Question 2

(a) Ganzi Industries Limited (GIL) is engaged in the manufacture of soap.It was established in 1995 with one factory located in Kaseseindustrial park.It has a warehouse in Ntinda industrial area, Kampala. GIL imports sodium hydroxide as raw material used in manufacturing soap.The company's products are distributed all over Uganda. Their profit or loss statement for the year ended 30 June, 2018 is as follows:

Revenue

Other revenue (note 1) Cost of goods sold

Gross profit

Depreciation

Provision for doubtful debts Entertainment (note 2) Rent

Salaries & wages

Court fines

Soap mixer

Finance costs

Operating profit

Notes:

Shs '000'

70,000 20,000 30,000 40,000

150,000 8,000 150,000 120,000

Shs '000' 1,900,000 100,000 (1,200,000) 800,000

Taxation - Paper 6

(588,000) 212,000

1. 2. 3.

4. 5.

Other revenue includes Shs40 million for unrealised foreign exchange gain.

Entertainment relates to dinner and accommodation expenses for prospective clients in Kasese Bounty Resort Hotel.

The company acquired a warehouse for storing its finished products at a cost of Shs 120 million in Ntinda industrial area and it was put to use on 1 October, 2017.

The company constructed an extension to the factory in Kaseseat a cost of Shs 150 million. The extension was completed in December 2016 and put to use on the 1July, 2017.

The tax written down values (WDV) as at 1 July 2017 for its depreciable assets are as follows:

Class 1 Class 2 Class 3 Class 4

Shs'000' 80,000 200,000 400,000 800,000

The old factory building was first used on 1 July, 1995and had

cost Shs 500 million.

6. During the year the company acquired the following assets:

Sales: (i)

(ii) (iii) (iv) (v)

1,000 bags of maize flourto a trader in South Sudan Shs 120 million.

Sanitary towels and tampons for Shs 15 million.

4,000 boxes of laundry soap Shs 200 millionVAT inclusive. 8,000 bags of beans and maize seeds Shs 300 million. 3,000 bags of sugar Shs 300 millionVAT exclusive.

(i) (ii)

(iii) (iv)

(v)

(vi)

Laundry soap making machine Shs 400 million.

Five conveyor machines at a cost of Shs 300 million for moving materials with in the factory.

32 ton diesel forklift costing Shs60 million.

Two 5 ton delivery trucks at Shs 80 million for transporting its goods to the market.

Mercedes-Benz E-Class at Shs 90 million for the managing director .

Computers and printers at Shs 30 million.

Required:

Compute the corporation tax liabilityfor GIL for the year ended 30 June, 2018.

(16 marks)

(b) GIL recently hired Mr. Singh an expatriate from India to work in their quality control department.Mr. Singh is interested in understanding his residential status for tax purposes.

Required:

Explain to Mr. Singh who a resident individualis as provided by the income Tax Act Cap 340.

(4 marks) (Total 20 marks)

Question 3

(a) Masappe is a wholesale trader with an outlet in Kisenyi, Kampala. He deals in buying and selling of agricultural produce and other general merchandise. His business is value added tax (VAT) registered.He started as a small trader but later he acquired a loan from Magoba Savings Sacco which he used to expand his business and now exports goods to South Sudan. The following are his transactions for the month of December 2018:

Purchases and expenses:

(i) (ii)

(iii)

(iv) (v)

(vi)

Imported 5,000 bags of sugar Shs 500 millionVAT inclusive. Bought a car (Toyota Spacio)Shs 20 millionVAT inclusive to transport the marketing team.

Provided meals and refreshments at Shs 30 millionVAT inclusive to clients.

Bought diapers Shs 15 million.

Paid consultancy fees Shs 9 millionVAT exclusive to Kafulu and Magezi (certified public accountants) for preparing their books of account.

Paid salaries and wages Shs 30 million.

Required:

Compute Masappe's VAT payable/claimable for the month.

