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Cfm 100 Introduction To Taxation Question Paper

Cfm 100 Introduction To Taxation

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2012

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UNIVERSITY EXAMINATIONS: 2011/2012
YEAR 1 EXAMINATION FOR THE BACHELOR OF COMMERCE
CFM 100 INTRODUCTION TO TAXATION (DAY)
DATE: APRIL 2012 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL Questions
QUESTION ONE
Assume you are a tax manager with Waswa and Associates, a firm of Certified Public Accountants.
One of your clients, Jaribia Enterprises is a newly registered business firm.
In order to comply with the provisions of VAT Act (Cap. 476), the management of Jaribia
Enterprises has requested for advise from your firm on VAT administration.
Required:
Advise the management of Jaribia Enterprises on the following issues
a. The requirements for a business firm to register for VAT (2 Marks)
b. The records that should be maintained by a business firm for VAT purposes
(5 Marks)
c. After registering for VAT Jaribia Enterprises imported goods worth 6,000,000
and paid import duty at 25%. The company incurred an additional 5% as transport
costs for the goods to its factory in Nairobi. The goods were processed at a cost
of 20% of the total costs incurred in delivering the goods to the factory. The
company charges a profit mark up of 30%
Required:
Compute the amount of VAT payable using the VAT rate of 16% (inclusive) (8 Marks)
(Total: 15 Marks)
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QUESTION TWO
Mr Mwangangi was employed as a Business Development Manager of Ozone ltd. His employment
benefits for the year 2011 were as follows:
1) Salary Sh 150,000 pm (PAYE 30,000)
2) He was entitled to a commission of 20% on all sales above Sh 2,500,000. The sales for January,
February, March, April and May were Sh 2,000,000, Sh 3,500,000, Sh 3,000,000, Sh 2,500,000
and Sh 1,000,000 respectively. For the rest of the year the sales of the company averaged Sh
500,000 per month.
3) He was provided with a fully furnished house by the employer. The cost of the furniture was Sh
2,500,000.
4) A fuel allowance of Sh 10 per kilometer. During the year he covered 10,000 kilometers with his
vehicle.
5) Free mobile phone airtime worth Sh 5,000 per month.
6) An annual allowance of Sh 120,000 for the purchase of office attire in line with his new status as
a Business Development Manger
7) Monthly entertainment allowance of Sh 12,000
8) His other income included:
Gross rent 1,960,000
Less: structural alterations 600,000
Land rent and rates 48,000
Loan interest 200,000
Valuation of rental building 140,000
Commission to estate agents 28,000
Furniture & fittings for tenants 100,000
Painting before letting 96,000
Legal fees 24,000 (1,236,000)
Net rental income 724,000
Required:
Determine the total taxable income and the tax payable by Mr Mwangangi for the year
2011 (20 Marks)
(Total: 20 Marks)
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QUESTION THREE
The management of Mazuri ltd has presented the following trading and profit and loss account for the
year ended 31st December 2011:
Ksh “000” Ksh “000”
Sales 18,500
Less cost of sales
Opening stock 4,200
Purchases 5,600
Cost of goods available for sale 9,800
Closing stock (2,400) (7,400)
Gross profit 11,000
Other income:
Gain on sale of equipment 120
Interest on savings account 40
Refund of import duty 80
Gain on foreign exchange translations 100
11,440
Expenditure:
Goodwill amortization 25
Legal expenses 420
Salaries 2,000
Bad debts 500
NSSF contributions 60
General expenses 600
Advertising 300
Staff meals 190
Traveling expenses 180
Donations to trade association 40
Property rates 45
Depreciation 150
Interest on long term loan 300
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Interest on bank overdraft 80
Insurance 124
Cost of stolen stock 20
Branch closure costs 100 (5,134)
Net profit 6,306
