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:2012
QUESTION ONE (30 MARKS)
a) Briefly explain the rationale ( 5 Marks) b) Giving appropriate examples, distinguish between customs duty and exercise duty. ( 5 Marks) c) Mr. Kamau is a married person. He and his wife had the following income for the year ended 2006. i) Mr. Kamau: Salary Ksh. 170,000 p.a ( PAYE 20,000) Dividends 32,000 (Withholding tax sh. 4,000) Free company car ( 1500 c.c)
ii) Mrs. Kamau – sh. 10,000 pm ( PAYE shs. 2500) iii) She also runs a small business. Its net income from the business was sh. 60,000 during the year.
Required:
a) Compute the tax payable by Mr. Kamau for the year ended 31st December, 2005 ( 10 Marks) b) Based on the impact and the incidence of tax burden, tax can be classified as direct or indirect tax. Give and explain merits of indirect taxes over direct taxes. ( 10 Marks)
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QUESTION TWO (20 MARKS)
a) tax laws. ( 5 Marks) b) Bidii limited makes its accounts to 31st December of each year and has prepared the following profit and loss account for 2005.
Ksh Ksh.
General administration expenses 40,000 Gross profit b/d 200,000
12,000 Bad debts previously
Depreciation 10,000 Written off 1,000
Subscriptions 2,000 Dividends (Gross) 5,000
Directors fees and expenses 5,000 Possible interest 6,000
Patents written off 2,500 Gains sale of
Preliminary expenses 3,000 Plant and machinery 10,000
Retirement benefits 50,000 Tax refund 20,000
Rents, rate and insurances 30,000
Legal and accountancy 41,500
Interest in lieu of dividends 5,000
Net profit before taxation 30,000
242,000 242,000
Additional information: i) Analysis of repairs and rewards revels the following expenses: Ksh. - Redecoration of an existing business 3,000 - Renovating new building 5,000 - Partition and carpeting officer 4,000 ii) Subscriptions: - Natinal chamber of commerce and industry 1000 - N.E.P Refugee fund 1000
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iii) Bad debts was incurred in respect of previous employee of the company who cannot now be traced. iv) Prelimary expenses: - Legal fees on issue of share on stock exchange amounted to shs. 2000 and the rest was spent for payment for stationery before commencement of business.
v) Retirement benefits
– N.S.SF. Contribution 5,000
- Registered pension scheme for senior management 40,000 - Legal fee- plot acquisition - Gift to retiring staff 5,000
50,000
vi) Legal and accountancy
- Staff services agreement 2,000 - Audit fees 30,000 - Legal fees for lease 4,000 - Legal fees plot acquisitions 5,500 41,500
vii) Dividends were from subsidiary company where Bidii company controls 60% of the shares
viii) Capital allowances agreed at Sh. 30,000
Required:
Calculate corporation tax liability for 2005. ( 15 Marks)
QUESTION THREE (20 MARKS)
Explain the following: i) Regressive taxes ( 5 Marks) ii) Appeals to income tax tribunal ( 5 Marks) iii) Instalments tax ( 5 Marks) iv) Taxable capacity ( 5 Marks)
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QUESTION FOUR (20 MARKS)
Chaka tea limited has presented the following information relating to its affairs for the year ended 2006, December.
Income Ksh. (000) Sales of tea 60,000 Sale of surplus furniture 600 Gear and bonus from KTDA 6,000 66,600 Expenses Purchases 28,000 Wages to staff (Net of PAYE) 19,700 NSSF 2,800 PAYE 1,100 Electricity 420 Staff uniform 110 Repairs and renewals 205 Insurance 96 Legal expenses 72 Motor vehicle expenses 160 Cost of construction of gabions 128 Depreciation 5,250 Tax penalty 41 Efficiency tracking computers 184 Dividends 200 57,466 Additional Information
i) The company incurred the following capital expenditure for which it claims deductions under second schedule. All items were in use with effect from 1st January, 2006.
Shs.
Agriculture land for planting tea bushes 4,000
Irrigation plant 1800
Nursery shed for transplanting seedlings 840
Labour lines for tea pickers 2400
Land for Tea factory 2500
Factory building ( Including office block costing ( sh. 1000,000) ` 15,000
Dehydrating Plant( new) 3,600
Conveyor belt fixed to the dehydrating plant 1200
Grading machine (new) and fixed 2800
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Movable weighting scale 200
Mobile fork lift ( 20 tons) 600
Lorries for transporting Tea to factory 5,400
4 Toyota cars for managers 3200
Furniture and Fittings 1000
ii) The future sold was part of the furniture bought under (i) above. iii) Repairs and renewals include purchase of loose tools worth 35,000. iv) during tasting. v) Motor vehicle expenses include sh. 92,000 incurred on petrol for saloon cars. vi) Gabions were constructed by waterways on contract to prevent flooding of the tea plantation during rainy season. vii) Tax penalties resulted from breach of VAT regulations.
Required:
Calculate the relevant capital deductions. ( 20 Marks)
QUESTION FIVE (20 MARKS)
Explain five objectives of raising taxes and explain how they are achieved by the government. ( 20 Marks
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