CPA Advanced Taxation Revision Kit (KASNEB past papers with answers)

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 KASNEB SYLLABUS

PAPER NO. 16 (S1) ADVANCED

TAXATION UNIT DESCRIPTION

This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to solve complex tax issues, implement tax planning initiatives and administer tax in various business environments.

 

LEARNING OUTCOMES

A candidate who passes this paper should be able to:

  • Compute the tax liability of enterprises, entities and specialised business
  • Handle all value added tax matters
  • Apply the procedure for conducting a tax investigation
  • Explain the tax dispute resolution mechanism
  • Explain the tax implications for cross border business
  • Develop tax policies

 

CONTENT

 1. Taxation of business income and specialized business activities 

  • Partnership business
    • Admission of a new partner and retiring partners during the year
    • Conversion of partnerships into liability companies
    • Incomplete records pertaining to partnership businesses
    • Case law on taxation of partnership businesses

 

  1. Limited companies
    • Taxation of companies, including holding company, subsidiaries, branches and related parties
    • Incomplete records pertaining to limited companies
    • Minimum tax
    • Shortfall tax computation
    • Taxation of dividends
    • Case law on taxation of limited companies
    • Rental income, including residential rent income, Commercial rent income and Real estate investment trusts (REITS)
    • Charitable institutions
    • Leasing entities, including hire purchase lease agreements
    • Co-operative societies, Saccos
    • Trade associations, amateur sporting association and clubs
    • Trust bodies, settlements and estates under administration
    • Financial institutions: Banks, insurance companies
    • Sea and air transport undertakings
    • Collective investment schemes
    • Professional, training, management, agency, and consultancy fees
    • Property developers and contractors
    • Taxation of extractive industries
    • Capital gain tax
    • Digital service tax
    • Application of relevant case law

 

  1. Value added tax administration
    • Obligations of a taxable person and offences relating to VAT
    • Value added tax computation
    • Restriction of input tax claimable
    • Imported services and VAT withholding agents
    • VAT refunds and bad debt relief computation
    • VAT Accountant certificate
    • Value added tax automated assessments
    • I tax significance and application in value added tax administration
    • Application of relevant case law

 

  1. Tax investigations
    • Tax fraud
    • Civil and criminal tax investigation
    • Events which may trigger an investigation
    • Back duty and in-depth examination
    • Customs and excise investigations
    • Negotiation for settlement: Tax amnesty, Tax Penalties and Enforcement for outstanding taxes
    • Types of tax audit and their significance
    • Application of relevant case law

 

  1. Tax dispute resolution mechanism
    • Tax disputes
    • Stages of tax dispute resolution process
    • Tax dispute resolution process cycle
    • Legal framework and objectives of Alternative Dispute Resolution
    • Types of tax disputes eligible for Alternative Dispute Resolution
    • Benefits of Alternative Dispute Resolution
    • Parties to Alternative Dispute Resolution and their roles
    • Issues exempted from Alternative Dispute Resolution
    • Alternative Dispute Resolution agreement terms and timelines
    • Termination of alternative dispute resolution
  2. Taxation of cross border activities
    • Distinction between trading in and trading with a country
    • Double taxation agreements; theory, design and application
    • Regional perspective with reference to the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA)
    • Most favored nation status
    • Nature, characteristics and significance of One Stop Border Posts (OSBPs)
    • Generalized system of preference and AGOA
    • Tax havens and treaty shopping
    • Tax information exchange agreements (TIEAS)
    • Transfer pricing: oecd guidelines
    • Application of relevant case law
  3. Tax planning
    • Tax planning for individuals: By way of Tax exempt activities, transactions that are allowable expenses and transactions attracting tax setoffs
    • Tax planning for body corporates
    • Identifying opportunities to alleviate, mitigate or defer the impact of direct or
    • indirect taxation
    • Evaluating remuneration packages
    • Tax avoidance and anti-tax avoidance provisions in the tax Act, short-fall distributions of dividends
    • Sectoral tax incentives
    • Disposal of business operations and restructuring of activities
    • Tax risk management

 

