Dfm 100 Introduction To Taxation Question Paper
Dfm 100 Introduction To Taxation
Course:Diploma In Business Management
Institution: Kca University question papers
Exam Year:2014
UNIVERSITY EXAMINATIONS: 2013/2014
STAGE III ORDINARY EXAMINATION FOR THE DIPLOMA IN
BUSINESS MANAGEMENT
DFM 100 INTRODUCTION TO TAXATION
DATE: AUGUST 2014
TIME: 1 1/2 Hours
INSTRUCTION: Answer any THREE questions
QUESTION ONE: (20 MARKS)
a) List four non-taxable benefits an employee may receive from the employer (4mks).
b) Mr. John Mwaniki is employed by Naivasha Motors Ltd as a human resource manager.
He has presented the following information relating to his employment for the year
ended 31 December 2010.
1. Basic salary sh. 90,000 per month (PAYE sh. 12,500).
2. He received the following allowances and reimbursements during the year from
the employer:
Sh
Entertainment allowance 120,000
Reimbursement:Business mileage 200,000
House telephone bill
3.
84,000
He was provided with the following servants whose monthly wages were paid for
by the employer:
Servant
Monthly pay (sh)
Gardener
3,100
Watchman(night) 3,400
Cook 4,000
1
4.
The employer paid school fees for his children which amounted to Sh. 120,000
per annum. These fees were treated as allowable expenses in the company’s
books.
5.
He contributes 5% of his basic pay to a registered retirement benefit scheme while
the employer contributes an equal amount for him.
6.
The company operates a medical scheme for its senior employees. During the
year Mr. Mwaniki received Sh. 45,000 being reimbursement for medical fees paid
for self and family.
7.
He purchased his residential house in the year 2006 through a 15 year mortgage
from a building society recognized under the Income Tax (Cap 470). The total
mortgage interest paid for the year amounted to Sh.40,000.
8.
He owns a mobile phone shop in Naivasha town which is managed by his wife.
The shop recorded a net profit of Sh. 120,000 for the year ended 31 December
2010.
Required:
i.
Determine Mr. Mwaniki’s total taxable income for the year ended 31
December 2010.
ii.
(14 Marks)
Compute his tax liability for the year ended 31 December 2010.(2 Marks)
QUESTION TWO: (20 MARKS)
(a)
Distinguish between the tax treatment of rent income on resident and non-resident
individuals.
(b)
(2 Marks)
With reference to the Customs and Excise Act (Cap.472), write short notes on the
following:
(i) Import declaration form. (4 Marks)
(ii) Clean report of findings. (2 Marks)
(iii) Four categories of goods liable to forfeiture to the Customs Department.
(4 Marks)
(iv)
Four privileged persons or institutions exempted from pre-shipment inspection of
imports.
(4 Marks)
2
(c)
With reference to the provisions of the Income Tax act identify four methods which the
commissioner of income tax is empowered to use in order to collect overdue tax from a
taxpayer.
(4 Marks)
QUESTION THREE: (20 MARKS)
Patel Mumajah carries out a business in Nairobi. He deals with motor-vehicle spare parts. He
carried out the following transactions during the period January to August 2011:
January 4 Purchased spare parts from Dubai for Sh.5,000,000
April 3 Purchased spare parts from Kamau Mwangi for sh.500,000
May 6 Sold spare parts to Mrs. Moshay for Sh.150,000
June 15 Sold second hand spare parts to Kariuki for Sh.300, 000 on credit.
Kariuki had a car accident and passed away the following day.
July 19 Purchased spare parts from England for Sh.10,000,000
August 3 Sold new spare parts to Michael Birech for Sh.600,000
August 17 Unknowingly bought a stolen saloon car from Miss X for Sh.150, 000
And sold it the same day to Mr. Y for sh.200, 000.
All the above prices are exclusive of customs duty and VAT.
Required:
i)
Calculate the VAT payable by Patel Mumajah for the period January to August 2011
(13 Marks)
ii) Comment on VAT treatment of the credit sale to the late Kariuki. (2 Marks)
iii) List atleast five advantages of VAT (5 Marks)
QUESTION FOUR: (20 MARKS)
a)
Explain the meaning of the term “Residence” when applied to a company under Kenya
Income Tax Act.
b)
(5 Marks)
Chumex Limited makes its accounts to 31 December of each year and has prepared the
following profit and loss account for 2010:
3
Notes
Sh. Notes
General administrative expenses 40,000 Gross profit b/d
Repairs and renewals 12,000 Bad debts previously
Depreciation 10,000
Sh.
written off
200,000
1,000
Subscriptions and donations 2,000 Dividends 5,000
Bad debts 8,000 POSB interest 6,000
Directors’ fees and expenses 5,000 Gain on sale of plant and Patents written-off 2,500
Preliminary expenses 3,000 Tax refunded
Retirement benefits 41,500
Interest on overdue tax 2,500
Interest in lieu of dividends
20,000
30,000
Legal and accountancy
10,000
50,000
Rent, rates and insurances
machinery
5,000
Net profit before taxation
30,500 ______
242,000 242,000
Notes
Repairs and renewals:
Sh.
Redecoration of an existing business 3,000
Renovation to new building 5,000
Partition and carpeting offices 4,000
12,000
Subscriptions and donations
Sh.
National Chamber of Commerce and industry 1,000
NE Refugee Fund 1,000
2,000
4
Bad debts:
This is on account of a previous company employee who
cannot now be traced.
Preliminary expenses:
Sh.
Legal fee on issue of shares on stock exchange 2,000
Payment for stationery before commencement of business 1,000
3,000
Retirement benefits:
Sh.
NSSF Contribution
5,000
Registered Pension Scheme for senior management
40,000
Gifts to retiring staff
5,000
50,000
Legal and Accountancy:
Sh.
Staff service agreement 2,000
Audit fees 30,000
Legal fee for lease (non-renewable) 4,000
Legal fee – Plot acquisition
5,500
41,500
Dividends:
These were from a subsidiary company where Chumex
owns 60% of the shares.
Capital Allowances for 2010 have been agreed at Sh.30,000
Required:
Compute Corporation tax liability for 2010.
(15 Marks)
QUESTION FIVE: (20 MARKS)
a) Discuss the objectives of taxation and how they are achieved (6 Marks)
b) Discuss the canons of an optimum tax system (10 Marks)
c) Outline the characteristics of a tax (4 Marks)
5
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