Widget Trading Limited is listed on the Jamaican stock exchange and has prepared its Financial Statements for the Year of Assessment 2022.

The Income Statement summary for the year ended December 31, 2022, showed the following details:

$ $

Gross Operating Income 85,000,000

Interest Income 500,000

Less Expenses:

Wages and Salaries 7,370,000

Stationery & Office Supplies 550,000

Legal Fees 2,370,000

Motor Vehicle expenses 960,000

General Expenses 5,900,000

Utilities 750,000

Preference Dividends 600,000

Interest 700,000

Depreciation 4,300,000

Miscellaneous 2,000,000

Total Expenses 25,500,000

Net Profit: 60,000,000

The following notes may be useful:

1. Included in the gross operating income are the following items:

i. A profit of $1,000,000, which is a profit on the disposal of a piece of machinery owned by the company.

ii. A refund of Income Tax amounting to $500,000.

2. Included in general expenses is an amount of J$150,000 paid to the caterers of the General Manager’s birthday party held at the office.

3. Legal Fees include the following items:

i. $200,000 with respect to suing a debtor to recover amounts owed

ii. $800,000 with respect to acquiring items of plant and machinery

iii. $300,000 with respect to activities concerned with the issuing of new preference shares

iv. $320,000 with respect to defending an employee who is being sued. The employee was involved in the company’s business.

v. $150,000 with respect to an action brought by the Revenue which had alleged that the company was in breach in terms of its income tax liability for the previous year of assessment. The court found that the company was tax compliant.

vi. $200,000 with respect to costs incurred in registering the company, drafting its Memorandum and Articles of Association and other activities required in the formation of the company.

vii. $400,000 with respect to renewing various lease arrangements.

4. General Expenses include the following:

i. Bad Debts are written off during the year - $200,000

ii. Increase in the general bad debt provision - $160,000

iii. Loans to staff members amounting to $700,000

iv. Travelling expenses of the managing director’s family in the amount of $300,000. This amount was reasonable in terms of company’s policies on vacation travel.

5. An analysis of the interest income account revealed the following:

Interest Receivable as at 31.12.2021 $500,000

Interest Receivable as at 31.12.2022 $400,000

6. An analysis of the interest expense account revealed the following:

Interest Payable as at 31.12.2021 $700,000

Interest Payable as at 31.12.2022 $600,000

7. The company leased premises under a finance lease several years ago. The finance charges and principal lease payments for the current year are $250,000 and $1,125,000 respectively. These charges have not been accounted for in the books.

8. The issued share capital of the company is comprised of:

(a) Ordinary shares (fully paid up) of $1 each $4,000,000

(b) 10 % Preference shares $4,000,000.

The Commissioner accepts the rate of preference share dividend as being reasonable.

9. The company paid a dividend on its ordinary shares of $0.10 per share for the year. This amount was included in Miscellaneous Expenses.

10. Tax deducted from Interest Income amounted to $1,000,000.

11. Capital allowances and charges were computed as follows:

Investment allowance - $250,000

Annual allowance - $1,800,000

Balancing allowance - $50,000

Balancing charges - $30,000

12. Motor vehicle expenses include servicing expenses of $285,000 for the Brand Manager’s own car. The company provides a separate motor vehicle for the manager which has been included in his emolument.

13. The company made an unused tax-adjusted loss of $2,000,000 for the previous year of assessment and has been agreed with the Commissioner.

14. Estimated Tax paid for the year ended December 2022 amounted to $4,000,000.

Required:

Prepare the Adjusted Accounting Profit and Loss Statement. Calculate the tax liability, as well as the tax payable by the company. 

Answer rating: 100% (QA)

1 Adjusted Accounting Profit and Loss Statement Gross Operating Income 85000000 Interest Income 5000... View the full answer