Dr	Cr
10% preference share capital		20000
Ordinary share capital		70000
10% debentures (repayable 2014)		30000
Goodwill at cost	15500
Buildings at cost	95000
Equipment at cost	8000
Motor vehicles at cost	17200
Provision for depreciation: equipment 1.1.2009		2400
Provision for depreciation: motors 1.1.2009		5160
Stock 1.1.2009	22690
Sales		98200
Purchases	53910
Carriage inwards	1620
Salaries and wages	9240
Directors remuneration	6300
Motor expenses	8120
Rates and insurances	2930
General expenses	560
Debenture interest	1500
Debtors	18610
Creditors		11370
Bank	8390
General reserve		5000
Share premium account		14000
Interim ordinary dividend paid	3500
Profit and loss account 31.12.2008		16940
	23,070	273,070

The following trial balance is extracted from the books of FW Ltd as on December 31, 2009

The following adjustments are needed:

- Stock at 31.12.2009 $27,220

- depreciation motors $3000, equipment $1200

- FW Ltd has a wear and tear policy of buildings 2.5%, Motor vehicles 12.5% and Equipment 10%. The equipment was purchased 1.1. 2009 while Motor vehicle was purchased and brought into the business 1.6.2009

- Accrue debenture interest 1.500

- Provide for preference dividend 2,000 and final ordinary dividend of 10%

- transfer 2,000 to general reserve

- Write off goodwill 3,000

- Authorized share capital is 20,000 in preference shares and 100,000 in ordinary shares

- Provide for corporation tax at 25%

- Bad debt expenses represent 15% of debtors

- Creditors comprises (Trade creditors 9730; other creditors 2000)

- Rates and insurances included donations of 1050 o cultural activities, 500 t national sports, and 12.5% of the balance to a political party

- Wages of 3500 was paid to Mr. Fs ex wife for child support

- motor expenses include 5% for repairs done to Mr. W private motor vehicle

- Directors remuneration has 300 pad to the companys lawyer for legal action brought against Mr. F for abusing a former employee

- Mr. F and Mr. W are directors of the unrelated company ABC Co. Ltd and receive the following benefits:

A. Directors fee of $5000 and $6000 respectively

B. Motor vehicles costing 250,000 and 400,000 respectively. The benefit to each director is 2.5% of the cost of the vehicles

C. Mr. W was provided with a cellular phone valuing 2,000; ABC also pays all business and private calls made by Mr. W. The last phone bill came to 3,500 of which 60% was for private calls

REQUIRED:

1. Prepare the profit and loss account and corporate tax computation for the year ended December 31, 2009

2. Compute the tax payable for Mr. F and Mr. W for the year of assessment 2009

Two persons answered the above question but I am confused.

See answers below:

ANSWER #1: (by chegg expert)

For the first answer provided, what comprises Disallowances of $1723 under Tax Computation calculation (second table in answer to question)

Which figure for Director's remuneration is correct? From first answer: Director's remuneration of 6000 different from that in answer 2

Preference share, ordinary share and debenture - are they not relevant in answering the question?

ANSWER #2: (Answered by chegg expert)

FW limited

Profit and Loss Account

Sales Revenue
Sales			98200
Net Sales Revenue			98200
Cost of Goods Sold
Inventory, Jan 1, 2009		22690
Purchases	53910
Carriage Inward	1620	55530
Merchandise available for sale		78220
less: Inventory, Dec 31, 2009		27220
Cost of Goods Sold			51000
Gross Profit on Sales			47200
Operating Expenses
Salaries & Wages	9240
Motor Expenses (8120 * 0.95)	7714
Rates & Insurance	2930
General Expenses	560
Debenture Interest (1500 + 1500)	3000
Director's Remuneration (6300+3500+406)	10206
Depreciation - Motors	3000
Depreciation - Equipment	1200
Goodwill Written off	3000
Allowance for Bad Debt	2792		43642
Income from Operations			3558
Income Tax @ 25%			890
Net Income for the year			2668
Earnings per common share			0.38

Director's Remuneration (6300+3500+406)

10206

The amount for Director's remuneration is different in the first answer.

In the secnd answer, calculations from "Income from Operations" is confusing.

Grateful if you could guide me. Thank you in advance.

To FW LTD. PROFIT AND LOSS ACCOUNT FOR THE YEAR DECEMBER 31 2009 Particulars Amounts Particular Amount Opening stock 22,690 By Purcha 153910 Closing stoc 27.220 CarriaEe inward 1,620 Gross Profit 47 200 1.25.420 1.25.420 11,730 Motor expens 7,714 Rates and insurances 1208 General expense 560 Debenture inter 3000 4200 Depreciation Wear And tear 5000 2.5%) Bullidings 2,375 Motor vehic el1720012.5% 612 1,075 800 Equipment 8000 1096 Goodwill written off 3000 Bad Debts 2,792 Donation for cultural activities and 1.550 Donation to political partyl1380 12 173 Tax Payable 3,381 Net Profit(b/F) 11,864 Total 58,930 Total 58,930 To FW LTD. PROFIT AND LOSS ACCOUNT FOR THE YEAR DECEMBER 31 2009 Particulars Amounts Particular Amount Opening stock 22,690 By Purcha 153910 Closing stoc 27.220 CarriaEe inward 1,620 Gross Profit 47 200 1.25.420 1.25.420 11,730 Motor expens 7,714 Rates and insurances 1208 General expense 560 Debenture inter 3000 4200 Depreciation Wear And tear 5000 2.5%) Bullidings 2,375 Motor vehic el1720012.5% 612 1,075 800 Equipment 8000 1096 Goodwill written off 3000 Bad Debts 2,792 Donation for cultural activities and 1.550 Donation to political partyl1380 12 173 Tax Payable 3,381 Net Profit(b/F) 11,864 Total 58,930 Total 58,930