SOLUTION:
MOTO GENERAL INSURANCE COMPANY LIMITED
TAXABLE PROFIT FOR THE YEAR ENDED 31 DECEMBER 2020
Ksh. Ksh.
Gross premium 24,648,600
Add: Prepaid premiums b/d 186,000
Outstanding premium c/d 230,000
Bonus utilized in reduction of premium 371,700
25,436,300
Less: Returned premium 1,230,000
Reinsurance premium paid 670,000
Outstanding premiums b/d 456,200
Prepaid premium c/d 314,000 (2,670,200)
Net premiums 22,766,100
Claims:
Claims paid 4,826,000
Add: Claims outstanding c/d 1,640,000
Less: Claims outstanding b/d (676,200)
Claims recovered on reinsurance (545,700) (5,244,100)
Gross business income (Net premiums – Net claims) 17,522,000
Add: Other taxable business incomes:
Commission on reinsurance ceded 728,900
Interest from FD account 960,000
Reserve for unexpired risk 948,600
Total business income 20,159,500
Less: Allowable expenses
Legal expenses relating to claims 376,800
Commission on reinsurance accepted 3,484,900
Agency expenses 1,296,400
Foreign exchange loss realized 392,700
Bad debts 208,000
Management salaries 1,670,000
Advertising expenses 124,000
Investment allowances (Motor vehicle) 200,000 (7,752,800)
Taxable business income 12,406,700
Add: Other taxable incomes
Rental income on premises (1,260 – 280) 980,000
Total taxable income 13,386,700
b) Tax liability Ksh.
Gross tax liability 30% x 13, 386,700 = 4,016,010
Less: WT on interest (15% x 960,000) = 144,000
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NOTE: Alternative presentation of the above Solution
MOTO GENERAL INSURANCE
TAXABLE PROFIT FOR THE YEAR ENDED 31 DECEMBER 2020
Ksh. Ksh.
Gross premium 24,648,600
Outstanding premium c/d 230,000
Prepaid premium b/d 186,000
Returned premium (1,230,000)
Reinsurance premium paid (670,000)
Outstanding premium b/d (456,200)
Prepaid premium c/d (314,000) 22,394,400
Interest from FD account 960,000
Reserve for unexpired risk 948,600
Claims recovered 545,700
Commission ceded 728,900
Bonus utilized in reduction of premium 371,700
Business income 25,949,300
Less: Allowable expenses
Claims paid 4,826,000
Claims outstanding c/d 1,640,000
Claims outstanding b/d (676,200) 5,789,800
Bad debts 208,000
Legal expenses 376,800
Commission on reinsurance accepted 3,484,900
Agency fees 1,296,400
Foreign exchange losses 392,700
Management salaries 1,670,000
Advertising expense 124,000
Investment allowance 200,000 13,542,600
Taxable business income 12,406,700
Other taxable income:
Rental income (1,260,000 – 280,000) 980,000
Total taxable income 13,386,700
b) Tax liability Ksh.
Gross tax liability 30% x 13, 386,700 = 4,016,010
Less: WT on interest (15% x 960,000) = 144,000
3,872,010
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