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Cfm 300A: Advanced Taxation Question Paper

Cfm 300A: Advanced Taxation

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2009

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UNIVERSITY EXAMINATIONS: 2008/2009
THIRD YEAR STAGE 1 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 300A: ADVANCED TAXATION (Weekend)
DATE: APRIL 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL questions
QUESTION ONE
a) Distinguish between the taxation of the incomes received by partners and company directors.
(4Marks)
b) Explain the Provision of the Income Tax Act relating to the taxation of savings and credit
cooperative societies (Sacco) Ltd. (4Marks)
c) Haraka Ltd was incorporated in the year 2003. It is involved in cleaning, maintenance and
general management of properties. In addition, the company also collects rent on behalf of its
clients. The managing director has kept all the transactions vouchers in a filling cabinet and has
maintained proper client records on rent received, rent paid and commissions receivable.
The following information was extracted from the records of the company for the year ended 31
December 2007.
Rent received from client’s tenant 45,000,000
Salaries and wages 2,250,000
Maintenance cost of clients’ properties
6,750, 000
Subscription- Journal of property
maintenance and management
150,000
Fees received (cleaning) 4,500,000
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Dividends received (net) 85,500
Interest on fixed deposits (net) 204,000
Donations to disaster fund 105,000
Depreciation 900,000
Legal fees 132,000
Bank charges and interest 150,000
Rent and rates 720,000
Instalment tax paid 75,000
Directors’ remunerations 1,080,000
Auditor’s fees 700,000
Insurance premiums 225,000
Office expenses 675,000
Rent outstanding from tenants as at 1
January 2007
8,680,000
Additional information:
1. Haraka Ltd signs a standard management contract with all clients. The contract provides for a
management fee of 8.5% on gross rent payable by the tenants Clients are therefore paid rent
net of management fees.
2. The company charges tenant’s interest at the rate of 10% per month for any overdue rent. On
average, 20% of the gross rent receivable every year is paid late every month. However, no
rent remains unpaid for more than one month.
3. The cost of maintaining clients’ properties is met by the owners of the properties. Haraka Ltd
pays the cost of maintenance and recovers this from the rent collected
4. Auditor’s fees included Shs 150,000 incurred in representing the company in a tax dispute in
the High Court.
5. Included in insurance premiums is Shs 60,000 being insurance premium for a client’s property
for the year to 31 December 2007. This was to be recovered from the rent receivable from the
client in January 2006.
6. Legal fees relate to debt collection. However, Shs 20,000 was incurred in defending one of the
directors in a private suit.
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7. The written values of the company’s assets as at 1 January 2007 were as follows:
Shs
Class II 1,350,000
Class III 2,850,000
Class IV 1,200,000
During the year ended 31 December 2006 the company bought one saloon car for the property
manager for Shs 1,600,000 and computer worth Shs 270,000. It disposed of some furniture for
Shs 80,000. The furniture had been bought in the year 2000 at Shs 160,000
8. Included in the director’s remuneration is payment of medical cover for non executive director
for Shs 50,000.
9. The company paid subscriptions for its management to Starehe Golf Club, amounting to Shs
240,000. This has been included in office expenses.
Required:
a) Compute the taxable profit or loss of Haraka Ltd for the year ended 31 December 2007
(14Marks)
b) Compute the tax payable by the company, if any. (3Marks)
(Total: 25Marks)
QUESTION TWO
a) Explain how section 19 (1) of the VAT act, on recovery of tax due and payable from persons
who owe money to the taxpayer may be enforced by the commissioner. (8 Marks)
b) Mega ltd imports goods vatable at standard rate and transport them to its factory in Matuu
where they are converted into finished goods for sale in the local market. The cost of
conversion is 25% of the total cost incurred in bringing the goods to Matuu. The company
then charges a profit margin of 40%. During the month of January 2009, the firm imported
goods worth Shs 2,000,000 and paid import duty at 20%. It then incurred a further 10% as
transport costs to Matuu. The goods were all converted and sold in January 2009. The above
costs were exclusive of VAT.
Required:
Compute the VAT payable by the company and show the due date. (6 Marks)
c) MerryMerry ltd. deals in a variety of goods. In the month of March 2009, the company
accountant recorded the following transactions (Exclusive of VAT)
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Wages and salaries 4,200,000
Audit fees paid 700,000
Provision for doubtful debts 400,000
Telephone and electricity bills 500,000
Export of goods 10,000,000
Sales at standard rate 45,000,000
Exempt sales 20,000,000
Purchases at standard rate 25,000,000
Purchases at zero rate 10,000,000
Sale of a motor vehicle 1,200,000
The accountant believes that the allocative method is the best in restricting the input VAT
deductible against output VAT. The accountant is also of the opinion that on average, twenty
percent of the standard rate purchases were sold as standard rate sales.
Required:
Compute the input VAT deductible against output VAT using the allocative method.
(11 Marks)
QUESTION THREE
a) After a suspension lasting 21 years, capital gains tax legislation was reintroduced effective
the year of income 2006. The revived legislation deals e4sonly with gains or losses arising
on the disposal of property and applies to both companies and individuals. Enumerate
three exemptions from capital gains tax. (3 Marks)
b) The Kenyan tax system has been criticized as having many problems. Discuss some of
these problems and provide solutions to these problems. (22 Marks)
QUESTION FOUR
a) Discuss the valuation methods recommended by WTO for imported goods. (8 Marks)
b) Under which circumstances will import duty may be refunded. (3 Marks)
c) With reference to the income tax, VAT and customs and excise acts, explain with suitable
examples how the tax laws encourage the development of industries in Kenya. (14 Marks)

Cfm 300A: Advanced Taxation Question Paper

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