Question 1

(a) Namutideki Uganda Ltd (NUL), a manufacturing company registered in Uganda with head office in Kampala, has distribution outlets spread in all major towns of Uganda. The factory plant is located in Namanve and manufactures steel products.

Below is NUL's Statement of profit or loss and income for the period ended 31 December, 2016:

other comprehensive

Shs '000' 1,242,405 706,995 535,410

47,250 582,660

(10,125)

Income: Note Sales

Less: cost of sales 1 Gross profit

Unrealised foreign exchange gain

Total gross profit

Expenses:

Finance costs

Administration costs:

Salaries and wages 2 Utilities 3 Life insurance premium

Office repairs and maintenance

Motor vehicle expenses

Printing and stationery

Professional fees 4 Depreciation

Donations 5 Factory insurance

Bad debts 6 Total expenses

Profit before tax

Notes:

1. Cost of Sales:

Shs '000'

Advanced Taxation - Paper 9

188,730 35,843 24,989 13,784 16,605 27,540 21,195 67,595

7,020 10,746 13,932

(427,979) (438,104) 144,556

This includes Shs 6.75 million penalty imposed by Government for under-declaration of the value of imported semi-finished steel products.

2. Salaries and wages:

NSSF employer contribution

NSSF 5% employee contribution

Staff relocation costs

Staff travel to and from their homes to place of work Staff travel and accommodation while on fieldwork

Shs '000' 34,560 10,935 3,436 10,260 8,856

3. Included in utilities is a water bill of Shs 8,000,000 for one of the director's residence but paid for by the company.

4. Professional fees relate to directors' children school fees for the year ended 31 December, 2016 paid by the company.

5. Expenditure on donations:

Registered political parties

Uganda Federation of Employers' Association Uganda Golf Club

Uganda Manufacturers Association

Shs '000' 11,813 675 1,283 2,700 16,471

Advanced Taxation - Paper 9

6. Bad debts include:

Trade bad debts written off

Sale of company car to staff Provision for doubtful debts Provision for other trade debtors

Shs '000' 2,835 6,912 9,518 1,418 20,683

Additional information:

1. The company's depreciable assets details:

(i)

Written down values as at 31 December, 2015: Shs '000'

Class I Class II Class III Class IV

40,500 270,000 70,200 27,000

(ii) Additions during the year at cost:

Office furniture

Plant and machinery

Computers

Computer software

Motor vehicle, 3-tons Pick-up

Motor vehicle, Land Cruiser for the managing

director

During the year an extension to the factory building was constructed at a cost of Shs 80 million and put to use on 1 October, 2016.

(iii) Disposals during the year:

A 10-tons Fuso lorry truck was disposed of during the

year for Shs 16,875,000 and a 2-tons Pick-up truck at

Shs 3,800,000.

The company sold scrap machines that had been used

in the factory for Shs 35,000,000.

An old Laptop was disposed of at Shs 1,500,000.

2. Provisional tax paid for the year ended 31 December, 2016 was Shs 500,000 and withholding tax relating to supplies deducted at source (6%) was Shs 965,000.

3. The carry forward loss after adjustment with the revenue authority for the year ended 31 December, 2015 was Shs 2,275,000.

Required:

(i) Compute Namutideki Uganda Ltd's chargeable income and tax payable for the year ended 31 December, 2016.

(24 marks)

(ii) Advise Namutideki Uganda Ltd as to when they should file their provisional and final tax returns for the year ended 31 December, 2016.

(2 marks)

Advanced Taxation - Paper 9

Shs '000' 43,200 950 20,250 81,000 60,750

391,500

(b) Namutideki Uganda Ltd (NUL) also owns several rental properties in Kampala. Below is the information relating to the rental income earned by the company from tenants on Plots 30 Mukwano Road and 7 Portbell Road for the year ended 31 December, 2016.

Rental income from:

(i) Plot 30 Mukwano Road:

Tenant

Seamsa Towers Uganda Ltd Stanbic Tours & Travel Zamuzam Transporters Murya Oils and Fats

(ii) Plot 7 Portbell Road: Tenant

Akamada Plastics

Shs 820,000,000 900,000,000 383,289,200 191,644,600

Shs 383,289,200

Additional information:

1. NUL spent Shs 306,631,360 towards property rates and Shs

68,417,100 for ground rent to KCCA for the year ended 31

December, 2016.

2. Penalty for late payment of property rates & ground rent to KCCA of

Shs 18,505,100.

