Cfm 100 Introduction To Taxation (Day &Amp; Eve) Question Paper
Cfm 100 Introduction To Taxation (Day &Amp; Eve)
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
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UNIVERSITY EXAMINATIONS: 2010/2011
FIRST YEAR EXAMINATION FOR THE BACHELOR OF COMMERCE
CFM 100 INTRODUCTION TO TAXATION (DAY & EVE)
DATE: DECEMBER 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL Questions
QUESTION ONE
Maina, Njoka and Otieno are in partnership sharing profits and losses in the ratio of 3:1:1
respectively. For the year ended 31 December 2010, they presented the following trading
and profit and loss account.
Sh. Sh.
Sales
Cost of sales:
Opening stock
Purchases
Closing stock
Gross profit
Other operating income
Expenses:
Salaries and wages
Rent
Advertisement
Transport
Depreciation
Interest on partners’ capitals
2,200,000
4,000,000
(800,000)
2,500,000
40,000
120,000
60,000
75,000
450,000
13,000,000
(5,400,000)
7,600,000
400,000
8,000,000
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Commissions paid to partners
Printing and stationery
Repairs and maintenance
Postage and telephone
Legal fees
Insurance
Gifts
Net profit
90,000
144,000
380,000
17,000
23,000
110,000
4,000
(4,013,000)
3,987,000
Additional information:
1. Opening stock and closing stock have each been understated by 10%
2. Other operating income includes Sh. 50,000 related to gain on sale of furniture.
3. Salaries and wages include salaries to Maina, Njoka and Otieno of Sh. 300,000, Sh.
250,000 and Sh. 50,000 respectively for the year ended 31 December 2010.
4. Transport costs include Sh. 18,000 paid to Otieno on account of a private trip.
5. Interest on partners’ capitals and commissions paid to partners are to be apportioned
equally to the partners.
6. The gifts were given to the staff of the firm during the end of year party.
7. Capital allowances due to the firm for the year ended 31 December 2010 were agreed at
Sh. 120,000.
Required:
(i) The partnership’s adjusted profit (or loss) for tax purposes for the year ended 31
December 2010. (15 marks)
(ii) Distribution of the taxable profit (or loss) between the partners as at 31 December
2010. (5 marks)
(Total: 20 marks)
QUESTION TWO
(a) Mr. Mburu Kanyua Mbola is employed by Uridhi Bank Ltd. as an accountant. He has
presented the following details to be used in the computation of his taxable income for the
year ended 31 December 2010:
1. He received a basic salary of Sh. 80,000 per month (PAYE Sh. 7,000). He also
received an overtime allowance equivalent to 10% of his monthly pay.
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2. His employer paid his hospital bills averaging Sh. 4,000 per month. The policy of the
company is to provide medical cover to senior managers only as the other employees
are given time off to attend a nearby government clinic where treatment is free.
3. His employer provided him with the following
• A car which was acquired at a cost of Sh. 1, 300,000. This car has an engine
capacity of 2000c.c.
• A house. His electricity bill and water bill were paid for by the employer.
• A gardener and a night watchman.
4. He contributes Sh. 9,000 per month to a registered pension scheme while the employer
contributes an equal amount.
5. Mr. Mbotela attended a one-day seminar and received Sh. 2,500 from his employer as
allowances.
6. He was nominated the employee of the year on 31 December 2010. This award carried
a cash gift of Sh. 45,000.
7. In the month of November 2010, he received compensation from an insurance company
amounting to Sh. 80,000. This was in relation to household furniture destroyed by fire.
8. On 5 November 2010, he started offering part-time tax consultancy services. He made
a profit of Sh. 70,000 from the consultancy before deducting operating expenses of Sh.
18,000 and Sh. 4,000 relating to the acquisition of furniture.
9. His wife, Mrs. Mbotela, operates a grocery. She made a net-profit of Sh. 50,000 after
deducting the following:
Sh.
