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    Tax Accounting Assignment

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    samuel debebe
    The document provides information about the transactions and expenses of Abessa S.C. for the 2004/05 tax year. 1) It lists sales, expenses, costs, depreciation amounts, previous year profits and losses. 2) It also details the import of cigarettes including customs duty, VAT, excise tax and other indirect taxes paid. 3) The summary should show the calculation of income tax liability by detailing the company's revenue, deductible expenses, taxable income, and tax owed.

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    Tax Accounting Assignment

    Uploaded by

    samuel debebe
    365 views10 pages
    The document provides information about the transactions and expenses of Abessa S.C. for the 2004/05 tax year. 1) It lists sales, expenses, costs, depreciation amounts, previous year profits and losses. 2) It also details the import of cigarettes including customs duty, VAT, excise tax and other indirect taxes paid. 3) The summary should show the calculation of income tax liability by detailing the company's revenue, deductible expenses, taxable income, and tax owed.

    Original Title

    Tax Accounting Assignment (1)

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    The document provides information about the transactions and expenses of Abessa S.C. for the 2004/05 tax year. 1) It lists sales, expenses, costs, depreciation amounts, previous year profits and losses. 2) It also details the import of cigarettes including customs duty, VAT, excise tax and other indirect taxes paid. 3) The summary should show the calculation of income tax liability by detailing the company's revenue, deductible expenses, taxable income, and tax owed.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    365 views10 pages

    Tax Accounting Assignment

    Uploaded by

    samuel debebe
    The document provides information about the transactions and expenses of Abessa S.C. for the 2004/05 tax year. 1) It lists sales, expenses, costs, depreciation amounts, previous year profits and losses. 2) It also details the import of cigarettes including customs duty, VAT, excise tax and other indirect taxes paid. 3) The summary should show the calculation of income tax liability by detailing the company's revenue, deductible expenses, taxable income, and tax owed.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 10

    Tax Accounting Assignment

    Abessa S.C Follows Fiscal Year set by Ethiopian Tax Authority during tax year 2004/05 it had the
    following transactions.

    a) sales During the year was birr 3032150


    b) During the year it spent Br 73000 on advertising expense , Br17000 on news paper and
    billboard advertising expense and further birr 12000 on entertainment expense to promote
    business during the year Allowed expense =73000+17000=90000
    - Entertainment expense Birr 12000 disallowed expense
    c) Rent was paid to hire an out let amounting to birr 30000
    d) Cost of goods sold and cost of closing stock computed on FIFO was Birr 1726064
    And 578756. If weighted averages cost methods was used the value of closing inventory
    would be lesser than the same inventory under FIFO method by Birr 30800
    Cost of goods sold + closing inventory = good available for sale
    1726064+578756=2304820
    2304820=cost of goo sold +578756-30800=CGS+547956
    CGS=2304820-1756864= birr1756864
    e) The company incurred salary expense of birr 142240 which includes 22240 as over time
    payment
    Basic salary = salary expense –over time payment=142240-22240=120000
    f) Stock obsolescence expense of birr 20000 and amortization expense of birr 10600 was
    also incurred during the year. amortization relates to patent birr 5600and good will birr
    5000
    g) Birr 25000 provident fund was contributed by the company
    The Provident Fund Contributed by the Company Is more than 15% of Basic Salary
    Basic salary = salary expense –over time payment=142240-22240=120000
    120000x15%=18000 Allowed
    25000-18000 =7000 Disallowed
    h) Birr 25000 interest was paid on principal amount of birr 250000 interest rate between
    NBE and CBE is 6%
    25000/250000=10%
    6%+2% =8%
    10%-8%=2% not disallowed
    25000x2%/10%= 5000
    Allowed =25000-5000=20000
    i) Penalties and damages paid by the business is Birr 13600 disallowed
    j) Building has accost of birr 462000 and is subject to depreciation
    462000x 5%=23100
    k) Vehicles has a carrying amount of birr 89000 at the beginning of the year and two old
    vehicles were sold at birr 88100 at the middle year.
    89000-88100=900 all depreciated because the amount is less than 1000, i.e. 900
    l) Computers information system, data storage have a depreciation base of birr 91000 at the
    end of the year. No purchase or sale has been affected during the year.
    Depreciation = 91000x25%=22750
    m) The company’s previous year income statement shows the following 2003/04 (160000),
    2002/03 15000000, 2001/02 (400000) ,2000/01;300000, 1999/2000; (125000)
    Year profit or loss off-set not offset
    1999/2000 (125000)
    2000/01 300000 125000
    2001/02 (400000)
    2002/03 1500000 400000
    2003/04 (160000)
    n) Prepaid business profit tax balance at the beginning of the year is birr 80000.
    o) The company also imported 800000 packet of cigarette from Cuba. The invoice value of
    consignment was USD 35000 on FOB. Marine insurance amounted to .75% of
    consignment and freight amounted to USD 200.company also paid brokerage of USD
    100 to negotiate with the seller .exchange rate was 1birr=USD0.5012
    1/.5012= birr1.9952/USD
    CIF =FOB+ Insurance+ Freight
    35000x1.9952=69832 FOB
    Insurance=.75%x 69832=523.74
    Freight= 200x1.9952= 399.04
    CIF = birr70754.78
    Custom Duty =70754.78x.35=24764.17

