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Fundamentals Of Taxation Question Paper
Fundamentals Of Taxation
Course:Bachelor Of Commerce
Institution: Kenyatta University question papers
Exam Year:2009
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
BAC 304: FUNDAMENTALS OF TAXATION
DATE:
Friday 28th August 2009
TIME: 8.00am-10.00am
------------------------------------------------------------------------------------------------------------
INSTRUCTIONS:
• Answer all questions
• Show all your workings
• Make allocated are shown at the end of each question
Question One
a) From an income tax perspective on capital allowances, explain for each of the
items below whether it is capital or revenue expenditure.
i)
Giving the factory a fresh coat of paint
ii)
Replacing 200 tiles on a roof damaged by wind
iii)
Expenditure incurred in demolishing part of a wall to make room for a
recently purchased machine
iv)
Installing a system ventilation of the factory.
b)
The Maua Timber Limited commenced business on 1st January 2007. The
following fixed assets of the company which it acquired prior to the
commencement of the business here stated at their written down values as
at 1/1/2008.
Page 1 of 7
Kshs 000
Milking
machine
3,440
Forklifts
1,720
Tractors
7,800
Packaging
machine 3,500
Crushing
machine
3,680
Conveyor
and
sorter
6,240
Lorries
(2
tonnes)
2,400
Two
pick
ups
1,800
One
lorry
(4
tonnes)
2,400
Saloon
cars
780
Furniture and fittings
544
Land
20,000
The building in which the processing was to be carried out was constructed in 2006 but
was first used for manufacturing in 2008. The building cost kshs 13.6 M in 2006 and the
estimated value in January 2008 was kshs 11.4 M.
In the year 2008, the company bought the following assets.
Kshs
000
Toyota-Saloon
car
2,700
Lorry
(5
Tonnes)
5,200
Tractor
3,540
Land
6,240
Furniture
280
Pick
up 4,000
Computers
500
Computer
scanner
400
Printers
200
Milking
machine
5,550
Page 2 of 7
The following assets were disposed off in the year 2008
Kshs
000
Forklift 480
Saloon
car
920
Printer
50
Land
2,240
Packaging
machines
4,500
A tractor was damaged through a road accident during the year and the insurance
company paid kshs 3.2M as compensation.
Required
Capital Allowances for the company for the year 2008.
[10marks]
Total 15 marks
Question Two
a)
State and explain any four deductions that may be available against or profit from
employment.
[4marks]
b)
Mr. James Ali Kiba is a citizen of Tanzania. He received two job offers in Kenya
for which he has sought your advice. Both offers require him to commence
work on 1/1/2009.
Offer
X
Mr. Ali Kiba would be employed as a public relations officer with Kenya
Airways, a regional airline with its headquarters in Nairobi, Kenya. The offer
provides for the followings:-
i)
A basic salary of Ksh, 130,000 per month to be increased by 10% semi
annually.
ii)
A monthly bonus of 5% of the basic pay to be received on the ninth day of
the month following that to which the pay relates.
iii)
A fuel allowance of kshs 10 per kilometer. He estimates to cover 10,000
kms per annum three quarters of which will be on official duties.
Page 3 of 7
iv)
Access to loan facilities from the employer to a maximum of kshs 5M per
annum. He plans to obtain a loan of two Million at 5% interest rate per
annum on 1/8/2009. Assume a prescribed interest rate of 12% per annum.
v)
The company will provide him with free return air tickets worth ksh 8000
on 30th June and 31st December each year to enable him visit his family in
Tanzania.
vi)
Entrance fees of Kshs 3,000 to join public relations society of Kenya
would be paid for him by the company. He will however personally pay
the subscription to the society amounting to kshs 1,200 per month
commencing of 1/2/2009.
vii)
He will be provided with free mobile phone airtime worth ksh 5000 per
month commencing on 1/2/2009. This will be utilized on official calls.
viii) The company will provide him with a house whose market rental value is
kshs 18,000 per month. The company will deduct kshs 3,000 from his pay
in respect of the house each month. The company will furnish the house
fully at a cost of kshs 800,000. In addition the company will provide a
night watchman and a house servant each of which will be earning kshs
2000 per month.
Offer B
Mr. Ali Kiba would be employed as a Human Resources Manager with Chake
Ltd, a private limited company. The offer provides for:-
i)
A basic salary of kshs 150,000 per month and an allowance of sh 2000 per
month for attending board meetings.
ii)
An annual allowance of kshs 220,000 for purchase of office attire in the
line with his new status
iii)
A provision of sending managers to their Uganda office on a month job
rotation exists Mr. Ali Kiba will be sent to Uganda in November and will
receive his monthly pay there though he will attend board meetings in
Nairobi
iv)
A Mercedes Benz saloon car costing 1.8 M (3000cc)
Page 4 of 7
v)
A night watchman (at a month salary of kshs 2000). The company will
settle his water and electricity bills.
Required
Evaluate the tax impact of each job offer and advise Mr. Ali Kiba on which one
he should accept. Assume the rates of tax and the prescribed rates remain the
same as they were for year of income ended 31/12/2008.
[16marks]
Total 20marks
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