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Introduction To Taxation Question Paper
Introduction To Taxation
Course:Diploma In Business Management
Institution: Kca University question papers
Exam Year:2010
1
UNIVERSITY EXAMINATIONS: 2009/2010
STAGE III EXAMINATION FOR DIPLOMA IN BUSINESS MANAGEMENT
DFM 100: INTRODUCTION TO TAXATION
DATE: APRIL 2010 TIME: 1½ HOURS
INSTRUCTIONS: Answer any THREE questions
Question One
a) Distinguish between the terms budgetary and fiscal policies (2 Marks)
b) Name four tax set offs available to an individual taxpayer to reduce gross tax liability. (2 Marks)
i) Giving appropriate examples, distinguish between forward shifting and backward shifting
(6 Marks)
ii) Briefly explain five factors that determine tax shifting (10 Marks)
Question Two
a) Define the term “fiscal policy”. (2 Marks)
b) State six objectives of fiscal policies with specific reference to the needs of developing countries.
(6 Marks)
c) Dawani Ltd. presented the following income statement for the year ended 31 December 2006:
Sales 40,000,000
Closing stock 12,000,000
52,000,000
Opening stock 6,000,000
Raw materials consumed 18,000,000
Salaries and wages 4,000,000
Office expenses 7,600,000
2
Directors’ fees 2,000,000
Auditor’s fees – for audit 400,000
- for tax consultancy 80,000
Depreciation 1,500,000
Selling expenses 3,000,000
Interest on unsecured loans 250,000
Provision for taxation 1,600,000
Preliminary expenses 540,000
Interim dividend 900,000
Proposed final dividend 1,300,000
Legal fees 800,000
Transfers to reserves 2,200,000 50,170,000
Net Profit 1,830,000
Additional information:
1. Preliminary expenses wee incurred on 1 January 2006 and relate to the company’s formation.
2. The company is housed in a rented building which had cost the owner Sh 5,000,000 to
construct. The rent expense of Sh 750,000 for the year ended 31 December 2006 has not been
provided for in the books of Dawani Ltd.
3. Legal expenses include:
• Settling a dispute with a customer 120,000
• Protection of title to company’s assets 60,000
• Cost of successfully refuting allegations of the breaches of law 42,000
• Cost of successfully appealing against an income tax appeal 18,000
• Registration of trade mark 12,000
• Cost of raising a loan 10,000
• Interest charged on hire purchase agreements 24,000
Required:
d) Adjusted taxable profit or loss for Dawanu Ltd. for the year ended 31 December 2006
3
(10 Marks)
e) Tax Payable (if any) by the company for the year ended 31 December 2006. (2 Marks)
Question Three
Mr Owino a businessman in kisumu has provided you with the following information for the year
ended 31st December 2007;
PROFIT AND LOSS ACCOUNT
kshs Kshs
Rent for premises -owned by Mr owino 180,000 Gross profit 1,272,000
Establishment expenses 600,000Interest income 48,000
Printing and stationary 135,000 Dividends (Gross) 80,000
Interest expense 46,000 Farming income (gross) 226,600
Electricity 40,000Profit on sale of shares 533,000
Farm expenses 210,000 Lottery winnings 733,300
Repairs to premises 30,000 Other income 53,300
Depreciation 196,000
Salary to Mr Owino 380,000
Drawings by Mr Owino 200,000
Donations to childrens home 166,000
Legal expenses 125,000
Interest on loan to pay income tax 29,000
Bad debts 180,000
Staff wages 144,000
Net profit 285,200
2,946,200 2,946,200
Additional information:
1. Capital allowances have been agreed; wear and tear kshs 120,000 and farm works deduction as
80,000.
2. Legal expenses include sh 50,000 paid with regard to pursuing a dispute with the VAT
department
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3. Establishment expenses include sh 400,000 incurred in acquiring furniture and equipment for
the business before commencement of operations.
Required.
i. Mr. Omolo’s taxable income for the year ended 31 st December 2007
ii. Tax payable on the income above.
Question Five
a) Distinguish between
b) Impact and incident of tax
c) Direct and indirect tax
d) Tax avoidance and evasion ( 8 Marks)
e) Highlight essentials of an optimum tax systerm (12 Marks)
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