3 questions

QUESTION 1 Sh. 2,300,000 150,000 80,000 132,000 100,000 120,000 c) Teddy, Racheal and Michael are partners trading under the name Teram Enterprises. They share profits and losses in the ratio of 4:3:3. The partners have presented the following income statements for the year ended 31 December 2018: Sh. 280,000 Gross profit Salaries and wages 150,000 Miscellancous income Rent, rates and taxes 204,000 Discounts Office expenses Printing and stationery 64,000 Farming income 45,000 Profit on sale of shares Instalment tax paid Advertising 73,000 Interest on deposits Interest on capital: Teddy 60,000 Rachael 70,000 Michael 80,000 Legal fees 82,000 Commission to partners: Teddy 45,000 Michael 35,000 Depreciation 92,000 Bad debts 68,000 99,000 Donation to famine relief 100,000 General reserve 120,000 Local taxes on property 12,000 Electricity 46,000 117,000 1,040,000 2,882,000 2,882,000 General expenses Showroom expenses Net profit Additional information: 1. It has been the firm's practice to value the stock at the cost price, however, the closing stock amounting to Sh.180,000 was valued based on net realisable value which is 10% less of its cost price. 2. Salaries and wages include salaries amounting to Sh.40,000 paid to Racheal. 3. Advertising includes Sh.10,000 spent on advertising campaign to introduce a new product in the market. 4. Legal fees include a sum of Sh.12,000 paid as parking fine and penalty to the county government. 5. Capital allowances have been agreed with the Commissioner of Income Tax at Sh.90,000. 6. Teddy's other income includes Sh.120,000 consultancy ee. He has brought forward partnership business loss of Sh.135,000 from the assessment of the ycar of income 2017. 7. Rachcal has income of Sh.200,000 from bet winnings. She has brought forward partnership business loss of Sh.135,000 from assessment of the year of income 2017. Required: i. Taxable profit or loss of the partnership for the year ended 31 December 2018. ii. Allocation schedule of profit or loss calculated in (c) (i) above. iii. Total taxable income of each of the partners for the year of income 2018. November 2019 Question Five C QUESTION 2 b) The following information has been extracted from the records of Latherman Co. Ltd, who are regional suppliers of electronic equipment and appliances for the year ended 31 December 2018: Sh. Operating proit before tax and other income 3,800,000 Investment income 849,500 Leasing of electronic cquipment 50,000 Rental income 346,000 Additional information is provided as follows: 1. Investment income comprises of the following: Sh. Interest income: Post Bank (K) Ltd 138,000 Fixed deposit accounts with 246,500(Net) Luanda Bank Savings accounts 170,000(Net) Dividend income: B and M Co. Ltd 200,000(Gross) Kampuni Sacco Society Ltd. 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 Caretakers'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 Sundry expenses Donations Compensation Instalment tax paid for the previous year Construction of the watchmen's booth at the gate 40,000 150,000 150,000 92.000 900,000 240,000 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: 10,000 Balance brought forward: 8,000 Customers 3% of accounts receivables Staff 14,000 Balance brought forward: 30,000 Specific bad debts 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 Renewal of lease (99 years) Accounting fee Auditing fee Tax appeal Staff loan collection Sh. 20,000 3,000 35,000 15,000 30,000 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 latc liling 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. Required: The adjusted taxable income of Latherman Co. Ltd. for the year ended 31 December 2018. QUESTION 3 b) Suleiman Kombo is employed as the Managing Director of Utamu Distributors Ltd., a tax excmpt company. During the year ended 31 December 2018, he presented the following information: 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 houschold 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. lle 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 3,000cc. 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 rentals withholding tax paid 68,200 . . 10. He received net dividends of Sh.42,500 from Maziwa Co-operative Society during the year. Required: i. Total taxable income for Suleiman Kombo for the year ended 31 December 2018. ii. Tax payable (if any) from the income computed in (b) (i) above. iii. Comment on any information not used in your computations under (b) (i) above