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Hba2302:Advanced Taxation Question Paper
Hba2302:Advanced Taxation
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2014
QUESITON ONE – (30 MARKS)
(a) Explain the qualifying cost for investment deduction. (5Marks) (b) With an aid of decided cases explain the term manufacturing. (5 Mark) (c) Mobile Options Ltd. is a distributor of mobile phones and accessories. The profit and loss account for the year ended 31 December 2013 is as follows: Shs. Shs. Purchases 12,000,000 Sales 18,000,000 Salaries and wages 2,000,000 Discounts 400,000 Rent and rates 125,000 Insurance recovery 180,000 Distribution and office expenses 480,000 Profit on sale of assets 240,000 Travelling and subsistence 336,000 Provision for bad debts 80,000 Subscription 50,000 Licences and permits 200,000 Legal fees 436,000 Depreciation 670,000 Audit fees 130,000 Loss on sale of assets 240,000 Bank charges and interest 96,000 Bad debts 415,000 Discounts 336,000 Repairs and maintenance 705,000 Net profit 681,000 _________ 18,900,000 18,900,000
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Notes:
1. Distribution and office expenses include the following
Sh. uscriptions to ananchi sports clu or employees’ eneit 180,000 irectors’ personal expenses 96,000 Donations to charity 50,000 2. 15% of rent and rates relate to payments in connection with director’s priate residences. 3. Insurance recovery is in connection with mobile phones stolen while on transit to a client. 4. Bad debts provision represents a reduction in the general provision for bad debts. 5. Legal fees include the following :
Sh.
Debt collection 80,000 Employment contracts 60,000 Acquisition of trade mark 120,000 Renewal of lease 50 years 60,000 Legal suit in relation to counterfeit handsets ound in the company’s warehouse. 116,000 436,000 6. Subscriptions are to the Mobile Phone Dealers Association. 7. Licences and permits represents Sh.150,000 paid to the Communications Commissions of Kenya (CCK) and Sh.50,000 relates to the single business permit paid to the Nairobi City Council. 8. Repairs and maintenance include an extension to the warehouse at a cost of Sh.450,000. 9. Travelling expenses include Sh.240,000 incurred by the sales manager when he travelled to South Africa to attend a mobile phones and accessories trade fair. 10. Capital allowances have been agreed with the Commissioner of Income Tax at Shs.860,000.
Required (a) ompute oile ptions td’s taxale proit or loss or the year ended December 2013. (12 Marks) (b) Compute the tax payable thereon. (2 Marks) (c) Assuming that Mobile Options td’s tax liaility or the year ended ecemer 2004 was Sh.800,000, indicate the due dates for the tax you have computed in (b) above showing the amounts payable. (4 Marks) (d) Compute the penalties payable by Mobile Options Ltd if the company paid the tax of Sh.800,000 in (c) above on 30 November 2013. (2 Marks)
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QUESTION TWO – (20 MARKS)
You are provided with the following information concerning Bimak Ltd. a company that makes its accounts to 31 December every year.
The company bought an industrial building from Mr. Kujenga at a cost of Sh.20,000,000 in 2012. Mr. Kujenga had constructed the building in 2011 at a cost of Sh.16,600,000 which included the cost of land amounting to Sh.4,000,000 a canteen for workers for Sh.2,400,000, showroom costing Sh.600,000 and offices costing Sh.1,500,000. The building however, had not been put into any use in 2012.
In the same year (2012) Bimak Ltd. made the following additions to the following :
A warehouse at a cost of Sh.3,600,000 Labour quarters costing Sh.2,400,000 Extension to the factory to accommodate machines at a cost of Sh.4,200,000
Before commencing manufacturing on 1 July 2013, Bimak Ltd acquired the following additional assets;
Processing machinery - Shs.5,200,000 Labour Cruiser - Shs.1,200,000 A three ton lorry - Shs.2,600,000 A tractor - Shs.3,600,000 Furniture and fittings - Shs.1,200,000 ima td. conerted one o the director’s ercede en ehicles into ompany’s use. t was valued at Sh.7500,000 and was used entirely for the company’s usiness.
Computers - Shs.1,600,000 Photocopier - Shs.240,000 Saloon car - Shs.1,200,000
In the year 2013, Bimak Ltd continued expanding and acquired / constructed the following
Additional processing machinery Ksh2,400,000 An additional factor extension was constructed at a cost of Sh.4,600,000 which included an administrative office costing Sh.1,000,000. These were bought into use with effect from 1 September 2013. A fire exist was also constructed at a cost of Sh.900,000 and bought into use on 1 July 2013.
