(a) State the tax position on losses clearly indicating the four categories of losses. (4 marks)

(b) The Thagana Processing Company Ltd. was established in 1999. During the year of income 1999, the following expenditure was incurred on the purchases of assets for use in the processing business.

Sh.

Land Cost of construction of building: Processing plant Administrative offices Show room Stores (for finished goods) Labour quarters Godown Recreation facility Sports pavilion Bridge across a stream Retail shop Machinery installed in the building included Processing machine Installation costs Other assets Forklift Secondhand imported lorry (20 tonnes and 10 years old) Tools and implements for repairing and maintaining company assets 3 saloon cars (Sh.1.5 million each) Furniture and fittings Computers Scanner Mobile telephones

10,000,000 8,000,000 1,500,000 800,000 500,000 900,000 1,200,000 600,000 400,000 700,000 300,000 2,500,000 200,000 4,500,000 3,000,000 950,000 4,500,000 120,000 300,000 100,000 130,000

The company obtained a bank loan during the year and purchased two cottages in Mombasa at a cost of Sh.10,000,000. In addition Sh.2,000,000 and sh.3,500,000 was incurred for constructing parking lot and for storage facilities respectively.

Required:

The capital deductions for the years of income 1999 and 2000