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: APRIL 2014
TIME: 1 1/2 Hours
INSTRUCTION: Answer any THREE questions
QUESTION ONE: (20 MARKS)
a) Given below were the purchases and sales made by Tamu Limited during the month of
January 2011. The purchases were inclusive of VAT at the standard rate of 16%
January
1 Purchased 400 units at Sh.5,600 per unit
Sold 40 units at Sh.7,200 per unit
5 Sold 80 units at Sh.7,200 per unit
10 Sold 200 units at Sh.7,200 per unit
20 Purchased 300 units at Sh.6,400 per unit
25 Sold 80 units at Sh.7,200 per unit
31 Sold 200 units at Sh.8,000 per unit
Required:
i) The VAT account for the month of January 2011 (12 Marks)
ii) On what date is VAT due payable? (2 Marks)
b)
List and briefly explain three ways in which a government can reduce its budget deficit
(6 Marks)
QUESTION TWO: (20 MARKS)
Joel Kivutha is a general manager with Utupu Enterprises. He has provided you with
the following information on his income for the year ended 31st December 2011:
1. He is paid a basic salary of Sh. 75,000 per month (PAYE Sh. 15,000 per month)
2. He is provided with a fully furnished house (the cost of furniture Sh.200,000) His
private telephone charges averaging Sh. 1,800 per month are also paid by the
employer.
3. He is a member of a golf club where the employer contributes Sh. 5,000 per
month for him.
4. He holds a life assurance policy with Maisha Assurance Company ltd. The
employer paid the premiums on the policy for the year 2011 amounting to Sh.
48,000
5. He is a member of a registered collective investment scheme. During the year, he
earned an income of Sh. 40,000 from the scheme. The scheme invests in shares
and fixed deposit accounts
6. He separated with his wife on 1st October 2011. With effect from 31st October
2011, he has been paying alimony of Sh. 20,000 per month to his wife as required
by a court order.
7. He is provided with a motor vehicle (2,000cc) by the employer which was
purchased on 1st January 2010 at a cost of Sh. 1,500,000.
8. He contributed Sh. 25,000 per month towards a registered pension scheme.
9. On 1st December 2011, his monthly salary was increased by 10% backdated to 1st
July 2011.
10. He owns a pig rearing farm in Ndeiya. The farm reported revenue of Sh.
1,800,000 for the year ended 31st December 2011 before deducting the following
costs:
Salary to farm manager
Wages to farm laborers
Construction of pig sty
Purchase of plastic water tanks
300,000
160,000
48,000
22,000
Purchase of pig feed
Cost of renovating farm house
410,000
130,000
1,070,000
Required:
i)
Taxable income of Mr. Joel for the year ended 31st December 2011. (ignore the
capital allowances)
ii)
Tax liability from the income computed in (i) above.
QUESTION THREE: (20 MARKS)
Ali and Salama are in partnership trading as Alisa Enterprises and sharing profit and losses in the
ratio of 3:2 respectively. They have presented the following profit and loss account for the year
ended 31st December 2011;
INCOME:
Sales revenue
Proceeds from sale of fixed assets
Refund of VAT
Interest on Post Bank savings account
Dividend (net)
Total income
SH
6,882,000
190,000
41,250
8,750
42,800
7,127,675
EXPENDITURE:
Cost of sales
1,591,500
NHIF contributions 108,750
NSSF contributions 170,000
Lorry maintenance expenses
Salaries to partners
1,005,750
800,000
Household expenses: Ali 96,250
Repairs and maintenance 75,00
Advertising
156,750
Insurance premiums 125,000
Interest on loans 200,000
Subscriptions to trade association
0,000
Donations 20,000
Legal expenses 98,000
Income tax
240,000
General expenses 86,650
Bad debts 61,750
Water and electricity 81,000
Depreciation 19,500
4,975,900
Net profit
2,188,900
Additional information;
1. Insurance premiums include Sh. 70,000 incurred on the life assurance policy of Salama.
2. Bad debts analysis
Increase in general provision 20,000
Increase in specific provision 41,750
61750
3. Interest on loan and legal expenses relate to mortgage acquired by Ali for the purchase of
his house.
4. Salaries to partners analysis:
Ali 500,000
Salama 300,000
800,000
5. NSSF and NHIF contributions relate to the employees of the firm
6. Included in sales revenue were goods valued at Ss. 150,000 consumed by the partners.
These goods had cost Sh. 80,000 which was included in cost of sales.
Required: The adjusted taxable profit and distribution to the partners.
(20 Marks)
QUESTION FOUR: (20 MARKS)
a) Mr. Allan Muvozi is a Ugandan businessman wishing to invest in Kenya. He has approached
you for professional advice on the tax implications of various forms of business.
Required: Explain to him the four tax advantages enjoyed by sole proprietorship over a
company.
(4 Marks)
b) Mr. John Mpole accepted voluntary retirement from the civil service on 1st January 2003. He
received a golden handshake of Sh. 2 million. He is now considering six possible investments
as listed below:
1. Purchase ordinary shares in Kenya Airport Limited.
2. Purchase ordinary shares in Uganda Breweries Limited.
3. Open a fixed deposit account with Kenya Commercial Bank Limited.
4. Purchase government treasury bills.
5. Subscribe for debentures in National Bank of Tanzania Limited.
Required: For each investment above, advice Mr. Mpole on the income tax consequences.
(6 Marks)
c) Distinguish between agricultural employees and other employees with specific reference to
the taxation of their housing benefit.
(4 Marks)
d) Outline three ways in which taxation policy could be used to promote environmental
awareness and protection.
(6 Marks)
QUESTION FIVE: (20 MARKS)
a) Distinguish between the tax treatment of rent income on resident and non-resident
individuals.
(2 Marks)
b) 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)
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
(4 Marks)
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