QUESTION ONE

Mrs. Hongera hasnot been keeping proper books of account since she started her business. She has been able to provide you with the following information relating to the five years 1995 to 1999.

	95 Sh.	96 Sh.	97 Sh.	98 Sh.	99 Sh.
Assets: Land Inherited house (leasehold) Investments (Treasury bills) Motor cars Furniture and fittings Computers Stocks Business bank account Personal savings account Debtors Cash Liabilities Mortgaged house Trade creditors Bank overdraft Loan from brother	2,000,000 ? - ? 490,000 150,000 - 340,000 50,000 - _____? 3,030,000 - 150,000 - 500,000 650,000	2,000,000 ? - ? 450,000 150,000 250,000 300,000 100,000 - _____? 3,250,000 - 105,000 - 450,000 555,000	2,000,000 ? 400,000 ? 500,000 150,000 ? 290,000 150,000 - _____? 3,490,000 3,500,000 135,000 - 380,000 4,015,000	2,000,000 ? 200,000 ? 500,000 300,000 300,000 250,000 190,000 90,000 _____? 3,830,000 4,000,000 140,000 150,000 280,000 4,570,000	2,000,000 ? - ? 500,000 300,000 400,000 200,000 220,000 110,000 _____? 3,730,000 5,000,000 90,000 210,000 _______- 5,300,000

Additional information:

1. Mrs. Hongera did not employ the services of a valuer to estimate for her the value of the house, thus no records were maintained in relation to the house.

2. Two saloon cars were donated to her by her friend who left Kenya to go back to her country. The cars were bought in 1990 at a cost of Sh.500,000 each.

3. In 1995, she made drawings amounting to Sh.20,000 per month. The drawings increased by 20% per year in subsequent years.

4. The amounts indicated in the statement relating to the bank accounts are the balances with the banks at year end. The banks consistently paid interest at a rate of 7% from 1996 to 1999.

5. Part of investments were sold in 1998 and a loss of sh.60,000 was incurred in June 1999. The balance was sold at a gain of Sh.70,000.

6. Furniture and fittings and computers have been consistently carried at cost in the books.

7. Inventory was destroyed by fire in 1997 and no records could be traced to give an indication of the value.

8. All cash was deposited with business bank at year end thus no balance was recorded in each of the years. In 1996, the cashier defrauded the business of Sh.80,000 and in 1998, he again defrauded the business of sh.60,000. None of these sums were recorded. Insurance compensated the cash loss for 1998 by paying sh.70,000 to the business which Mrs. Hongera deposited in her personal bank account. No compensation was paid in relation to the loss incurred in 1996.

Required:

(a) Use the above information to estimate the taxable income for each of the five years 1995 to 1999 inclusive. (14 marks)

(b) State and justify any other information that may be required.