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Hbc2123:Introduction To Taxation Question Paper
Hbc2123:Introduction To Taxation
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2011
QUESTION ONE – (30 MARKS)
(a) Explain any five canons of taxation (10 Marks) (b) Differentiate between: (i) Sales tax and VAT (2 Marks) (ii) Import duty and income tax (2 Marks) (iii)Progressive tax and regressive tax (2 Marks) (iv) Employment tax and self employment tax. (2 Marks) (c) The Kenyan government favours increasing taxes on beer and cigarettes, given both commodities exhibit fairly inelastic demand and elastic supply. Use suitable well explained diagram to explain the tax impact and incidence of such commodities. (6 Marks) (d) The income tax Act (Cap 470) does not allow depreciation expense. What principles of tax does it apply? (6 Marks)
QUESTION TWO – (20 MARKS)
Mr. Mimini Member is Married to Mrs Makandiki. In the year 2007 Mr Mimini had the following income for the whole year.
(i) Salary as a local chief Sh300,000 (PAYE Sh.72,000) (ii) Net income from rent Sh148,000. (iii)Wife’s income from a sho she oerates at ianjai maret Sh.20,000. (iv) Interest income from KCB bank (withholding tax Sh3000)
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(v) Interest income from post bank Sh45,000 (vi) Dividend received from equity bank shares Ksh140,000. The bank has declared final dividend and Mr. Mimini is entitled to further dividend amounting to Sh.60,000.
REQUIRED
(a) Calculate Mr imini’s taable income for the ear 200. (6 Marks) (b) Calculate his tax liability for the year 2007 (6 Marks) (c) nder hat circumstances can rs. aandii’s taable income be ecluded from her husband’s. (4 Marks) (d) List any non-taxable personal incomes for a resident. (4 Marks)
QUESTION THREE – (20 MARKS)
Kambuni manufacturer constructed a factory building, purchased and installed new equipment and commenced manufacture of building stones in the year 2007. The costs for the assets are listed below.
Land and Buildings:
Land bought from a non resident at a throw away price Sh1,490,000 Factory building (including cost of offices Ksh500,000) Sh3,500,000
Machinery:
Staff canteen Sh885,000 2 Saloon cars (KAX 1200cc, KAJ 1800cc) Sh1,800,000 Factory machinery Sh4,900,000 Computer Sh375,000 Office machinery Sh645,000
REQUIRED
Calculate the capital allowances available to the firm (20 Marks)
QUESTION FOUR – (20 MARKS)
Ms. Akili and Ms. Mingi are partners as Akilimingi enterprises. They share profits and losses in the ratio 3:1 respectively. in the year 2007 Akilimingi reported a trading income amounting to Shs248,750. An analysis of transactions reveals the:
Akili Mingi Total Salaries to partners Sh.8000 Sh16000 Sh24000 Drawings Sh45200 Sh19800 Sh65000 Depreciation Sh18000 Harambee contributions Shs22500
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Interest from a private investment Sh18000 Sh24000 Wife’s income Sh52000 Unmarried
REQUIRED
(a) alculate artner’s artnershi income (10 Marks) (b) What tax advantages would accrue to partners if they converted the firm into a limited company? (5 Marks) (c) In case of partnership losses can such losses be offered against partners? Income from other sources? Explain (5 Marks)
TABLE FOR ALLOWANCES
Capital Allowances
(a) Wear and tear allowances: (WTA) CLASS I 37.5% CLASS II 30% CLASS III 25% CLASS IV 12.5%
(b) Industrial building allowance (IBA) Industrial buildings 25% Hotels 2006 4% 2007 to date 10%
(c) Farm works allowance (FWA) 2006 33% 2007 to date 50%
(d) Investment deduction allowance (IDA) 2003 70% 2004 100% 2006 to date 100%
(e) Shipping investment deduction 40% (f) Mining allowance Year 1 40% Year 2 7 10%
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PRESCRIBED BENEFIT RATES OF MOTOR VEHICLES PROVIDED BY EMPLOYER
(i) Saloon, Hatch Backs and Estate
Monthly Rates Annual Rates
Sh. Sh
Up to 1200cc 3,600 43,200 1201 1500cc 4,200 50,400 1501 1700cc 5,800 69,600 1751 2000cc 7,200 86,400 2001 3000cc 8,600 103,200 Over 3000cc 14,400 172,800
(ii) Pick-ups, Panel Van (Unconverted)
Upto 1750cc 3600 43,200 Over 1750cc 4200 50400
(iii)Land Rovers/Cruisers: 7,200 86,400
OR 2% of the initial capital cost of the vehicles each month, whichever is higher.
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