Haraka Ltd was incorporated in the year 2019. It is involved in cleaning, maintenance and general management of properties. In addition, the company also collects rent on behalf of its clients. The managing director has kept all the transaction vouchers in a filing cabinet and has maintained proper client records on rent received, rent paid and commissions receivable.

The following information was extracted from the records of the company for the year ended 31 December 2021:

	Ksh
Rent received from clients tenants	4,500,000.00
Salaries and wages	2,250,000.00
Maintenance costs of clients properties	3,500,000.00
Subscription journal of property maintenance and management	437,000.00
Fees received (cleaning)	2,340,000.00
Dividends received (net)	328,000.00
Interest on fixed deposits (net)	10,000.00
Donations to disaster fund	5,000.00
Depreciation	15,000.00
Legal fees	42,000.00
Bank charges and interest	20,000.00
Rent and rates	31,000.00
Instalment tax paid	22,000.00
Rent outstanding from tenants as at 31 December 2012	42,000.00
Rent outstanding from tenants as at 1 January 2012 `	35,000.00

Additional information:

1. Haraka Ltd. signs a standard management contract with all clients. The contract provides for a management fee of 8.5% on gross rent payable by the tenants. Clients are therefore paid rent net of management fees.

2.The company charges tenants interest at the rate of 10% per month for any overdue rent. On average, 20% of the gross rent receivable every year is paid late every month. However, no rent remains unpaid for more than one month.

3.The cost of maintaining clients properties is met by the owners of the properties. Haraka Ltd. pays the cost of maintenance and recovers this from the rent collected.

4.Auditors fees include Sh.150,000 incurred in representing the company in a tax dispute in the High Court.

5.Included in insurance premiums is sh.60,000 being insurance premium for a clients property for the year to 31 December 2021. This was to be recovered from the rent receivable from the client in January 2021.

6.Legal fees relate to debt collection. However, Sh.20,000 was incurred in defending one of the directors in a private suit.

7.The written down values of the companys assets as at 1 January 2021 were as follows:

Class II ksh 350,000

Class III ksh 2,850,000

Class IV ksh 1,200,000

9. During the year ended 31 December 2021, the company bought one saloon car for the property manager for Sh.1,600,000 and computers worth Sh.270,000. It disposed of some furniture for Sh.80,000. The furniture had been bought in the year 2019 at Sh.160,000.

8.Included in the directors remuneration is a payment for medical cover for a non-executive director of Sh.50,000.

9.The company paid subscriptions for its top management to Starehe Golf Club, amounting to Sh.240,000. This has been included in office expenses.

Required:

(i) Compute the taxable profit or loss of Haraka Ltd. for the year ended 31 December 2021(10 marks)

(ii) Compute the tax payable by the company, if any (1 mark)

(iii) Comment on any information not used in your computations. (1 mark)

(b) Explain factors which determine taxable capacity in an economy (6 marks)

(c) Explain how a company can avoid being penalized for short fall distribution of dividends (5 marks)

(d) When is a transfer for purposes of capital gain tax deemed to have occurred? (2 marks)