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Cfm 300: Advanced Taxation Question Paper
Cfm 300: Advanced Taxation
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
1
UNIVERSITY EXAMINATIONS: 2009/2010
THIRD YEAR STAGE1EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 300: ADVANCED TAXATION (SATURDAY CLASS)
DATE: DECEMBER 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL Questions
QUESTION ONE
a) i) Define a resident individual and a resident company, for tax purposes in Kenya
ii) What is VAT? And what are the conditions to be met for one to qualify to be a taxable
person for VAT registration purposes?
ii) Freddo came to Kenya on the following days in 2008:
Jan 9 – Feb 9
Apr 19 – Jul 27
Sep 4 – Sep 30
Nov 1 – Nov 23
Show whether he is liable to tax (10 Marks)
b) Mr. Kiarie runs a dressmaking business at Mweiga in Nyeri. He presents the following
receipts and payments.
Receipts Ksh. Ksh.
Gross profits 265,500
Discounts 35,500
Insurances recovery 17,000
Profit on sale of machinery 6,650
Provision for bad debts 3,550
2
328,200
Payments
Staff wages 85,000
Workshop and office expenses 44,550
Traveling expenses 25,600
Commissions 18,000
Rent, rates and insurance 9,250
Discounts 15,600
Bad debts 3,650
Repairs 8,560
Depreciation 12,600
Credit fees 4,150
Subscriptions 2,500
Interest on overdraft 2,200
Bank charges 1,200
Legal charges 9,500
`Loss on sale of pickup 3550 245,910
82,290
Notes
1. Mr. Kiarie estimate that 20% of rent, rates and insurance is for domestic use.
2. Legal charges Ksh.
i. Copyright for designs 2,500
ii. Debt collection 2,400
iii. Fine for wrong doings 1,400
iv. Employment contracts 3,200
9,500
3. Travelling expenses-25% of total is on right attraction when on business
assignments.
4. Repairs include extension of workshop and canteen costing Ksh. 4,000.
5. Workshop and office expenses
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i. Telephone: Ksh. 6,000 which one third is private.
ii. Electricity: Ksh. 12,000 which 20% is private
iii. Contra business to sports club for use by his employees, Ksh. 5,000.
iv. Donation to Billy Graham’s crusade, Ksh. 2,000
v. Loss on canteen, Ksh. 7,500
vi. Other allowable expenses, Ksh. 12,050
6. Insurance recovery was in respect of fire damages in n1985.
7. Bad debts provision is a reduction general provision.
8. Staff wages include Mr. Kiarie’s own salary of Ksh. 2,000 per month.
Required:
Prepare an adjusted profit and loss statement for the tax purposes for the year and calculate the
business tax amount (10 Marks)
QUESTION TWO
Mrs. S. Nkuraru is the owner of a super Market in Nairobi East. Her accounts clerk has submitted the
following trading, profit and loss account for the year ended 31 December 2003.
Ksh Ksh
Opening stock 8,640,000 Closing stock 1,004,000
Purchases 96,000,000 Sales 110,000,000
Salaries and wages 1,500,000 Proceeds from sale of
land allocated to her by
the government
500,000
Donations to Kenya 100,000 Gain on sale of shares 200,000
Chambers of commerce
Redundancy payment
600,000 Gain on sale of
residential plot
400,000
Contribution to pension
fund
100,000 General bad debt
recovery
36,000
Rent, rate and taxes 110,400
Insurance 14,880 Dividend(net) 43,200
Legal and professional 109,200
4
fees
Depreciation 363,840
Advertising 166,800
V.A.T 247,200
Custom duty 1998 700,000
Income tax for 1997 312,000
Medical expenses for
Mrs. Nkuraru
28,800
Interest on bank
overdraft
49,920
Purchase of equipment 25,200
Charismas gift to
customers
20,160
General bad debt 55,200
Household expenses 100,800
Stationery and postage 33,120
Net profit 2,905,680
112,183,200 112,183,200
The following additional information is provided:
1. Rent, rate and taxes include Sh. 20,400 being customs duty for the purchase of equipment.
2. Sales include a sum of Sh. 120,000 representing the value of goods withdrawn for use by Mrs.
Nkuraru and her children. These goods had been purchased at a cost of Sh. 96,000.
3. Opening stock as well as closing stock is consistently overvalued by 20% above the cost price.
4. The legal and professional fees are analyzed below:-
Ksh.
