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Introduction To Taxation Question Paper

Introduction To Taxation

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2011

UNIVERSITY EXAMINATIONS: 2010/2011
FIRST YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CFM 100: INTRODUCTION TO TAXATION (SATURDAY)
DATE: AUGUST 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer All The Questions
Question One
a) Discuss four factors that determine the extent to which the incidence of a tax can be shifted
from one tax payer to another (8 Marks)
b) Comment on whether the following individuals and companies were residents of Kenya for tax
purposes for the year ended 31 December 2010. Justify your comment in each case.
i) Mr. Charles Owino has a permanent home in Kenya. He works for a company based in the
United Kingdom (UK) where he lives. He came to Kenya for a one-monthly holiday on 1
September 2010 but had not returned to the UK by 31 December 2010 (2 Marks)
ii) Mapato Ltd. is registered in South Africa where its headquarters are based. The company
opened a branch in Kenya on 1 March 2010 (2 Marks)
iii) Mrs. Frida Aloo, a Kenya citizen, is married to a citizen of Canada. She was employed in
Kenya until 31 August 2010 when she resigned to join her husband in Canada (2 Marks)
iv) Zawadi Ltd. was registered in Kenya where the company operated until 15 July 2010. The
company thereafter relocated its operations to Kampala, Uganda (1 Mark)
2
Question Two
a) You have recently received a request from the management of a newly registered business for
your help with matters concerning VAT. The following is the extract of the letter:
1) We understand that some business must register for VAT while others need not register. Could you
please advise us on the position regarding VAT registration?
2) When and how is the amount of VAT to be accounted for to the Commissioner of VAT?
Required:
i) Respond to the above queries. (3 Marks)
b) A manufacturer sells his manufactures goods to a wholesaler who incurs an additional 25% in
storage and transport costs. The wholesalers mark-up is 20% on cost goods. The wholesaler
bought the goods for Sh. 2,000 inclusive of VAT.
Required:
i) Calculate the amount of VAT payable to the commissioner by the wholesaler. (6 Marks)
c) Under the Income Tax Act (Cap. 470) a taxpayer intending to appeal against a ruling by the
local committee has thirty days to appeal. Outline three circumstances under which the High
Court may extend the period of appeal beyond thirty days. (6 Marks)
Question Three
a) Explain the meaning of the term “Residence” when applied to a company under Kenya Income
Tax Act. (5 Marks)
b) Chumex Limited makes its accounts to 31 December of each year and has prepared the following
profit and loss account for 2010:
Notes Sh. Notes Sh.
General administrative expenses
Repairs and renewals
Depreciation
Subscriptions and donations
Bad debts
Directors’ fees and expenses
40,000
12,000
10,000
2,000
8,000
5,000
Gross profit b/d
Bad debts previously
written off
Dividends
POSB interest
Gain on sale of plant and
200,000
1,000
5,000
6,000
3
Patents written-off
Preliminary expenses
Retirement benefits
Rent, rates and insurances
Legal and accountancy
Interest on overdue tax
Interest in lieu of dividends
Net profit before taxation
2,500
3,000
50,000
30,000
41,500
2,500
5,000
30,500
242,000
machinery
Tax refunded
10,000
20,000
______
242,000
Notes
Repairs and renewals:
Redecoration of an existing business
Renovation to new building
Partition and carpeting offices
Sh.
3,000
5,000
4,000
12,000
Subscriptions and donations
National Chamber of Commerce and industry
NE Refugee Fund
Sh.
1,000
1,000
2,000
Bad debts:
This is on account of a previous company employee who
cannot now be traced.
Preliminary expenses:
Legal fee on issue of shares on stock exchange
Payment for stationery before commencement of business
Sh.
2,000
1,000
3,000
4
Retirement benefits:
NSSF Contribution
Registered Pension Scheme for senior management
Gifts to retiring staff
Sh.
5,000
40,000
5,000
50,000
Legal and Accountancy:
Staff service agreement
Audit fees
Legal fee for lease (non-renewable)
Legal fee – Plot acquisition
Sh.
2,000
30,000
4,000
5,500
41,500
Dividends:
These were from a subsidiary company where Chumex owns
60% of the shares.
Capital Allowances for 2010 have been agreed at Sh.30,000
Required:
i) Compute Corporation tax liability for 2010.
ii) State the dates when such tax should be paid.
(15 Marks)
Question Four
Mr. Kibaru is employed by Equality Bank Ltd. as the Chief Credit Officer. He has presented the
following details to be used in the computation of his taxable income for the year ended 31 December
2010:
1. He received a basic salary of Sh. 90,000 per month (PAYE Sh. 9,000). He also received an
overtime allowance equivalent to 10% of his monthly pay.
2. His employer paid his hospital bills averaging Sh. 4,000 per month. The Bank has a
medical cover for all the employees
3. His employer provided him with the following
5
• A car which was acquired at a cost of Sh. 1,300,000. This car has an engine capacity of
2000c.c.
• A house. The employer deducted Sh. 2,500 from Mr. Mbotela’s salary every month to
cover rent for the house.
• A gardener and a night watchman who were each paid Sh. 6,500 by the employer
4. He contributes Sh. 8,000 per month to a registered pension scheme while the employer
contributes an equal amount.
5. For the year ended 31 December 2010, the employer provided Mr. Kibaru with tea and
snacks valued at Sh. 3,000.
6. He was nominated the employee of the year on 31 December 2010. This award carried a
cash gift of Sh. 145,000.
7. Mr. Kibaru operates a savings account with Post Bank Ltd. During the year ended 31
December 2010, the bank credited his account with Sh. 12,000 being interest on the balance
in his account.
8. In the month of November 2010, he received compensation from an insurance company
amounting to Sh. 80,000. This was in relation to household furniture destroyed by fire.
9. On 5 November 2010, he started offering part-time tax consultancy services. He made a
profit of Sh. 70,000 from the consultancy before deducting operating expenses of Sh.
18,000 and Sh. 4,000 relating to the acquisition of furniture.
10. He also operates a grocery in the local Market. In the year ended 31st December 2010, he
made a net-profit of Sh. 50,000 after deducting the following:
Sh.
Rent of stall
Hire of van
School fees for children
Advertisement expenses
10,000
22,000
108,000
6,000
Required:
a) Mr. Kibaru’s taxable income and the tax payable from this income for the year ended 31
December 2010 (20 Marks)

Introduction To Taxation Question Paper

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