sh.42,000) | |
| o Monthly responsibility allowance | 42,000 | |
| o Bonus paid in June 2017 | 250,000 | |
| o Monthly risk allowance | 35,000 |
| 2 | During his employment, the company paid his monthly electricity, water and telephone bills averaging Sh.22,000, Sh.18,500 and Sh.16,000 respectively. |
| 3 | The company paid Sh.320,000 to cover for Atondo's family life insurance premiums during his employment period in the year ended 31 December 2017. |
| 4 | He contributed Sh.18,000 per month towards a registered Home Ownership Saving Plan (HOSP) during his employment period at Bright Insurance Company. |
| 5 | In October 2017, he invested half of his pension income in a taxi services business. His records from the taxi services business indicated a net profit of Sh.120,000. The following expenses had been charged in the books during the three month period for year ended 31 December 2017 relating to the taxi business: |
| Sh. | ||
| Repairs and maintenance | 180,000 | |
| Depreciation | 60,000 | |
| Fuels and lubricants | 240,000 | |
| Parking fines | 42,000 | |
| Driver's salaries | 64,000 | |
| General provision for bad debts | 26,000 | |
| Licences and registration | 60,000 | |
| Replacement of car engine | 260,000 | |
| Motor vehicle inspection | 25,000 |
| Interest on capital: | Sh. |
| Benard | 135,000 |
| Cosmas | 135,000 |
| Korrir | 215,000 |
| Salaries to partners: | |
| Benard | 400,000 |
| Cosmas | 320,000 |
| Korrir | 576,000 |
| Motor vehicle repairs | 526,000 |
| General repairs and maintenance | 120,000 |
| Office and Sundry expenses | 260,000 |
| Goodwill impairment | 340,000 |
| Loss on disposal of motor vehicle | 385,000 |
| Postage and telephone | 180,000 |
| Water and electricity | 146,000 |
| Subscription to Wananchi Golf Club | 105,000 |
| Donations | 240,000 |
| Bad debts written off | 346,000 |
| Rent, rates and licences | 180,000 |
| Accountancy services | 325,000 |
| Depreciation | 845,000 |
| Purchase of pickup | 1,500,000 |
| Transport cost | 340,000 |
| Insurance of motor vehicles | 520,000 |
| 1 | Office and sundry expenses included cost of office cabinet of Sh.90,000. |
| 2 | Transport cost included Sh.10,000 per month relating to personal use. |
| 3 | Provision for bad and doubtful debts account: |
| Sh. | Sh. | |||
| Bad debts | 246,000 | General (brought forward) | 330,000 | |
| Specific (carried forward) | 192,000 | Specific (brought forward) | 152,000 | |
| General (carried forward) | 390,000 | Profit and loss account | 346,000 | |
| 828,000 | 828,000 |
| 4 | Wear and tear allowances agreed with the Commissioner amounted to Sh.1,236,000. |
| 5 | Included in general repairs and maintenance is Sh.80,000 paid for the year 2018. |
| Income | Sh. | Sh. |
| Gross profit | 4,500,000 | |
| Foreign exchange gain | 234,000 | |
| Interest on bank deposit (net) | 90,000 | |
| Insurance compensation for stolen vehicle | 300,000 | |
| Profit on disposal of computers | 160,000 | |
| 5,284,000 | ||
| Expenditure | ||
| General expenses | 2,625,000 | |
| Salaries and wages | 1,800,000 | |
| Interest on capital: Chege | 120,000 | |
| Telek | 105,000 | |
| Lopez | 22,500 | |
| Legal expenses | 365,625 | |
| Loss on sale of assets | 11,400 | |
| Stamp duty on lease agreements | 6,120 | |
| Licenses and permits | 10,800 | |
| Subscriptions to trade association | 42,000 | |
| Conveyance fees | 112,500 | |
| Rent and rates | 180,000 | |
| Mortgage interest | 180,000 | |
| Repairs on computers | 45,000 | |
| Furniture purchased (cost) | 63,000 | |
| Bank charges | 60,000 | |
| Repair and maintenance | 560,000 | |
| Bad and doubtful debts | 123,750 | |
| Depreciation | 193,400 | (6,626,095) |
| Net profit (loss) | 1,342,095 |
| 1 | General expenses comprise: | Sh. |
| Embezzlement by a cashier | 900,000 | |
| Staff christmas party | 600,000 | |
| Replacement of car engine | 105,000 | |
| Partition of an office | 450,000 | |
