Mr. Joseph Omuora commenced a soft drinks distribution business on 1 January 1998. He has not been maintaining proper books of account and the Commissioner of Income Tax has raised doubts about the accuracy of the annual tax returns submitted by him.

You have been appointed to estimate the correct amounts of taxable incomes for the years ended 31 December 1998, 1999, 2000, 2001 for comparison with those disclosed in the annual returns. These returns had disclosed the following profits or losses:

Year ended 31 December	Profit (Loss)
	Sh.
2002	1,800,000
2003	2,150,000
2004	(10, 000)
2005	1,600,000
2006	3,000,000

A schedule of Mr. Omuoras assets and liabilities, both private and business, is presented below:

Warehouse: Cost Residential house: Cost Lorries (Business): Cost Vans (Business): Cost Household furniture: Cost Business furniture: Cost Office Carpets Saloon Vehicles: Business Land: Business Loans: Business Debtors: Business Cash: Business Inventory Computers & Printers: Business Liabilities: Personal Appliances: Household Vehicle spares: Business

1 January 19 98 Sh. 1,800,000 4,000,000 700,000 - 80,000 - 12,000 1,280,000 8,000,000 2,500,000 - 140,000 - 20,000 7,000 6,000 -

31 December 1998 Sh. 1,800,000 4,000,000 860,000 - 100,000 70,000 12,000 1,280,000 8,000,000 2,000,000 720,000 - 600,000 20,000 2,000 6,000 80,000

31 December 1999 Sh. 2,300,000 4,000,000 1,200,000 400,000 140,000 85,000 18,000 1,900,000 8,000,000 2,000,000 600,000 800,000 680,000 28,000 - 9,000 30,000

31 December 2000 Sh. 2,900,000 4,000,000 1,200,000 600,000 140,000 98,000 22,000 2,000,000 8,000,000 2,900,000 860,000 320,000 450,000 32,000 - 4,000 70,000

31 December 2001 Sh. 3,400,000 4,000,000 2,700,000 750,000 140,000 107,000 22,000 2,000,000 8,000,000 4,000,000 750,000 - 720,000 36,000 4,000 10,000 100,000

31December 2002 Sh. 3,400,000 4,000,000 3,600,000 900,000 320,000 110,000 30,000 2,500,000 8,000,000 2,000,000 1,050,000 80,000 960,000 36,000 3,000 8,000 8,000

Additional information:

1. All fixed assets have been stated at cost and there were no disposals. Ignore depreciation on fixed assets.

2. Mr. Omuoras living expenses for each of the five years ended 31 December were as follows:

2002 2003 2004 2005 2006

Sh. 750,000 820,000 690,000 900,000 640,000

3. In the Year ended 31 December 2004, Mr. Omuora received an inheritance gift of Sh. 300,000.

4. In the year ended 31 December 2006, Mr. Omuora made a contribution to a political party of

Sh.180,000.