Question

Payment of taxes has always been a major expense to any company. It is a major burden, which each and every company wants to escape or scale down. You are a tax advisor at a major consulting company and have been requested to calculate and advise Al holi company, an Uk company on the correct amount of tax to be paid. On demand, the company has come up with the following information. The said company is a sick unit and has been making huge amount of losses in the past years. It has not discontinued operations to protect the interest of the people working with it. From the year 2017, up to the year 2012 reported losses were RO 25800, RO 129600, RO 140600, RO 109800, RO 142600 and RO 25600 respectively. The company also states transactions that relate to the current year. A Gain of RO 1150 was made on shares of a company that got de listed from MSM. The Commission paid on the same was RO 30. Such a transaction was not recorded. Business income of RO 29000 was completely ignored by the accountant. The accountant has included capital gains from shares of Soukuk Holding listed on the Boursa Kuwait equivalent to RO 15000 in the current year profit and this has been reflected in the company’s statement of financial performance. The Accountant has expensed the cost of a patent, the life being 10 years, purchased for RO 85000 as well as the cost of goods burnt in fire, value being RO 28000 for which the company has received compensation in full from the insurance company. A car was purchased for RO 18,000 during the current year for official use by the top executives of the company and such a purchase has not been recorded as an expense. The accountant has erroneously overvalued and recorded the closing inventory by RO 6000. Out of the total marketing expenses of RO 28000, the Secretariat General of income tax department declared RO 8,000 inappropriate because of non-availability of documentary evidence. These marketing expenses have not been deducted from current year profits. The accountant has charged depreciation @ 20% on building owned by the company valued at RO 65000. Bad debts of previous years RO 2550 recovered in this year which was earlier not allowed as deductible expenses and not included in current year net profit. The company has also furnished details of their financial performance stating the net sales at RO 340,000. The Cost of goods sold reflects at RO 151750 with opening inventory recorded at RO 60000, purchases at RO 121250 and closing stock at RO 29500. Expenses include Salaries of RO 40,000, donations to approved institutions at RO 10,000 and reserves created at RO 5,000 in the current year.

Answer 1

Information provided in the question in incomplete with some mistakes, It is mentioned as from 2017 upto 2012, there is no information regarding Depreciation Rate in case of Car, Profit declared, Tax Rate and whether losses made during the previous are allowed to set off or not?

With the available information and after making situable assumption, i tried to compute the corrected profits.