    Excise tax = 70754.78x75%= 53066.08

    VAT Base=CIF+ Excise Tax+ Custom Duty

    (70754.78+53066.08+24764.17)=148585.035x15%=22287.75

    Sur tax base= CIF+VAT+ Excise Tax+ Custom Duty

    = (70754.78+22287.75+53066.08+24764.17) =170872.78

    Sur tax=170872.78x10%=17087.278

    Withholding tax =70754.78x3%=2122.64

    Total indirect tax paid by tax payer= (VAT + Excise tax+ Custom duty +sur tax)

    VAT= 22287.75+

    Excise Tax = 53066.08+

    Custom Duty = 24764.17 +

    Sur tax = 17087.278 +

    Total =117205.278

    Required

    1. How will each item be treated in Ethiopia Tax laws


    2. Prepare a statement to show in detail how much income tax will be required to be paid by
    company
    3. If it is a proprietary business then what will be the tax liability of this firm
    4. What will be the various tax liability attracted for import consignment. Excise tax are
    applicable is 75% and applicable customs duty rate is 35%.
    5. Give detail of your computation with relevant rule
    Solution

    a) Advertising Expense and promotion Expense

    _ Advertising Expense on news paper and billboard advertising expense are allowed

    73000+17000 = Birr 90000 is allowed

    _ Entertainment Expense is not Allowed Birr 12000

    b) Rent Expense was paid to hire outlet Birr30000 Allowed


    c) Ethiopia tax law Cost of goods sold has to be computed only by way of Weighted
    Average Methods. Computed on FIFO Method need Adjustment
    Cost of goods sold + Cost of closing Stock = good available for sale
    = 1726064+578756=2304820
    2304820=cost of goods sold +578756-30800=CGS+547956
    CGS=2304820-547956= birr1756864
    d) The Company Incurred salary Expense and Overtime payment is allowed Expense
    a. Basic salary = salary expense –over time payment=142240-22240=120000
    e) Stock obsolescence expense of Birr 20000 and amortization expense of Birr10600 related
    to patent Birr 5600 And Good will Birr 5000 is allowed.
    f) Provident Fund Was contributed by the company Is more than 15% of Basic Salary
    a. Basic salary = salary expense –over time payment=142240-22240=120000
    Provident fund allowed =basic salary*15%
    =120000x15%=18000 Allowed
    b. 25000-18000 =7000 Disallowed
    g) Interest Was paid birr 25000 interest rate between NBE and CBE is 6%
    Interest =principal *annual rate
    Annual rate =interest/principal
    25000/250000=10%
    According to tax law 6%+2% = 8 % is allowed, 2% does not allowed
    2%∗25000
    = birr 5000 Disallowed
    10 %
    a. 10%-8%=2% disallowed
    25000x2%/10%= 5000
    b. Allowed =25000-5000=20000
    h) Penalties and Damage paid by the business is Birr non deductable expense (not allowed).
    i) Building has accost of Birr 462000 And Depreciated separately straight line method At
    5%
    a. 462000x 5%= Birr23100 Depreciation Expense of Building
    j) Other Asset Pooling
    20% 25%
    a. Book Value of pooling of Beginning 89000 91000
    Add
    b. Actual Cost of asset Acquiring during the yr - -
    Less
    c. Sales price asset sold during the year 88100 -
    d. Depreciation Base 900 91000
    e. Depreciation 900 22750
    f. Book Value 0 68250