| Partners private insurance policy | 570,000 |
| 2 | Salaries and wages include Sh.525,000, Sh.600,000 and Sh.235,000 paid to Chege, Telek and Lopez respectively. |
| 3 | Mortgage interest relates to a partner's residential house. |
| 4 | Assume that the income accrued evenly throughout the year. |
| 5 | Legal expenses comprise: | Sh. |
| Parking fines paid to county government | 11,400 | |
| Legal fees for breach of contract | 150,000 | |
| Drafting a tender document | 13,500 | |
| Drafting a lease agreement (100 years) | 6,750 | |
| Defending a partner in a tax case | 9,000 | |
| Legal cost of debt collection | 174,975 |
| 6 | Repair and maintenance costs comprise: | Sh. |
| Purchase of weighing scale | 252,000 | |
| Installation of CCTV cameras | 224,000 | |
| Fixing a leaking roof | 84,000 | |
| 7 | Bad and doubtful debts comprise: | Sh. |
| Specific bad debts | 74,250 | |
| General provision | 49,500 |
| 8 | Capital allowance was agreed with the commissioner of revenue authority at Sh.260,800. |
| Sh | ||
| Sales | 4,800,000 | |
| Purchases | 1,100,000 | |
| Bad debts recovered | 540,000 | |
| Rent received (commercial premises) | 280,000 | |
| Dividends received (Mkopo Ltd.) | 100,000 | (net) |
| Interest received (Hekima Bank Ltd.) | 340,000 | (net) |
| Discount allowed | 54,000 | |
| Discount received | 133,000 | |
| Salaries | 960,000 | |
| Electricity | 180,000 | |
| Advertising | 395,000 | |
| Provision for bad debts | 45,000 | |
| Subscriptions to a trade association | 65,000 | |
| Audit fees | 168,000 | |
| Legal fees | 139,500 | |
| Car hire expenses | 420,000 | |
| Purchase of machinery | 1,600,000 | |
| Loss of stock | 530,000 | |
| Installation of machinery | 42,000 | |
| Foreign exchange gain (realised) | 232,000 | |
| Donations to a political party | 1,050,000 | |
| General expenses | 52,000 |
| 1 | Opening stock and closing stock were valued at Sh.912,000 and Sh.840,000 respectively. |
| 2 | Included in the sales figure was a sale of Sh.928,000 that was inclusive of VAT at the rate of 16%, while the other sales were recorded net of VAT. |
| 3 | Advertising includes an amount of Sh.195,000 spent in the erection of a bill board. |
| 4 | Loss of stock includes Sh.120,000 relating to insured stock. |
| 5 | Two thirds of the bad debts recovered relate to bad debts which were previously written off from the company's books. |
| 6 | Legal fees relate to the following: |
| Sh. | ||
| Conveyance of land | 42,000 | |
| Trade dispute | 27,000 | |
| Breach of contract | 36,500 | |
| Preparation of employment contracts | 34,000 |
| Sh."000" | Sh."000" | |
| Sales | 31,200 | |
| Less: Cost of sales | ||
| Opening stock | 9,900 | |
| Purchases | 17,100 | |
| Closing stock | (6,200) | (20,800) |
| Gross profit | 10,400 | |
| Add: Other income | ||
| VAT refund | 110 | |
| Dividend income (net) | 600 | |
| Profit on disposal of furniture | 1,576 | |
| Discount received | 440 | |
| Rental income | 1,917 | |
| 15,043 | ||
| Less: Expenses | ||
| Insurance premiums | 512 | |
| Legal fees | 1,660 | |
| Depreciation | 614 | |
| Repairs and maintenance | 2,400 | |
| VAT paid | 250 | |
| Interest on capital: Kayla | 235 | |
| Lucas | 197 | |
| Sundry expenses | 2,883 | |
| Motor vehicles expenses | 564 | |
| Custom duty | 243 | |
| Auditing expenses | 613 | |
| Bad and doubtful debts | 165 | |
| Rent and rates | 437 | |
| Salaries and wages | 1,574 | (12,547) |
| Net income | 2,496 |
| 1 | Both opening stock and closing stock were overcasted by 20%. |
| 2 | Insurance premiums include Sh.301,000 paid to insure Kayla's private car. |
| 3 | Legal fees include: |
| 3 | Legal fees include: | Sh. |
| Parking fines | 160,000 | |
| Settling a dispute with a customer | 109.000 | |
| Appeal against a tax assessment | 67.000 | |
| Court expenses for breach of a contract | 426.600 | |
| Preparation of tender documents | 250,700 | |
| 4 | Sundry expenses include: | Sh. |
