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Cfm 300 Advanced Taxation (Saturday) Question Paper
Cfm 300 Advanced Taxation (Saturday)
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
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UNIVERSITY EXAMINATIONS: 2010/2011
THIRD YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CFM 300 ADVANCED TAXATION (SATURDAY)
DATE: DECEMBER2011 TIME: 2 HOURS
INSTRUCTIONS: Answer All The Questions
RATES OF TAX (Including wife’s employment, self employment and professional income rates
of tax). Year of income 2010
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
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Investment deduction allowances: 2001- 3000 cc 8,600
103,200
2003 - 70% Over 3000 cc 14,400
172,800
2004 - 100%
2005 - 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/ Cruisers7,200 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.
Question One
Mr. Valdes Batistuta is married to Juliette Batistuta. Mr. Batistuta is a registered engineer and he is
the proprietor of Damex Engineering Services, a firm of consulting engineers. He secured a
fulltime job with H Young ltd effective from January 2012. His business is therefore managed by
his wife, who draws a salary of ksh 75,000 per month as salary, (PAYE of ksh 20,000 included).
H Young ltd has offered the following emoluments to Mr. Batistuta for the year ended 31st
December, 2012:
1. Salary of ksh 185,000 per month (this would be after deducting PAYE of – ksh 65,000 per
month).
2. Free housing would be provided with water and electricity. He would pay a nominal rent of
ksh 10,000 per month. Water to be consumed would be for ksh 13,500 and electricity to be
consumed would be ksh 25,000 during year. Alternatively the company could give him a
ksh 60,000 housing allowance and pay for his water and electricity bills.
3. The company would provide him with free meals worth ksh 22,000 during the year.
Alternatively the company could give him lunch allowance amounting to ksh 3,000
monthly.
4. He would be a member of the company’s pension scheme where he would contribute 5% of
his basic salary and the employer would contribute an equal amount for him.
5. H Young ltd would pay for him the following insurance premium during the year 2012:
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Insurance company Type Annual
Premium (ksh)
British American professional liability 50,000
Kenya National householder 15,000
Concord Insurance co. wife’s life 25,000
Kenindia Insurance self life 30,000
6. The other benefits that he would enjoy during the year are:
?? Free medical treatment up to a maximum value of ksh 550,000.
?? A paid holiday to South Africa which would cost the company ksh 220,000.
?? A company car which would cost ksh 1,200,000 with a cylinder capacity of 2000
cc. would be purchased in January 2012.
7. H Young would always provide Mr. Batistuta with the following servants:
?? A watchman (night only) at a monthly salary of ksh 6,500.
?? A gardener at a monthly salary of ksh 5,500.
?? A cook at a monthly salary of ksh 4,500.
Mr. Batistuta plans 10,000 shares in Safcom ltd at ksh 4 each. The value of the shares is expected
to increase by ksh 3 per share during the year 2012 and he also expects to receive a dividend of ksh
4,000 (net). Instead of this he may also deposit this amount into a savings account with Post Bank.
Required:
a) Against the background of tax planning, advise Mr. Batistuta about total taxable income he
would get from this employment. (12 Marks)
b) Compute the tax payable from the incomes computed in (a) above using the tax rates for
the year 2010. (6 Marks)
c) Give explanatory notes for the items you have not used in the above computations.
(2 Marks)
Question Two
a) What is Farm work deduction? Indicate the conditions that should be met to qualify for
Farm works deductions.You are provided with the following information concerning
Access ltd a company that makes its accounts to 31 December every year
The company had constructed a new industrial building at a cost of Sh 20,000,000 in 2008.
The cost of the building included the cost of land amounting to Shs.2,000,000, a canteen
for workers for Shs1,400,000 ,showroom costing Shs 600,000 and offices costing ksh
500,000.The building however had not been put into any use in January 2010.
In the same year,Access Ltd. made the following additions to the building and were put to
use by 1 July 2010:
• A warehouse at a cost of Shs 3,600,000
• Labour Quarters costing Shs 2,400,000
• Extension to the factory building at a cost of Shs 4,200,000.
Before commencing manufacturing on 1 January 2010 Access Ltd acquired the following
assets:
• Processing machinery Shs.4,200,000
• Land cruiser Shs.1,200,000
• A three ton lorry Shs. 2,600,000
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• A tractor Shs. 3,600,000
• Furniture & fittings Shs.1,200,000
• Computers Shs.1,600,000
• Photocopier Shs. 240,000
• Saloon car Shs.1,200,000
On 31 October 2010 the company acquired/constructed the following which were put to use
immediately:
• Additional processing machinery Shs.2,400,000
• A fire exit was also constructed at a cost of Shs 900,000
In the year 2010 Access Ltd. decided to strengthen the security at the factory by building a
stone perimeter fence at a cost of Shs.1,800,000. This was brought into use with effect from 1
November 2010.
Required:
i) Access Ltd’s capital allowances for the year ended 31Dec 2010
(11 Marks)
ii) Obtain the written down values of the assets as at 31Dec 2010
(4 Marks)
Question Three
a) Persons registered for VAT are entitled t to input tax deductions for VAT paid on inputs which
relate directly to their taxable supplies except where the law prohibits these non deductible.
List three items that are prohibited for input tax deductions. (4 Marks)
b) State the circumstances under which a registered person can qualify for bad debt relief as per
the VAT (2 Marks)
c)
XYZ Distributors ltd has been operating a wholesale business in Nairobi. The following
details relate to the business for the month of April 2010:
Sh.
Sales at standard rate 24,000,000
Purchases at zero rate 6,000,000
Purchases at standard rate 20,000,000
Electricity bill paid 16,000
Water bill paid 4,000
Export sales 10,000,000
Exempt sales 14,000,000
Salaries and wages 4,800,000
Purchase of electronic tax register 150,000
Legal fees 60,000
Additional information:
1. The wholesaler issued debit notes amounting to sh. 800,000 in respect of sales at
standard rate
2. goods at standard rate valued at sh. 600,000 were returned during the month to the
wholesaler
3. one of the debtors of the business was declared bankrupt and the business wrote off sh.
500,000 which was outstanding from the debtor at the end of the month
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Required:
The VAT payable (or refundable) by the business for the month of April 2010.
Note: the amounts above are stated exclusive of VAT at the rate of 16% where appropriate.
(14 Marks)
Question Four
a) Describe the provisions of the Income Tax Act Cap 470 with respect to shortfall distribution of
dividend giving clear explanation of any exemption provisions to a company under the same
law (6 Marks)
b) With reference to the Customs and Excise Act (Cap 472), write short notes on the following:
i) FOUR categories of goods liable for forfeiture to the Customs Department.
(4 Marks)
ii) FIVE privileged persons or institutions exempted from pre-shipment inspection of
imports (5 Marks)
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