The following information relates to BGEL for the year ended 30 June,

2018:

Note Shs '000' Shs '000'

Sales/ turnover 800,000

Other income 1 150,000

Cost of sales 2 (350,000)

Gross profit 600,000

Less expenses:

Depreciation 100,000

Rent 70,000

Unrealised foreign exchange loss 3,000

Penalties (failure to maintain proper records) 10,000

Water and electricity 3 15,000

Heavy duty printer 30,000

Salaries and wages 133,000

10% social security contribution for staff 8,000

School fees for director's children 5,000

Pay as you earn (PAYE) 11,000

Donations 4 15,000

Value added tax 5 100,000 (500,000)

Net profit 100,000

Notes:

1. The company imports shoes and as a result, it had an unrealised

foreign exchange gain of Shs 50 million included in other incomes.

2. Cost of sales includes a purchase of shoes worth Shs 20 million from

a local trader.

3. The expense for water and electricity includes Shs 3 million for

electricity consumed at the director's residence.

4. Donations include Shs 6millionmade to a home for orphaned

children in Gayaza and Shs9milliontoFPP a political party in Uganda.

5. The company registered for VAT in August 2016 and has been

accounting for VAT on its sales and also claiming all the VAT

incurred on its transactions.

6. The Tax written down values of the assets as at 1 July, 2017 was as

follows:

Class Shs '000'

I 40,000

II 150,000

III 15,000

IV 30,000

7. On 1 August, 2017, the company bought the following assets:

(i) 5 new computers Shs 7.5 million.

(ii) 10 tonne delivery van Shs70million.

(iii) 7 tonne truck Shs 80 million for delivering shoes to its clients

located upcountry.

(iv) Furniture from Furniture World Limited Shs8 million.

(v) second-hand shoe repairing machine Shs 15 million for

repairing shoes for clients as an after sale service.

(vi) Brandnew Toyota V8 Land Cruiser Shs 120 million.

Required:

Compute BGEL's chargeable income and tax liabilityfor the year

ended 30 June, 2018.

(15 marks)

(b) The Ministry of Finance has been increasing URA's annual tax collection

target over the years in order to finance the government budget. For URA

to be able to achieve its target, it has to ensure that its tax system is

effective.

Required:

Discuss at least five characteristics of a good tax system. (5 marks)

Question 3

(a) Jamal Agrotech Limited (JAL) is a company incorporated in Uganda and

registered for value added tax (VAT). JAL is engaged in farming and sale

of wine. The company grows cotton, fruits and vegetables and all the

produce is exported to Singapore. Wine is imported from India and sold

locally. During the period of February 2018, the company had the following

transactions.

Purchases and expenses:

(i) Imported a container of wine Shs 520 million.

(ii) Bought 2 Massey Ferguson tractors Shs 800 millionfor use on its

farm in Luwero district.

(iii) Bought cotton and vegetable seeds from Container Village in

Kampala Shs 8 million.

(iv) The company replaced tyres and shock absorbers Shs 2 millionVAT

exclusive for its saloon car which is used for transporting staff to the

field while executing company activities.

(v) Bought fuel for its tractorsShs9million.

(vi) Paid telephone expenses Shs 4millionVAT exclusive.

(vii) Bought an Isuzu lorry truck Shs 50 millionVAT inclusive for

transporting wine and farm produce.

Sales:

(i) Exported 2 containers of cotton, fruitsand vegetables to Singapore

and was paid Shs 300 million.

(ii) Sold 70 cartons of wine for Shs 70 millionVAT inclusive to customers

across the country.

Required:

Compute JAL's VAT payable/claimable to be included in its VAT

return for the month of February 2018.

(10 marks)

(b) JAL supplied wine to a hotel worth Shs 10 million on 3 March, 2018 and

raised a tax invoice on 2 April, 2018. Due to financial constraints faced by

the hotel they were paid on the 14 May, 2018.

Required:

Explain the followingto JAL:

(i) Meaning of the term 'time of supply' as provided for in the VAT Act

Cap 349.

(ii) The VAT period they are supposed to account for VAT on the

transaction in (b) above in their monthly VAT return.

(1 mark)

(iii) Advantages of using cash accounting over invoice accounting when

accounting for VAT.

(6 marks)

(Total 20 marks)

Question 4

(a) Mr. Mpungu has been the head of IT department of Maxwell Telecom

Uganda Limited with effect from 1 July, 2016 and his appointment letter

included the following terms.

1. Basic salary Shs 11 million per month.

2. Medical insurance Shs 2 million per annum for him and his family.

3. Shs 300,000 per month for a security guard at his residence.

4. School fees for his children equivalent to Shs 3 million per year.

5. Water and electricity Shs 150,000 per month.

6. A 10% monthly contribution to National Social Security Fund (NSSF)

by the company Shs 1,100,000.

7. Entitlementto a company car to be used for both official and private

purposes. The car was bought on 1 July, 2015 at a cost of Shs 200

million. It was provided to him on 1 January,2017 when its market

value was Shs 170 million. The car is available to him for use

throughout the year and he makes a contribution of Shs 800,000

towards replacement of the worn-out tyres per year.

Additional information:

(i) Mr. Mpungu visited the northern region branch offices to assess IT

competences of the staff following the rollout of new application

software. He was given a subsistence allowance of Shs 2 millionand

the company driver was given Shs 1 million.

(ii) He was engaged in a part time employment with Mega solutions

Limited for an upgrade of their accounting system and was paid Shs

5 million.

Required:

Compute Mr. Mpungu's chargeable employment income and tax

liability for the year ended 30 June 2018.

(b) After a year in employment, Mr. Mpugu is thinking of quitting his job as

head of IT at Maxwell Telecom Uganda Limited because he wants to open

up his own company and become an independent contractor.

Required:

Explain to him the differences between an employee and an independent

contractor.

(5 marks)

(Total 20 marks)

Question 5

(a) A taxpayer in Kasese town owned a building with a cost base of Shs

4.5billion. The building was washed away by floods and his insurance

company compensatedhim Shs 3.8 billion. The taxpayer bought a

replacement building for Shs 4.9billion.

Required:

(i) Compute the cost base of the replacement building. (2 marks)

(ii) Given that one year after replacing the building, the taxpayer sold it

for Shs 5.2 billion; compute the gain or loss on the disposal of the

building. (2 marks)

(b) Describe the following as per the Income Tax Act Cap 340:

(i) Business asset. (1 mark)

(ii) Gain on disposal of assets. (1 mark)

(iii) Special rules for consideration received where an asset is disposed

of to an associate.

(2 marks)

(c) Explain any eight examples of non-tax revenues in Uganda.

(8 marks)

(d) Explain any four implications of withholding tax being a final tax under the

income tax Act.

(4 marks)

(Total 20 marks)

Question 6

(a) Explain the socio-cultural factors that affect business activities.

(7 marks)

(b) Describe the documents that small and medium-sized entities use when

purchasing goods.

(7 marks)

(c) Explain the disadvantages of buying an existing business. (6 marks)