Afro Insurance Ltd. underwrites three classes of insurance.

The management has provided you

with the details shown below on their operations for the year ended 31 December 2001:

Class of insurance

Fire

Motor

Theft

Kshs.00

Vehicle

Kshs.000

0

Kshs.00

0

Gross premium written

23,088

24,664

9,780

Reinsurance ceded

14,747

15,007

4,822

Unearned premium brought forward

4,205

6,293

1,466

Unearned premium carried forward

2,035

9,259

668

Claims paid

2,216

5,538

1,215

Claims outstanding brought forward

2,781

10,325

4,532

Claims outstanding carried forward

2,755

9,416

8,756

Legal expenses on claims

645

420

125

Depreciation

60

125

65

Gain on sale of m. vehicles previously written off

-

50

-

Specific bad debts

80

35

62

Management expenses

1,606

2,350

876

Commissions (net)

255

1,546

890

Additional information

1.

Wear and tear allowances have been agreed with the Income Tax Department at Kshs.

454,000.

2.

The company invested surplus funds and earned investment income as follows:

Kshs.

-

Interest from Treasury bills (net)

2,040,000

-

Interest from fixed deposits in local bank (net)

762,450

450,000

-

Gross dividends from Zim-Re of Zimbabwe (a foreign

Company)

912,000

-

Dividends from KELP Ltd.

3.

The company paid Kshs. 745,000 to ABC Investment Management Services, their fund

managers for professional services for the year ended 31 December 2001.

4.

The company owns Afro House which houses its offices.

Part of the office space is

rented out to other tenants.

In the year to 31 December 2001, the company received

Kshs. 2,200,000 net rental income from their estate agents.

Property management fees

amounting to Kshs. 2,400,000 for the year to 31 December 2001 had been deducted.

5.

Afro Insurance Ltd. owns 80% of the ordinary shares in KELP Ltd. a locally incorporated

company.

Required:

(a) Compute the taxable profit or loss for Afro Insurance Ltd. for the year ended 31

December 2001.

b) Compute the tax payable in (a) above.

(2 Marks)

(c)

Comment on any information you have not used in your computations.

(2 Marks

Answer rating: 100% (QA)

a To compute the taxable profit or loss for Afro Insurance Ltd for the year ended 31 December 2001 we need to calculate the profit or loss before tax by considering the following elements Gross premiu... View the full answer