Appeal to local committee against tax assessment 24,000
Renewal for 5year lease 25,200
Defending a suit for breach of trade agreement 36,000
Court fines 20,400
Miscellaneous (allowable) 3,600
109,200
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5. wear and tear allowances were agreed at Sh. 259,200
6. included in advertising expenses is a signboard erected at the road junction leading to the
superMarket at a cost of Sh. 24,000
Required:
a) Mrs. S. Nkuraru’s chargeable profit for the year of income 2005.
b) The tax payable on chargeable profit and state when it is payable.
c) State the tax position if the tax payable is not paid on the due date. (20 Marks)
QUESTION THREE
The following profit and loss account and other information relates to Lake Restaurant Ltd. The
company has a share capital of Sh. 100,000 wholly owned by Mr. and Mrs. Lake in the ratio 3:2
Profit and loss account for the year ended 31 December 2008.
Ksh. Ksh.
Gross profit 14,913
Discount received 375
Deposit interest 195
Interest on surrender of tax
Reserve certificate
49
15,532
Expenditure:
Salaries and wages 4,000
Rent and rates 1,510
Electricity and water 100
Insurance 160
Repairs and replacements 436
Advertising 100
Bad and doubtful debt 150
Bank charges and interest 35
Laundry 217
Hire-purchase interest 45
Legal and professional charges 200
Miscellaneous Expenses 300
Depreciation 1,225
Corporation tax paid 84
Dividend paid to shareholders 300
Reserves for contingencies 290 9,152
Retained profit 6,380
Additional information:
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i. The directors live in a flat above the premises and it has been agreed that one-half of the rent
and rates and water and electricity be charged to them.
ii. Insurance expenses relates to the premises (householders policy)
iii. Repairs and replacement include:
a) Replacement of crockery 50
b) Redecorating the restaurant 75
c) Replacement of chairs 120
d) Improvement of the kitchen 191
436
iv. advertisement includes payment made to a local newspaper Sh. 25 and purchase of a neon-sign
Sh. 75
v. bad and doubtful debts provision account in the ledger was as follows:
Ksh.
Bad Debt written off 500
Loan to directors Son written off 300
Specific Provision c/f 1600
Balance b/f (specific provision) 2,000
Debt recovered (previously allowed) 250
Profit and loss account 150
2,400
vi. Legal and Professional charges include:
Sh.
a) Accounting and Audit fee 100
b) Legal cost for acquiring the lease 50
c) Parking meter fines 10
d) Debt collection fee 10
e) Staff contract and work permit 30
200
vii. Miscellaneous expenses include:
Ksh.
a) Donation to Lake Harambee clinic 20
b) Donation to flying doctors service 25
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c) Hire of motor-cars 150
d) Cost of entertaining a group of tourists 85
e) Christmas party for staff 20
300
viii. The fixed assets schedule of the company was as follows:
Furniture, fittings and
equipment
Motor vehicle Total
Sh. Sh. Sh.
Written down value 1,200 - 1,200
Additions 3,600 2,500* 6,100
4,800 2,500 7,300
Depreciation 600 625 1,225
4,200 1,875 6,075
*motor vehicle was bought on 15th November 2005.
The written value of class III expenditure as at 31.12.2007 was Sh. 1,000
Required:
I. Prepare a computation of adjusted profit for corporation tax purposes.
II. Calculate “Shortfall Distribution” based on guidelines issued by the Commissioner of income
tax.
(15 Marks)
QUESTION FOUR
Mr. Amoki is practicing dental surgeon. From the following information calculate his taxable income
for 2008.
Ksh
a)Profession:
Profession fees (Gross) 100,000
Subscriptions
Young Farmers magazine 2,000
Dentists’ magazine 200
Donations to Starehe Boys’ Centre 1,000
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Debts collection fees 600
Wages of a dental assistant 12,000
Replacement of surgical equipment 4,000
Rent of surgery 14,000
Electricity and rates 4,000
Car hire for use at work 5,000
Other surgery expenses 7,000
Overalls 500
Son’s school fees 4,000
Contribution to provident fund 6,000
Life insurance premium 2,000
Pension to retired receptionist 5,000
Depreciation of surgery furniture 1,200
b) Rental property:
Rent 14,000
Debt collection fee 200
Furniture brought on January 1st, 1988 6,400
Wages: Gardener and Watchman 5,000
Tarmacking the drive 8,000
Additional servant’s quarters 14,000
c) Other Incomes
Dividends from Caltex (net) 3,400
Interest from Wakulima Ltd.(net) 240
Notes:
1. Mr. Amoki’s fees were subject to P.A.Y.E. sum of Ksh. 300. He received a net income of
Ksh. 12,000.
2. Mrs. Amoki’s employment income was Ksh. 15,500 after Ksh. 8,500 was deducted as
PAYE. She also received 12 tins of beans valued at Ksh. 2,000 a tin. Her dividends from an
investment in the United Kingdom were equivalent to Ksh. 1,740. Interest from her savings
of Ksh. 400.
3. The couple had a mortgage interest of Ksh. 10,000 paid on owner-occupier house annually
on a Ksh. 250,000 loan. They lived in Mweiga and operated a clinic jointly. (15 Marks)
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