Martin and Mary have been running Mama Enterprises as a partnership for the last five years. They have provided you with the following information relating to their business in the year ended 31 December 2021.
Trading and profit and loss account for the year ended 31 December 2021.
Sh. Sh.
Opening stock 500,000 Sales 5,648,000
Purchases 2,650,000 Closing stock 960,000
Gross profit c/d 3,458,000 ________
6,608,000 6,608,000
Salaries and wages 1,235,000 Gross profit b/d 3,458,000
Rent and rates 304,000 Rental income 143,500
Single business permit 50,000 T-Bills interest (net) 100,000
Office expenses 432,000 Net loss 705,500
Website hosting costs 144,000
Computer maintenance 68,000
Telephone and postage 288,000
General insurance 120,000
Depreciation 350,000
VAT paid 100,000
Marketing and advertisement 120,000
Legal expenses 360,000
Medical expenses 120,000
Consultancy fees 420,000
Bank charges 96,000
Loss from farming 200,000 ________
4,407,000 4,407,000
Additional information
1.The business was converted from a partnership into a limited company known as Kwisha Limited with effect from 1July 2021 with Martin and Mary as directors.
2. Martin and Mary had been sharing profits and losses equally. However, after incorporation of Kwisha Limited, Martin owned 60% of the ordinary shares while Mary owned 40%.
3. Closing stock in the trading and profit and loss account above has been stated at the selling price which is 20% above cost and opening stock under stated by 10% below cost.
4. All revenues and expenses are assumed to have been earned and incurred evenly
throughout the year unless indicated otherwise
6. Marketing and advertisement represents cost of a billboard constructed and maintained by Focus Outdoor advertising Company. Given the competition in the industry, the agreement with the advertising firm provides that the billboard be redesigned every year.
7. Legal expenses include Sh.120,000 for defending Martin is a case which he had been sued by a supplier for breach of contract.
8. Consulting fee include Sh.210, 000 paid to Ujuzi and Company for Website designing
company’s operations. Ujuzi and Company is owned by Mrs. Martin.
9. Capital allowances for the year ended 31 December 2021 have been agreed with the
Domestic Taxes Department as Sh.280, 000.
10. Included in the consultancy fees is a lease payment of Sh.20, 000 for the period of upto 30th june 2021
11. Salaries and wages include Sh.20, 000 that each partner was paid for each of the six months to 30 June 2021, Sh.40, 000 that each director received as fees for each of the six months to 31 December 2021.
Required:
(a) Taxable income of the partnership and the company in 2021.
(b) Tax payable by the partners and the company
30% tax rate
