This accounting problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.
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You're on a roll — Here's the solution for question 21: 21. Income Tax Calculation Given Information: Basic salary: Ksh. 15,000 per month Nominal rent: Ksh. 1,250 per month Personal relief: Ksh. 1,056 per month Insurance relief: Ksh. 270 per month Taxable Income Brackets (K£p.a. and Rate Ksh/£): 1-2300: 2 2301-4600: 3 4601-6900: 5 6901-9200: 7 9201-11500: 9 11501 and over: 10 Conversion Factor: 1 K£ = 20 Ksh. (a) His taxable income in K£p.a. Step 1: Calculate the monthly taxable income in Ksh. Taxable income = Basic salary + Nominal rent Monthly Taxable Income = 15,000 \, Ksh + 1,250 \, Ksh = 16,250 \, Ksh Step 2: Convert monthly taxable income to annual taxable income in Ksh. Annual Taxable Income (Ksh) = 16,250 \, Ksh/month × 12 \, months/year = 195,000 \, Ksh Step 3: Convert annual taxable income from Ksh to K£. Annual Taxable Income (K£) = 195,000 \, Ksh20 \, Ksh/K£ = 9,750 \, K£ His taxable income in K£p.a. is 9,750 K£. (b) The amount of tax he pays per month in Kenya shillings. Step 1: Calculate the gross annual tax using the tax brackets. First bracket (1-2300 K£): Tax_1 = (2300 - 1 + 1) \, K£ × 2 \, Ksh/K£ = 2300 \, K£ × 2 \, Ksh/K£ = 4600 \, Ksh Second bracket (2301-4600 K£): Tax_2 = (4600 - 2301 + 1) \, K£ × 3 \, Ksh/K£ = 2300 \, K£ × 3 \, Ksh/K£ = 6900 \, Ksh Third bracket (4601-6900 K£): Tax_3 = (6900 - 4601 + 1) \, K£ × 5 \, Ksh/K£ = 2300 \, K£ × 5 \, Ksh/K£ = 11500 \, Ksh Fourth bracket (6901-9200 K£): Tax_4 = (9200 - 6901 + 1) \, K£ × 7 \, Ksh/K£ = 2300 \, K£ × 7 \, Ksh/K£ = 16100 \, Ksh Fifth bracket (9201-11500 K£): Mr. Ochieng's annual taxable income is 9,750 K£. This falls into the fifth bracket. The amount in this bracket to be taxed is 9750 - 9200 = 550 \, K£. Tax_5 = 550 \, K£ × 9 \, Ksh/K£ = 4950 \, Ksh Step 2: Calculate the total gross annual tax. Gross Annual Tax = Tax_1 + Tax_2 + Tax_3 + Tax_4 + Tax_5 Gross Annual Tax = 4600 + 6900 + 11500 + 16100 + 4950 = 44050 \, Ksh Step 3: Calculate the total annual relief. Total Annual Relief = (Personal Relief + Insurance Relief) × 12 Total Annual Relief = (1056 \, Ksh/month + 270 \, Ksh/month) × 12 \, months/year Total Annual Relief = 1326 \, Ksh/month × 12 \, months/year = 15912 \, Ksh Step 4: Calculate the net annual tax. Net Annual Tax = Gross Annual Tax - Total Annual Relief Net Annual Tax = 44050 \, Ksh - 15912 \, Ksh = 28138 \, Ksh Step 5: Calculate the net monthly tax. Net Monthly Tax = Net Annual Tax12 Net Monthly Tax = 28138 \, Ksh12 ≈ 2344.83 \, Ksh The amount of tax he pays per month is 2344.83 Ksh. (c) His net monthly salary in shillings. Step 1: Calculate the gross monthly income. Gross Monthly Income = Basic Salary + Nominal Rent Gross Monthly Income = 15,000 \, Ksh + 1,250 \, Ksh = 16,250 \, Ksh Step 2: Calculate the net monthly salary. Net Monthly Salary = Gross Monthly Income - Net Monthly Tax Net Monthly Salary = 16,250 \, Ksh - 2344.83 \, Ksh = 13905.17 \, Ksh His net monthly salary is 13905.17 Ksh. What's next?