  1. Tax systems and policies
    • Types of tax systems
    • Role of taxation in economic development; tax base expansion, efficiency in tax systems
    • Design of a tax policy
    • Criteria for evaluation of a tax system
    • Tax reforms and modernisation of tax systems under various Acts
    • KRA structure – Large Tax Payer and Medium Tax Payer organisations

 

  1. Professional practice in taxation
    • Forms of tax practice and matters relating thereto
    • Matters relating to new clients
    • Handling of client work
    • Disclosures in tax returns, computations and correspondence with the Revenue Authority
    • Moral and ethical issues in taxation
    • Tax agents, appointment, obligations, professional liability
    • Cancellation of tax agents license
    • Role of tax agents in appeals procedure
    • Tax health check

 

TOPIC 1

TAXATION OF PARTNERSHIP BUSINES

QUESTION 1

December 2025 Question Two B

Patrick and John are partners operating a partnership business Jomani Enterprises and sharing profits and losses equally. The business operates through two independent branches; the head office branch in Nakuru and Kericho branch. The partners have received a tax assessment from the Revenue Authority with a taxable income of Sh.684,000 each for the year ended 31 December 2024. They have provided the following details to help in responding to the tax assessment:

 

  1. The following balances were extracted from the books of the partnership on 31 December 2024:
  Head office branch Kericho branch
  Sh. Sh.
Furniture and fittings at cost 56,000 48,000
Delivery vans at cost 1,280,000 2,830,000
Saloon car at cost 3,290,000 –
Inventories 340,000 670,000
Prepaid rent 80,200 40,100
Accrued electricity 20,000 30,000
Bank balances 870,000 180,000
Accounts payable 458,000 172,000
Capital 8,800,000 –
10% bank loan 1,500,000 –

 

  1. Kericho branch sells goods transferred from head office at cost. However, it is allowed to make purchases from other suppliers and also maintain a separate bank account. During the year, no goods were transferred from the head office to the branch.
  2. All goods were sold at both head office and Kericho branch at 30% above cost. All employees were entitled to a commission at the rate of 1% of the sales during the year.
  3. Analysis of the bank statement during the year revealed the following:

 

  Head office

branch

 Kericho

branch
  Sh. Sh.
Receipts:  Deposits of cash collections 2,380,700 1,360,000
                  Royalties 280,000 –
                   Insurance compensation on stock 680,000 –
Payments: Rent expenses 250,000 190,000
                   Stationery 67,000 88,000
                   Software 240,000 –
                   Electricity 130,000 68,000
                   Legal fee 120,000
                   Purchase of goods for resale 1,820,900 980,000
                   Salaries and wages 780,000 320,000
                   Office expenses 90,000 30,000

 

  1. Head office salaries and wages include salary paid to each partner of Sh.20,000 per month. The bank loan had been taken on 1 July 2024.
  2. The current account balances as at 31 December 2023 were as shown below:
  Head office branch Kericho branch
  Sh. Sh.
Accounts payable 142,300 112,200
Inventories 85,000 120,000
Accrued rent 30,000 25,000
Prepaid electricity 49,200 22,500
  1. The partners had withdrawn goods worth Sh.520,000 and Sh.430,000 for Patrick and John respectively. The partnership deed provided for 3% interest on drawings.

 

Required:

(i) Compute the taxable income of the partnership for the year ended 31 December 2024.

(11 marks)

(ii) Compute the taxable income of each partner from the income computed in (b) (i) above for the year ended 31 December 2024.                            (3 marks)

(iii) Advise the partners in relation to the assessment issued by the Revenue Authority.

