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 30^th 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 

Answer rating: 100% (QA)

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