(b) Explain the following terms as per VAT Act Cap 349:

1. (i)Non-creditable expenses for VAT purposes.
2. (ii)VAT penalties.
3. (iii)VAT offences.

Question 4

(10 marks)

Mr. Bobi Bobi is the managing director of Fire Power Crew (FPC) amusic band based in Kampala city.He is entitled to the following:

1. Basic annual salary Shs 43 million and the following monthly emoluments:
2. Shs '000' Transport allowance 1,000 Medical insurance 2,000 Security guard 200 Gardener 150
3. Meals for 26 days at Serema Hotel. Each meal costs Shs70,000 but he contributes Shs 10,000 each day.
4. Commission Shs 7 million for every wedding he performs at. He performed at 6 weddings in the year ended 30 June, 2018.
5. A company house with annual market rent of Shs 60 million. He contributes Shs 15 million annually.
6. A car with cost and market value after depreciation of Shs 50 million and Shs 40 million respectively. The car is used for both official and private purposes.

Additional information:

(i) He contributes Shs 50,000 per month for the gardener.

1. (ii)During the year ending 30 June, 2018 FPCgavehim a loan Shs 59.9 millionat 10% interest when the statutory rate at the timewas 15%.
2. (iii)On 31 January, 2018 FPC paid CentBank Shs 20 million as a repayment for Mr Bobi's loan. His is not required to refund the money.
3. (iv)Mr. Bobi received a Toyota Spacio vehicle valued at Shs 25 million as an appreciation for his music contribution to the band. His is required to contribute Shs5 millionas a shared cost to the transfer process of the vehicle.
4. (v)Mr. Bobi was granted a right to acquire shares in FPCunder an employee share acquisition scheme for Shs 30 million.
5. Required:
6. (a)Compute Mr. Bobi'schargeable income and tax liability for the year ended 30 June,2018.
7. (15 marks)
8. (b)As per the Income Tax Act Cap 340 explain the:
9. (i)term employee.(1 mark)
10. (ii)meaning of employment.(4 marks)
11. (Total 20 marks)

Question 5

(a) Mr. Mpalembaaya has a permanent home in Buwaate in Wakiso district. He has a commercial building on the main street of Buwaate trading centre. The commercial building is occupied by various tenants.

The following transactions relate to the commercial buildingfor the year ended 30 June, 2018:

Monthly rental income:

• Rental income from Mayinja Ltd Shs 5.5 million.
• Rental income from Bfan Salon Shs 6.4 million.
• Rent arrears for the period ended 30 June, 2017 due from Kiddo
• Ltd Shs 7.2 million.
• Rental income from Amal Family Consult Shs 4.2 million.
• Monthly expenses relating to the commercial building: Shs '000'

Water Electricity Telephone Building repairs Ground rent Security guard

3,200 3,000 4,000 4,120 2,500 3,910

(b)

(16 marks)

(i)Explain who a small business taxpayer is under the Income Tax ActCap 340.

(1 mark)

(ii)Mr. Mpalembaaya also operates a law firm from the same building with an annual turnover of Shs 120 million. His expenses for the year ended 30 June, 2018 include:

Legal assistant's salary (per month)

Court filing fees

Fuel (per month)

Subscription for professional membership

Annual subscription to the Law Council Saving & Credit Cooperative Organisation

Law practicing certificate

Shs '000' 500 4,000 350 2,000

5,000 2,000

Client's money banked on the firm's account pending payment for damages to another person through Mpalembaaya's firm Shs 1 million.

Required:

(a) Compute the tax liability payable by Mpalembaaya for the period ending 30 June, 2018.

(ii) Describe how a small business taxpayer in Uganda is taxed under the Act.

Question 6

(a) Discuss the challenges faced by small and medium-size entities (SMEs) in managing their businesses.

(b) Describe the features of public limited companies.

(c)

(i)Define the term 'joint venture'.

(ii)Explain the factors that help to ensure success of joint ventures.