(2 marks)

 

MASOMO MSINGI ANSWER

Working 1:

Total Purchase

Payables a/c
  Sh.   Sh.
Balance b/f (142,300+112,200) 254,500
Bal c/d (458,000+172,000) 630,000 Credit purchase 375,500
630,000             630,000            

 

Total Purchase = 1,820,900 + 980,000 + 375,500

= 3,176,400

 

Working 2:

Cost of sales

  Sh.
Opening stock 85,000 + 120,000 205,000
Purchases 3,176,400
Closing stock 3,400,000 + 670,000 (1,010,000)
Less: Drawings 520,000 + 430,000 (950,000)
1,421,400

 

Working 3:

Sales = 1,421,400 + 30/100 × 1,421,400 = 1,847,820

 

Working 4:

Rent expenses

Rent expenses
  Sh.   Sh.
Balance b/f 55,000
Income statement 264,700
Bank: 250,000+190,000 440,000 Balance c/d 120,300
  440,000   440,000

  

Working 5:

Electricity

Prepaid b/f 49,200 + 22,500 71,700
Bank 130,000 + 68,000 198,000
Accrued c/d 20,000 + 30,000 50,000
319,700

 

(b) i) Taxable income of the partnership for the year ended 31 December 2024

Joman Enterprises 2024 income and tax computation
  Sh. Sh.
Sales 1,847,820
Less: Cost of sales (1,421,400)
Gross profit 426,420
Add: Other incomes    
Insurance compensation on stocks 680,000
Taxable revenue 1,106,420
Less: Allowable expenses    
Investment allowance:
Furniture and fittings 10% (56,000 + 48,000) 10,400
Delivery van 25% (1,280,000 × 2,830,000) 1,027,500
Saloon car 25% × 3,000,000 750,000
Software 25% × 240,000 60,000
Rent expense 264,700
Electricity expense 319,700
Interest on loan 10% × 1,500,000 × 6/12 75,000
Commission to employees 1% × 1,847,800 18,478.2
Stationery 67,000 + 88,000 155,000
Legal fees 120,000
Salaries and wages (780,000+320,000-20,000×2×12) 620,000
Office expenses 90,000 + 30,000 120,000 (3,540,776.2)
Net taxable operating income/loss (2,434,358.2)

  

(ii) Computation of Taxable Income for Each Partner

Details Patrick (Sh.) John (Sh.) Total (Sh.)
Salaries (20,000×12) 240,000 240,000 480,000
Interest on Drawings (W1) (15,600) (12,900) (28,500)
Share of Loss (Equally) (1,428,679.1) (1,428,679.1) (2,885,858.2)
Total Taxable Income (1,204,279.1) (1,201,579.1) (2,885,858.2)
Add Royalty income 140,000 140,000  

 

Workings

W1:

Interest on Drawings 3%(520,000 + 430,000)

 

(iii) Advice to Partners

The assessment issued by the Revenue Authority (Sh. 684,000 each) appears is incorrect/overstated assessment. The partners should file a formal notice of objection within 30 days as during the year under review the business made a loss of sh. 2,434,358

 

QUESTION 2

August 2025 Question Two B

Mikah and Janace have been running a partnership business by the name “Jakah Enterprises” from 1 January 2023. They share profits and losses equally having contributed total capital of Sh.6,800,000. They have not been keeping proper books of accounts and have approached you to assist in the computation of their tax liability for the year ended 31 December 2024.

The following details were provided:

  1. They sell goods on both cash and credit terms. During the year ended 31 December 2024, they sold 148,300 units on cash basis at a price of Sh.80 per unit.
  2. An extract from the statement of financial position as at 31 December 2023 included the following non- current assets:
Asset Cost Accumulated

Depreciation

 Net book value
  Sh.“000” Sh.“000” Sh.“000”
Land and office building
(Land Sh.1,500,000) 7,000 1,000 6,000
Plant and equipment 9,000 4,000 5,000
Furniture and fittings 2,000 1,000 1,000

 

  1. Extract of current account had the following balances:
  31 December 2023 31 December 2024
  Sh.“000” Sh.“000”
Trade debtors 1,708,000 6,460,000
Bank 3,068,000(Credit) 4,169,900 (Debit)
Trade creditors 1,340,000 1,868,600
Subscriptions prepaid 200,000 140,000
Salaries owing 380,000 950,000
Electricity accrued 248,200 196,800
Inventory in trade 1,400,000 620,000

 

