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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:2014
QUESTION ONE (30 MARKS)
a) A government is expected to carry out some activities as part of its service to the public through taxation. Explain this statement citing any four specific activities ( 8 Marks) b) Tax shifting can be either backward or forward or in both directions. What are the main factors to be considered? (7marks) c) A company buys raw material at sh. 10 per unit and after processing, sells it at sh 20 per unit. Assuming that a tax of 20% is imposed on every unit sold, demonstrate how the tax can be shifted. (5marks) d) Discuss the following aspects of tax burden; i. The direct burden (2 Marks) ii. The indirect burden ( 2 Marks) iii. The money burden (2 Marks) iv. The Real burden (2marks) e) Explain the incidence and effects of a tax. (4 marks)
QUESTION TWO (20 MARKS)
a) Discuss a Direct tax giving argument for and against. (5 marks) b) What are the Distinctions between a single tax system and multiple tax system? Which one is prevalent in Kenya and why? (5marks) c) In what circumstances can a person be said to be a resident in Kenya (5marks) d) Ombongi and Mokandu visited Kenya between the year 2007 and 2009 as follows:
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DAYS IN KENYA YEAR Ombangi Mokandu 2007 365 364 2008 1 1 2009 3 1 Total 369 366 Average 123 122
Explain the status of the two individual regarding their residence in Kenya. (5marks)
QUESTION THREE (20 MARKS)
Discuss with examples the following tax terms;
i. Resident company (5marks) ii. Tax avoidance and tax evasion (5marks) iii. Tax incidence and its effects (5marks) iv. Taxable capacity (5marks)
QUESTION FOUR (20 MARKS) a) Mr. Ndambuki established flour milling plant in Chogoria on 1st January 2011. During the two years ended 31st December 2009 and 2010 following transactions took place.
2009: January 1; He leased a factory at sh. 30,000 p.m.. the construction cost to the lessor was sh. 4,700,000/= January 30; He imported second hand machinery at a cost of sh 2,250,000 April 30; He sold for sh50,000 machinery with an original cost of sh. 680,000. June 1; He bought one car for sh 300,000 for the business use. During the year the car clocked 20,000 km out of which 500km were in respect of private use. August2; He purchased an adjacent plat for sh 60,000 and started construction on site./ 2010: January 1; He installed new and second hand machinery costing sh 800,000and sh 600,000 respectively. This machinery was imported and was in addition to that acquired on 1st January 2009. February 12; He purchased an old tractor for sh. 900,000. June 3; He replaced the car purchase on 1st June 2009. He paid sh 200,000 after obtaining a trade in allowance of sh. 150,000 for the older car. His private mileage in the use of the new car was 30th of his annual mileage. REQUIRED: To compute the capital allowances due to Mr. John Ndambuki for the two years ended 31st December 2009 and 2010. (20 Marks)
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QUESTION FIVE (20 MARKS)
a) Explain the following terms under income tax act cap 470. i. Instalment tax system (5Marks) ii. Double taxation relief (5Marks) b) Janet Kawira is trader operating hotel business in Chogoria. She prepared her profit and loss account for the year ended 31st December 2011 as follows:
Particulars 20,000 Gross profit Less: Expenses Wages and salaries 5,000 Rent and rates 4,000 Water and electricity 1,000 Van depreciation 200 Donations to Chogoria Hospitals 1,000 General expenses 300 Doubtful debts (provisions 500 12,000 Net profit 8,000
Additional information;
i) She lives in that flat above her shop which belongs to her and they agreed with tenants that they will pay 80% and she also pays 20% of the rent and rate, water and electricity. ii) General expenses includes sh. 50,000 used for clearance of electricity bill of her village home in Muranga. iii) Written down value van at 1st January 2011 was sh. 600,000. iv) Advance tax paid sh 792,000.
REQUIRED: a) Taxable trading and profit of miss Janet Kawira for the year ended 31st December 2011. (6Marks) b) Taxable liability (4Marks)
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