Unit: Public Finance and Taxation
15 Questions| 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. | 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. |
| Asset | Cost (Sh.) |
| Factory building (including godown Sh.700,000) | 3,800,000 |
| Parking bay | 480,000 |
| Drainage systems | 240,000 |
| Delivery van | 420,000 |
| Processing machine | 1,680,000 |
| Security wall | 720,000 |
| Office block (including staff canteen Sh.380,000) | 980,000 |
Want to join the discussion?
Log in to post comments and interact with tutors.
Login to Comment