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Acct 431:Taxation Question Paper

Acct 431:Taxation

Course:Business Administration

Institution: Kenya Methodist University question papers

Exam Year:2012

KENYA METHODIST UNIVERSITY

END OF 2ND TRIMESTER 2012(EVENING) EXAMINATIONS
SCHOOL : BUSINESS AND ECONOMICS
DEPARTMENT : ACCOUNTING AND FINANCE
UNIT CODE : ACCT 431
UNIT TITLE : TAXATION

TIME: 2 HOURS

Instructions:

Question One

Outline and explain the function of Kenya revenue authority (KRA) as an agent of Government.

(8mks)

Bob is an employee with Kemutso Ltd. He has provided the following details to you to assist in filing returns for the year of income ended on 31December 2011.
Basic salary (PAYE sh. 12800 p.m) sh. 96000 gross
Res Diem of sh 4000 for 5 days he was out of work station.
He controls 15% of the share capital of the firm
Wife works in the same firm as operations manager with a salary of sh. 180,000 pm after deducting PAYE sh. 8000 and personal relief of sh. 1162 per month
Medical bills paid on behalf of their sick child by the firm amounted to sh. 1,400,000
The family is housed in a rented house by the firm at a monthly rent of sh. 40,000. Bob contributes 1% of basic salary month towards the house rent
Obtained a mortgage an 1 September, 2011 for a owner occupied of sh. 4,000,000 at an interest of 15% per annum. He moved into his own house on 1 October 2011.
He enjoys a company car of 2000cc whose estimated cost on 1.1.2011 was shs. 800000
His other incomes included:
Rental income sh. 140,000 gross; expenses included repairs before letting sh. 20,000 caretaker’s salary sh. 30,000.
Professional loss from practice sh. 54000
Share of partnership income sh. 60,000
He is a member of NHIF and a registered person scheme where he contributed sh. 1500 and sh. 30000 per month respectively

Prepare a statement of computation of taxable income and tax liability for the year of income 2011. (16mks)

Explain the meaning of the term manufacture in the context of capital allowances, and clearly highlighting why capital allowances are granted to tax payers.

(6mks)

Question Two

Distinguish between tax evasion and tax variance.

(4mks)

Kenya revenue authority in the recent past had embarked on serious tax reform to reduce tax gap and addressing economic objectives of this country: in light of this statement outline the achievements KRA gained through these tax reforms.

(16mks)

Question Three

Explain how a VAT required trader accounts for a value added tax, clearing describing the documents which must be kept by such a trader. (8mks)
Mombasa enterprises distributes soft drinks, the following income statement was obtained from his financial statements for the year ended 31 December, 2011.

Shs.
Sales 3,600,000
Discounts 410,000
Provision for bad and doubtful debts 40,000
Gain on sale of equipment 61,000
4,111,000
Less purchases 900,000
Staff wages 950,000
Rent and rates 92,000
Office expenses 446,000
Travelling 250,000
Repair and maintenance 91,600
Discounts 150,000
Bad debts 128,100
Subscription 24,000
Bank charges 25,000
Loss on sale of furniture 35,500
Legal fees 95,060
Audit fees 44,500
Depreciation 124,000 3,352,700
Net profit 758,300

Additional Information

1. Repairs and maintenance include cost of furniture sh 20,000

2. Office expenses include the following expenses

Loss on staff canteen

12,000

Durations to children’s home

8,400

Directors party

16,800

3. Legal fees include;

Acquisition of patent rights

14,200

Employees contract

8,700

Revenue 150 year increase

16,200

Loan default fee

12,500

4. Closing stock value at sh. 150,000 had been understated by 15%

5. Sales excluded value added tax of sh. 576 000.

6. Purchases include drawing of goods by the owner at sh. 48000.
Prepare a statement of adjusted taxable profits/losses for the year of income 2011. (12mks)

Question Four

Highlight measures KRA has put in place to curb tax evasion at the part of Mombasa.

(6mks)

The following details were provided by Hekima holdings on 1 January, 2010.

Written down values as at 1.1.2010

Sh.
Motor vehicles 750,000
Tractors 2,640,000
Furniture and fittings 360,000
Plant and equipment (processing machinery) 540,000
Computers 240,000
Spares for tractors 120,000
Factory building (Go down) 1,950,000
Staff canteen 760,000
Fax machines 60,000
Farm work (original cost sh. 100000) 50,000

NB. The factory building was constructed an 1.1.2009 at sh. 2000000. During the year 2010, the following assets were acquired
Sh.
Library books 25,000
Software for computer 90,000
Pick up 1,900,000
Farm house 300,000
Loose tools 20,000
School car 3,000,000

In the same year 2010, a salon car acquired on 1.1.2009 for sh. 2400000 was disposed off for sh. 400,000, in addition furniture and computers for sh. 28000 and sh. 15,000 respectively were also disposed off.

Required:
Calculate capital allowances due to the company for the years 2010, 2011. (14mks)

Acct 431:Taxation Question Paper

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