| Interest charged on hire purchase | 453,000 | |
| Cash embezzled by the cashier | 602,000 | |
| Registration of a trade mark | 300,000 | |
| 5 | Repair and maintenance comprised: | Sh. |
| Fixing a broken door | 24,000 | |
| Installation of CCTV cameras | 867,000 | |
| Purchase of furniture | 560,000 |
| 6 | Salaries and wages included salaries to Kayla and Lucas of Sh.640,000 and Sh.480,000 respectively. |
| 7 | The partners took goods for personal use which had a cost price of Sh.240,000. The gross profit margin was 20%. |
| 8 | Bad and doubtful debts include: |
| Sh. | ||
| Specific provision for bad debts | 99,000 | |
| Provision for general bad debts | 66,000 |
| 9 | Capital allowances were agreed with the commission of revenue authority at Sh.1,574,000. |
| Income | Sh. | Sh. |
| Sales | 1,920,000 | |
| Foreign exchange gain realised | 620,000 | |
| Proceeds from sale of old machinery | 120,000 | |
| Discount received | 136,000 | |
| 2,796,000 | ||
| Expenditure | ||
| Interest on loan | 220,000 | |
| Stationery | 180,000 | |
| Loan repayment | 460,000 | |
| Legal fees | 380,000 | |
| Depreciation | 150,000 | |
| Directors emoluments | 360,000 | |
| Dividends | 980,000 | |
| Audit fees | 280,000 | |
| General expenses | 840,000 | |
| Bad debts | 96,000 | |
| Provision for income tax | 120,000 | 4,066,000 |
| Net loss | (1,270,000) |
| 1 | Audit fees include Sh.100,000 for auditing a subsidiary company and Sh.80,000 for the preparation revised accounts. |
| 2 | Legal fees include: | Sh. |
| Drafting a lease agreement (99 years) | 80,000 | |
| Breach of contract | 180,000 | |
| VAT penalties | 64,000 | |
| Legal cost of debt collection | 56,000 | |
| 3 | General expenses comprise: | |
| Office partitions | 120,000 | |
| Staff Christmas party | 250,000 | |
| Embezzlement by cashier | 60,000 | |
| Staff catering costs | 220,000 | |
| Stamp duty on land transfer | 190,000 |
| 4 | Bad debts represented the general provision as at the end of the year. |
| 5 | Capital allowances were agreed with the commissioner of revenue authority at Sh.220,000 for the year. |
| 1 | Basic salary Sh.165,000 per month (net of PAYE Sh.35,000 per month). |
| 2 | She is a registered member of the National Council for Persons with Disabilities (NCPD) and has been issued with a certificate of exemption by the Commissioner of Domestic Taxes. |
| 3 | The employer pays her a house allowance of Sh.40,000 per month. She utilises this amount to rent a house from Jibril Properties Agency for Sh.30,000 per month. |
| 4 | Nelly Zuriya has entered into an agreement with Nyumbani Medical Centre (NMC) for her personalised home care under which she pays Sh.18,000 per month. Under the agreement, NMC sends a therapist two times each week to her home. She provided documentary evidence to the Commissioner's satisfaction. |
| 5 | Chakaranda Ltd. pays Sh.28,000 each month to Beta Insurance Ltd. for Nelly's medical policy. |
| 6 | She is provided with a 2800cc saloon car leased from Decop Tours and Travel, a car-hire firm, in a chauffeur-inclusive package. The employer pays Sh.35,000 per month lease charges to Decop Tours and Travel. The car had cost Decop Tours and Travel Sh.2,000,000 in the year 2015. |
| 7 | During the year, she was sent on official duties outside her usual place of work for ten days, where she was paid subsistence and travelling allowance amounting to Sh.24,000 per day. She proved to the commissioner that Sh.3,000 per day out of the subsistence allowance she had received was reimbursement of expenses. |
| 8 | Chakaranda Ltd. paid Sh.26,000 on Nelly's behalf, being entrance fee to the Institute of Supplies Management (ISM) during the year. |
| 9 | She was provided with airtime credit of Sh.5,000 per month for her private purpose. |
| 10 | Nelly Zuriya's other income during the year comprised: |
| Sh. | |||
| Dividends | : Buzuri (K) Ltd. (net) | 28,500 | |
