Maxmin Ltd. is a company incorporated in Kenya and owns 80% of the ordinary share capital ofRed
Question:
Maxmin Ltd. is a company incorporated in Kenya and owns 80% of the ordinary share capital ofRed Ltd. which is also incorporated in Kenya. Both companies prepare their accounts to 30 September each year.
In its latest twelve-month accounting period ending 30 September 2017, Maxmin Ltd. reported the following results:
Sh. | Sh. | |
Gross profit per accounts Less: Loan interest Travel expenses Legal expenses Patent royalties (paid to a south African Company) Telephone expenses Salaries and wages Electricity Depreciation Net profit Add: Patent royalties received Loan interest received Dividend received Total income | 664,000 136,000 320,000 800,000 160,000 12,000,000 280,000 2,240,000 1,280,000 160,000 4,320,000 | 40,851,200 16,600,000 24,251,200 5,760,000 30,011,200 |
Notes
1. | The legal expenses include an amount of Sh.200,000 for the disposal of a factory (note 5), an amount of Sh.40,000 for debt collection and Sh.80,000 for successfully defending a court action against a company’s product. |
2. | The loan interest paid is made up of the following: - Interest amounting to Sh.320,000 on a loan used to purchase plant and machinery for use in production. - Interest amounting to Sh.344,000 on another loan used to purchase the shares in Red Ltd. |
3. | The loan interest received was the full amount due from a major shareholder on an amount borrowed to purchase his main residence. |
4. | Royalties paid of Sh.160,000 were outstanding as at 30 September 2016. This fact had been overlooked by the accountant. |
5. | The company disposed of a factory for Sh.11,694,400 in March 2017. This had cost Sh.3,200,000 in the year 2006. |
6. | Capital allowances have been agreed with the Commissioner of Income Tax at sh.1,230,000 after making adjustments for the factory disposed of. |
7. | Net rent of Sh.1,440,000 was received from one lease, a net loss of Sh.344,000 was made on another and a loss of sh.160,000 had been carried forward from 30 September 2016. This has not been shown in the accounts. |
8. | Travel expenses include sh.350,000 paid for Mr. John smith, a new employee who was hired from Australia. |
9. | Salaries and wages include directors’ fees amounting to Sh.4,250,000. |
10. | Patent royalties received were from Red Ltd. while those paid were to a South African Company that has allowed Maxmin Ltd. to manufacture their products locally. |
Required:
(a) Taxable income and tax chargeable thereon for Maxmin Ltd. for its accounting period ending 30 September 2017.