3. NUL incurred Shs 11,500,000 as legal fees to collect rent from one

of the tenants who had defaulted.

4. Shs 110,339,930 was spent on minor repairs and maintenance of

the properties.

5. Shs 192,210,630 was spent on security and stationery and Shs

77,177,349 was incurred as insurance cost for the properties.

6. NUL spent Shs 75,000,000 towards cleaning services and Shs

17,040,000 for casual expenses for the properties.

7. Supervision expenses amounted to Shs 130,600,000 for the year

ended 31 December, 2016.

Required:

Compute NUL's total rental tax liability for the year ended 31 December, 2016.

(7 marks)

(c) (i) Explain the term 'roll-over relief' as per the Income Tax Act.

(1 mark)

(ii) Discuss at least three ways through which roll-over relief occur.

(3 marks)

(iii) Explain any three conditions that make a transaction to be considered for roll-over relief.

Question 2

Amolo, Mugisha and Onyango are partners at AMO Advocates. The partnership is located on Workers Plaza. They have been in operations since 1 January, 2010 and duly registered for all taxes with Uganda Revenue Authority. The partners agreed to share profits or losses in the ratio of 2:2:6 in favour of Amolo, Mugisha and Onyango respectively.

Below is an extract from the partnership's statement of profit or loss and other comprehensive income for the year ended 30 June, 2016:

Income:

Retainer fees

Land transactions Advisory/ consultancy Other income

Total income Expenses:

Administrative

Selling & Distributions Finance

Total expenses

Net profit

Notes:

Note

1 2 3

Shs '000' 550,000 700,000

2,150,000 72,800

1,351,550 520,000 67,700

Shs '000'

3,472,800

(1,939,250) 1,533,550

Advanced Taxation - Paper 9

(7 marks) (Total 40 marks)

1. Included in the Administrative expenses:

(a) Salary and wages Shs 850,000,000. Included in the salary and

wages expense is Shs 60,000,000 that the partners agreed should

be paid to Onyango as compensation for working extra hours.

(b) Interest on partners' capital:

Shs Mugisha 10,000,000

Amolo 10,000,000 Onyango 20,000,000

25 August, 2017

Page 6 of 13

(c) Rent includes Shs 100,000,000 for office premises and Shs 45,000,000 for the residential accommodation of the secretary. The partnership treated this as a non-taxable benefit for PAYE.

(d) Subscription to Law Society Shs 25,335,000.

(e) Repairs and maintenance Shs 92,800,000.

(f) Office utilities Shs 15,210,000.

(g) Internet, newspapers and magazines Shs 32,230,000.

(h) Depreciation for assets Shs 8,000,000.

(i) Staff end-of-year retreat at Munyonyo Shs 56,500,000.

(j) Legal and professional fees Shs 86,000,500. Included in this expense is Shs 28,500,000 for debt collections, Shs 6,000,500 for reviewing of the partnership deed and Shs 20,000,000 for

accountancy fees.

2. Selling and Distribution expenses:

Commissions for marketing teams Provision for bad and doubtful debts Travelling expenses

Shs 238,000,000

10,000,000 272,000,000

3. Finance expenses:

Included in finance expenses is Shs 50,900,000 relating to the overdraft facility that was obtained from Kane Bank. While bank charges amounted to Shs 16,800,000.

Other relevant information:

1. Tax written down values (WDV) at the beginning of the financial year: Shs

Class I Class II Class III Class IV

8,000,000 2,500,000 1,000,000

12,000,000

2. Additions during the year: Items

3 Mercedes Benz cars each at

Conference tables and chairs

Cameras for the reception and strong room 4 Laptops each at

Shs 250,000,000

45,000,000 20,000,000 1,800,000

Advanced Taxation - Paper 9

25 August, 2017

Page 7 of 13

3. Partners capital accounts:

Particulars Balance forward (Shs) Additions: Van (Shs) Carried forward (Shs)

Required:

Amolo Mugisha Onyango Total 80,000,000 100,000,000 200,000,000 380,000,000

20,000,000 100,000,000

---- ----- 100,000,000 200,000,000

20,000,000 400,000,000

(a) Advise AMO Advocates on their chargeable income for the year ended 30 June, 2016.

(b) Advise Amolo, Mugisha and Onyango on:

(i) their tax liabilities for the period ended 30 June, 2016.

(ii) tax treatments for the transaction involving one of the partners contributing his personal van as capital to the partnership.