    g. Total depreciation Expense other asset 23650


    k) The company’s previous year income statement shows the following 2003/04 (160000),
    2002/03 15000000, 2001/02 (400000) ,2000/01;300000, 1999/2000; (125000)
    a. Year profit or loss off-set Not offset
    b. 1999/2000 ( 125000)
    c. 2000/01 300000 125000
    d. 2001/02 ( 400000)
    e. 2002/03 1500000 400000
    f. 2003/04 (160000)
    l) Prepaid business profit tax balance at the beginning of the year is birr 80000.
    The company also imported 800000 packet of cigarette from Cuba. The invoice value of
    consignment was USD 35000 on FOB. Marine insurance amounted to .75% of
    consignment and freight amounted to USD 200.company also paid brokerage of USD
    100 to negotiate with the seller .exchange rate was 1birr=USD0.50121/.5012=
    birr1.9952/USD
    CIF =FOB+ Insurance+ Freight
    35000x1.9952=69832 FOB
    Insurance=.75%x 69832=523.74
    Freight= 200x1.9952= 399.04
    CIF = birr70754.78
    Custom Duty =70754.78x.35=24764.17

    Excise tax = 70754.78x75%= 53066.08

    VAT Base=CIF+ Excise Tax+ Custom Duty

    (70754.78+53066.08+24764.17)=148585.035

    VAT=148585.035x15%=22287.75

    Sur tax base= CIF+VAT+ Excise Tax+ Custom Duty

    =70754.78+22287.75+53066.08+24764.17=170872.78

    Sur tax=170872.78x10%=17087.278

    Withholding tax =70754.78x3%=2122.64

    Total indirect tax paid by tax payer

    VAT = 22287.75+

    Excise Tax = 53066.08+

    Custom Duty = 24764.17+

    Sur tax = 17087.278+


    Total =117205.278

    B Statement of income tax

    Abessa S.C 2004/05 Fiscal Year

    Revenue

    Sales during the year Birr 3032150

    Cost of Good of sold Birr (1756864)

    Gross profit 1275286

    Gross profit
    ∗100=Gross Profit ratio
    Sale

    1275286
    ∗100=42.05 %
    3032150

    Deductable Expense

    Promotion Expense 90000

    Rent Expense 30000

    Salary Expense 142240

    Stock obsolescence Expense 20000

    Amortization of patent and good will 10600

    Provident fund contribution 18000

    Interest Expense 20000


    Depreciation Expense 46750

    Total deductable expend 377590

    Net profit = (1275286-377590) = 897696

    Loss carried forward (160000)

    Taxable income 737696

    Tax 30%x 737696 =221308.8

    Withholding Tax (2122.64)

    Prepaid tax (80000)

    Tax due 139186.16

    Abessa S.C Proprietor Ship2004/05 Fiscal Year

    Revenue

    Sales during the year Birr 3032150

    Cost of Good of sold Birr 1756864

    Gross profit 1275286

    Gross profit Ratio = Gross profit/sale x100%


    1275286/3032150 x100%=42.05%
    Deductable Expense

    Promotion Expense 90000

    Rent Expense 30000

    Salary Expense 142240

    Stock obsolescence Expense 20000

    Amortization of patent and good will 10600


    Provident fund contribution 18000

    Interest Expense 20000

    Depreciation Expense 46750

    Total deductable expend (377590)

    Net profit (1275286-377590) 897696

    (-) Loss carried forward (160000)

    Taxable income 737696

    Tax 737696x 35%-7950 =250243.6

    (-) Withholding Tax (2122.64)

    (-)Prepaid tax (80000)

    Tax due 168120.96

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