Based on Caribbean Laws, Compute the Income tax liability for the following comp

Question

Based on Caribbean Laws, Compute the Income tax liability for the following company and discuss the reason(s) the item is considered deductible or non-deductible:

ABC Ltd reports $2 .6 M in profit for the year ended December 31, 2013, after charging the following:

Deprecation $325,000

Legal Fees $800,000

Donations $42,000

Bad Debts $156,000

Foreign Travel $90,000

Gain on Disposal of fixed Assets $100,000

Legal fees are as follows: -$500, 000 in respect to debt recovery

-$200,000 in relation to increase in share capital

-$100,000 in relation to defending a legal claim brought by an irate employee from wrong full dismissal

Donations are as follows:

-$22,000 in relation to a football club not approved by the Commissioner of Taxes

-$20,000 in respect to UWI an approved institution

$26,000 for bad debt relates to a company that has gone out of business, the balance relates to bad debt as a percentage of debtors at the year end.

Foreign travel expense was for a vacation package for the purchasing manager's wife.

Prior year tax losses was $356,000 and the Income Tax rate is 25%

Explanation / Answer

Computation of Taxable Income and Tax liability $ Profit as per P&L Account        2,600,000 Add;- Provision for Bad debts 130000 (156000-26000) Add:- Donation 42000 Add:- Foreign travel exp 90000        2,862,000 Less:- Donation to approved fund 22000        2,840,000 Less:- brought forward loss 356000 Taxable Income        2,484,000 Tax Rate 25% Income tax            621,000

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