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Advanced Taxation (Saturday) Question Paper
Advanced Taxation (Saturday)
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
UNIVERSITY EXAMINATIONS: 2010/2011
THIRD YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CFM 300-A: ADVANCED TAXATION (SATURDAY)
DATE: AUGUST 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer All The Questions
Question One
Deep-sea shipping Co. Ltd has been carrying out shipping business in the country since 2002. For the
year commencing 1.1.2009 the company assets WDV s were as follows:
Class I ksh 12,000,000, class II ksh 900,000, Class III ksh 800,000, Class IV ksh 20,000,000
During the year 2009 the following were purchased:
MV Kilindini of 580 tones ksh 10,000,000
MV Mtongwe of 595 tones ksh 10,000,000
MV Kisauni of 500 tones ksh 15,000,000
MV Kisumu of 400 tones ksh 8,000,000
MV Nairobi of 700 tones-2nd hand – ksh 7,200, 000
Disposals
MV Nanyuki (1000 tones) acquired in 2006 at ksh 16,000,000 was disposed at ksh 9,000,000
MV Machakos of 550 tones acquired in 2002 at ksh 15,000,000 and book value of ksh 7,000,000 was traded in and MV Grace of 800 tones acquired for ksh 12,000,000.
A saloon car purchased in 2007at ksh 1,500,000 was disposed at ksh 200,000 during the year.
In 2010 the following were acquired:
MV Kirinyaga of 400 tons at ksh 13,000,000
MV Kitale of 500 tons at ksh 9,800,000
MV Malindi of 600 tones at ksh 9,800,000
Constructed labour quarters at ksh 1,200,000
Acquired 4 life boats at ksh 180,000 each
Required:
Compute the capital allowances for the years 2009 and 2010. (20 Marks)
Question Two
Mr. Capello Romano is a company secretary with Down to Earth ltd, a local Company and was a
resident in Kenya for the whole of 2010. The following extracts related to information about his income and related benefits for 2010.
Basic salary from the company was at the rate of Ksh.120, 000 per month up to 30 September 2010. It was however increased to ksh. 145, 000 with effect form 1 October 2010 and backdated to 1st April 2010.
The company made the following monthly payments to him:
1) Home to office car allowance - ksh. 18, 000
2) House allowance of ksh. 40,000 (up to 30 June 2010)
3) Ksh. 12,000 for making sales-check trips.
On 1 July he moved to a company house and paid a nominal rent of 5% of basic pay.
The company, from that date provided him with a gardener, watchman and a maid. In addition his house was linked to Twanga security alarm system.
The company incurred the following monthly expenditure in respect of these benefits on his behalf
during the period.
• Gardener 9,600
• Watchman 15,000
• Maid 10,000
• Alarm system 30,000
He rented his house to a tenant from 1 July 2010 for ksh. 40,000 per month. The house was fully furnished when he rented it to the tenant. Furniture worth ksh. 80,000 was acquired for this purpose.
Other expenditure on the house included, repairs of ksh. 10,000 and a mortgage interest. He had a mortgage of ksh 1,000,000 with HFCK. Mortgage repayments were ksh. 20,000 per month of which ksh 8,000 was interest. A premium of ksh. 15,000 was charged for use of the furniture
Dividend income (gross) was ksh.4,000 from Down to Earth Ltd. He holds 4% of the share capital and the company paid the tax due.
Required:
a) Compute Mr. Romano’s tax liability for the year 2010 (10 Marks)
b) Highlight any tax planning issues involved (5 Marks)
Question Three
Bora limited presented the following trading and profit and loss account for the year 31 December
2010
ksh. ksh.
Sales 116,000,000
Opening stock 7,000,000
Purchases 74,240,000
Closing stock (4,800,000) (76,440,000)
Gross profit 39,560,000
Other incomes:
Gains on disposal of fixed assets 80,000
Dividend (gross) 50,000
Foreign exchange gain 760,000
Miscellaneous income (taxable) 1,240,000
41,690,000
Expenditure:
Redundancy payments 640,000
Insurance 24,600
Legal and professional debts 100,000
Staff medical expenses 36,000
Donations 1,340,000
General provisions for bad debts 360,000
Sundry expenses 645,000
Depreciations 148,200
Salaries and wages 1,560,000
Pension and contributions 840,000
Tools and implements 456,000
Rent and rates 143,600
Advertising expense 320,000 6,614,500
Net profit 35,075,500
Additional information:
1) Sales and purchases are quoted inclusive of VAT at the rate of 16%.
2) Donations includes sh. 1,200,000 made to a political party. The balance was made to an
organization involved in poverty reduction campaigns
3) Miscellaneous income represents recoveries of bad debts previously allowed as deduction against
taxable profits.
4) Tools and implement includes computer software purchased at cost of sh. 60,000
5) Advertising expense includes the cost of a billboard amounting to sh. 40,000
6) The dividend income was received from an associate company.
7) Legal and professional fees includes sh. 36,000 incurred in successfully defending the company
against allegations of breach of contract.
8) Ignore capital allowances
Required:
a) Adjusted taxable profit or loss of Bora Limited for the year (16 Marks)
b) Tax liability (if any) arising from the profit or loss computed above. (4 Marks)
Question Four
a) In the context of the VAT Act (Cap.476), explain the meaning of the following terms:
i) Time of supply (2 Marks)
ii) Value of supply. (2 Marks)
iii) Inventory claim (2 Marks)
b) The management of Mercantile Ltd. a registered supplier of vatable goods presented the
following information relating to the company’s transactions for the six months to 30 June
2010.
Month Purchases Sales
Ksh ksh
January 1,740,000 2,552,000
February 2,088,000 3,132,000
March 1,972,000 2,320,000
April 1,740,000 1,044,000
May 464,000 696,000
June 2,320,000 3,016,000
The amounts stated above were inclusive of VAT at a rate of 16%
Additional information:
1) All purchases were made on cash basis while all sales were on credit basis. The cash due on credit
sales was received in the month following the month of sale.
2) Included in the sales for the month of May was ksh 200,000 for which the debtor defaulted
and was subsequently declared bankrupt on 30 June 2010.
Required:
Determine the VAT payable or refundable for each of the six months from January to
June 2010 (9 Marks)
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