Question

Charles Whyte commenced business on May 1 2019, making up his accounts to September 30 annually. The statement of the Profit or Loss Account for the first 17 months ended September 30,2020 is as follows:

000 000 Gross

Profit 19,300

Less:

Repairs and maintenance 1,500

Local transport and travelling 2,450

Salaries and wages 6,500

Provision for bad debts 1,350

Preliminary expenses 960

Depreciation 1,630

Bank interest and charges 1,520

Legal and professional charges 1,380

General expenses (Allowable) 1,870

Clearing expense on motor vehicle 685

Bad debt 2,800 22,645

(3,345)

(i) You are also given the following additional information.

Bad debt

Amounts written off 1,850.000

Loan to absconded employee 950. 000

(ii) The following qualifying capital expenditures were acquired on:

30/10/2018 Building 5,500,000

1/1/2019 Motor Vehicle 3,800,000

1/5/2019 Furniture and fittings 1,900,000

(iii) Legal and professional charges were:

Fines for contravention of the law 350,000

Legal expenses for tax appeal 185,000

Audit and accountancy charges 845,000

1,380,000

(iv) Provision for bad debts was calculated as 5% of balance of trade debtors as at September 30, 2020.

(v) Salaries and wages:

Senior staff 3,500,000

Junior staff 2,400,000

Charles Whytes Children in higher institution 600,000

6,500,000

a. Identify FIVE deduction not allowable for the purpose of ascertaining the income of an individual for tax purposes.

b. Compute the Adjusted Profit of Charles Whyte for the period ended. September 30 ,2020

c. Identify and explain types of loss relief and their treatment.

d. Any good tax system must be based on certain principle.

Illustrate with examples, SIX principles as laid down by Adam Smith