  1. Payments through the bank were as follows:
Sh.
Cash purchases 3,188,000
Purchase of furniture 204,000
Catering service inclusive of VAT 180,000
Motor vehicle fuel inclusive of VAT 260,000
Electricity 184,600
Salaries (partners’ salaries Sh.900,000) 1,830,000
Legal fees 138,500
Subscriptions paid 200,000
  1. Legal fees included Sh.30,500 relating to acquisition of freehold land and office building while electricity paid during the year included a deposit of Sh.40,000.
  2. The capital contribution ratio was 3:1 for Mikah and Janace respectively. The partners are entitled to an interest of 10% and 8% per annum of capital contribution for Mikah and Janace respectively.
  3. On 1 April 2024, the partnership obtained a bank loan of Sh.2,500,000. The interest rate was 18% per annum. The loan was repayable in 5 equal annual installments but had already fallen into arrears.
  4. The partnership was converted into Jaykay Ltd. company on 1 September 2024 under the following terms:
  • The partners were issued with ordinary shares equivalent to capital contribution in the partnership as at the date of conversion.
  • They invited John to be a shareholder upon contribution of Sh.5,000,000 towards ordinary share capital and 8% debenture in the ratio of 3:2.
  • The partners were to become the directors of the company earning a salary of Sh.40,000 each per month. This is not included in the salaries for the year.
  • Land and buildings were revalued to Sh.10,500,000.
  1. They purchased a saloon car on 1 October 2024 for Sh.3,300,000 which had 2800cc and computers for Sh.320,000 net of cash discounts of Sh.15,000.
  2. Discount received from suppliers during the year amounted to Sh.720,000 while in November 2024, a debtor owing Sh.68,000 was declared bankrupt.
  3. Subscriptions were made to Chamber of Commerce.
  4. All sales and purchases were inclusive of VAT at the rate of 16%.
  5. All revenue and expenses accrued evenly throughout the year unless otherwise stated.

 

Required:

(i) In a columnar format, determine the taxable income of the partnership and Jaykay Ltd. for the year ended 31 December 2024.                                (12 marks)

(ii) Compute taxable income of each partner for the year ended 31 December 2024.

(3 marks)

(iii) Compute tax payable (if any) by Jaykay Ltd. for the year ended 31 December 2024. (1 mark)

MASOMO MSINGI ANSWER

Workings:

1: Sales

Account receivable A/c
  Sh   Sh
Balance b/d 1,708,000 Bad debts written off 68,000
Credit sales 4,820,000 Balance c/d 6,460,000
  6,528,000   6,528,000

 

Sh
Total Sales: Cash 148,300 ×80 11,864,000
                    Credit 4,820,000
16,684,000
Less: VAT [16/116 × 16,684,000) (2,301,141.40)
Actual Sales 14,382,758.60

 

2: Purchases

                                Account Payable a/c
  Sh.   Sh.
Discount received 720,000 Balance b/d 1,340,000
Balance c/d 1,868,600 Credit purchases 1,248,600
  2,588,600   2,588,600

 

Sh
Total Purchases: Credit 1,248,600
                            Cash 3,188,000
4,436,600
Less: VAT [16/116 × 4,436,600) (611,944.80)
Actual Purchases 3,824,655.20

 

 

  1. Salaries:
  Sh
Balance b/f (380,000)
Bank 1,830,000
Balance c/d 950,000
2,400,000

 

  1. Subscriptions:
Sh.
Balance b/f 200,000
Bank 200,000
Balance c/d (140,000)
260,000

 

  1. Electricity:
Sh.
Balance b/f (248,200)
Bank 184,600
Balance c/d (196,800)
133,200

 

(i) Taxable income of the partnership and Jaykay Ltd. for the year ended 31 December 2024

Jaykay Enterprise Ltd. 2024 Income and tax computation
  Partnership

4 months

 

Sh.

