Unit: Public Finance and Taxation
18 Questions| January 2: | Sold goods on credit to Kikoi Traders for Sh.800,000. |
| January 3: | Purchased goods on cash basis from Riverroad Traders for Sh.196,000. |
| January 5: | Purchased electronic tax register for Sh.150,000 and paid by cheque. |
| January 7: | Kikoi Traders returned goods valued at Sh.60,000 and received a credit note. |
| January 9: | Sold goods to JB Ltd., a company based in Uganda for Sh.300,000. |
| January 12: | Paid electricity bills amounting to Sh.16,000. |
| January 14: | Received a debit note of Sh.48,000 from Riverroad Traders. |
| January 18: | Purchased office stationery for Sh.36,000 |
| January 20: | Supplied goods to Ministry of Trade valued at Sh.1,600,000. |
| January 21: | Imported goods from Dubai for Sh.800,000 exclusive of import duty at the rate of 25% and value added tax at the rate of 16%. |
| January 24: | Purchased fuel for business vehicles for Sh.150,000. |
| January 28: | Paid Sh.68,000 for catering services. |
| January 29: | Paid Sh.45,000 for audit services |
| 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 |
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