a)The Thagana Processing Company Ltd. was established in 2020.During the year of income 2020, the following expenditure was incurred on the purchases of assets for use in the processing business.

Sh.

Land

10,000,000

Cost of construction of building:

Processing plant

8,000,000

Administrative offices

1,500,000

Show room

800,000

Stores (for finished goods)

500,000

Labour quarters

900,000

Godown

1,200,000

Recreation facility

600,000

Sports pavilion

400,000

Bridge across a stream

700,000

Retail shop

300,000

Machinery installed in the building included

Processing machine

2,500,000

Installation costs

200,000

Other assets

Forklift

4,500,000

Second hand imported lorry (20 tonnes and 10 years old)

3,000,000

Tools and implements for repairing and maintaining company assets

950,000

3 saloon cars (Sh.1.5 million each)

4,500,000

Furniture and fittings

120,000

Computers

300,000

Scanner

100,000

Mobile telephones

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.

The income statement for the company for the year ending 31 December 2020 is expected to be as below

Sh. '000'

sh. '000'

Sales

68,000

Less: Cost of sales

(36,000)

Gross profit

32,000

Less: Expenses

Selling Expenses

4,800

Salaries and wages

1,940

Depreciation

3,200

Provision for bad debts

1,600

Electricity and water

640

Rent and rates

560

Printing and stationery

720

(13,460)

Net profit

18,540

Required:

i.The capital deductions for the years of income 2020 and 2021(14 marks)

ii.From the expected income statement for the year 2020, calculate the expected tax liability of the company(6 marks)