RUSANGU UNIVERSITY

SCHOOL OF BUSINESS
DEPARTMENT OF ACCOUNTING
ACCT 261 TAXATION
JAN-APRIL 2020. DURATION: 1HOUR
INSTRUCTIONS: ANSWER ALL QUESTIONS ON THE QUESTION PAPER
SWITCH OFF YOUR PHONES
1. List 5 badges of Trade. (2.5 Marks)
2. Define investment income and give 3 three examples (2.5 Marks)
3. Top Plc is a company engaged in manufacturing. The company was incorporated, and
commenced its operations in 2005. In January 2019, the directors estimated the
provisional taxable profit for the company for the tax year 2019 to be K15, 600,000.
However the Directors revised the provisional taxable profit to K10, 200,000 in February
2019 following the loss of a major customer to one of the company’s major competitors.
The company made a profit before tax, as per accounts, of K14, 288,200 for the year ended 31
December 2019. The profit figure of K14, 288,200 was arrived at after taking into account the
following items:
(1) Investment income which included rental income of K136,000 (gross), Treasury bill interest
of K34,000 (net), dividends K62,000 (net), and copyright royalties of K36,000 (gross).
Withholding tax in each case was paid on the appropriate due dates.
(2) Profit on sale of office equipment of K32, 500. The office equipment had a net book value of
K57, 500 and an income tax value of K40, 000. It was sold for K90, 000.
(3) Wages and salaries of K24, 605,000. Included in this figure is an annual salary for the Chief
Executive Officer (CEO) of K680, 000, employee’s pension benefits of K1, 340,000 and
employee’s funeral grants of K340, 000. The company has accommodated the CEO in a
company owned house which currently has a market value of K1, 200,000.
(4) Entertainment expenses which included K34, 500 incurred in entertaining major customers,
K16, 500 incurred on entertaining employees at the end of year party and K9,500 incurred on a
special dinner for the company’s major suppliers.
(5) Professional and legal fees which included the following:
K
Legal fees in connection with an issue of K1 preference shares 23,500
Legal fees for trade debt collection 26,400
Legal fees for recovery of loans from former employees 16,500
Legal fees in connection with an action brought against
a supplier for breach of contract 32,000
Fees in connection with acquisition of new lease of business premises 16,800
Accountancy, audit and taxation fees 420,000
535,200
(6) Bad debts expenses which included trade debts written off K280, 000, decrease in specific
provision K46, 000, increase in general provision K18, 500, loans to former employees written
off K88, 000 and trade debts previously written off now recovered K75, 000.
Miscellaneous expenses which included:
K
Distribution expenses 709,400
Depreciation of tangible non-current assets 287,600
Amortization of intangible assets of 54,000
Advertising 26,600
Gifts to employees (Food hampers costing K200 each) 8,000
Gifts to customers (Top Plc branded coffee mugs costing K30 each) 6,000
1,091,600
Additional information:
(i) Buildings
At 1 January 2019, the company held buildings which were constructed and brought into use in
the previous tax year (i.e. the tax year 2018) at a total cost of K2, 500,000. This comprised land
with a cost of K500,000, general offices of K180,000, staff canteen with a cost of K120,000 and
factory building with a cost of K1,700,000.
(ii) Implements, plant and machinery
On 1 January 2019, the Income Tax Values of implements,
plant and machinery were as follows: K
Mitsubishi Canter Van (Original cost K120,000) 90,000
Pool car (original cost K80,000) 16,000
Office equipment (original cost K80,000) 40,000
During the year ended 31 December 2019, the following
purchases and disposals of assets took place
Date Cost/(proceeds)
4 March 2019 Purchased Toyota Hilux van (single 150,000
cab)
14 June 2019 Purchased Jeep Grand Cherokee motor 280,000
car
16 July 2019 Purchased Toyota Fortuner motor car 270,000
18 August 2019 Purchased new manufacturing equipment 650,000
12 October 2019 Sold office equipment (90,000)
20 December 2019 Sold pool car (25,000)

The pool car was used in the operations of the marketing department but it had private use of
25% by the company’s Marketing Manager and had a cylinder capacity of 1,800 cc. The Jeep
Grand Cherokee motor car is the Managing Director’s personal to holder motor car and it has a
cylinder capacity of 3,000 cc. The Toyota Fortuner motor car is the Finance Director’s personal
to holder motor car and it has a cylinder capacity of 2,600 cc.
Required:
(a) Calculate the following values for Top Plc for the tax year 2019:
(i) The capital allowances on buildings (3 Marks)
(ii) The capital allowances on implements, plant and machinery (8 Marks)
(b) Compute the final taxable business profit after capital allowances for Top Plc for the tax year
2019. (12 marks)
(c) Compute the Income tax payable by the company for the charge year 2019. (2 Marks)
[Total: 30 Marks]