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Taxation Question Paper

Taxation

Course:Bachelor Of Business Administration

Institution: Kenya Methodist University question papers

Exam Year:2012

KENYA METHODIST UNIVERSITY
COURSE CODE : ACCT 431
COURSE TITLE : TAXATION

QUESTION ONE
As a tax consultant, Alex Kipkoech PIN no A001222435P, has approached you to assist
him file individual income tax return for the year of income 2011. He has provided the
following information relating to his earnings for the year of income 2011.
Alex Kipkoech is employed by Zinc Ltd. as a sales manager. He has provided the
following information relating to his income and that of his wife for the year ended 31
December 2011:
1. His monthly basic salary is Sh.75,000 (PAYE Sh.16,400 per month)
2. He is also entitled to a commission based on 5% of all additional sales he makes
above Sh.200,000 per month.
His sales for the month of March, June, August and October 2011 amounted to
Sh.250,000, Sh.300,000, Sh.220,000 and Sh.215,000 respectively .The rest of the
months, the sales were below sh.200,000.
3. He lives in a company house and pays a nominal rent of Sh.4,000 per month. The
market rental value of the house is Sh.45,000 per month.
4. The company reimbursed him for all out-of-pocket expenses incurred on the
official use of his car. In the year 2011, the amount reimbursed was Sh.60,000. He
had purchased the car in year 2008 at a cost of Sh.800,000. The car has an engine
capacity of 2000 cc.. The money was provided by the employer at an interest
rate of 4% , when the market interest rate was 9%.
2
5. The education fees for his two children amounting to Sh.180,000 was paid by the
company during the year. This amount was not charged to the company’s income
statement as an expense.
6. He earned a net income interest income of Sh.170,000 during the year from his
investments in housing development bonds.
7. He purchased a house for his residence on 1st October, 2011, and moved in on 1st
November, the same year. In year 2011, he had been saving Sh.7,000 with a
registered home ownership savings plan and earned an interest income of
Sh.9,500.
8. He has a life insurance policy for self and family for which he paid a total
premium of Sh.45,000 per annum.
9. He has a farm which generated a surplus of Sh.120,000 during the year. A tax of
Sh.15,000 had been deducted under presumptive tax regulations.
10. His wife has invested in the shares of a quoted company. She received a dividend
of Sh.12,000 (net) from the shares in the year 2007 and her salary per month was
sh. 65,000. She works in the same company. The family controls 18% of the share
capital of the company.
11. He received dividends of sh. 34,000 from Wabera cooperative society net of
withholding tax of 15%
12. Alex is a pensioner and draws a pension income of sh. 24,000 per month prom his
previous employer.
13. His other incomes included;
? Rental income sh. 400,000 per annum excluding general expenses
amounting to sh. 36,000.
? Share of partnership profit sh. 360,000 per annum
? Business income sh. 456,000 per annum
? Farming losses sh.124,000 for the year
Required:
Based on the above information fill in the individual income tax returns for Alex
Kipkoech for the year of income 2011 on or before 18th March 2012, and attach all the
supporting Schedules. (15 marks)
3
QUESTION TWO
(a) Explain any FOUR effects of Value Added Tax on business. ( 8 marks)
(b) Specify the rules relating to appeal against the Commissioner’s decision under the
Value Added Tax Act. (4 marks)
(c) A company had VAT due amounting to Sh.300,000. It was late in making the
payment for six weeks.
What late payment penalty will be charged? (4 marks)
(d) Inland Limited imported goods whose landed value is Sh.400,000. The duty
chargeable on them is at the rate of 35%. There is to be made a provision for
transport to the interior amounting to Sh.50,000. A commission is to be paid of
2% dutable value. Value Added Tax is charged on those goods at 16%.
Determine the amount of VAT payable.
(4 marks)
(Total: 20 marks)
QUESTION THREE
(a) distinguish between:
(i) Specific customs duty from advalorem import customs duty. (2 marks)
(ii) Discriminatory policy from non-discriminatory policy as used in custom duties.
(2 marks)
(a) The Meru Forest Tree Fellers Ltd. commenced business on 1 January 2009.
The following fixed assets of the company which it acquired prior to the
commencement of the business were stated at their written down values as at 1
January 2009:
Sh.
Milling machine
Fork lifts
Tractors
Lorries – 200 tones
Packaging machine
Crushing machine
Conveyor and sorter
Two pick-ups
One lorry
Saloon cars
Furniture and fittings
Land
3,440,000
1,720,000
7,800,000
2,400,000
3,500,000
3,680,000
6,240,000
1,800,000
2,400,000
780,000
544,000
20,000,000
The building in which the processing was to be carried out was constructed in 2003 but
was first used for manufacture in 2009.
4
The building cost sh.13,600,000 in 2006 and the estimated value in January 2009 was
sh.11,400,000.
In 2009 the company bought the following assets:
Sh.
Toyota-saloon car
Lorry
Tractor
Furniture
Land
Pick-up
Computers
Computer scanner
Printers
Milling machine
2,700,000
5,200,000
3,540,000
280,000
6,240,000
4,000,000
50,000
400,000
200,000
5,550,000
The following assets were also disposed of in 2009:
Sh.
Forklift
Saloon car
Printer
Land
Packaging machine
480,000
920,000
50,000
2,240,000
4,500,000
A tractor was damaged through a road accident during the year and the insurance
company paid Sh.3,200,000 as compensation.
Required:
Capital allowances for the company for 2009. (16 marks)
(Total: 20 marks)
5
QUESTION FOUR
(a) Discuss three practical problems experienced by a Kenyan in complying with the
VAT Act. Suggest ways in which these problems can be overcome.
(6 marks)
(b) The directors of Tot Company Limited presented the following statement of
comprehensive income for the year ended 31 December 2009:
Sh.
Revenues
Sales
Interest on Government Securities (Gross)
Expenses:
Purchases
Wages
Carriage inwards
Rent
Insurance
Trade expenses
Repairs:
Building
Machinery
Advertising
Legal charges
Audit fees
Depreciation
Provision for doubtful debts
Debenture interest
Interim dividend
Proposed dividend
Net Loss
30,780,000
50,000
30,830,000
24,000,000
2,320,000
370,000
300,000
190,000
100,000
300,000
56,000
254,000
80,000
70,000
3,017,000
104,000
600,000
400,000
731,300
32,892,300
2,062,300
The following additional information is provided:
1. Purchase returns and sales returns were Sh.500,000 and Sh.700,000 respectively.
These were left out while preparing the trial balance.
2. Wages include Sh.25,000 per month paid to a “consultant” who helps the
company whenever there is a problem with the VAT department. VAT of
Sh.560,000 remains unpaid and the “consultant” promises to find a way of
getting it written off. Full PAYE is deducted from his salary.
3. Trade expenses include an amount of Sh.60,000 travel expenses to Korea for the
Director as part of the National Chamber of Commerce Trade and Industry
promotion tour.
6
4. Repairs to machinery include small loose tools written off by Sh.10,000
5. Bad debts which are specifically bad are Sh.74,000
6. Capital allowances have been agreed at Sh.2,000,000.
Required:
(a) Taxable profits for the year of income 2009. (10 marks)
(b) Tax payable if any for 2009. Comment on the results. (4 marks)
(Total: 20 marks)

Taxation Question Paper

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