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Cfm 300A: Advanced Taxation (Evening) Question Paper

Cfm 300A: Advanced Taxation (Evening)

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2009

1
UNIVERSITY EXAMINATIONS: 2008/2009
THIRD YEAR STAGE 1 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 300A: ADVANCED TAXATION (Evening)
DATE: APRIL 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL questions
QUESTION ONE
a) A bond is commitment to honour certain terms and conditions and to fulfill obligations relating to
an agreement. The failure to honour the commitment leads to consequences, which include
forfeiting of an asset that may have been out as a security. Explain four types of bonded security
under Customs and Excise Act (5 Marks)
b) The profit and loss account of Bonga Ltd. a manufacturing company, for the year ended 31
December 2007 realized a loss of Shs 1,014,400 as shown below:
Income Shs Shs
Rent received 1,120,000
Gain on sale of shares in Uji Lt 828,800
Insurance recovery (flood damage to stock) 728,000
Discount received 358,400
Investment Income 470,400
Trading income 600,000 4,105,600
Expenditure:
Depreciation 1,064,000
Royalties 448,000
2
Loss on sale of lorry 672,000
Bad debts 560,000
Legal fees 560,000
Entertainment expenses 291,200
General expenses 448,000
Repairs and renewals 716,800
Audit fees and consultancy 360,000 5,120,000
Net loss (1,014,400)
Notes:
A breakdown of some of items shown on the profit and loss account is as follows:
Shs
1. Investment Income:
Interest on treasury bills (Net) 96,000
Dividends from a wholly owned subsidiary 36,400
Interest on fixed deposit – CFC Bank (net) 102,000
Interest from Standard Bank (Net) 136,000
Dividend from a foreign Company (Net) 100,000
470,400
2. Bad debts: Shs
Amounts written off 224,000
Increase in specific provisions 168,000
Reduction in general provisions (134,400)
Amount embezzled by cashier 302,400
560,000
3 Legal fees:
Employees’ service contract 120,000
Recovery of loan to a former employee 100,000
Acquisition of a 100 year lease for
business premises 220,000
Cost of representing a company driver charged
with careless driving 120,000
560,000
3
4. Entertainment expenses Shs
Staff Christmas party 60,000
Company’s Silver Jubilee Celebrations 180,000
Director’s Christmas Party 51,200
291,200
5. General expenses Shs
Fees for employees attending courses 300,000
Parking fines on company cars 40,000
Penalty for late VAT returns 60,000
Subscriptions to Kenya Association of
Manufacturers 48,000
448,000
6. Included in the figures for repairs and renewals is an amount of Shs 580,000 incurred in installing
new windows in a recently acquired second- hand warehouse. At the time of the purchase of a
warehouse the windows were in complete disrepair. Other repairs were of a routine nature.
7. Audit fees and consultancy: Shs
Audit fees 200,000
Tax appeal against assessment 60,000
Consultancy paid in relation to a discontinued
Product. 100,000
360,000
8. Capital allowances for the year 2007 were agreed at Shs 801,920 with the Kenya Revenue
Authority (KRA)
Required:
a) The adjusted profit (loss) chargeable to tax for the year 2007. (17 Marks)
b) Compute the tax payable (3 Marks)
(Total: 25 Marks)
QUESTION TWO
a) List six circumstances under which duty paid on imported goods may be refunded. (6 Marks)
b) Nyeri Teachers SACCO ltd. Reported the following incomes and expenditure for the year ended
31st December 2007.
4
Income KSH
Interest of loan to members 1,500,000
Interest on savings accounts 30,000
Interest on fixed deposit accounts 100,000
Other investment income 12,000
Rental income 600,000
Total income 2,242,000
Expenditure
Administration expenses 300,000
Surplus 1,942,000
Required
The taxable profit of Nyeri Teachers SACCO ltd for the year ended 31st December 2007. (7 Marks)
c) With reference to section 39 of the Income Tax Act and section 117 of the Customs and Excise
Act, list the conditions under which import duty can be set off against income tax. (6 Marks)
d) Explain the circumstances under which a company may be entitled to more than 60% statutory
retention. (6 Marks)
(Total: 25 Marks)
QUESTION THREE
a) Having read in the press about sugar importation under COMESA regulations, Mr. Pesa Mbovu, a
prominent business man contacted you for more advice.
Required
A report addressing clearly the following matters raised by Mr. Pesa Mbovu
a) Tax objectives under the COMESA treaty (5 Marks)
b) Rules of origin provisions under the COMESA treaty (5 Marks)
c) Enumerate the incentives given by the government to encourage the growth of capital
Markets. (5 Marks)
d) Describe the tax incentives given to investors under EPZ (5 Marks)
(Total: 25 Marks)
5
QUESTION FOUR
a) The following information relates to the transactions of communication solutions Ltd for the
month of September 2006, 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 (15 Marks)
b) The minister for finance can issue an amnesty to tax defaulters in Kenya.
Required:
(i) Define the term ‘tax amnesty’ (2 Marks)
(ii) Explain two advantages of a tax amnesty from the viewpoints of:
1. The Kenya Revenue Authority (4 Marks)
2. The tax payer. (4 Marks)
(Total: 25 Marks)

Cfm 300A: Advanced Taxation (Evening) Question Paper

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