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Introduction To Taxation Question Paper

Introduction To Taxation

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2010

UNIVERSITY EXAMINATIONS: 2009/2010
FIRST YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CFM 100: INTRODUCTION TO TAXATION (DAY & EVENING)
DATE: AUGUST 2010 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
Mr. Ayub Kuhama is a resident of Kenya. He has received a job offer for which he has sought your
advice as a tax expert.
OFFER A
He would be employed as an integration officer with the East African Community Secretariat regional
office in Nairobi, Kenya. The offer provides the following:
a) A basic salary of Ksh 130,000 per month to be increased by 10% semi annually.
b) A monthly bonus of 5% of the basic pay to be received on the ninth day of the month following
that which the pay relates.
c) A fuel allowance of Ksh 10 per kilometer. He estimates to cover 10,000 kilometers per annum,
three quarter of which will be on official duties.
d) Entrance fees of Ksh 3,000 to join the Public Relations Society of Kenya would be paid for
him by the company. He would however, personally pay the subscriptions to the society
amounting to Ksh 1,200 per month commencing 1st February 2010.
e) He will be provided with free mobile phone airtime worth Ksh 5,000 per month commencing
1st February 2010. This will be utilized on official calls.
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f) The company will provide him a house whose rent is Ksh 18,000 per month. The company
will deduct Ksh 3,000 from his pay in respect of the house each month. The company will
furnish the house fully at a cost of Ksh 800,000. In addition, the company will provide a night
watchman and a house servant, each of who will be earning Ksh 2,000 per month.
g) He will contribute 5% of his basic pay to a registered pension scheme while the employer will
contribute an equal amount
Required:
Determine the taxable income and the tax payable from this income for the year 2009 (20 Marks)
QUESTION TWO
Kiprotich, Kimani and Kimunya are partners trading as Kikiki Enterprises. Kiprotich and Kimani are
active partners while Kimunya is a sleeping partner. The partnership agreement is silent on profit and
loss sharing ratio. The partners presented the following profit and loss account for the year ended 31st
December 2009.
Ksh Ksh
Income
Gross Profit 6,000,000
Foreign Exchange Gain 312,000
Farming Income 560,000
Interest on bank deposit (net) 120,600
Insurance compensation for stolen vehicle 400,000
7,392,600
Expenditure
General expenses 3,500,000
Salaries and wages 2,400,000
Interest on capital: Kiprotich 180,000
Kimani 50,000
Legal expenses 487,500
Loss on sale of assets 15,200
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Stamp duty on lease agreement 8,160
Licenses and permits 14,400
Subscriptions to trade association 56,000
Conveyance fees 150,000
Rent and rates 240,000
Farm works (cost) 180,000
Mortgage interest 240,000
Repairs on computers 60,000
Furniture purchased 84,000
Bank charges 80,000 (7,845,260)
Reported loss (452,660)
Additional information:
1. General expenses comprise:
Embezzlement by a cashier 1,200,000
Directors X-mass party 800,000
Compensation to an employee for wrongful termination of employment 760,000
Replacement of car engine (second hand) 140,000
Partition of an office 600,000
3,500,000
2. Salaries and wages include Ksh 700,000 and Ksh 800,000 paid to Kiprotich and Kimani
respectively during the year.
3. Interest on capital was provided at 10% of capital contribution
4. Rent and rates relate to a period of 15 months commencing 1st January 2009.
5. Mortgage interest relates to a partner’s residential house
6. legal expenses include:
Parking fines paid to city council 15,200
Legal fees for breach of contract 200,000
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Drafting tender documents 18,000
Drafting of lease documents (100 years) 9,000
Defending a partner at income tax tribunal 12,000
Required:
The adjusted partnership profit or loss for the year ended 31st December 2009 and distribution of this
profit or loss to the partners (20 Marks)
QUESTION THREE
a) Name four objectives of raising taxes and explain how they are achieved by the government.
(8 Marks)
b) State and briefly explain two factors that influence tax shifting. (4 Marks)
c) Is it desirable for a country to have a multiple or a single tax system? (3 Marks)
QUESTION FOUR
a) The following information relates to Mikopo Ltd.
i. The company did not file a VAT return for the month of February 2010. The
VAT payable for the month amounting to Sh 2,000,000 was also not remitted to
the tax authority.
ii. The management of the company intends to remit the VAT for February
2010 on 30th June 2010.
iii. The company has no other VAT liabilities outstanding.
Required:
Determine the amount of VAT payable by Mikopo Ltd. (inclusive of penalties and interest)
on 30 June 2010 in relation to the above VAT liability
(5 Marks)
b) abc Ltd. imported goods from Dubai whose landed value was Sh.2, 450,000. Duty is
chargeable on them at the rate of 20%. Other charges include a provision for transport to the
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company premises amounting to Sh.110, 000 and a commission of 5% of dutable value to the
clearing agent. VAT was charged on the goods at the standard rate (16%).
Required:
Determine the amount of VAT payable. (5 Marks)
c) On 10 July 2010, Dubai Merchants imported goods valued at Sh.1,200,000. The customs duty
chargeable on these goods was at 35%, clearing charges paid amounted to Sh.20, 000 and
transport from Mombasa to Nairobi amounted to Sh.70, 000. A commission on the dutable
value of the goods was paid at 5%.
Required:
Determine the amount of VAT payable on the goods. (5 Marks)

Introduction To Taxation Question Paper

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