QUESTION ONE a) MRM Ltd a private company makes its accounts on 31st December each year and has prepared the following profit and loss a/c for 2020. KES General administration expenses Directors fee and expenses Repairs and renewals Subscriptions an donations Bad debts Preliminary expenses Retirement benefits Rent, rates and insurance Patents written off Legal and accountancy Interest on overdue tax Interesting in lieu of dividends Depreciation Net profits before taxation 80,000 10,000 24,000 4,000 16,000 6,000 100,000 60,000 5,000 83,000 5,000 10,000 20,000 122,000 485,000 460,000 2,000 10,000 3,000 10,000 485,000 Gross profit bld Bad debts previously written off Dividends (Gross) Post office saving bank interest Gain on sale of machinery Notes (i) Repairs and renewals Redecoration of an existing business Resonation to new Building Partition and carpeting of old building to create extra office for personnel manager 6,000 10,000 8,000 24,000 Page 1 of 3 (ii) Subscriptions and donations National Chamber of Commerce and Industry 2,000 Kenya Red cross society 1,000 Sporting facilities for staff 1,000 4,000 (ii) This is an account of a loan given to a supplier and who was adjudged bankrupt during the year (iv) Preliminary Expenses Balance of stamp duty on issue of share capital 4,000 Secretarial services fees non-written off 2,000 6,000 (v) Retirement benefits: NSSF Contribution 10,000 Pension to management staff 80,000 Contribution to approved provident fund 10,000 100,000 (vi) Legal and Accountancy: Staff service agreement 4,000 Contract for purchase of a new business 11,000 Audit fees 60,000 Income tax - Appeal to local committee 4,000 Lease preparation (5 years lease) 4,000 83,000 (vii) Dividends These were from a subsidiary company where MRM Itd holds 75% of the issued share capital (viii) Gain on sale of plant and machinery: One line of business was discontinued in 2020 and all the plant and machinery were sold. The following details relate to the plant and machinery. Cost in 2015 160,000 Aggregate depreciation to 2019 65,520 94,480 Sale precedes 104.480 Gain 10,000 The written down value for tax purposes had been agreed with the principal assessor at KES.93,790 for the year ending 31.12.2019 Required: 1) Compute adjusted taxable income of the company (Ignore wear and tear deductions) for the year 2020. (12mks) 2) Compute the tax liability assuming the company has (0) Listed at least 20 % of its share capital (1mk) (i) Listed at least 30% of its share capital (1mk) i) Explain the basic principles followed in the taxation of the income of cooperative societies. (6mks) QUESTION ONE a) MRM Ltd a private company makes its accounts on 31st December each year and has prepared the following profit and loss a/c for 2020. KES General administration expenses Directors fee and expenses Repairs and renewals Subscriptions an donations Bad debts Preliminary expenses Retirement benefits Rent, rates and insurance Patents written off Legal and accountancy Interest on overdue tax Interesting in lieu of dividends Depreciation Net profits before taxation 80,000 10,000 24,000 4,000 16,000 6,000 100,000 60,000 5,000 83,000 5,000 10,000 20,000 122,000 485,000 460,000 2,000 10,000 3,000 10,000 485,000 Gross profit bld Bad debts previously written off Dividends (Gross) Post office saving bank interest Gain on sale of machinery Notes (i) Repairs and renewals Redecoration of an existing business Resonation to new Building Partition and carpeting of old building to create extra office for personnel manager 6,000 10,000 8,000 24,000 Page 1 of 3 (ii) Subscriptions and donations National Chamber of Commerce and Industry 2,000 Kenya Red cross society 1,000 Sporting facilities for staff 1,000 4,000 (ii) This is an account of a loan given to a supplier and who was adjudged bankrupt during the year (iv) Preliminary Expenses Balance of stamp duty on issue of share capital 4,000 Secretarial services fees non-written off 2,000 6,000 (v) Retirement benefits: NSSF Contribution 10,000 Pension to management staff 80,000 Contribution to approved provident fund 10,000 100,000 (vi) Legal and Accountancy: Staff service agreement 4,000 Contract for purchase of a new business 11,000 Audit fees 60,000 Income tax - Appeal to local committee 4,000 Lease preparation (5 years lease) 4,000 83,000 (vii) Dividends These were from a subsidiary company where MRM Itd holds 75% of the issued share capital (viii) Gain on sale of plant and machinery: One line of business was discontinued in 2020 and all the plant and machinery were sold. The following details relate to the plant and machinery. Cost in 2015 160,000 Aggregate depreciation to 2019 65,520 94,480 Sale precedes 104.480 Gain 10,000 The written down value for tax purposes had been agreed with the principal assessor at KES.93,790 for the year ending 31.12.2019 Required: 1) Compute adjusted taxable income of the company (Ignore wear and tear deductions) for the year 2020. (12mks) 2) Compute the tax liability assuming the company has (0) Listed at least 20 % of its share capital (1mk) (i) Listed at least 30% of its share capital (1mk) i) Explain the basic principles followed in the taxation of the income of cooperative societies. (6mks)