QUESTION THREE (10 MARKS) Kipande Ltd is a Kenyan incorporated company The following statement of comprehensive income of the company for the year of income 2019 Sh 000 Sh 000 Gross profit 59,000 Less Depreciation 4,872 Legal expenses 508 Loan Interest 819 Electricity 378 Salaries wages 9,387 Telephone 357 Patent royalties paid 756 Travel expenses 785 17,862 41358 Other Income Patent Royalties Received 2,772 Loan interest received 193 Dividend received from Shamba Ltd 5,628 8,593 Net Income 49,951 Additional Information Loan Interest paid included the following Interest of sh 285,000 relating to a loan used to acquire shares of Shamba Ltd Interest of sh 258,000 relating to a loan to purchase office equipment Salaries and wages includes passage of sh 1,008,000 paid to a director who relocated to another country Travel expenses include sh 155,000 paid to a new employee hired from a foreign country Loan interest received relates to a loan issued to an employee of the company to purchase a residential house Not included in the other income was received of sh 1,638,000 from one lease, gross of loss of 397,000 made on another lease Operating loss of sh 189,000 had been carried forward for the previous eight years The loss was included in the salaries and wages expense as at 31 December 2019 Royalties of sh 145,000 were due for receipt as at 31 December 2019 but had not been recorded in the books Legal expenses included Sh 176,000 paid on disposal of some property and equipment Sh 48,000 incurred on debt collection Sh 78,000incurred on defending the company against a claim for breach of contract Patent royalties received were from Shamba Ltd while those paid were to a Malawi company Capital allowances for the year ended 31 December 2019 were agreed with the commissioner at sh 1,932,000 Required Explain the tax treatment of each item in the additional information with reference to the income tax act CAP 470 ( 10 Marks)

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Posted on Jul 29, 2024

QUESTION THREE (10 MARKS)

Kipande Ltd. is a Kenyan incorporated company. The following statement of comprehensive income of the company for the year of income 2019

	Sh. 000	Sh. 000
Gross profit		59,000
Less:
Depreciation	4,872
Legal expenses	508
Loan Interest	819
Electricity	378
Salaries & wages	9,387
Telephone	357
Patent royalties paid	756
Travel expenses	785	17,862
		41358
Other Income
Patent Royalties Received	2,772
Loan interest received	193
Dividend received from Shamba Ltd	5,628	8,593
Net Income		49,951

Additional Information

Salaries and wages includes passage of sh.1,008,000 paid to a director who relocated to another country
Travel expenses include sh.155,000 paid to a new employee hired from a foreign country
Loan interest received relates to a loan issued to an employee of the company to purchase a residential house
Not included in the other income was received of sh.1,638,000 from one lease, gross of loss of 397,000 made on another lease
Operating loss of sh.189,000 had been carried forward for the previous eight years. The loss was included in the salaries and wages expense as at 31 December 2019
Royalties of sh.145,000 were due for receipt as at 31 December 2019 but had not been recorded in the books
Legal expenses included.

Sh.176,000 paid on disposal of some property and equipment
Sh.48,000 incurred on debt collection
Sh.78,000incurred on defending the company against a claim for breach of contract

Patent royalties received were from Shamba Ltd. while those paid were to a Malawi company
Capital allowances for the year ended 31 December 2019 were agreed with the commissioner at sh.1,932,000

Required

Explain the tax treatment of each item in the additional information with reference to the income tax act CAP 470. (10 Marks)