Question 1

A & M ProgressiveSenior School Ltd is a privately registered, day and boarding secondary school that was licensed by the Ministry of Education and Sports in 2001.The school is owned by two directors Amuge and Masaba. Over the years, the school has attracted many students because of their good performance in the national examinations. The school has 2,500 students who study at bothMukono and Kampala campuses.

The following is an extract of their statement of profit or loss and other comprehensive income for the year ended 31 December,2017:

Incomes: School fees Other incomes

Expenses: Operating Administrative Finance

Net profit

Note Shs'000'

4,200,000 1 525,000 4,725,000

2 2,997,000 3 1,119,000 4 547,000

(4,663,000) 62,000

Notes:

1. Other income comprise of the following amounts:

Hire of school buses Donations

School farm

Interest Miscellaneous income

Note

(i)

Shs '000' 47,000 345,000 80,000 48,000 5,000 525,000

(i) Interest income is gross and was earned from the school's fixed deposit account in one of the commercial banks in Uganda.

2. Operating expenses:

Depreciation

Utilities

Kitchen

Security

General provisions

Travelling expenses

Entertainment

Laboratory

Donations (Mukono Orphanage Centre) Repairs & maintenance

Note (ii)

(iii)

(iv) (v)

Shs '000' 680,000 665,000

1,025,000 22,000 51,000 163,000 81,000 102,000 15,000 135,900 19,100 28,000 10,000 2,997,000

Legal & accountancy Bad debts

Other losses

1. (ii)Kitchen expenses:
2. Foodstuffs
3. Beverages
4. Provisions (spoilt food)
5. (iii)Entertainment expenses:

Shs '000' 820,000 180,000

25,000 1,025,000

Food & drinks (parents day)

Hire of musical band (parents day)

Contribution to wedding for the head teacher's son

(iv) Repairs and maintenance:

Kitchen equipment

Computers, scanners & photocopying machine Motor vehicles

Purchase of laboratory equipment

Furniture

Shs '000' 60,000 5,000 16,000 81,000

Shs '000' 49,000 22,000 48,000 900 16,000 135,900

(v) Bad debts:

School fees arrears written off Provision for school fees arrears Salary advance

Shs '000' 13,000 4,000 11,000 28,000

3. Administrative expenses comprise of: Note

Shs '000' 600,000 76,000 23,000 42,000 96,000 55,000 154,000 49,000 24,000 1,119,000

Salary & wages

NSSF employer contribution Rent

School uniforms Examinations

School competition

Staff welfare

School tour & trips

Staff advance

(vi) Staff welfare:

Foods & beverages

Life insurance premium Christmas hampers

4. Finance expenses comprise of:

Interest

Insurance

Bank charges

Realized foreign exchange loss

(vi)

Shs '000' 106,000 32,000 16,000 154,000

Shs '000' 420,000 77,000 32,000 18,000 547,000

5. The written down values of the school's depreciable assets as at 1January, 2017 were as follows:

Class I

II

III IV

Shs '000' 30,000 120,500 220,000 180,000

1. Motor vehicles:
2. The school acquired two new 60 seaterIsuzu buses at a cost of Shs 200 million each. These buses were financed by both school savings and loans. The school replaced the engine of the tractor that is used in the school farm located in Mukono. The engine cost Shs 38 million.
3. During the rainy season, a tree fell on one of the mini-buses which was parked in the school compound. The 14 seater mini-bus which cost Shs 21 million in 2005had a nil bookvalue at the time of the incident. It was replaced with a similar one at a cost of Shs 70.5 million.
4. The old Toyota corolla that was used by Masaba with a net book value of Shs 15 million was sold off at Shs 12.1 million on 30 June, 2017.It had cost the school Shs 49 million in 2014. The net result of the transaction was booked in the statement of profit or loss and other comprehensive income.
5. Computers and accessories:
6. During the year ended 31 December, 2017 the school installed tracking devices in all motor vehicles. The software cost Shs 28 million and is expected to serve the intended purpose for a period of 5 years.
7. Forty Dell computers were donated to the school by AnilGordino a renowned Indian businessman as part of his corporate social responsibility. Each computer was valued at Shs 1.2 million.They sold off eighteen of the old computers which had a totalnet book value of Shs 3 million at Shs 4.21 million. The net loss or gain was posted to the statement of profit or loss and other comprehensive income.
8. The school also purchased three photocopying machines at a total cost of
9. Shs 15 million.
10. Furniture and fittings:
11. The school acquired new furniture at a cost of Shs 29 million.They also installed wooden partitions to subdivide the dormitory at a cost of Shs 2.8 million.