 Ltd. Company

4 months

Sh.
Sales                                                          14,382,758.60 9,588,506 2,794,253
Less: Cost of sales

[1,400,000 + 3,824,655 – 620,000]=        4,604,655

  

(3,069,770)

  

(1,534,885
Gross profit 6,518,736 3,259,368
Add: Discount received                                      720,000 480,000 240,000
Taxable revenue 6,998,736 3,499,368
Less: Allowable expenses          
Investment allowances:             
Office building (5,500,000 × 10%)               = 550,000 366,667 183,333
Plant and equipment (9,000,000 × 10%)             = 900,000 600,000 300,000
Furniture (2,204,000 × 10%) =                             220.4 146,933 73,467
Subscriptions                                                     260,000 173,333 86,667
Salaries (2,400 – 900)                                    1,500,000 1,000,000 500,000
Electricity (133.2 – 40)                                        93,200 62,133 31,067
Catering fee [180 × 100/116]                               155,172 103,448 51,724
Motor vehicle fuel: [260 × 100/116                      224,138 149,425 74,713
Legal fees (138,500 – 30.5)                              108,000 72,000 36,000
Interest on loan (18% × 2,500)       450,     5/12,      4/12 187,500 150,000
Debenture interest [2/5×5,000 × 8% ]       160,       4/12 – 53,333
Directors salary (40,000 × 4 × 2)                               320 320,000
Capital allowance:          
Saloon car (25% x 3,000,000)                                750 750,000
Computers (25% x 320)                                           80 80,000
Bad debt written off                                                 68 _________ 68,000
(2,861,439) (2,758,304)
Adjusted business income 4,137,297 741,064

 

ii) Allocation of profit

  Milcah Janice Total
Salary to partners 450,000 450,000 900,000
Interest on capital:
10% × 6,800,000 × 8/12 × 3/4 340,000
8% × 6,800,000 × 8/12 × 1/4 90,667 430,667
Profit share 1,403,315 1,403,315 2,806,630
Taxable income 2,193,315 1,943,982 4,137,297

 

iii) Tax payable by Jaykay Ltd.

30% × 741,064 = 222,319.2

 

QUESTION 3

April 2025 Question Two B

Ryan and Michael are in a partnership business trading as RAM Enterprises and sharing profits and losses in the ratio of 3:2 respectively.

 

The following details relate to the business for the year ended 31 December 2024:

  Sh.
Capital account (1 January 2024): Ryan 4,000,000
                                                       Michael 3,200,000
  Sh.
Current account (31 December 2024): Ryan 600,000 (Credit)
                                                              Michael 900,000 (Credit)
Inventories as at 1 January 2024 6,203,000
Non-current assets 4,200,000
Trade receivables 1,800,000
Trade payables 642,000
Cost of sales 2,469,860
Transport costs 713,000
Interest on business loans 390,000
Drawings of goods at selling price:  Ryan 2,250,000
                                                          Michael 2,400,000
Bank 373,000
General expenses 684,500
Salaries 2,722,020
Rent 3,000,000
Electricity 364,000
Depreciation 464,000
Net interest income (Mali Ltd.) 200,000

 

Additional information:

  1. Current account balances were extracted after preparing the final accounts of the partnership for the year ended 31 December 2024.
  2. Sales are made up of 200% of the share of the total profits by the partners and include value added tax (VAT) at the rate of 16%.
  3. Interest on drawings was charged at 10% on the partners drawings and interest on capital was at 5% per annum.
  4. Salaries include partners’ salary amounting to Sh.880,260 and Sh.760,260 to Ryan and Michael respectively. The partners salaries were included in the current account balances as at 31 December 2024.
  5. Rent accrued was Sh.120,000 at year end and there was a prepayment of rent Sh.40,000 at the beginning of the year. Electricity owing as at 1 January 2024 was Sh.150,000.
  6. On 2 September 2024, the business ordered for goods costing Sh.225,000 which were recorded as purchases but were never received as they were stolen while in transit. The transporter later accepted liability and paid a compensation in January 2025 of Sh.200,000. No adjustments had been made in the books in respect of the loss or claim as at 31 December 2024.
  7. Non-current assets were acquired in the month of January 2024 and comprised the following:
  Sh.
Computers 240,000
Office partitions 300,000
Furniture 120,000
Saloon vehicle 2,460,000
  1. There were no opening balances in the current account of partners.