| : Zuhury Cooperative Society Ltd. (net) | 17,000 | ||
| : Transpalace Company (Zanzibar) Ltd. (gross) | 10,000 | ||
| Interest | : Housing Finance Company housing bonds (gross) | 420,000 | |
| : Treasury bills (net) | 4,250 | ||
| : Rubicon Bank Ltd. fixed deposit account (gross) | 15,000 | ||
| Capital gain | : Sale of private customised landrover at a profit | 120,000 |
| Income: | Sh. | Sh. |
| Accounting and advisory fees | 2,400,000 | |
| Rental property income | 380,000 | |
| Tax consultancy fee | 1,800,000 | |
| Profit on sale of old computers | 260,000 | |
| 4,840,000 | ||
| Expenses: | ||
| Administrative expenses | 420,000 | |
| Partner's private insurance policies | 960,000 | |
| Depreciation | 140,000 | |
| Salaries and wages | 850,000 | |
| Bad debts written off | 260,000 | |
| Legal and audit fees | 120,000 | |
| Computer software | 60,000 | |
| Rental expenses | 90,000 | |
| VAT paid | 360,000 | |
| Office stationery | 150,000 | |
| General expenses | 180,000 | |
| Office partitions | 82,000 | (3,772,000) |
| Net profit | 1,068,000 |
| 1 | Rental expenses relate to the partnership's rental houses in the city suburb from which the firm earns income. |
| 2 | Legal and audit fees include Sh.40,000 as fines paid to the county government for negligence of duty. |
| 3 | Salaries and wages include partner's salaries as follows: |
| Sh. | ||
| Bakahari | 220,000 | |
| Kamanda | 130,000 | |
| 4 | Bad debts written off comprised: | |
| Sh. | ||
| General provision | 82,000 | |
| Trade bad debts written off | 118,000 | |
| Specific provision for bad debts | 60,000 | |
| 260,000 | ||
| 5 | General expenses comprise: | |
| Sh. | ||
| Drafting tender documents | 50,000 | |
| Purchase of computers | 140,000 | |
| Stamp duty on lease agreements (rental premises) | 18,000 | |
| Staff catering costs | 72,000 | |
| 280,000 | ||
| Receipts | Sh. | Payments | Sh. |
| Balance brought down | 861,600 | Trade payables | 1,005,200 |
| Trade receivables | 1,226,200 | Cash purchase | 1,620,800 |
| Cash sales | 1,620,000 | Salary and wages | 1,660,400 |
| Commission received | 124,000 | Rates and insurances | 320,800 |
| Capital | 1,000,000 | Medical bills (self) | 28,000 |
| Transport | 56,400 | ||
| Bank charges | 3,000 | ||
| General expenses | 145,400 | ||
| Loan interest | 120,000 | ||
| New motor vehicle | 600,000 | ||
| Drawings | 72,000 |
| 1 January 2015 Sh. | 31 December 2015 Sh. | |
| Furniture - written down value (WDV): | 120,000 | ? |
| Motor vehicle - (WDV) | 960,000 | ? |
| Trade payalle | 985,000 | 1,180,000 |
| Inventory | 1,241,600 | 1,480,600 |
| Trade receivables | 781,000 | 821,400 |
| Salary and wages due | 184,000 | 150,000 |
| Prepaid rates | 50,000 | 72,000 |
| Commission received in advance | 80,000 | 136,000 |
| Capital | 727,600 | - |
| 1 | Basic salary of Sh.160.000 per month (PAYE Sh.42,000 per month). |
| 2 | He was provided with a 2200ce Land Rover which had cost the company Sh.4,600,000 in the year 2010. |
| 3 | In the month of December 2015. he received a sitting allowance of Sh.280.000. |
| 4 | He is a member of a registered retirement benefits scheme of which he makes monthly contributions of Sh.30,000. |
| 5 | He was housed by the company in a rented house with water, telephone and electricity. The house had a market rental value of Sh.64.000 per month and he paid a nominal rent of Sh.25,000 per month. |
| 6 | During the year, the company paid school fees for his son amounting to Sh.280.000. This amount was disallowed for tax purposes on Geo-Sat Solution Ltd. |
| 7 | Geo-Sat Solution Ltd. operates a medical scheme for all staff with Afya Insurance Ltd. In the year 2015, the amount paid for Moses Bundi's cover amounted to Sh.320,000. |
| 8 | The company paid his monthly electricity, water and telephone bills averaging to Sh.18.000, Sh.12,500 and Sh.16,000 respectively. |
| 9 | He earned interest income of Sh.180.000 during the year from his investments in Housing Development Bonds. |
