Olivia runs a supermarket. She has submitted to you the following income statement for the year ended 31 December 2013.

	Sh. '000'		Sh. '000'
Opening stock	8,640.00	Sales	110,000
Purchases	96,000.00	Closing inventory	1,004
Salaries and wages	1,500.00	Proceeding from sale of land	500
Donation to Kenya	99.8	Gain on sales of shares	200
Chamber of commerce	100.00	Gain on sale of residential plot	400
Redundancy payments	600.00	General bad debts recovery	36
Contribution to a registered pension fund	100.00	Dividend (net)	43.2
Rent, rates and taxes	11.40
Insurance	14.88
Legal and professional fees	109.20
Depreciation	363.84
Advertising	166.80
VAT	247.20
Custom duty	700.00
Income taxfor 2011	312.00
Medical expenses for Olivia	28.80
Interest on bank overdraft	49.92
Purchase of equipment	25.20
Christmas gifts to customers	20.16
General bad debts	55.20
House hold expenses	100.00
Stationery and postage	33.12
Net profit	2,905.68
	112,183.20		112,183.20

	Sh. '000'		Sh. '000'
Opening stock	8,640.00	Sales	110,000
Purchases	96,000.00	Closing inventory	1,004
Salaries and wages	1,500.00	Proceeding from sale of land	500
Donation to Kenya	99.8	Gain on sales of shares	200
Chamber of commerce	100.00	Gain on sale of residential plot	400
Redundancy payments	600.00	General bad debts recovery	36
Contribution to a registered pension fund	100.00	Dividend (net)	43.2
Rent, rates and taxes	11.40
Insurance	14.88
Legal and professional fees	109.20
Depreciation	363.84
Advertising	166.80
VAT	247.20
Custom duty	700.00
Income taxfor 2011	312.00
Medical expenses for Olivia	28.80
Interest on bank overdraft	49.92
Purchase of equipment	25.20
Christmas gifts to customers	20.16
General bad debts	55.20
House hold expenses	100.00
Stationery and postage	33.12
Net profit	2,905.68
	112,183.20		112,183.20

Additional information

1.Rent, rates and taxes include sh. 20,400 being custom duty for the purchase of equipment

2.Sales included sh. 120,000 representing goods withdrawn by Olivia. The goods have been purchased at cost of sh. 96,000.

3.Opening and closing inventory were consistently overvalued by 20% above cost price.

4.Legal and professional fees comprise of the following:

	Sh.
Appeal against tax assessment	24,000
Renewal of a 5-year lease	25,200
Defending breach of contract use	36,000
Court fines	20,400
Miscellaneous (allowable)	3,600
	109,200

5.Wear and tear allowance were agreed at sh. 259.200

6.Included in education expenses was a sign board costing sh. 240,000

Required:

i)Profit chargeable to tax

ii)Tax payable

Use the following rates where necessary.

RATES OF TAX

Yearly taxable pay (Shs.)

From		To		Tax Rate
First	-	147,580.00		10%
147,581.00	-	286,623.00		15%
286,624.00	-	425,666.00		20%
425,667.00	-	564,709.00		25%
564,710.00	-	And above		30%

Answer rating: 100% (QA)

To calculate the profit chargeable to tax and the tax payable well follow these steps Adjust the opening and closing inventory to reflect the cost pri... View the full answer