Rent of stall
Hire of van
School fees for children
Advertisement expenses
10,000
22,000
108,000
6,000
Required:
(i) Mr. Mbotela’s taxable income for the year ended 31 December 2010 (10 marks)
(ii) Tax payable on the taxable income computed in (i) above. (4 marks)
(Total: 20 marks)
QUESTION THREE
(a.) Mr. Wafula is a trader whose business turnover averages Sh.300, 000 per month.
He approaches you for advice on whether he should register for VAT. Explain to
him the requirements for VAT ( 2 marks)
(b.) Identify any four details to be found in a tax invoice. ( 2 marks)
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(c.) The following are the sales and purchases of Jasho Limited, a supplier of vatable
goods for the six-month period ended 31 December 2010.
Standard
Sh.
Sales
Zero-rate
Sh.
Exempt
Sh.
July
August
September
October
November
December
1,200,000
1,000,000
800,000
1,400,000
600,000
1,600,000
6,600,000
300,000
250,000
160,000
400,000
100,000
380,000
1,590,000
160,000
100,000
90,000
135,000
80,000
170,000
735,000
Purchases
(Standard)
Sh.
July
August
September
October
November
December
900,000
750,000
350,000
1,100,000
400,000
1,200,000
4,700,000
All the purchases and sales above are VAT exclusive.
Required:
(i) Determine the total input tax deductible for the six-month period ended 31 December 2010.
(9 marks)
(ii) Determine the total VAT payable or refundable for the period to 31 December 2005.
(2 marks)
(Total: 15 marks)
QUESTION THREE
Discuss the objectives which the Government of Kenya can achieve through taxation and show
how the government can achieve them. (15 marks)
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RATES OF TAX (Including wife’s employment, self employment and professional income rates of tax).
Year of income 2010.
Monthly taxable pay Annual taxable pay Rates of tax
(Shillings) (Shillings) % in each shilling
1 - 10164 1 -121968 10%
10165 - 19740 121969 - 236880 15%
19741 - 29316 236881 - 351792 20%
29317 - 38892 351793 - 466704 25%
Excess over 38892 Excess over -466704 30%
Personal relief Ksh.1.162 per month (Ksh.13,944 per annum)
Prescribed benefit rates of motor vehicles provided by employer
Monthly Annual
Rates rates
(Ksh) (Ksh)
Capital allowances:
Wear and tear allowances:
Class I 37.5%
Class II 30% (i) Saloons, Hatch Backs
Class III 25% and Estates
Class IV 12.5%
Industrial building allowances: Up to 1200 cc 3,600 43,200
Industrial buildings 2.5% 1201- 1500 cc 4,200 50,400
Hotels 10 % 1501- 1750 cc 5,800 69,600
Farm work allowances 50 % 1751- 2000 cc 7,200 86,400
Investment deduction allowances: 2001- 3000 cc 8,600 103,200
2003 - 70% Over 3000 cc 14,400 172,800
2004 - 100%
2010 - 100% (ii) Pick-ups, Panel Vans (Unconverted)
Shipping investment deduction 40%
Mining allowance: Up to 1750 cc 3,600 43,200
Year 1 - 40% Over 1750 cc 4,200 50,400
Year 2-7 - 10% (iii) Land Rovers/ Cruisers 7,200 86,400
OR 2% of the initial capital cost of the vehicle for each
month.
Commissioner’s prescribed benefit rates
Monthly rates Annual rates
Services Ksh. Ksh.
(i) Electricity (common or from generator) 1,500 18,000
(ii) Water (Communal or from a borehole) 500 6,000
(iii) Provision of furniture (1% of cost to employer)
If hired, the cost of hire should be brought to charge
(iv) Telephone (Landline and mobile phones) 30% of bills
Agriculture employees: reduced rates of benefits
(i) Water 200 2,400
(ii) Electricity 900 10,800
Other benefits:
Other benefits for example, servants, security, staff meals etc are taxable at the higher of fair market value
and actual cost to employer.
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