The management disposed of the following assets in the year 2013:
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Processing machinery Sh.1,200,000 One of the computers purchased in 2013 for Sh.120,000 was traded in with another one valued at Sh.300,000. The trade-in-value was Sh.150,000 The Mercedez Benz was disposed of at Sh.600,000
In the year 2013, Bimak Ltd. decided to strengthen the security at the factory by building a stone perimeter fence at a cost of Sh.1,800,000. This was brought into use with effect from 1 June 2013. The company bought a Range Rover for the Chief Executive at a cost of Sh.2,400,000.
Required:
(a) ima td’s capital allowances or each o the years ended ecemer and . (20 Marks)
QUESTION THREE – (20 MARKS)
Explain the following matters of taxation
(a) Presumptive income (b) Reverse charge (c) Insurance reliefs (d) Taxation of export processing zones enterprises (e) Top slice income (20 Marks)
QUESTION FOUR – (20 MARKS)
(a) With reference to the tax legislation in your country, write brief notes on the following: (i) Import declaration from (3 Marks) (ii) Reverse charge (3 Marks) (iii) Refund of duty paid on imported goods. (3 Marks) (b) ABC Ltd imported goods form Dubai whose landed value was Sh.2,450,000. Duty is chargeable on them at the rate of 20%. Other charges include a provision for transport to the company premises amounting to Shs.110,000 and a commission of 5% of dutable value to the clearing agent. VAT was charged on the goods at the standard rate (16%).
Required: Determine the amount of VAT payable. (3 Marks) (c) Akuru and associates is a firm of Certified Public Accountants. During the month of December 2005, the firm provided accountancy, audit and tax consultancy services to XYZ Ltd. and charged the following fees;
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Shs Accountancy 120,000 Audit 240,000 Tax consultancy 180,000 VAT was charged at the rate of 16%
Required; (i) Prepare a tax invoice as per the requirements of the VAT Act and regulations for XYZ ltd. (5 Marks) (ii) Prepare a VAT account for Akuru and Associates, assuming that they did not perform any other professional assignments in December 2005. However, they bought stationery worth Sh.75,520, inclusive of VAT and paid on electricity bill which included sh.7,210 VAT. (3 Marks)
QUESTION FIVE – (20 MARKS)
Omondi, Onyango and Kimani are partners operating a wholesale shop in Kisumu. They share profits and losses in the ratio 2:2:1 respectively. During the year ended 31 December 2013, the partners reported a loss of Sh.10,325,000 after deducting the following:
Sh. Interest on capital: Omondi 406,000 Onyango 406,000 Kimani 609,000 Motor vehicle running expenses 532,000 Office expenses 420,000 Goodwill 700,000 Repairs and maintenance 168,000 Loss on investment 55,000 Postage and telephone 297,500 Water and electricity 238,000 Salaries and wages 1,246,000 Donations to charitable institutions 525,000 Subscriptions to KNCCI (Trade Association) 224,000 Bad debts expense 605,500 Rent, rates and licences 280,000 Professional fees 760,000 Depreciation 960,000 Purchase of lorry 2,329,250 Salary to partners Omondi 700,000 Onyango 735,000 Kimani 1,008,000
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Additional information:
1. Office expenses included cost of office cabinet of Sh.192,500 2. The partnership received dividends amounting to Sh.462,000 (net) fromvarious stocks held in different companies. This was excluded from the above computation. 3. The partnership received Sh.910,000 being insurance recovery for stocks which were destroyed by fire in 2004. This was omitted in arriving at the reported loss above. 4. Motor vehicle running expenses included Sh.21,000 per month related to personal travel by the partners. 5. Provision for bad and doubtful debts account for the year was as follows: Sh. Shs.
Bad debts written off 430,500 General brought forward 577,500
Specific carried forward 336,000 Specific brought forward 266,000
General carried forward 682,500 Profit and loss account 605,500
1,449,000 1,449,000
6. Omondi had taken goods worth sh.122,500 for his own use. This was not recorded in the books of account. 7. Included in repairs and maintenance is Sh.140,000 paid for office partitions during the year 8. The partners had other incomes as follows: Omondi (Sh.) Onyango (Sh.) Kimani (Sh.)
Rent (net) 200,000 - 350,000
Farming income - 750,000 (745,000)
Interest (net) 191,250 81,600 -_______
391,230 831,600 (495,000)
9. Capital allowances have been agreed with the Commissioner at Sh.906,000.
Required: (a) The taxable profit/(loss) for the partnership business for the year 2013. (8 Marks) (b) Show the allocation of the profit/(loss) among the partners. (6 Marks) (c) Compute tax payable by each partner. (6 Marks)
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