Question

Michelle is a professional doctor who practices in Nairobi. She has provided you with the following details on her clinic for the year ended 31 December 2018 Kshs Gross Professional fees received Subscriptions to professional association and publications. Subscriptions to a wildlife magazine Donations to a children's home. Debt collection expenses (clients) Wages for assistant. Replacement of surgical instruments Rent for the clinic premises Electricity and water clinic. Other clinic expenses... Hire of car for use in practice Uniforms for staff Payment of school fees for own children.. Contribution to provident fund - self.. Payment of life insurance premium self Depreciation on furniture clinic Rents received from sub-rentals. Rent collection expenses (sub-tenants) Wages paid to cleaners and watchman - clinic Furniture bought for clinic 1 January 2018 Tarmacking of drive-way personal residence 2,310,000 .23,400 .4,000 12,300 .4,560 221,300 56,450 238,000 .32,100 .76,450 73,650 .14,340 89, 100 .63,400 49,320 11,700 .82,000 . 7,000 84,560 76,900 123,000

Calculate the taxable income of Michelle for the year ended 31 December 2018 ?

Answer 1

  

COMPUTATION OF TAXABLE INCOME OF MR. MICHELLE

   FOR THE YEAR ENDED 2017-18

PARTICULARS	NOTES	AMOUNT(kshs)
Profit and gain from Business & Profession
Gross Professional Fees		2310000
Less : a.  Subscription to professional association		(23400)
b.  Subscription to wildlife magazine	1	-
c. Wages for assistant		(221300)
d. Replacement of surgical Equipments	2	-
e. Rent for clinic premises		(238000)
f. Electricity and water expense		(32100)
g. Other clinic expenses		(76450)
h. Car Hire charges		(73650)
i. Staff Uniform Exp		(14340)
j. Depreciation on Furniture @ 10%	3	(7690)
k. Wages paid to cleaners & watchman		(84560)
l. Tarmacking of drive way personal residence	4	-
j. Debt collection Exp of clients		(4560)
k. Depreciation on surgical equipments @ 15%	5	(8468)
TOTAL (A)		1525482
INCOME FROM OTHER SOURCES
a. Income from sub letting of property		82000
b. Rent collection exp ( sub tenants )	6	-
TOTAL (B)		82000
GROSS TOTAL INCOME ( A + B )		1607482
DEDUCTIONS U/S 80
a. Life Insurance Premium	7	(49320)
b. Contribution to provident fund	8	(63400)
c. Donation To Children's Home	9	(6150)
d. Payment of school fees	10	-
NET TAXABLE INCOME		1488612

Notes :

1 Subscription to a wildlife magazine is not in the nature of profession so not allowable as expense.

2. Replacement of surgical equipment is an expense of capital nature therefore shall not be allowed as expense from professional Income. However depreciation on the same shall be allowed.

3. Purchase of furniture is a capital expenditure therefore depreciation @ 10 % shall be allowed at full rate since it is purchased at the beginning of the year.

4. Tarmacking of drive way personal residence is of personal nature therefore shall not be allowed as deduction.

5. Expense on replacement of surgical equipments being a capital expenditure, therefore depreciation @ 15 % is allowable in respect of such equipments.

It has been assumed that equipments have been replaced at the beginning of the year so depreciation at full rate has been provided. Also it has been assumed that these are not life saving equipments.

6. Rent collection expense are not directly related to the income from sub letting therefore are not allowable as deduction. However if these would have related , they would have been allowed as deduction.

7. Life Insurance premium is allowed deduction u/s 80C subject to maximum limit of 150000.

8. Contribution towards provident fund is allowable as deduction u/s 80 C subject to maximum limit of 150000.

9. It has been assumed that such donations are made to registered charitable trust , therefore it is eligible for 50% deduction.

10. Only tution fees are allowed as per section 80C. If the said school fees as stated in the question includes the component of tution fees it will be allowed as deduction.

Answer 2

Taxable income 1199712