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Advanced Taxation Question Paper

Advanced Taxation

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2008

UNIVERSITY EXAMINATIONS: 2008/2009
THIRD YEAR STAGE I EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CFM 300: ADVANCED TAXATION (SATURDAY)
DATE: AUGUST 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer All Questions
QUESTION ONE
a) Explain the basic principles followed in the taxation of the income of cooperative societies.
(4 Marks)
b) With reference to the provisions of the VAT Act, explain the following concepts
(i) Bad debts relief (2 Marks)
(ii) Deregistration of taxable persons (2 Marks)
(iii) Goods in stock (2 Marks)
c) Mr. Murigu is a businessman dealing with imported spare parts. He recently registered as a
VAT withholding agent and is due to make returns for the first tax period which is ending on
31st August 2009. He is in a dilemma as a close friend of his informed him that for his returns
to be acceptable then he must have installed Electronic Tax Registers in his business and use it
to generate receipts for all of his supplies. He has several companies which are under direct
control of him and his wife. Mr. Murigu has turned to you for professional advice on the
following issues.
(i) What is ETR and what are the benefits of ETR? (5 Marks)
(ii) VAT registration for a group of companies (3 Marks)
(iii) Time of supply in regard to imported products (3 Marks)
(iv) Value of supply for imported and warehoused goods (4 marks)
2
QUESTION TWO
a) Kiserian Ltd practices mixed farming rearing livestock and growing vegetables and flowers for
the local and export markets.
For the year ended 31 December 2008 the following profit and loss account has been prepared.
Income: Shs Shs
Sale of horticultural products 4,000,000
Sale of livestock 3,250,000
Gain on sale of old tractor 21,500
7,271,500
Expenditure:
Packaging materials 276,000
Insecticides 250,000
Fertilizers 576,250
Dairy meal 225,750
Purchase of hay 300,000
Veterinary services 325,750
Professional fees 237,500
Depreciation: Machinery 62,500
Vehicle 222,500
Subscription paid 26,250
Repair and maintenance 582,500
Motor vehicle running costs 700,000
Interest on loan 202,500
Salaries and wages: 2,070,000
General expenses 135,250 6,192,750
Net profit 1,078,750
Additional information
1 Repairs and maintenance comprise:
Repairs to machinery 145,000
Provision for fencing expenditure 100,000
Repairs to building 237,000
Repairs to irrigation system 100,000
582,500
2 General expenses comprise:
Staff medical expenses 24,000
Staff Christmas party 81,250
Decrease in specific bad debts provision (20,000)
Increase in general bad debts provision 50,000
135,250
3
3 Subscription comprise:
Donations to children’s home 5,000
Membership fees of horticultural
association
3,750
Donations to district school funds raising 7,500
Membership fee of Agricultural society 10,000
26,250
4 Professional fees comprise:
Architects fees on proposed farm works 137,500
Farm valuation fees 25,000
Audit fees 75,000
237,500
5. Disposal and additions of assets in the year ended 31 December 2008 were as follows:
?? The old tractor was sold for Shs 249,000
?? A farm vehicle costing Shs 400,000 was bought
6. Farm works Year of expenditure Cost Residue
Shs Shs
Labour quarters 2006 375,000 125,000
Livestock pen 2006 120,000 40,000
Produce store 2006 450,000 150,000
7. A new house for the supervisor was constructed at a cost of Shs 600,000 in the year ended 31
December 2008.
8. written down values (WDV) as at 31 December 2007 were as follows:
Shs
Tractor 216,500
Vehicle 109,600
Plant and machinery 122,000
Required:
i.) Adjusted profit (or loss) for the year ended 31 December 2008. (13 Marks)
ii.) Tax payable (if any) by Kiserian Ltd (2 Marks)
4
QUESTION THREE
(a) The administration of VAT has encountered significant limitations in Kenya. With reference
to the tax systems in Kenya explain four problems associated with administration of VAT.
(4 Marks)
(b) Discuss four grounds of appeal that a VAT registered trader can include in an appeal to VAT
tribunal (8 Marks)
(c) Mr. Mwikali Nungaru is a professional valuer who is registered for VAT. In September 2008,
he finalized the following transactions.
Free service to his local church (valuation of a plot allocated by the Govt.) 354,000
Purchase of new pick up for use in the field (inclusive of VAT) 1,770,000
Gross income for the month 3,540,000
Credit notes issued to customers 295,000
Input tax (30% relating to non taxable supplies) 750,000
Salaries and wages 260,000
Rent paid (no VAT) 120,000
August 2002 VAT under payment 60,000
Credit notes from suppliers of vatable supplies 141,600
Required
A VAT account for the month of September 2008 (5 Marks)
(d) The management of Milele ltd has provided you with the following transactions for the four
months period ended 31st December 2008.
i. The company was registered for VAT with effect from September 1st 2008.
ii. By the time of registration the company had goods in stock for sale valued at Ksh
480,000 and for which input tax had been paid. The commissioner has approved an
application to allow the company to claim input tax on these goods.
iii. Purchases during the four months were constant at Ksh 1,200,000 per month inclusive
of VAT.
iv. Sales for the month of September were Ksh 1,800,000 exclusive of VAT. The sales
increased by 10% in October and by 20% in November and December.
v. 20% of the sales every month relate to export to South Africa
5
Required
(a) Compute the VAT payable/refundable for each of the four months. (4 Marks)
(b) Specify the dates when the VAT you have computed in (i) above is payable. (2 Marks)
(c) Assuming that Milele did not pay the VAT computed in (a) above or submit a VAT return as
required, compute the penalties and interest payable by the end of January 2009. (2 Marks)
QUESTION FOUR
Write reference to the provisions of the Customs and Excise Act (Cap.472):
(a) Define the following terms:
i.) Bond security. (2 Marks)
ii.) Customs warehouse. (2 Marks)
(b) Outline the circumstances under which duty paid on imported goods may be refunded.
(3 Marks)
(c) Identify four types of security that the Commissioner of Customs and Excise may accept.
(2 Marks)
(d) State the circumstances under which the Commissioner of Customs and Excise may request
for fresh security. (2 Marks)
(e) Differentiate between customs duty and excise duty, giving for each one example of the goods
on which the duties are levied. (4 Marks)
(f) Write short notes on the following
i.) Import declaration form.
ii.) Clean report of findings.
iii.) Pre-shipment inspection
iv.) Prohibited goods and restricted goods
v.) Dumping and subsidies (10 Marks)

Advanced Taxation Question Paper

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