 

Required:

(i)  The partnership taxable profit or loss for the year ended 31 December 2024.

(10 marks)

(ii) Taxable income of each partner.                   (4 marks)

 

MASOMO MSINGI ANSWER

Workings:

W1: Salaries

Salaries as per account 722,020
Less: partners’ salaries (1,640,520)
  1,081,500

 

W2: Rent

Rent as per accounts 3,000,000
Prepaid b/f 40,000
Accrued c/d 120,000
3,160,000

 

W3: Electricity

Electricity as per accounts 364,000
Owing b/f (150,000)
214,000

 

W4. Sales

Partners current account
  Ryan Michael   Ryan Michael
Drawings 2,250,000 2,400,000 Balance b/f – –
Interest on drawings 225,000 240,000 Salaries to partners 880,260 760,260
Interest on capital 200,000 160,000
Balance c/d 600,000 900,000 Share of profit 1,994,740 2,619,740
  3,075,000 3,540,000   3,075,000 3,540,000

 

Total share of profit by partners: 1,994,740 + 2,619,740 = 4,614,480

Sales: 200% × 4,614,480 = 9,228,960

 

Ram Enterprises

2024 Taxable Profit Or Loss Computation
  Sh. Sh.
Sales 9,228,960
Less: VAT in sales (1,272,960)
7,956,000
Less: cost of sales 2,469,860
Gross profit 5,486,140
Less: Allowable expenses
Goods lost in transit 225,000
Salaries 1,081,500
Rent 3,160,000
Electricity 214,000
Transport costs 713,000
Interest on loans 390,000
General expenses 684,500
Wear and tear Allowance 717,000 (7,185,000)
Adjusted business loss (1,698,860)

 

 

(ii)  Allocation to partners

Salary to partners 880,260 760,260 1,640,520
Interest on capital 200,000 160,000 360,000
Interest on drawings (225,000) (240,000) (465,000)
Share of profit (1,940,628) (1,293,752) (3,234,380)
Adjusted business loss (1,085,368) (63,492) (1,698,860)
Other income
Interest 200,000 × 100/85 = 253,294 141,176 94,118
Taxable income 141,176 94,118

 

Workings
Wear and Tear Allowance  
Computers 240,000 × 25%           = 60,000
Partitions 300,000 × 10%             = 30,000
Furniture  120,000 × 10%            = 12,000
Saloon vehicle 2,460,000 × 25%  = 615,000
717,000

 

QUESTION 4

December 2024 Question One B

Kamaly and Kalangi have been trading as Kaka Enterprises. The entity had reported a net profit of Sh.484,900. However, the reported profit was disputed by the revenue authority during the year of income 2023. The assessed taxable profit for the partnership by the revenue authority was Sh.3,880,000.

 

The partners have provided the following details to assist them prepare for an adjusted taxable profit which would assist in determining whether the assessment by the revenue authority was fair:

Receipts and payments (Bank account)

  Sh.   Sh.
Balance b/f 1 Jan 2023 1,840,000 Cash purchases 500,000
Receipts from debtors 3,600,000 Payments to creditors 1,890,000
Cash sales 720,000 Electricity 188,000
Sale of motor vehicle 360,000 Telephone 172,000
15% bank loan 400,000 Purchase of furniture 350,000
Balance carried forward 960,000 General expenses 3,700,000
Salaries and wages 480,000
Office computers 180,000
Rent expenses 240,000
Insurance 96,000
________ Advertising 84,000
  7,880,000   7,880,000

 

Additional information:

  1. The partners contributed capital of Sh.400,000 and Sh.600,000 for Kamaly and Kalangi respectively which was included in the opening balance in the receipts and payments account.
  2. General expenses included the following items which were debited in the statement of profit and loss account:
    Sh.
• Computer software 90,000
• Donations to a political party 300,000
• Defending Kalangi in a land dispute 350,000
• Withholding tax 32,000
• Installation of neon signs 48,000
• 15% bank loan repayment inclusive of interest 200,000
• Lease rental payments 82,000
• Purchase of motor vehicle 1,200,000
• Purchase of piece of land for business 742,000
• Purchase of motorbike for office use 200,000
• Auditing fees 96,000
• Partners drawings 360,000
  1. Other details included:
  1 January 2023

Sh.

