SAMPLE WORK
Complete copy of ADVANCED TAXATION REVISION KIT is available in SOFT ( Reading using our MASOMO MSINGI PUBLISHERS APP) and in HARD copy
Phone: 0728 776 317
Email: info@masomomsingi.com
SAMPLE WORK
Complete copy of ADVANCED TAXATION REVISION KIT is available in SOFT ( Reading using our MASOMO MSINGI PUBLISHERS APP) and in HARD copy
Phone: 0728 776 317
Email: info@masomomsingi.com
TOPIC 1
TAXATION OF BUSINESS INCOME AND SPECIALIZED BUSINESS ACTIVITIES
QUESTION 1
November 2020 Question Two A
The following financial information was extracted from the books of Oil Drillers and Exporters Ltd. for the year ended 31 December 2019:
| Income | Sh. |
| Proceeds of oil sold to foreign subsidiary company (50,000 barrels of crude oil at Sh.500 per barrel) | 25,000,000 |
| Value of oil disposed of to local refineries | 125,000 |
| Freight charges received from other oil companies for transporting their crude oils to neighbouring country | 190,000 |
| Sale of natural gas | 160,000 |
| Expenditure | |
| Staff accommodation expenses | 60,000 |
| Wages and salaries for employees | 15,000 |
| Annual compensation paid to local people for disturbance during petroleum exploration | 75,000 |
| Royalties incurred in respect to crude oil exported | 42,000 |
| Interest on loan from a foreign subsidiary company | 31,250 |
| Specific bad debts written off | 8,500 |
| Depreciation of non-current assets (Class IV) | 45,100 |
| Exploration and drilling costs in respect to cement and casing of oil wells | 24,500,000 |
| Contribution to approved provident fund | 65,000 |
| Custom duties on imported equipment | 21,500 |
| General expenses | 65,000 |
Additional information:
- Non-current assets comprised; drilling machines Sh.900,000, Furniture Sh.240,000 and saloon car Sh.2,800,000 acquired during the year.
- Staff accommodation expenses include management fees of Sh.18,000 for a director from a foreign subsidiary company.
- Lorries for transporting crude oil comprised:
7.5 tonnes lorry Sh.2,400,000.
4.2 tonnes lorry Sh.1,800,000.
Required:
A statement of taxable profit or loss for the year ended 31 December 2019.
(12 marks)
QUESTION 2
November 2020 Question Three A
M and K are in partnership trading as MK enterprises. The partners deposited Sh.4,000,000 and Sh.6,000,000 into the business account as their initial capital before commencing trading. They also agreed to share profit and loss in the ratio of their initial capital contribution and interest on capital at 5% per annum on outstanding capital balances.
On 1 January 2018, the firm purchased the following assets for use in the business:
Sh.
Saloon car 2,400,000
Computers 80,000
Furniture and fittings 96,000
Fax machine 48,000
Switchboard 64,000
Bookshelf 18,000
Office kitchen utensils 9,000
Office television set 54,000
Carpets 36,000
Safe for cash office 45,000
The firm’s books were kept in a single entry bookkeeping. The details for the accounting records for the year ended 31 December 2018 obtained were as follows:
- Sales for the year was Sh.1,860,000 out of which Sh.360,000 was on credit and the balance was cash banked.
- The following monthly expenses were paid from cash proceeds before banking the proceeds from cash transactions
Sh.
Transport expenses 6,000
Telephone and postage 5,600
Office meals 5,000
Repairs and maintenance 4,800
- The bank statements summary for the full year showed payments made during the year as follows:
Sh.
Rent payment 325,000
Purchase of 3 tonnes lorry 1,800,000
Purchase of motor bike 90,000
Office expenses 1,460,000
Advertising 240,000
- The office expenses paid in note (3) above included:
Sh.
Partners’ salaries: M 270,000
K 360,000
Employees’ pension contribution 420,000
Donations to society for blind 78,000
Tax consultancy fees 32,000
Training of partners’ children 28,000
Motor vehicle insurance 24,000
The business failed to file returns for the year of income 2018 and on 1 July 2019, they received an estimated assessment of Sh.78,000 from the revenue authority for each partner.
Required:
- i) Using the above information, prepare a statement that will form the basis of contesting the estimated assessment for the year of income 2018. (14 marks)
- ii) Advise the partners on the appeal position. (2 marks)
QUESTION 3
November 2019 Question One C
Sharon and Primus are partners running a hardware business. They have approached you to assist them prepare the partnership returns for the year ended 31 December 2018. The following information has been presented to you:
The partnership agreement provides that
- Profits and losses will be shared in the ratio of 2:1 for Sharon and Primus respectively.
