QUESTION 1 [40 MARKS] Jim has a retail business specialized in the sales of spare parts. He has provided his income statement for the year ending 30 June 2019 as follows: Rs Rs Turnover 6,980,000 Cost of sales (1,528,000) Gross Profit 5,452,000 Other income: Profit on sale of premises 400,000 Dividends from resident companies 90,000 Total gross income 5,942,000 Salaries & Wages 960,000 Depreciation 190,000 Electricity, water and telephone 504,523 Rent and rates 756,600 Insurance 39,000 Motor vehicle expenses 458,000 Legal Fees 238,900 Repairs and renewal 397,500 Provision for bad debts 45,600 Director's fee 158,666 Audit and Accounting 444,800 Miscellaneous expenses 754,000 Consultancy fees 45,000 4,992,589 Net Profit 949,411 Page 7 of 11 The following additional information has been obtained: 1. Salaries and Wages include an amount of Rs 223,000 paid to Mr Smith, the watchman of Mr Jims residence. 2. A bad debt of Rs 36,000 was recovered during the financial year ended 30 June 2019. However, same has not been included in the reported turnover of the business. 3. The insurance expenditure relates to the coverage of Jims residence at Eagle Insurance Co. Ltd. 4. Repairs and renewals comprise the following expenditure: Rs Jim paid a contractor for his house renovation 102,000 Redecorating administration offices 70,500 Extension of business premises 225,000 397,500 5. Jim used the motor vehicle 80% for business purpose. 6. Jim has paid tax under CPS amounting to Rs 24,000. This figure has been included in the miscellaneous expenses. 7. Annual allowance entitled to Jim is Rs 280,000. 8. Jim is married and the couple has one child, who is studying full time at the Charles Telfair Institute since 1 July 2018. The annual tuition fees amount to Rs 87,000. 9. His wife is employed at MCB and for the year ended June 2019, she earned a total income of Rs 525,000. 10.He also took a loan to construct his first residence at Moka and interest paid for the year ended 30 June 2019 was Rs 199,800. 11.Jim took a medical insurance for the family and medical payment for the year was as follows: Jims medical insurance premium Rs 15,000 Wife medical insurance premium Rs 15,000 Sons medical insurance premium Rs 8,000 Page 8 of 11 REQUIRED (a) Calculate Jims tax adjusted trade profit for the year ended June 2019. [20 marks] (b) In the most efficient way, compute: (i) Jims income tax liability for the year ended June 2019. [10 marks] (ii) Jims wife income tax liability for the year ended June 2019.