9. Other assets:

The residue of expenditure of the school building was Shs 1,500,800,000 as at 31 December, 2016.The construction of the school parking lot at Mukono campusthat started on1 February, 2016 was finally concluded on 31 December, 2016 and made available for use to teachers, parents and other visitors on 1 January, 2017. It cost the school Shs 27 million.

Required:

(a) Compute the chargeable income and tax payable for A & M Progressive Senior School Ltd for the year ended 31 December, 2017.

(b) Advise A&M Progressive Senior School Ltd on:

(i)

(ii)

(iii)

the due dates for filing provisional and final returns for the year ended 31 December, 2017.

penal tax for failing to maintain proper records.

(1 mark)

(1 mark)

tax treatment of non-cash income earned by the school.

(3 marks)

(c) Explain the meaning of 'exempt organisation' as per the Income Tax Act Cap 340 Laws of Uganda.

(5 marks)

(d) The directors of A & M Progressive SeniorSchoolLtd intend to start an orphanage centre to support children within the community with food, water and health care services. They have approached you seeking advice on how they can successfully obtain income tax exemption from the Uganda Revenue Authority.

Required:

Advise the directors on the process of obtaining income tax exemption.

(25marks)

SECTION B

Attempt three of the four questions in this section

Question 2

Matagi Uganda Limited (MUL) imports and sells Toyota motor vehicles from Japan. In addition, they also own and use some of the vehicles and later sell them as used vehicles on the local market.

In January 2015, MUL bought a brand new Toyota Prad at Shs 200 million for use by the marketing manager. In January 2017, the vehicle developed a mechanical problem and the company decided to sell it off at Shs95 million.The company's depreciation policy is that all motor vehicles are depreciated at 20% per annum on straight-line basis.

Required:

1. (a)Explain what you understand by 'gains and losses' on disposal of business assets as per the Income Tax Act, Cap 340.
2. (2 marks)
3. (b)Discuss the income tax treatment of gains or losses that arise on the disposal of business assets.
4. (2 marks)
5. (c)Compute MUL's accounting and tax gains or losses on disposal of the Toyota Prado. Explain clearly how the gain or loss on disposal should be treated for tax purposes.
6. (8 marks)
7. (d)KabongaUganda Limited (KUL) bought a building in Ntinda industrial area for Shs1 billion in 2008. The building was used as a warehouse for raw materials for their factory and was first put to use on 1 July, 2008. At the time of purchase, KUL engaged a professional valuer who put the value of the land at Shs 300 million. KUL sold the land and building to Twekambe Limited on 30 June, 2017 at Shs 1.5 billion. This was to enable them buy land in Nakasongoladistrict to construct a new factory that is in conformity with the environmental laws.
8. Required:
9. Compute the capital gain or loss realisedby KUL on the disposal of the land and building in 2017.
10. (8 marks) (Total 20 marks)

Question 3

Nalumansi runs a retail shop in Bulindo-Wakiso district. She sells household items, plastics, soft drinks fresh fruits and vegetables. The retail shop has grown over the years and has supported her family. She managed to construct a commercial building from which she derives income.

