QUESTION ONE

Richex Limited has provided the following profit and loss account for the year ended 31 December

Income statement for the year ended

31 December 2019

Sh. Sh.

Opening stock 524,000 Sales 10,584,000

Purchases 4,692,000 Closing stock 761,000

Manufacturing expenses 2,563,000

Salaries and wages 252,000

Supplies consumed 466,000

General expenses 85,000

Interest on loan 364,000

Commission and brokerage 90,000

Directors fee 55,000

Auditors fee 70,000

Taxes 43,000

Bad debts reserve 296,000

Depreciation 648,000

Managing directors remuneration 126,000

Reserves 750,000

Provision for dividends 300,000

Profit for the year 21,000

11,345,000 11,345,000

The following additional information is provided:

1. Salaries and wages include Sh. 20,000 contributed by the company to unregistered pension scheme.
2. General expenses include Sh. 15,000 for donation, Sh. 10,000 for contribution to a business pressure group that protects traders of the same kind.
3. Taxes represent VAT paid.
4. Bad debts (specific) are Sh. 180,000.
5. The fixed asset schedule is as follows:

Assets Year Cost

Sh.

Factory building 2015 4,000,000 (net of I.D)

Additional plant building 2019 2,000,000 brought to use on 1.1.2019

Factory Machinery 2016 4,800,000

New Factory Machinery 2019 6,000,000 fixed in new building

Computers 2018 1,000,000

Furniture 2018 640,000

Required

1. Compute the capital allowances due to the company. (10 marks)
2. Show the adjusted profit (loss) for tax purposes for the year. (7 marks)
3. Calculate the tax payable thereon. (3 marks)

(Total: 20 marks)