| 10 | The company paid Sh.240,000 to cover for Moses Bundi's family life insurance premiums during the year. The insurance policy covered Moses Bundi, his wife and son. |
| 11 | In December 2015. Moses Bundi received an entertainment allowance of Sh.120,000. Half of this amount was spent on entertaining customers. |
| 12 | Moses Bundi received a net rental income of Sh.1,800.000 from his commercial rental premises during the year. This was after deducting the following expenses: Sh. Caretaker's wages 620,000 Building an extension 840,000 Interest on mortgage 120,000 Fixing metallic doors 320,000 Purchase of a water tank 150,000 |
| Sh. | Sh. | |
| Sales (inclusive of VAT at the rate of 16%) | 9,280,000 | |
| Capital gain on sale of property | 290,000 | |
| Rental income | 240,000 | |
| Dividends from Waki Cooperative (net) | 170,000 | |
| Unrealised foreign exchange gain | 94,000 | |
| 10,074,000 | ||
| Less expenses: | ||
| Cost of goods sold | 4,000,000 | |
| Purchase of computers | 160,000 | |
| Salaries and wages | 360,000 | |
| General expenses | 720,000 | |
| Legal expenses | 940,000 | |
| Conveyance fees | 92,800 | |
| Farmworks at cost | 60,000 | |
| Repairs and maintenance | 24,500 | |
| Interest on partners capital | 450,000 | |
| Mambo's mortgage interest | 65,800 | |
| Donations to Tennis club | 34,800 | |
| Commission to Kaka | 21,100 | (6,929,000) |
| Net profit | 3,145,000 |
| 1 | General expenses include: | Sh. |
| o Embezzlement by Kaka | 24,000 | |
| o Partition of staff offices | 48,000 | |
| o Staff catering expenses | 50,000 | |
| o Pension contributions | 180,000 | |
| o Prepaid rent and rates | 32,400 | |
| o Stamp duty on land transfer | 64,000 | |
| 2 | Legal expenses include: | |
| o Drafting a partnership deed | 42,000 | |
| o Negotiating a bank loan | 28,400 | |
| o Executing a customs bond security | 24,600 | |
| o Defending the business against breach of contract | 38,000 |
| 3 | Salaries to partners and interest on partners capital is to be shared according to the profit and loss sharing ratio. |
| 4 | Salaries and wages include salaries to employees of Sh.160,000 while the balance was paid to partners. |
| 5 | Cost of goods sold include purchases valued at Sh.300,000 which had been overstated by 20%. |
| Sh."000" | Sh."000" | ||
| Stock (1 January 2014) | 450,000 | Sales | 3,490,000 |
| Purchases | 1,400,500 | Stock (31 December 2014) | 423,000 |
| Bank charges | 30,200 | Interest from Post Bank | 4,800 |
| Wages to casual workers | 588,000 | Insurance recovery - van | 88,000 |
| Insurances | 78,000 | Profit on sale of shares | 54,000 |
| Salaries to permanent staff | 144,000 | Dividend (net) | 32,000 |
| NSSF contributions - workers | 13,000 | Income from sale of saw düst | 250,000 |
| NHIF contributions- workers | 14,000 | ||
| Legal expenses | 20,400 | ||
| Bad debts | 50,600 | ||
| Commissions | 30,200 | ||
| Repairs and maintenance | 120,200 | ||
| General expenses | 53,800 | ||
| Listing expenses - NSE | 147,600 | ||
| Delivery van scrapped | 22,400 | ||
| Depreciation | 193,400 | ||
| Donations | 8,800 | ||
| Rent and rates | 83,000 | ||
| Electricity and water | 28,100 | ||
| Travelling expenses | 560,300 | ||
| Pension paid to retired staff | 48,700 | ||
| Entertainment | 17,100 | ||
| Purchase of office calculator | 3,600 | ||
| Telephone expenses | 11,900 | ||
| Net profit | 224,000 | ||
| 4,341,800 | 4,341,800 |
| Sh. 000' | |
| Preparing a lease for 50 years | 1,200 |
| Collection of business debts | 2,200 |
| Purchase of directors house | 17,000 |
| 20,400 |
| Income | Sh. | Sh. |
| Gross profit | 6,000,000 | |
| Foreign exchange gain | 312,000 | |
| Interest on drawings:Asafa | 500,000 | |
| Interest on drawings:Carter | 60,000 | |
| Interest on bank deposits (net) | 120,600 | |
| Insurance compensation for stolen vehicle | 400,000 | |
| 7,392,600 | ||
