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Bcom 411: Tax Law And Practise Question Paper

Bcom 411: Tax Law And Practise

Course:Bachelor Of Commerce

Institution: Chuka University question papers

Exam Year:2013

CHUKA

UNIVERSITY

UNIVERSITY EXAMINATIONS
FOURTH YEAR EXAMINATION FOR THE AWARD OF
DEGREE OF BACHELOR OF COMMERCE

BCOM 411: TAX LAW AND PRACTISE

STREAMS: BCOM Y4S1 TIME: 2 HOURS

DAY/DATE: FRIDAY 9/8/2013 2.30 PM – 4.30 PM
INSTRUCTIONS:

1. Attempt ALL Questions
2. Do NOT Write on the Question Paper

QUESTION ONE

(a) Explain five expenses which are not allowed to be offset against employment income in determination of tax liability. [5 Marks]

(b) You have been contracted by a sole trader to advise him how to avoid taxes. Discus tax avoidance detailing examples of how you would offer the tax advisory. [5 Marks]

(c) S. Omondi salary per annum is Sh 400,000. He paid under PAYE ksh 10,000. His wife earns ksh 15,000 per month and she had not paid PAYE. Compute S. Omondi and his wife net tax liability. [5 Marks]

(d) Discuss the merits and demerits of indirect taxes. [10 Marks]

QUESTION 2

(a) The following expenses were debited from the profit and loss account of Mr. Njoroge for the year 2010.

Repairs and renewals 34,000
Bad debts 12,000
Rent rates and insurance 70,000
Legal and accountancy 75,000
Depreciation 20,000
Wages and salaries 150,000
General expenses 8,000
Postage and telephone 5,000
Motor vehicle expenses 16,000
Notes:
Repairs and renewals;
Alteration to buildings 25,000
Repairs of machinery 5,000
Repairs to building 4,000
Bad debts
Bad debts w/o 8,000
Increase in general provision 4,000
Legal and accounting
Audit fees 5,000
Book keeping fees 3,000
Staff contracts and work permits 45,000
Fines and penalties 18,000
Lease preparation 4,000
Identify disallowables for Mr. Njoroge. [5 Marks]

(b) Ojara profit and loss account revealed the following

Gross profit 800,000
Less expenses
Wages and salaries 200,000
Rent and rates 100,000
Water and electricity 40,000
Depreciation 10,000
Legal expenses 36,000
Sundry expenses 44,000_
430,000
======
Net profit 370,000

Additional information:

(a) 50% of rent and rates and water and electricity are household expenses.
(b) Capital allowances allowable for the year are ksh 8,000
(c) Legal expenses of ksh 16,000 are not allowable for tax purposes
(d) Sundry expenses included watchman wages at his household gates of ksh 3,000

Required:

Calculate taxable profits for R. Ojara and net tax liability. [10 Marks]

QUESTION 3

Miller Ltd is a manufacturing company located in Nairobi. The following profit and loss account was prepared form its book for they year 31st December 2011.

Gross profit 1,864,000
Investment income 284,636
Profit on sale of shares 216,324
2,364,960
Directors remuneration 1,020,000
Interest 273,600
Audit fees and expenses 216,000
Bad debts 158,400
Depreciation 344,760
Miscellaneous expenses 133,600
Net profit 218,600

Notes:

1. investment income:
Dividends form KCB (Net) 72,000
Interest on fixed deposit account-NBK(net) 58,760
Interest on treasury bills 93,876
Dividends from subsidiary company 60,000
2. Directors Remuneration
Directors fees 240,000
Travelling expenses – directors 400,000
Payment to pension scheme 160,000
Ex directors compensation for wrongful termination of contract 220,000
3. Interest expenses
Interest on bank overdraft 151,200
Interest on loan form a foreign bank 50,400
Interest on loan to purchase investment shares 72,000
4. Audit fees and expenses
Audit fees 68,000
Tax appeal against assessment 32,000
Bookkeeping fees 48,000
Audit expenses paid in relation to a discontinued business line 68,000
5. Bad debts
Embezzlement by accountant 21,600
Received from insurance (12,000)
Bad debts written off 28,800
General provision 120,000
6. miscellaneous expenses
Acquisition of 100 years lease on business premises 28,000
Directors Christmas party 24,000
Kenya national chambers of commerce subscription 30,000
Ask show contribution 10,000
Thomas Barnados Home contributions 41,600

Required:

The profit chargeable to tax for the year of income 2011 and tax payable. [15 Marks]

QUESTION FOUR

(a) Easy Ltd based in Kisumu started its operations in January 2010. The following capital expenditure was incurred by Easy Ltd.

Cost of land 2,000,000
Cost of building 120,000,000
New machinery installed 300,000,000
Old machinery installed 20,000,000
Delivery vans 4,000,000
Office furniture and equipment 1,000,000

Required:

(a) Calculate the capital allowances due to the company under the second schedule of income tax act. [10 Marks]

(b) Discuss the tax incentives available to pension schemes and fund investments.
[5 Marks]

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Bcom 411: Tax Law And Practise Question Paper

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