QUESTION 1 c) Teddy, Racheal and Michael are partners trading under the name Teram Enterprises. They share profits and losses in the ratio of 4:3:3. The partners have presented the following income statements for the year ended 31 December 2018: Sh. 280,000 150,000 204,000 64,000 45,000 73,000 Salaries and wages Rent, rates and taxes Office expenses Printing and stationery Instalment tax paid Advertising Interest on capital: Teddy Rachael Michael Legal fees Commission to partners: Teddy Michael Depreciation Bad debts General expenses Donation to famine relief General reserve Local taxes on property Electricity Showroom expenses Net profit 60,000 70,000 80,000 82,000 45,000 35,000 92,000 68,000 99,000 100,000 120,000 12,000 46,000 117,000 1,040,000 2,882,000 Gross profit Miscellaneous income Discounts Farming income Profit on sale of shares Interest on deposits Sh. 2,300,000 150,000 80.000 132.000 100,000 120,000 2,882,000 Additional information: 1. It has been the firm's practice to value the stock at the cost price, however, the closing stock amounting to Sh.180,000 was valued based on net realisable value which is 10% less of its cost price. 2. Salaries and wages include salaries amounting to Sh.40.000 paid to Racheal. 3. Advertising includes Sh.10,000 spent on advertising campaign to introduce a new product in the market. 4. Legal fees include a sum of Sh.12,000 paid as parking fine and penalty to the county government. 5. Capital allowances have been agreed with the Commissioner of Income Tax at Sh.90,000. 6. Teddy's other income includes Sh.120,000 consultancy fee. He has brought forward partnership business loss of Sh. 135,000 from the assessment of the year of income 2017. 7. Racheal has income of Sh.200,000 from bet winnings. She has brought forward partnership business loss of Sh.135,000 from assessment of the year of income 2017. Required: i. ii. iii. Taxable profit or loss of the partnership for the year ended 31 December 2018. Allocation schedule of profit or loss calculated in (c) (i) above. Total taxable income of each of the partners for the year of income 2018. QUESTION 2 b) The following information has been extracted from the records of Latherman Co. Ltd, who are regional suppliers of electronic equipment and appliances for the year ended 31 December 2018: Operating profit before tax and other income Investment income Leasing of electronic equipment Rental income Additional information is provided as follows: 1. Investment income comprises of the following: Interest income: Dividend income: Post Bank (K) Ltd Fixed deposit accounts with Luanda Bank Savings accounts B and M Co. Ltd Kampuni Sacco Society Ltd. November 2019 Question Five C Mortgage interest on property Purchase of water meters Sh. 3,800,000 849,500 50,000 346,000 2. Rental income is arrived at after deducting the following expenses among others: Sh. 10,000 28,000 36,000 120,000 60,000 Caretakers's salary Replacing iron sheet roofing with the tile roofing Withholding tax on rental income Bank interest Provision for bad debts Legal and professional fees Sh. 138,000 246,500(Net) 170,000(Net) 200,000(Gross) 95,000(Net) 849,500 3. The following expenses were considered before arriving at the operating profit before tax and other income: Salaries and wages Retirement fund contribution (with Sh. 80,000 to registered funds) Depreciation Sh. 840,000 150,000 400,000 180,000 10,000 108,000 Repairs and maintenance Sundry expenses Donations Compensation Instalment tax paid for the previous year Construction of the watchmen's booth at the gate 4. Salaries and wages comprised: Directors allowances Sh.300,000, director's watchmen salary Sh.40,000 and salaries to other staff Sh.500,000. 5. Bank interest includes that of an overdraft taken by a senior manager of Sh.40,000, on the managing director's residential house mortgage Sh.60,000 and the rest on bank loan. 6. Provision for bad debts is made up as follows: Bad debts written off: Customers Staff Balance carried down: 2% of accounts receivable Specific bad debts Collection of trade debts Renewal of lease (99 years) Accounting fee Auditing fee Sh. 10,000 Tax appeal Staff loan collection 14,000 7. Legal and professional fees comprise: 9,000 20,000 53,000 Balance brought forward: 3% of accounts receivables Balance brought forward: Specific bad debts Bad debts recovered Income statement 40,000 150,000 150,000 92,000 900,000 240,000 Sh. 20,000 3,000 35,000 15,000 30,000 5,000 108,000 Sh. 8,000 30.000 5,000 10,000 53,000 Auditing fee relates to an enquiry by the Revenue Authority which revealed discrepancies that led to higher tax liability and penalties. 8. Sundry expenses constitute staff Christmas party Sh. 17.000, tax penalty for late filing Sh.3,000, school fees Sh. 40,000 and other allowable expenses of Sh. 90,000. School fees was for a director's son and the company agreed not to debit it in the income statement. 9. Donations were to the County Governor's political campaign kitty. 10. Compensation was to a staff member who had not been issued with safety equipment and uniform as he carried out work at a client's premise leading to him being badly injured. Required: The adjusted taxable income of Latherman Co. Ltd. for the year ended 31 December 2018. QUESTION 3 b) Suleiman Kombo is employed as the Managing Director of Utamu Distributors Ltd., a tax exempt company. During the year ended 31 December 2018, he presented the following information: ... 1. His basic salary was Sh. 120,000 per month (PAYE Sh. 48,000 per month). 3. 2. He was provided with lunch by the employer from 1 August 2018 of Sh.4, 800 per month. He was provided with a fully furnished house fitted with water and electricity. The employer paid a monthly rent of Sh. 45,000. He was deducted 10% of his basic monthly salary for rent. The cost of furniture was Sh. 300,000 while the monthly electricity and water bills was Sh. 3,500 and Sh. 2,800 respectively. 4. The company paid for him life insurance premiums of Sh. 6,000 per month for each member of his household from 1 September 2018. He had included himself, his wife and their son in the insurance policy. 5. He contributed 10% of his monthly pay towards a registered pension scheme while the employer contributed 15% of his basic pay towards the same scheme. 6. He enjoyed free medical treatment under a medical scheme operated by the company for all employees. His medical expenses were assessed at Sh. 150,000 during the year. 7. During the year the company paid a total of Sh. 35,000 as school fees for his son studying in a County School. This amount was not included in the company's income statement during the year. 8. On 1 August 2018, the company provided him with the following: A Land Rover which was acquired at a cost of Sh.1,800,000 with an engine capacity of 3,000cc. A gardener and a night watchman whose monthly salaries was Sh.12,500 and Sh.15,000 respectively. 9. He invested in real estate and earned a net rental income of Sh.72,000 after deducting the following expenditure: Caretaker's wages Fencing Loan repayment Insurance rent and rates Partitions Sh. 120,000 40,000 320,000 48,000 60,000 22,000 68,200 Capital allowances Gross rentals withholding tax paid 10. He received net dividends of Sh.42,500 from Maziwa Co-operative Society during the year. Required: i. ii. iii. Total taxable income for Suleiman Kombo for the year ended 31 December 2018. Tax payable (if any) from the income computed in (b) (i) above. Comment on any information not used in your computations under (b) (i) above.