- Partners will be allowed to withdraw up to Sh.100,000 in cash without being charged interest. Any excess withdrawals will be subject to interest at a rate of 8% per annum.
- Each partner will be entitled to a monthly salary of Sh.60,000 per month. However, no salary would be paid to any partner in the months of January, May and September due to expected low sales based on analysis of past trends. Partners would be entitled to a commission.
- The balances in the books of account as at 31 December 2018 and 31 December 2017 included the following: 31 December 2018 31 December 2017
| 31 December 2018 | 31 December 2018 | |
| Sh. | Sh. | |
| Accrued commission due to partners | 400,000 | 360,000 |
| Accounts payable (trade) | 2,000,000 | 1,600,000 |
| Accrued advertising expense | 610,000 | 340,000 |
| Prepaid royalty income | 160,000 | 100,000 |
| Accounts receivable (trade) | 5,900,000 | 1,700,000 |
| Accrued salaries and wages (partners excluded) | 410,000 | 130,000 |
| Accumulated depreciation | 600,000 | 340,000 |
- Extracts of cash payments during the year were as follows:
| Sh. | |
| Commission paid to partners equally | 100,000 |
| Purchases (goods for sale) | 1,000,000 |
| Advertising expenses | 150,000 |
| Salaries and wages (partners excluded) | 1,390,000 |
| Motor vehicle expenses | 240,000 |
| Electricity expenses | 80,000 |
| Office partitions | 60,000 |
| Purchase of office equipment | 97,000 |
| Meals to employees | 200,000 |
| Loan interest | 35,000 |
| Cash withdrawn by partners – Sharon | 160,000 |
| – Primus | 100,000 |
- All receipts were channeled through the account and included the following:
| Sh. | |
| Sales (all were on credit terms) | 1,600,000 |
| Royalty income | 240,000 |
| Proceeds from sale of office equipment | 45,000 |
| Computer leasing charges | 6,000 |
- The partners withdrew hardware goods for personal use as indicated below: Sh.
| Sharon | 110,000 |
| Primus | 60,000 |
- In December 2018, some of the hardware goods which were valued at Sh.60,000 were destroyed by fire:. Compensation of Sh.35,000 was received from the insurance company.
Required:
(i) Taxable profit or loss of the partnership for the year ended 31 December 2018.
(8 marks)
(ii) A schedule showing the partners allocation of taxable income or loss. (2 marks)
Hint: Ignore opening and closing inventory.
QUESTION 4
November 2019 Question Three C
Maisha Mema Insurance Company Limited provided the following information for the year ended 31 December 2018:
| Sh.”000″ | |
| Gross premiums received | 30,000 |
| Claims paid | 4,000 |
| Commission ceded | 800 |
| Commission accepted | 20 |
| Claims recovered on reinsurance | 3,000 |
| Foreign exchange gains realised | 3,500 |
| Dividends from life assurance fund | 2,000 |
| Rental income (commercial building) | 1,600 |
| Bad debts provision | 500 |
| Investment income | 1,200 |
| Reserve for unexpired risks (1 January 2018) | 1,000 |
| Legal expenses related to claims | 400 |
| Agency fees | 400 |
| Management fees | 120 |
| Repairs on rental properties | 200 |
| Entertainment expenses | 400 |
| Purchase of furniture | 600 |
| Purchase of computer | 300 |
| Reinsurance premiums paid | 4,000 |
| Returned premiums | 5,000 |
Additional information:
- Reserves for unexpired risks on 31 December 2018 were Sh.200,000.
- Claims outstanding on 1 January 2018 and 31 December 2018 were Sh.600,000 and Sh.900,000 respectively.
- Premiums outstanding on 1 January 2018 and 31 December 2018 were Sh.6,000,000 and Sh.12,000,000 respectively.
- Agency fees included Sh.200,000 relating to the life assurance business.
- Legal fees included Sh.100,000 relating to settlement of a tax dispute.
- Investment income comprised:
| Sh. | |
| Interest from bank | 850,000 (net) |
| Interest from treasury bonds | 350,000 (gross) |
Required:
(i) Taxable profit or loss of Maisha Mema Insurance Company Limited for the year ended 31 December 2018. (8 marks)
SAMPLE WORK
Complete copy of ADVANCED TAXATION REVISION KIT is available in SOFT ( Reading using our MASOMO MSINGI PUBLISHERS APP) and in HARD copy
Phone: 0728 776 317
Email: info@masomomsingi.com
