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Cfm 100: Introductions To Taxation Question Paper
Cfm 100: Introductions To Taxation
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
1
UNIVERSITY EXAMINATIONS: 2009/2010
FIRST YEAR STAGE2EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 100: INTRODUCTIONS TO TAXATION (SATURDAY CLASS)
DATE: DECEMBER 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL Questions
QUESTION ONE
a)
i) Distinguish between tax avoidance and tax evasion. (5 Marks)
ii) Identify four factors that have contributed to tax evasion in your country. (5 Marks)
iii) Outline four measures that can be put in place to minimize the instances of tax
evasion in your country. (5 Marks)
b) List four types of income which are subject to withholding tax when received by the
following
i) Resident persons (5 Marks)
ii) Non- resident persons (5 Marks)
QUESTION TWO
a) Distinguish between ‘agricultural employees’ and ‘other employees’ with specific reference to
the taxation of the housing benefits. (5 Marks)
2
b) Mr. T. Arasa is employed a sales manager in Mega Ltd. The following details relate to his
employment for the years ended 31 December 2008.
1. Basic salary Shs 60,000 per month (PAYE Shs 9,000).
2. He received the following benefits from the employer;
?? A fully furnished house (cost of furniture Shs 300,000)
?? Free lunch valued 3,600 per month
?? A company car (1500cc) whose purchase cost to the employer was Shs 800,000.
Twenty five per cent the car usage was estimated to be for private purposes.
?? His tuition fees at a local college amounting to Shs 65,000 per annum were paid by
the employer. A gardener and a watchman who were paid Shs 4,000 per month by
the employer.
?? A monthly entertainment allowance of Shs 10,000.
?? An annual leave allowance calculated at 5% of his annual basic pay.
3. He contributes Shs 20,000 per month to a registered provident fund
4. He operates a shop which is registered in their joint names. She reported a profit of Shs
120,000 for the year ended 31 December 2008 after deducting her annual salary of Shs
60,000 and rent expenses of Shs 80,000 for the year.
Required:
i) Determine the taxable income of Mr. T. Arasa for the year ended 31 December 2008.
(18 Marks)
ii) Compute the tax payable from the income computed in (i) above
(2 Marks)
QUESTION THREE
a) Explain four problems associated with the administration of VAT in your country.
(8 Marks)
b) Ben Kimani imported vatable goods from Japan at an invoice price of sh. 3,000,000(net of
VAT).The goods were subjected to VAT at a rate of 16% and import duty at a rate of 30% on
their entry into Kenya. Ben Kamau later sold the goods at a profit margin of 20%.
Required;
Calculate the total VAT payable by Ben Kamau on this transaction. (8 Marks)
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c) The management of KK Ltd, a registered supplier of vatable goods presented the following
information relating in the company’s transaction in the month of October 2009.
Sh.
Sales at standard rate 36,000,000
Sales at zero rate 14,000,000
Export Sales 4,000,000
Exempt Sales 6,000,000
Purchase at standard 30,000,000
Purchases at zero rate 12,000,000
Salaries and wages 6,000,000
Purchases of electronic cash register
for VATpurposes
120,000
The amounts stated above are exclusive of VAT which is at a standard rate of 16%
Required;
Determine the VAT payable by the company for the month of October 2009.
(9 Marks)
QUESTION FOUR
J.T Ltd., are manufacturers of belts, hats and shoes. The company has given the following information
to be used in the self assessment return for the year of income 2008.
Shs. Shs.
Stock (opening balance) 1,500,000 Gross sales 30,000,000
Purchases 12,000,000 Stock (closing) 1,900,000
Salaries and wages 6,500,000 Profit on exchange 120,000
Electricity and water 654,000 Profit on sale of shares 77,000
Insurance 346,000 Dividends 100,000
Rent, rates and taxes 1,230,000 Interest 150,000
Vehicle running expenses 3,670,000
Traveling expenses 429,500 Net loss for the year 2,128,500
NSSF 190,500
4
Bank charges and interest 139,000
Donations 41,00
Sales returns 4,000,000
Postage and telephone 126,000
Bad debts 354,000
Depreciation 916,000
General expenses 1,300,000
Repairs and renewals 980,000
Legal expenses 99,500 _________
34,475,500 34,475,500
Net loss brought down 2,128,500 Profit brought forward 9,000,000
Directors fees 6,000,000 Net loss carried forward 2,628,500
Proposed dividends 3,500,000 _________
11,628,500 11,628,500
The following information is further obtained from the company:
1. Legal expenses were analyzed as follows:
shs.
Renewal of factory lease for 10 years 12,500
Notices to defaulting debtors 37,000
Letters of authentication for overdraft 25,000
Purchase of director’s private house 25,000
99,500
2. Bad debts analysis:
Bad debts account
Balances brought forward
Bad debts 154,000 Specific provisions 4,000,000
General provisions 1,000,000
Balances carried forward: Profit and loss account 354,000
Specific provisions 4,500,000
General provisions 700,000 ________
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5,354,000 5,354,000
3. The profit on exchange was from an amount payable on 1 February 2010 to a foreign creditor
of 10,000 US dollars.
4. Rent rates and taxes include shs.421,000 paid to Kenya Revenue Authority as installment tax
for the year 2008.
5. The interest of shs.150,000 was earned from deposits held in a Swiss account.
6. Donations analysis:
shs.
Annual fees paid to association of leather goods manufacturers 12,000
National Chamber of Commerce and Industry 9,000
Barnardo’s Home 20,000
41,000
7. Capital allowances were agreed at shs.320,000.
Required
a) Taxable income of J.T Ltd. for the year ended 31 December 2008
b) Indicate when the installment tax is payable. (25 Marks)
6
RATES OF TAX (including wife’s employment, self employment and professional income rates of
tax)
YEAR OF INCOME 2006
Monthly taxable pay Annual taxable pay Rates of tax
Shillings Shillings % in each Shillings
1 - 10164 1 - 121968 10
10165 - 19740 121969 - 236880 15
19741 - 29316 236881 - 351792 20
29317 - 38892 351793 - 466704 25
Over 38892 over 466704 30
Personal relief Sh1 162 per month (Sh13 944 per annum)
Prescribed value of motor vehicles provided by employer
Annual rates Shs.
Wear and Tear allowances
Class I 37.5% up to - 1200cc 43,200
Class II 30% 1201 - 1500cc 50,400
Class III 25% 1501 - 1750cc 69,600
Class IV 12.5% 1751 - 2000cc 86,400
2001 - 3000cc 103,200
Over 3000cc 172,800
Or 2% of the value of the vehicle whichever is the higher
Services monthly annually
Water 500 6,000
Telephone (percentage rate of bills) 30% of the bills
Electricity 1,500 18,000
Provision of furniture (% purchase price) 1% 12%
Low interest rate (Difference between interest charged by employer and prescribed rate of interest.)
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.
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