The following balances are extracted from the books of Wendani Limited for the year
ended 30 April 2006.
Sh.

Share capital:
3,000,000 ordinary shares (fully paid)
800 8% redeemable preference shares
Share premium account
General reserves
Preference share redemption
Block capital (at cost less depreciation)
Net profit for the year (before tax)
Debtors (unsecured, considered good)
Creditors
Profit and Loss Account (Cr 1 May 2005)
Interim dividend
Unpaid dividend
Other current assets
Investments
Preliminary expenses
Income tax paid, under dispute for the year ended
30 April 2005
Advance payment of income tax
3,000,000
80,000
50,000
200,000
96,000
1,910,000
842,000
60,000
50,000
20,000
150,000
18,000
1,150,000
390,000
12,000
200,000
440,000
You are provided with the following additional information:
1. Market value of the investment is Sh.355,000. Investment which cost
Sh.40,000 had been sold in the year and realized a profit of Sh.12,500 which is
included in the above profits.
2. The disputed income tax of the year ended 30 April 2005 is per revised
assessment. Original self-assessment indicated an amount of Sh.96,000 which
had been paid.
3. Preference shares are redeemable on 1 April 2007, at a premium of 20% but no
entries were recorded in the books for giving effect thereto except for the
payment standing to the debit of preference share redemption account.
4. Preliminary expenses represent the balance after amortisation. The original
amount incurred to pay wages before commencement of business was
Sh.20,000 and is being amortised over 5 years. The amortisation charge is
debited to the profit and loss account.

5. Other current assets include stocks of Sh.90,000 which had been written down
by 10% as provision for future plans decline. The amount was debited to the
profit and loss account.
Required:
(a) Comment on reasons why a tax payer may appeal to the Local Committee.
( 4 marks)
(b) How does each of the five issues above affect the tax position of Wendani
Limited? (10 marks)
(c) Compute revised taxable profits of Wendani Limited for the year ended 30
April
2006 and show tax payable. ( 5 marks)
(d) Is it prudent to raise an objection on revised assessment? Explain.
( 3 marks)