Taxation Work

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Chai
Limited was incorporated on 31 December 2004 to process and package tea for
sale within Kenya.  On 2 January 2005, the company purchased the
following movable assets and buildings from Mwisho Limited, an existing company
in the same business.

Asset

Tax written down
value

Sh. ‘000’

Selling price to Chai
Limited

Sh. ‘000’

Machinery

Standby
generator

Computers

Printers

Loose
tools (original cost Sh. 150,000)

Delivery
vans (3 tonnes each)

Mobile
phones

Office
furniture

Weighing
scales

18,000

  200

  750

  90

  100

  7,200

  150

  1,400

  30

10,000

  250

  400

  110

  70

  8,000

  80

  1,000

  28

Nature of building

Construction date

Construction cost

Sh. ‘000’

Selling price to Chai
Limited

Sh. ‘000’

Factory

Office
complex

Warehouse
A

Warehouse
B

Staff
quarters

Staff
Canteen

1
January 1998

1
January 1998

1
July 1999

1
January 2000

1
August 2001

1
December 2001

40,000

22,000

2,000

1,700

3,600

900

48,000

26,000

1,800

2,400

4,000

750

The
following additional transactions occurred in the year ended 31 December 2005:

1.  On 1 March,
one of the delivery vans purchased from Mwisho Limited for Sh. 1.2 million was
sold for Sh. 700,000.

2.  As the
number of employees increased.  Warehouse
B was converted into an office with effect from 1 April.  The cost of partitioning the warehouse
amounted to Sh. 150,000.

3.  Additional
staff quarters were constructed at a cost of Sh. 800,000 and utilized from 1
July.

4.  On 1
October, a machine was imported at a cost of Sh. 450,000 and the following
costs subsequently incurred on it:

Sh.

Import
duty

Carriage
inwards

Repairs
in transit

Installation
costs

Annual
insurance

100,000

40,000

18,000

5,600

12,000

5.  One of the
computers valued at Sh. 18,000 was traded in on 2 November for a new one
costing Sh. 50,000.  The balance was
settled in cash.

6.  The company
reported a profit before capital allowances of Sh. 26 million for the year
ended 31 December 2005.  This was after
deducting depreciation of Sh. 2 million.

Required:

(a) 
Determine the capital allowances due to Chai
Limited for the year ended 31 December 2005.

 
(16 marks)

(b) 
Compute the company’s taxable profit or loss
and the tax payable (if any) for the year ended 31 December 2005.      (4 marks)

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