Beta Share Company

Income statement
For the year ending sene 30,1998

Net sales 450,000

Less: CGS 150,000
Gross profit 300,000
Operating expense:
Salaries & employees benefits 83,000
Representative expense 2500
Donation 25,000
Promotion expense 15,000
Stock obsolescence expense 4,500
Amortization expense 6,000
Court fines 2,500
Depreciation expense building 10,000
Depreciation expense machinery 8,500
Total operating expense 157,000
Earnings before interest & tax 143,000
Interest expense 93,000
Earnings before tax 50,000
Income tax (30%) 15,000
Net income 35,000
Ato Girma Daniel tax expert in tax authority reviews Betas share company books & has got the following
information
 Donation includes birr 20,000 given as a gift to Disaster prevention & preparedness commission
to rescue flooded peoples in diredawa and south omo & birr 3000 given for political parties birr
2000 given for W/ro Mamite who has been guest in Alebe talk show
 The cost of goods sold would have been birr 110,000. If weighted average method of inventory
costing were used
 Amortization expense includes birr 2000 for amortization of patent and birr 4000 for good will
 Salaries and employees benefit include an employer 20% provident fund contribution to all its
permanent employees for the given tax year is birr 60,000
 The company paid birr 500 for each day to Ato Hailu Demalash chief accountant as a
representation fee while he attend meeting for 5 days held in Sheraton addis. His monthly basic
salary is birr 3500
 The co. had bad debt expense of birr 2000 which is written off to the debtor and legal action to
collect the debt has been taken but the debt is not recoverable. The company did not consider it
in determination of income by considering it as uncollectible
 The company incurred loss of birr 5000 in the year ended 1997
 Promotion expense includes birr 5000 for television advertisement, birr 2500 for billboard
advertisement and 7500 for personal entertainment expense
 The company is paying its bank loan that obtained from commercial bank of Ethiopia at an
average 7.5% annual interest rate. The unpaid outstanding bank loan at the beginning of the
period was birr 600,000. The company has also paid interest expense for Ato Nibretu Alemayehu
one of the shareholders at 12% annual interest on loan of 400,000
 Depreciation expense for building and machinery is calculated in harmony with Ethiopian tax
provisions
Required : prepare an income tax return (income statement for tax purpose ) in accordance with provision
of income tax proclamation 286/2002
 Beta Share Company
Income statement
For the year ending sene 30,1998

Net sales 450,000

Less: CGS 150,000
Gross profit 300,000
Operating expense:
Salaries & employees benefits 83,000
Representative expense 2500
Donation 25,000
Promotion expense 15,000
Stock obsolescence expense 4,500
Amortization expense 6,000
Court fines 2,500
Depreciation expense building 10,000
Depreciation expense machinery 8,500
Total operating expense 157,000
Earnings before interest & tax 143,000
Interest expense 93,000
Earnings before tax 50,000
Income tax (30%) 15,000
Net income 35,000
Ato Girma Daniel tax expert in tax authority reviews Betas share company books & has got the following
information
 Donation includes birr 20,000 given as a gift to Disaster prevention & preparedness commission
to rescue flooded peoples in diredawa and south omo & birr 3000 given for political parties birr
2000 given for W/ro Mamite who has been guest in Alebe talk show
 The cost of goods sold would have been birr 110,000. If weighted average method of inventory
costing were used
 Amortization expense includes birr 2000 for amortization of patent and birr 4000 for good will
 Salaries and employees benefit include an employer 20% provident fund contribution to all its
permanent employees for the given tax year is birr 60,000
 The company paid birr 500 for each day to Ato Hailu Demalash chief accountant as a
representation fee while he attend meeting for 5 days held in Sheraton addis. His monthly basic
salary is birr 3500
 The co. had bad debt expense of birr 2000 which is written off to the debtor and legal action to
collect the debt has been taken but the debt is not recoverable. The company did not consider it
in determination of income by considering it as uncollectible
 The company incurred loss of birr 5000 in the year ended 1997
 Promotion expense includes birr 5000 for television advertisement, birr 2500 for billboard
advertisement and 7500 for personal entertainment expense
 The company is paying its bank loan that obtained from commercial bank of Ethiopia at an
average 7.5% annual interest rate. The unpaid outstanding bank loan at the beginning of the
period was birr 600,000. The company has also paid interest expense for Ato Nibretu Alemayehu
one of the shareholders at 12% annual interest on loan of 400,000
 Depreciation expense for building and machinery is calculated in harmony with Ethiopian tax
provisions
Required : prepare an income tax return (income statement for tax purpose ) in accordance with provision
of income tax proclamation 286/2002
Dr. Solomon is a resident in Bishoftu hospital, who specialized in Internist, teaches medical
students for 12 lecture hours in Japan and derives income in the month of Tikimt. His basic
salary in Bishoftu hospital is birr 3,500
Country gross income tax paid in abroad
Japan 300 Yen 60 Yen
He has also brought appropriate withholding certificate accepted by the tax authority for the tax
paid in abroad. The average exchange rates during the period was as follows
1 yen = 0.7 US dollar 1 US dollar = 26 birr
Required: Compute Income tax payable to Ethiopia tax authority on such foreign sources incomee

if ABC Company agreed to get Birr 30,000 loan from Hailu Gulumma to run its business at
simple interest rate 26% payable in a year but loan rate prevailing between National Bank of
Ethiopia and commercial banks during the period is 18%, how much interest is not allowed for
deduction for tax purpose .