The following is a summary of her December 2017:

transactions for the period January to

Total Shs '000' 21,800 25,000 1,800 500 9,000 10,700 50,000 2,800 6,400 21,000 1,000 1,700 151,700

Total Shs '000' 12,000 6,500 7,500 21,500 5,400 8,120 16,240 7,542 8,810 20,100 11,000 12,100 136,812

Expenses Shop Shs '000' Utilities 800 Rent 25,000 Transport 1,800 Trading license 500

Ground rent

Wages 10,700 Security 50,000 Medical 2,800 Repairs 700 Painting 3,000 Lighting 200 Fuel 1,000

96,500

Income:

Month Shop

Shs '000' January 4,000 February 6,500 March 7,500 April 13,500 May 5,400 June 8,120 July 8,240 August 7,542 September 8,810 October 12,100 November 11,000 December 12,100 104,812

Net profit/ loss:

Building Shs '000' 21,000 - -

9,000

5,700 18,000 800 700 55,200

Building Shs '000' 8,000

8,000 8,000 8,000

32,000

Page 8 of 12

Shs '000' Shop 8,312 Building (23,200) Total (14,888)

Required:

(a) Advise Nalumansi on:

(i) her chargeable income and tax payable for the year ended 31December, 2017.

(11 marks)

(ii) the due dates for filing and paying both provisional and final tax for the year ended 31December, 2017.

(4 marks)

(b) With examples, explain the meaning of 'advance assessment' as per the Tax Procedures Code Act 2014.

(5 marks) (Total 20 marks)

Question 4

1. (a)Explain the term 'bill of lading' and state at least threeimportance of a bill
2. of lading in international trade. (5 marks) C
3. (b)Discuss the term 'Authorised Economic Operator' (AEO) and explain any three benefits of the scheme to businesses. (5 marks)
4. (c)Explain the punishment given to a taxpayer convicted of removing or tampering with customs seal under the East African Community Customs Management Act, 2004. (2 marks)
5. (d)Mujama is a car dealer in Kampala, Uganda and has imported 5 vehicles from Japan each at a cost of USD1,240 cost, insurance and freight (CIF) to Mombasa and the exchange rate during the date of transaction was USD 1 toShs 3,650.
6. Assume the following rates for: Rate (%) Import duty 25 Withholding tax 6 Value added tax 18 Environmental levy 35
7. Required:
8. Compute the taxes payable by Mujamafor the 5 vehicles he imported from Japan. (8 marks) (Total 20 marks)

Question 5

Baltonez Logistics International is a transport and logistics company with its headquarters in Paris, France.The company has a Ugandan branch that has been in operation since 2007, with its main activities being transport and logistics.The Ugandan branch is registered for VAT and had the following transactions during the month of December 2017:

1. 2 December: received rental invoices for office rent and managing director's residence Shs 2 million and Shs 750,000respectively.
2. 4 December: transported goods from Kampala to Nairobi Shs 65 million.
3. Power and water bills for the office for the month amounted to
4. Shs500,000.
5. Purchased brand new Toyota Prado for the managing director Shs 169
6. million.
7. 10 December: transported goods from Nairobi (Kenya) to Mbarara
8. (Uganda) for Shs 18,900,000.
9. Received an invoice for telephone charges for office for the month Shs 1.9
10. million.
11. 20 December: was contracted by World Food Programme (Kampala office)
12. to transport food supplies to Adjumani (Northern Uganda) for Shs 208
13. million.
14. Purchased 10 computers from a VAT registered supplier on credit at
15. Shs35.1 million.
16. Transported petroleum products forShs 117 millionfrom Mombasa to South
17. Sudan via Uganda.
18. Purchased 2 extra trucksShs 78 million each. One truck was for cash and
19. the other on credit.
20. Disposed of office furniture worth Shs 26 million during the month.
21. Assumptions:

• Purchases are VAT inclusive where applicable.
• Sales are VAT exclusive where applicable.
• Required:

1. (a)Determine the amount of VAT payable or claimable by Baltonez Logistics International for the month of December 2017.
2. (10marks)
3. (b)Explain at least four circumstances under which a VAT registered
4. taxpayer may claim for VAT refund. (8 marks)
5. (c)Briefly explain the penalty a VAT registered taxpayer would suffer
6. for late submission and payment of VAT. (2 marks) (Total 20 marks)