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Accf 431: Taxation Question Paper

Accf 431: Taxation

Course:Business Administration

Institution: Kenya Methodist University question papers

Exam Year:2011

KENYA METHODIST UNIVERSITY
END OF 3''RD ''TRIMESTER 2011 EXAMINATIONS
FACULTY : SCHOOL OF BUSINESS AND MANAGEMENT
DEPARTMENT : BUSINESS ADMINISTRATION
UNIT CODE : ACCF 431
UNIT TITLE : TAXATION

TIME: 2 HOURS
Instructions: Answer Question ONE and any other TWO Questions. Show
your workings.
Question One
State whether the following are income. Give your answers as YES or NO.
Reuben received Shs 10,000 in cash from his grandfather as a gift.
Received Shs. 5,000 from winning of Kenya Charity Sweepstake lottery.
Susan earned Shs. 5,000 from smuggling business 2003. It’s market price on 31st December 2008 was Shs. 200,000.
Ragis borrowed Shs 10,000 from Nancy on which the interest due w as Shs. 1,500. In the previous year Robert paid Shs 2,500 to Nancy.
The employer deposited in a provident fund of Rinturi in the previous year Shs. 4,000.
(3 Marks)
Following are income of Mr. Obonyo during the previous year.
Shs. 5,000 received in Kenya which accrued in Uganda
Shs. 10,000 earned in Kenya but received in Tanzania.
Shs. 8,000 earned and received in Japan from a business which is managed and controlled from Kenya.
Earned income Shs 2,000 from house property in Rwanda which was deposited in a bank there.
Shs 6,000 earned in England and received there, out of which Shs. 4,000 brought to Kenya.
Foreign income of Shs. 4,000 which was earned in the year 2006 was brought in Kenya during the previous year.
Required:
Compute total income of Mr. Ragis for the Assessment year 2008 if he is:
Resident
(4 Marks)
Non-Resident
(3 Marks)

Income earned during the previous year is taxed in the Assessment year. Explain this rule and state exceptions.
(7 Marks)
Mr. Vincent is a manager of X Ltd Nakuru. He gets a basic pay of Shs 12, 1, 250 pm, dearness allowance of Shs 5000 p.m. Other information is as follows.
During the previous year he surrendered Shs 25,000 of his basic pay to the government.
He and his company contributed 14% of basic pay and a half of dearness allowance towards a registered provident fund. During the previous year interest credited to the provident fund account @ 12.5% p.a amount to Shs. 125,000.
The bills of Shs. 20,000 relating to education of his children were
Re-imbursed by the company.
He is getting entertainment allowance @ 5,000 p.m.
He is getting composite hill compensatory allowance @ Shs. 3,000 p.m.
He was provided with a rent free house owned by the company with facility of free use of functure costing Shs. 90,000 and refrigerator costing shs. 60,000.
The company has provided him two cars having engine capacity of 1800cc and 1600cc respectively. The expenses relating to the car are borne by the company. The cars are used partly for personal use also. Other information regarding the cars are as follows:
Particulars
Car 1
Car 2
Engine Capacity 1800 1600
Cost of car Shs. 3,000,000 Shs 2,200,000
The company also provided facility of free meal and free refreshment during office hours. The estimated value is Shs. 800 and Shs 200 per day respectively. The payment is made by the employer to the restaurant direct
Required:
Compute the taxable income of Mr. Vincent for the year 2008. Also calculate tax liability. (13 Marks)
Question Two
Fredy Co. Ltd was incorporated in 2005 but did not start business until 1st January 2006 when the company commenced the business of processing tea in Kericho. The following details related to the acquisition of fixed asset in 2006.
Shs

Land & Building
6,500,000
Plant & Machinery 4,000,000
Motor Vehicle – 2 saloon cars 2,000,000
Tractor 5,000,000
Lorry (2 tons) 2,500,000
Furniture & Fittings 600,000
Construction of drains 150,000
Fencing of firm 50,000
Farm House 600,000
Irrigation System 750,000
Labour Quarters 1,200,000
Computers 220,000
Milking Machinery
300,000
The following further information is provided:
1. The company kept 10 cows and constructed a cattle dip worth Shs 400,000 for the animals during the year.
2. Included in land and building is the cost of land valued at Shs 2,000,000.
3. One saloon car was disposed of for Shs 500,000 which was half of the price.
Required:
Capital deductions for Fredy Co. Ltd for the year income 2006. (20 Marks)
Question Three
The following Profit & Loss A/c was prepared by the management of Mafuko Ltd. For the year ended 31st December 2008.

Shs Shs

Purchases 1,800,000 Sales2,544,000
Salaries & Wages 700,000 Interest on Bank Deposit240,000
Rent & Rates 190,000 Deposit120,000
Foreign Exchange Losses 75,000 Discounts Received120,000
Lease Amortisation64,000 Profit on disposal of assets96,000
Balancing Deduction24,000 Decrease in Provision
General Provisions16,000 for Doubtful Debts114,000
Audit Fees72,000 Miscelleneous Receipts156,000
Repairs56,000
Legal fees94,000
Donations to Political
Party26,000
Medical expenses25,000
Purchase of Office
Furniture36,000
Net Profits92,000
3,270,000 3,270,000

Additional Information:
1. Legal fees include the following:

Shs
Debt Collection
16,000
Acquisition of trademark
25,000
Renewal of lease for 99 years
21,000
Breach of contract
18,000
Fine & Penalties 14,000

2. Audit fees include tax consultancy fees of shs 12,000.
Required:
The company’s adjusted taxable profits or loss for the year ended 31st December 2008.
(15 Marks)

Tax payable (if any), by the company.
(15 Marks)
Question Four
Mr. George Okari and his wife are the owners of the Green Traders Ltd for the year 2008, they presented you with the following Profit & Loss A/C.
Shs
Gross Profit (You have agreed its computation)802,000
Profit for sale of fixed asset 30,000
Less: Operating expenses: Shs

832,000

Wages & Salary
210,000

Wife’s drawings 50,000
Auditing/accounting/Legal Fees 70,000
Travelling Expenses 115,000
Motor Expenses 105,000
Repairs-Machinery 70,000
Depreciation 215,000
Rates & Wear 48,000
Insurance 20,000
Electricity 70,000
Telephone 12,000
Postage & Stationery 4,100
Leaking Roof Repairs 15,000
Bank Charges & Interest 18,000
Rent 18,000
Net loss for the period (240,800)

Notes:
Included in the motor vehicle expenses is an amount of Shs. 16,000 in respect of the car used privately by the family. They estimate that the private mileage is 25% of the total mileage.
The family lives behind their shop and estimated private use is Shs. 16,667.
The family took goods worth Shs. 5,000 for Private use. This was treated as business expense.
Private use of telephone is 15% of total expense.
The agreed wear and tear deduction for the year is Shs. 227,000
Required:
Compute the adjusted profits or loss for income tax purposes in respect of Green Traders Ltd.
(15 Marks)
What is the installment tax and when is it payable.
(5 Marks)
In relation to value added tax cap 476, distinguish between the consequences of making:
Exempt supply only
Zero rated supply only
(4 Marks)
Explain the following terms as used in taxation.

Income

Assessee
Previous year incase of a new business
Difference between assessment year and previous year.
(7 Marks)
Give a detailed explanation of the following forms in relation to P.A.Y.E
P 7

P 9A

P 9A (HOSP)
P 9B
P 10
P 10A
P 10B
P 10C
P 11
(9 Marks)

Accf 431: Taxation Question Paper

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