 31 December 2023

Sh.
Creditors for goods 550,000 1,460,000
Debtors for goods 640,000 820,000
Salaries and wages accrued 120,000 89,000
Rent expenses prepaid 36,000 24,000
Office computers 150,000 240,000
Inventories for goods in trade 192,000 120,000
Cash at bank 840,000 960,000
  1. Salaries and wages included salaries paid to domestic workers for partners amounting to Sh.96,000.
  2. Total sales and purchases for the year 2023 were undercast by 20%.
  3. The 15% bank loan of Sh.400,000 relates to repairs to private residence of Kalangi.
  4. Telephone expenses amounting to Sh.60,000 related to partners personal calls.
  5. Rent expenses were understated by 25%.

 

Required:

(i) Prepare a revised statement of adjusted profit or loss for the partnership business.  (12 marks)

(ii) Advise the partners in relation to the assessed profit by the revenue authority as compared to the adjusted taxable profit obtained in (b) (i) above.             (2 marks)

 

MASOMO MSINGI ANSWER

i) Revised statement of adjusted profit or loss for the partnership business

Reported net profit 484,900
Computer software 90,000
Donation to a political party 300,000
Defending Kamangu 350,000
Withholding tax 32,000
Installation of Neon sign 48,000
Loan repayment including interest 200,000
Purchase of motor vehicle 1,200,000
Purchase of piece of land 742,000
Purchase of motor bike 200,000
Cash purchase 500,000
Salaries and wages 96,000
Telephone expenses 60,000
Sales under cast(W1) 1,125,000
Partners drawing 360,000 4,803,000
Deduct: 5,287,900
Purchases under cast (W2) 825,000
Rent expenses(W3) 84,000
Investment allowance:

·      Furniture 350,000 × 10%

·      Computer 330,000 × 30%

·      Computer software 90,000 × 25%

·      Motor vehicle 1,200,000 × 25%

·      Motor bike 200,000 × 25%

·      Neon sign 48,000 ×10%

  

35,000

82,500

22,500

300,000

50,000

4,800

  

 

 

 

 

 

1,403,800
Adjustable taxable income 3,884,100

 

Working 1

Total debtors a/c
                           Sh.   Sh.
Balance brought forward 640,000 Receipts 3,600,000
Credit sales (balance figure) 3,780,000 Balance carried forward 820,000
  4,420,000   4,420,000

Total sales = 3,780,000 + 720,000

= 4,500,000 × 100/80 = 5,625,000

 

Under cast = 5,625,000 – 4,500,000

= 1,125,000

 

Working 2

Total creditors a/c
                               Sh.   Sh.
Payment 1,890,000 Balance brought down 550,000
Balance carried forward 1,460,000 Credit purchases 2,800,000
3,350,000 3,350,000

 

Total purchases   = 2,800,000 + 500,000

= 3,300,000

Under cast    = 3,300,000 × 100/80

= 4,125,000 – 3,300,000

= 825,000

 

Rent expenses a/c
  Sh.   Sh.
Balance brought forward 36,000 Profit and loss account 252,000
Bank 240,000 Balance carried down 24,000
  276,000   276,000

 

252,000 × 100/75 =336,000 – 252,000 = 84,000

 

Salaries and wages
  Sh.   Sh.
Bank 480,000 Balance brought down 120,000
Balance carried forward 89,000 Profit and loss account 449,000
  569,000   569,000

 

                  Office Computers a/c
  Sh.   Sh.
Balance brought down 150,000 Profit and discount 90,000
Bank 180,000 Balance carried down 240,000
  330,000   330,000

ii) Advice to partners:

The assessed taxable profit of Sh. 3,880,000 is fairly as compared to the revised adjusted taxable income of Sh. 3,884,100. Therefore, the partners should distribute the adjusted taxable profit, as per the partnership agreement, compute and pay the respective taxes and penalties as per the profit distributed to each partner.

 

SAMPLE WORK

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