Question Four

1. Explain Five advantages of Advance pricing Agreements ( 3 marks)
2. Explain giving advantages four Transfer price methods recognized by OECD ( 12 marks)
3. Zain Ltd provided the following draft income Statement for the year ended 31^st December 2015.

	Shs.	Shs.
Sales		5,800,000
Discount received		120,000
Profit on sale of Furniture		14,000
Provision for bad debts		136,000
Foreign exchange gain		6,156,000
Less: cost of sales	3,840,000
Rent & rates	348,200
Subscriptions	36,800
Depreciation	184,000
Legal fees	380,000
Redundancy payments	484,000
Purchase pf computers	180,000
Donation to political parties	150,000
Professional fees	64,800	5,667,800
Net profit		488,200

Additional Information: Shs.

1. Legal Fees include:

Stamp duty 72,000

Defending a director against corruption classes. 28,000

2. Professional fees include Shs.20, 000 paid to a tax consultant.
3. Subscriptions include Shs. 18,400 paid to a research organization. One of the directors of Zain Ltd also serves on the board of the research organization.
4. Stock as at 31 December 2015 was stated as Shs. 575,000 which include an overvaluation of 15%
5. Rent and rates comprises:

Shs.

City Council rates 48,000

Conveyance fee for a piece of land 140,000

Insurance of a motor vehicle 52,000

Accrued rent for year 2014 108,000

6. Included under cost of sales is input of Shs. 142,800 and cost of computer software of Shs. 60,000

Required:

1. A statement of adjusted taxable profit or loss for Zain Ltd for the year ended 31^st December 2015. (9 marks)
2. Tax payable (if any) by Zain Ltd for the year ended 31 December 2015 (1 mark)

(Total: 25 marks)