Professional Documents
Culture Documents
DURATION: 2 hours
INSTRUCTIONS TO CANDIDATES
1. The paper consists of Section A and Section B.
2. Section A is COMPULSORY.
3. Answer ANY TWO (2) questions from Section B.
4. Always start a new question on a fresh page.
5. Total marks: 100
Page 1 of 8
ADDITIONAL INFORMATION
INCOME EXEMPTION THRESHOLD (IET)
• Category A (No Dependent) - Rs 325,000
• Category B (One Dependent) - Rs 435,000
• Category C (Two Dependents) - Rs 515,000
• Category D (Three Dependents) - Rs 600,000
• Category E (Four Or More Dep) - Rs 680,000
Page 2 of 8
SECTION A
COMPULSORY
Curtis operates a retail shop of ready-made garments. You are presented with the
accounts of Curtis for the year ended 30 June 2022, as set out below:
Rs Rs
Turnover 15,780,456
Cost of sales (8,535,050)
Gross Profit 7,245,406
Other income:
Profit on sale of premises 270,000
7,515,406
Expenses
Wages and salaries 1,385,625
Other Staff Costs 214,313
Commissions and discounts 353,220
Entertainment, gifts and donations 688,440
Security and cleaning services 185,480
Stationery and Consumables 84,000
Information systems and computer 133,500
expenses
Bank charges 8,400
Interest on loan 8,247
Electricity, water and telephone 26,054
charges
Advertising & promotional expenses 104,798
Overseas Travelling Expenses 982,421
Legal and professional fees 734,453
Rent 976,000
Licence 21,000
Motor vehicle expenses 685,350
Depreciation 192,000
Insurance 206,835
Repairs and maintenance 1,183,500
Bad debts written off 312,000
Other expenses 1,480,134 9,965,770
Net Loss (2,450,364)
Page 3 of 8
The following information is provided to you:
a) Curtis’s daughter, Jane works as sales supervisor in the shop and received Rs
785,000 as annual salary. It has been noted that out of this amount, Rs 285,000
relates to a payment made directly from the bank account of the business to
Wedding Event Co.Ltd, the event organiser of Jane on her wedding day.
c) Rs 300,625 represent wages for the sales assistant, working full time in the
shop.
4. The interest on loan relates to a loan of Rs 2 million from SBM Ltd, contracted in
2019, to start his business.
Page 4 of 8
5. Legal and professional fees are made up as follows: Rs
Legal fees in connection with bank loan 25,000
Accountancy fees 478,353
Costs associated with long term lease agreement of the shop 210,000
Defending Curtis in connection with speeding fine 10,000
Debt collection 11,100
7. Curtis lives on the first floor of the shop. The following expenses relates both to his
business and residence in the following proportion:
a) Security and cleaning services- 60% relates to the business;
b) Electricity, water and telephone charges- Only 30% relates directly to the
production of gross income; and
c) Rent – 50% is attributable to private use.
9. Insurance includes payment for insurance premium of Jane private car amounting
to Rs 26,035.
10. During the year ended 30 June 2022, Curtis took goods out of the business for his
personal use without paying for them. The cost of these goods was Rs 14,400 and
they had a selling price of Rs 25,600. No records were made in the books of the
business.
11. Curtis is entitled to an annual allowance of Rs 278,000 for the year ended 30 June
2021.
Page 5 of 8
12. Other expenses include the following: Rs
Contribution to Superannuation fund
to finance medical expenses of the employees 25,000
Personal Income Tax of Curtis 24,870
Medical insurance premium for the family 80,000
Expenses not incurred in the production of gross income 350,264
13. In December 2020, Curtis went on his holidays to France with his wife. The
expenses related to that overseas visit amounting to Rs 654,947 were included in
the overseas travelling expenses.
REQUIRED
Calculate the tax adjusted profit and the tax liability of Curtis for the year ended 30 June
2022, assuming that he has a dependent child and his wife is not working and does not
derive any income.
Page 6 of 8
SECTION B
ANSWER ANY TWO (2) QUESTIONS
a) The Ministry of Finance has entered into a single contract with XYZ Ltd for the supply
personal computers (PC) and effect the maintenance of the PCs over a period of
one year. The contract amount for the PCs is Rs 890,000 and for the maintenance
Rs 200,000 making a total of Rs 1,090,000.
The PCs were delivered in March 2022 and the first maintenance was effected in
June 2022. The payments for the PCs and the first maintenance amounting Rs
575,000 respectively were effected on 5th July 2022.
The rate applicable on goods and services is 1%, on goods 1% and services 3%.
REQUIRED
Calculate the TDS amount that should to be deducted and remitted to MRA.
[5 Marks]
[5 Marks]
Page 7 of 8
QUESTION 3 [30 MARKS]
a) Discuss the tax treatment of losses? You may support your answer through
illustrations.
[15 Marks]
b) “In the conduct of business activities, companies normally incur a wide range of
expenses. However, they are not allowed to deduct all the expenses from their
gross income in computing their tax liabilities.”
In the light of the above statement, explain the allowable deductions available for
companies in the process of computing their tax liabilities.
[15 Marks]
Page 8 of 8