As a fresh graduate from the school of business at Mulungushi University, you have just been employed by an emerging successful entrepreneur, a Mr. Kyambalesa, as his Accountant.Kyambalesa is a retail grocer involved in buying and selling of goods. You have discovered that Kyambalesa together with one of his clerical employee had just completed preparing accounts for the year ended 31 December 2022. The accounts reveal a profit of K305,000= You have just gone through the accounts and other related documents and discovered the following: 1. Mr. Kyambalesa withdrew goods from his business for domestic use valued at K10,000 purchase cost. He makes a profit of 25% on cost. Kyambalesa recorded this withdrawal in the accounts as a sale to himself at cost (K10,000). 2. You discover that there was a further withdrawal of goods for domestic use valued at K2,000 cost, which was never recorded in the accounts and therefore did not affect the profit of K305,000 in any way. 3. Mr. Kyambalesa drew a salary of K50,000 from his business in the charge year 2022. This was recorded in the accounts and therefore reduced the stated profit. 4. Mr. Kyambalesa had employed his own son as sales clerkpaying him a salary of K4,000 per month. You discover that there were two other sales clerks doing the same job as Kyambalesa's son but each drawing a salary of K2,000/month. These salaries were passed in the accounts reducing the profit for the period (2022). 5. Mr. Kyambalesa resides within the business premises. Utility bills for water and electricity are billed as one for both business and domestic use. An expense of K84,000/annum was charged, in the accounts to reflect this. You know that Zambia Revenue Authority (ZRA) allows a 75% business to 25%, domestic sharing in such a situation. 6. A delivery truck valued at K700 000 was purchased on 1stJune 2022, which was used wholly and exclusively for the purpose of business. No depreciation of any kind wasclaimed on this asset in the accounts. 7. K22,000, a daily cash sale for 1st March 2022 was stolen by the cashier who disappeared with the cash on his way to the bank. This amount was treated as an expense in the accounts - thus it reduced the stated profit figure of K305 000. The cashier was later apprehended and is currently serving a jail term. 8. An old delivery truck which was sold on 31st May 2022 for K350 000, had been bought for K500 000 on 1st January 2020. No treatment of any kind was made in the accountspertaining to this item. Thence, it never affected the profit for the period. 9. Entertainment - There was a "new year" staff party on the 7thJanuary 2022, costing the business K16,000. The profit for year of K305 000 was not affected in any way by this event. 10. Entertainment - a cocktail party at Tuskers Hotel was hosted in honour of the business suppliers and partners. An amount of K25,000 was spent on this event. This amount affected the profit of the year. Required (a) For each transaction above, give the correct treatment by giving a reasoned explanation. (b) Compute Kyambalesa's tax adjusted business profit for the year ended 31 December 2022

