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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:2009

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UNIVERSITY EXAMINATIONS: 2008/2009
FIRST YEAR STAGE 1 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 100: INTRODUCTION TO TAXATION
DATE: APRIL 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer question ALL questions
QUESTION ONE
Martha, Ruto and Kalembe run a private school as partners sharing profit and losses in the ratio 3:2:1.
During the year ended 31st December 2008 the trading results showed a loss of Ksh 2, 160, 000 after
charging/crediting:
Depreciation 780,000
Legal, insurance and audit expenses 150,000
Rent, rates and taxes 90,000
Sub-letting rent received 36,000
Net dividend received 102,000
Bad debts 120,000
Donations 90,000
Salaries and wages 324,000
Subscriptions 54,000
Telephone and postage 60,000
Electricity and water 48,000
Goodwill written off 108,000
Salary to :Martha 288,000
Ruto 216,000
Kalembe 144,000
Stationery and office expenses 108,000
Repairs and renewals 36,000
Interest on capital: Martha 144,000
Ruto 96,000
Kalembe 48,000
School bus running expenses 132,000
Loss on sale of investment 270,000
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Additional notes
(i) Legal, insurance and audit expenses are analyzed as follows;
Partnership deed 12,000
Recovery of trade debt 18,000
Insurance 78,000
Audit fees 42,000
(ii) Sub-letting rent was for part of the premises let to the shopkeeper who runs the school
canteen.
(iii) Donations were made during a harambee to raise funds for a local dispensary.
(iv) Bad debts are analyzed as follows;
(v) As at 1st January 2008, the following were the Written Down Values (WDV);
Class I 270,000
Class II 336,000
(vi) All the partners are married
Required:
Calculate taxable income (Loss) for each partner as at 31st December 2008
(25 Marks)
QUESTION TWO
You have been approached by Mr. Kenneth Kamau, seeking your assistance in the computation of his
tax liability for the year ended 31 December 2008. He has provided you with the following
information:
Mr. Kamau works for Chip. Com Ltd as the technical director. During the year ended 31 December
2008 he received the following emoluments.
1. A salary of Shs 600,000 per month.
2. Dividends amounting to Shs 360,000 (gross). He holds 30% of the shares in the company.
Bad debts 36,000 Brought forward: specific 60,000
Carried forward; specific 138,000 General 180,000
General 186,000 Profit & Loss Account 120,000
360,000 360,000
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3. He is housed by the company in a house whose market rental value is Shs 180,000 per month.
The employer has rented the house from an estate agent.
4. He receives director’s fees amounting to Shs 90,000 per month.
5. He has free use of a company vehicle since at times he works late. The vehicle with an engine
capacity of 2200cc has cost Shs 3,600,000 in the year 2008
6. On 1 January 2006 Mr. Kamau obtained a loan of Shs 10,000,000 from the company at an
interest rate of 5% per annum repayable in 10years.
7. Mrs. Kamau is a nurse and is employed by Chip. Com Ltd at a salary of Shs 85,000 per month
(PAYE deducted per month is Shs 20,000)
Mrs. Kamau also owns rental premises in Nakuru. The following were the details of income
and expenses for the year on income 2008.
Shs
Gross rent 1,120,000
Less: Caretaker’s salary (300,000)
Painting (20,000)
Repairs (60,000)
Interest on mortgage (240,000)
Renovations after which rent was increased (400,000)
Net Income 100,000
8. Mrs. Kamau is a member of a registered Individual Retirement Benefits Scheme managed by
Insurance Company of Africa. She contributes Shs 20,000 every month towards the scheme.
Required:
a) Compute the taxable income for Mr. Kamau for the year ended 31 December 2006.
(17 Marks)
b) Determine tax payable from this income (5 Marks)
c) Comment on any information not used in the computation of the taxable income above.
(3 Marks)
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QUESTION THREE
The following information relates to the transactions of communication solutions Ltd for the
month of September 2008, the company is registered for VAT.
2 September Purchased goods worth Shs 2,400,000 from Japan. Customs duty was paid at 5%
2 September Sold goods to Mobile Connections Ltd, for Shs 960,000 on credit
Goods worth Shs 60,000 were found to be defective and were returned.
5 September Purchased office furniture for Shs 640,000. One desk worth Shs 80,000 was defective
and was returned to the seller.
9 September Purchased goods worth Shs 4,500,000 on credit from a manufacturing company. Goods
worth Shs 500,000 were damaged in transit and were thus not saleable. It cost the
company Shs 240,000 to transport the goods.
10 September sold goods for cash worth Shs 960,000
12 September Exported goods worth Shs 2,400,000
16 September Imported goods worth Shs 1,500,000 form India, Customs duty was paid at 5%
20 September Sold goods worth Shs 218,000 to XYZ Ltd.
25 September Exported goods worth Shs 2,600,000 to Kimbo Ltd.
30 September Paid the following expenses for the month of September
- Salaries and wages - Shs 1,400,000
- Electricity - Shs 48,000
- Telephone - Shs 36,000
- Water -Shs 10,000
Note: where applicable, prices are quoted inclusive of VAT
Required:
The VAT payable (refundable) for the month of September 2006 (25 Marks)
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QUESTION FOUR
a) Name and briefly explain four major principles of good tax system. (8 Marks)
b) Viatu Ltd commenced operations on 2nd January 2007 as a manufacturer of leather shoes, the
company acquired the following assets;
Asset Cost (Shs)
Land 2,000,000
Construction of factory building 5,800,000
Processing machinery 1,940,000
2 Lorries (4 tonnes each) 2,400,000
Computers 600,000
Motor vehicle (station wagon) 1,750,000
Conveyor belts 120,000
Loose tools 30,000
Tractor 900,000
Additional information
a) The cost of land includes Shs 80,000 paid for a building on site as at 2 January 2007.
The building was constructed by the seller on 1 January 2005 at a cost of Shs 960,000.
Viatu Ltd converted this building into a warehouse with effect from 2 January 2007.
b) The cost of constructing the factory building includes Shs 600,000 spent on the
construction of administration offices.
c) The following assets were purchased and utilised by the company with effect from 1
July 2007:
Assets Cost
Fax machines 90,000
Trailer for the tractor 200,000
Pickup van 1,200,000
d) On 1 July, 2007, the company constructed a factory extension at a cost of Shs
2,000,000. Processing machinery costing Shs 640,000 was purchased and installed in
the factory extension on the same date.
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e) The motor vehicle purchased on 2nd January 2007 was involved in an accident on 1
September 2007. The company received Shs 600,000 as insurance compensation for
the vehicle.
f) the following costs incurred on 1 September 2007:
Shs
Sinking of a borehole 600,000
Construction of a parking bay 560,000
Construction of a sewerage system 700,000
Required:
Compute the capital allowances due to Viatu Ltd. for the two year ended 31 December
2007 (17 Marks)

Cfm 100: Introduction To Taxation Question Paper

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