| Expenditure: | ||
| General expenses | 3,500,000 | |
| Salaries & wages | 2,400,000 | |
| Interest on capital:Asafa | 160,000 | |
| Interest on capital:Bon | 140,000 | |
| Interest on capital:Carter | 30,000 | |
| Legal expenses | 487,500 | |
| Loss on sale of assets | 15,200 | |
| Stamp duty on lease agreement | 8,160 | |
| License permits | 14,400 | |
| Subscription to trade assossiations | 56,000 | |
| Conveyance fee | 150,000 | |
| Rent and rates | 240,000 | |
| Salaries to partners: Carter | 180,000 | |
| Mortgage interest | 240,000 | |
| Repairs on computers | 60,000 | |
| Furniture purchased (cost) | 84,000 | |
| Bank charges | 80,000 | (7,845,260) |
| Reported loss | (452,660) |
| 1 | General expenses comprise: | Sh. |
| Embezzlement by accountant | 120,000 | |
| Staff Christmas party | 800,000 | |
| Amount paid to retrenched staff | 760,000 | |
| Replacement of car engine | 140,000 | |
| Partition of an office | 600,000 | |
| 3,500,000 |
| 2 | Salaries and wages include Sh.700,000 and Sh.800,000 paid to Asafa and Bon respectively during the year. |
| 3 | Interest on capital was provided at 45% of the capital contributions. |
| 4 | Legal expenses include: | Sh. |
| Parking fines paid to county government | 15,200 | |
| Legal fees for breach of contract | 200,000 | |
| Drafting of tender documents | 18,000 | |
| Drafting of lease agreements (99 years) | 9,000 | |
| Defending a partner in a tax case | 12,000 | |
| Legal cost of debt collection | 233,300 |
| 5 | Mortgage interest relates to a partner's residential house. |
| Assume that the income accrued evenly throughout the year. | |
| Ignore capital allowances. |
| 1 | The partners charge interest on drawings at the rate of 10% per annum. |
| 2 | Assets and liabilities as at 31 December: |
| 2 | 2013 Sh. | 2014 Sh. | |
| Stock in trade | 860,000 | 1,680,000 | |
| Creditors | 740,000 | 890,000 | |
| Prepaid rent | 30,000 | 42,000 | |
| Accrued Electricity bills | 21,000 | 16,000 | |
| Bank balance | 230,000 | 165,000 | |
| Accrued salaries | 520,000 | 480,000 |
| 3 | The partners banked all cash collections after deducting the following monthly expenses: |
| 3 | Sh. | |
| Cash drawings: Ashrey | 15,000 | |
| Cash drawings: Balak | 10,000 | |
| Wages | 12,000 | |
| Purchase of goods for sale | 18,000 | |
| Sundry expenses | 10,000 | |
| Motor vehicle expenses | 8,000 |
| 4 | Payments made through the bank during the year ended 31 December 2014 were as follows: |
| 4 | Sh. | |
| General expenses | 30,000 | |
| Motor vehicle expenses | 16,000 | |
| Purchase of goods for sale | 1,515,000 | |
| Rent | 504,000 | |
| Electricity | 139,000 | |
| Salaries | 4,800,000 | |
| Purchase of motor vehicle | 3,000,000 | |
| Selling and distribution expenses | 140,000 | |
| Wages | 544,000 | |
| Cost of meals to employees | 123,000 |
| 5 | On average, the partners sold all goods at a gross profit margin of \(33{\large \frac{1}{3}}\). During the year, Ashrey and Balak had taken goods (at cost price) worth Sh. 250,000 and Sh. 100, 000 respectively. |
| 6 | The partners estimate the use of motor vehicle to be 40% for private purposes. |
| 7 | On 1 October 2014, the partners admitted Korir as a new partner. He paid Sh. 4,000,000 as his capital contribution. The new profit sharing ration was agreed at 2:2:1 for Ashrey, Balak and Korir respectively. |
| 8 | A half of the salaries expenses relate to the partners. Out of these, Korir received Sh. 268, 000 being salary dues to 31 December 2014. |
| 9 | It was agreed with the commissioner of tax that wear and tear allowance be provided at Sh. 120, 000 for the year ended 31 December 2014. Assume that income and expenses accrued evenly throughout the year. |
| Sh. | ||
| Insurance | 20,000 | |
| Salary to self | 100,000 | |
| Loan repayment | 1,162,000 | |
| Interest on loan | 213,000 | |
| Rates | 5,000 | |
| Caretaker salary | 36,000 | |
| Computer | 55,000 |