As a fresh graduate from the school of business at Mulungushi University, you have just been employed by an emerging successful entrepreneur, a Mr. Kyambalesa, as his Accountant.Kyambalesa is a retail grocer involved in buying and selling of goods. You have discovered that Kyambalesa together with one of his clerical employee had just completed preparing accounts for the year ended 31 December 2022. The accounts reveal a profit of K305,000= You have just gone through the accounts and other related documents and discovered the following: 1. Mr. Kyambalesa withdrew goods from his business for domestic use valued at K10,000 purchase cost. He makes a profit of 25% on cost. Kyambalesa recorded this withdrawal in the accounts as a sale to himself at cost (K10,000). 2. You discover that there was a further withdrawal of goods for domestic use valued at K2,000 cost, which was never recorded in the accounts and therefore did not affect the profit of K305,000 in any way. 3. Mr. Kyambalesa drew a salary of K50,000 from his business in the charge year 2022. This was recorded in the accounts and therefore reduced the stated profit. 4. Mr. Kyambalesa had employed his own son as sales clerkpaying him a salary of K4,000 per month. You discover that there were two other sales clerks doing the same job as Kyambalesa's son but each drawing a salary of K2,000/month. These salaries were passed in the accounts reducing the profit for the period (2022). 5. Mr. Kyambalesa resides within the business premises. Utility bills for water and electricity are billed as one for both business and domestic use. An expense of K84,000/annum was charged, in the accounts to reflect this. You know that Zambia Revenue Authority (ZRA) allows a 75% business to 25%, domestic sharing in such a situation. 6. A delivery truck valued at K700 000 was purchased on 1stJune 2022, which was used wholly and exclusively for the purpose of business. No depreciation of any kind wasclaimed on this asset in the accounts. 7. K22,000, a daily cash sale for 1st March 2022 was stolen by the cashier who disappeared with the cash on his way to the bank. This amount was treated as an expense in the accounts - thus it reduced the stated profit figure of K305 000. The cashier was later apprehended and is currently serving a jail term. 8. An old delivery truck which was sold on 31st May 2022 for K350 000, had been bought for K500 000 on 1st January 2020. No treatment of any kind was made in the accountspertaining to this item. Thence, it never affected the profit for the period. 9. Entertainment - There was a "new year" staff party on the 7thJanuary 2022, costing the business K16,000. The profit for year of K305 000 was not affected in any way by this event. 10. Entertainment - a cocktail party at Tuskers Hotel was hosted in honour of the business suppliers and partners. An amount of K25,000 was spent on this event. This amount affected the profit of the year. Required (a) For each transaction above, give the correct treatment by giving a reasoned explanation. (b) Compute Kyambalesa's tax adjusted business profit for the year ended 31 December 2022

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 27P

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QUESTION ONE

You have just gone through the accounts and other related documents and discovered the following:

1. Mr. Kyambalesa withdrew goods from his business for domestic use valued at K10,000 purchase cost. He makes a profit of 25% on cost.

Kyambalesa recorded this withdrawal in the accounts as a sale to himself at cost (K10,000).

2. You discover that there was a further withdrawal of goods for domestic use valued at K2,000 cost, which was never recorded in the accounts and therefore did not affect the profit of K305,000 in any way.

3. Mr. Kyambalesa drew a salary of K50,000 from his business in the charge year 2022.

This was recorded in the accounts and therefore reduced the stated profit.

4. Mr. Kyambalesa had employed his own son as sales clerkpaying him a salary of K4,000 per month. You discover that there were two other sales clerks doing the same job as Kyambalesa's son but each drawing a salary of K2,000/month. These salaries were passed in the accounts reducing the profit for the period (2022).

5. Mr. Kyambalesa resides within the business premises. Utility bills for water and electricity are billed as one for both business and domestic use. An expense of K84,000/annum was charged, in the accounts to reflect this. You know that Zambia Revenue Authority (ZRA) allows a 75% business to 25%, domestic sharing in such a situation.

6. A delivery truck valued at K700 000 was purchased on 1stJune 2022, which was used wholly and exclusively for the purpose of business. No depreciation of any kind wasclaimed on this asset in the accounts.

7. K22,000, a daily cash sale for 1st March 2022 was stolen by the cashier who disappeared with the cash on his way to the bank. This amount was treated as an expense in the accounts - thus it reduced the stated profit figure of K305 000. The cashier was later apprehended and is currently serving a jail term.

8. An old delivery truck which was sold on 31st May 2022 for K350 000, had been bought for K500 000 on 1st January 2020. No treatment of any kind was made in the accountspertaining to this item. Thence, it never affected the profit for the period.

9. Entertainment - There was a "new year" staff party on the 7thJanuary 2022, costing the business K16,000. The profit for year of K305 000 was not affected in any way by this event.

10. Entertainment - a cocktail party at Tuskers Hotel was hosted in honour of the business suppliers and partners. An amount of K25,000 was spent on this event. This amount affected the profit of the year.

Required

(a) For each transaction above, give the correct treatment by giving a reasoned explanation.

(b) Compute Kyambalesa's tax adjusted business profit for the year ended 31 December 2022

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