Kaeka Ltd operates in the Upstream Petroleum Sector. The following relates to its 2018 year of assessment:
. US$
Profit 230,000,000
Tax paid 7,875,000
The following was adjusted in arriving at the profit above:
Research and development cost incurred 4,500,000
Refreshment 1,500,000
Fines and penalty 20,000
Loss-2017 (unrelieved) 1,200,000
Depreciation 800,000
Acquisition of Drilling Machine 30,000,000
Note: Written Down Value of depreciable assets are as follows:
Balance c/d-2017:
US$21,000,000 with capital allowance granted twice as of 2017.
US$60,000,000 with capital allowance granted once as of 2017.
Required:
i) Compute the tax payable. (8 marks)
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ii) Comment on the treatment of research and development expenditure. (2 marks)
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Research and development has been added back to income as it is not an allowable deduction for tax purposes in petroleum upstream operations.
In the solution above, the research and development has been added back to income.