Additional information:
1. Legal expenses related to:
Preparation of the memorandum of association 150,000
Conveyance fees on purchase of land 60,000
Acquisition of leasehold property 90,000
Settling customer disputes 100,000
Acquisition of a bank loan 20,000
420,000
2. The directors had withdrawn goods costing Sh 600,000 (selling price Sh 720,000) for their
personal use.
3. Salaries expenses include:
Directors fees 720,000
Christmas party for staff 600,000
Christmas party for directors 400,000
4. Bad debts include:
Loan to a director 200,000
Estimated defaults by trade debtors 120,000
5. Advertising expense includes Sh 100,000 for a neon sign.
6. Twenty percent of the traveling expenses relate to the private usage of company motor vehicle.
7. Capital allowances were agreed with the revenue authority at Sh 200,000
Required:
Compute the adjusted taxable profit and the tax payable from this profit (if any) for the year ended 31st
December 2011 (20 Marks)
(Total: 20 Marks)
QUESTION FOUR
(a.) You are a tax consultant with Githae Githui & Associates, a firm of Certified Public
Accountants. One of your clients Murimi Mbote who is based in Kilgoris has
received an additional assessment from the commissioner for Domestic Taxes for the
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year ended 31st December 2010. The commissioner based the additional assessment
on the non inclusion of some incomes in Murimi Mbote tax returns.
Murimi has informed you that his objection to the additional assessment was rejected
by the commissioner Domestic Tax Department and he now intends to raise an appeal
with the local committee.
Required:
i. Explain to Mr. Murimi the procedure for appeal and the
requirement of a valid appeal to the local committee
(5 Marks)
ii. Briefly explain to Mr. Murimi the other alternatives of seeking
redress should appeal to the local committee fail.
(5 Marks)
(b.) With appropriate examples distinguish between forward and backward shifting
(5 Marks)
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RATES OF TAX
Monthly taxable pay Annual taxable pay Rates of tax
(Shillings) (Shillings) % in each shilling
1 - 10164 1 -121968 10%
10165 - 19740 121969 - 236880 15%
19741 - 29316 236881 - 351792 20%
29317 - 38892 351793 - 466704 25%
Excess over 38892 Excess over -466704 30%
Personal relief Ksh.1.162 per month (Ksh.13,944 per annum)
Prescribed benefit rates of motor vehicles provided by employer
Monthly Annual
Rates rates
(Ksh) (Ksh)
Capital allowances:
Wear and tear allowances:
Class I 37.5%
Class II 30% (i) Saloons, Hatch Backs
Class III 25% and Estates
Class IV 12.5%
Industrial building allowances: Up to 1200 cc 3,600 43,200
Industrial buildings 2.5% 1201- 1500 cc 4,200 50,400
Hotels 10 % 1501- 1750 cc 5,800 69,600
Farm work allowances 50 % 1751- 2000 cc 7,200 86,400
Investment deduction allowances: 2001- 3000 cc 8,600 103,200
2003 - 70% Over 3000 cc 14,400 172,800
2004 - 100%
2010 - 100% (ii) Pick-ups, Panel Vans (Unconverted)
Shipping investment deduction 40%
Mining allowance: Up to 1750 cc 3,600 43,200
Year 1 - 40% Over 1750 cc 4,200 50,400
Year 2-7 - 10% (iii) Land Rovers/ Cruisers 7,200 86,400
OR 2% of the initial capital cost of the vehicle for each month.
Commissioner’s prescribed benefit rates
Monthly rates Annual rates
Services Ksh. Ksh.
(i) Electricity (common or from generator) 1,500 18,000
(ii) Water (Communal or from a borehole) 500 6,000
(iii) Provision of furniture (1% of cost to employer)
If hired, the cost of hire should be brought to charge
(iv) Telephone (Landline and mobile phones) 30% of bills
Agriculture employees: reduced rates of benefits
(i) Water 200 2,400
(ii) Electricity 900 10,800
Other benefits:
Other benefits for example, servants, security, staff meals etc are taxable at the higher of fair market value and
actual cost to employer.

Cfm 100 Introduction To Taxation Question Paper

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