Hba2302:Advanced Taxation Question Paper
Hba2302:Advanced Taxation
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2011
QUESTION ONE (30 MARKS)
(a) Explain some of the ways in which one can avoid tax. (5 Marks) (b) Tax evasion is illegal. Discuss any five ways through which tax evasion may be achieved. (5 Marks) (c) What are some of the circumstances that may trigger adults by the KRA? Account for any five. (5 Marks) (d) Mr. Pesa, a Married Kenyan resident, had income of Ksh460,000 for the year of income 2008 and also received income from Zambia net of tax Ksh280,000. The tax deducted in Zambia was Ksh80,000. Kenya has double taxation relief treaty with Zambia.
Required (i) The double taxation relief in Kenya. (6 Marks) (ii) Tax payable by Mr. Pesa in Kenya. (4 Marks) (iii)What are the emerging trends in taxation. (5 Marks)
QUESTION TWO (20 MARKS)
(a) Briefly explain any four capital allowances in Kenya. (8 Marks)
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(b) The following is the summary of balance sheet of Fununu Ltd as at 1st Jan 2006. Non-current Assets Shs000 Sh000 Factory building (net book value) Processing machinery (net book value) Motor vehicles (net book value) Furniture and fittings (net book value) Office equipment (net book value) Current Assets Stock Trade debtors Pre-paid insurance Bank balance
Financed by: Share capital (ord. @20/=) 10% debenture stocks 15% bank loan
5680 2420 1500 840 670
11,110
1240 760 360 540
2,900 14,010 9000 2400 1500 12900
Current liabilities Creditors Accrual general Expenses
1000 110
1,110___ 14,010
Additional Information
(i) All the non-current assets were acquired on 1 January 2004 when the company commenced operations. The net book value of these assets at 1st Jan 2007 were the same as their written down values for capital allowance purposes. (ii) Included in the processing machinery are machinery with a net book value of Sh.420,000 as at 1st Jan 2007. This machinery are used in designing and moulding products during the manufacturing process. (iii)Office equipment as at 1 Jan 2007 comprised the following assets at net book value Sh. Computers 240,000 Telephone switchboard 96,000 Fax machines 120,000 Neon sign 36,000 Other office equipment 178,000 (iv) One of the motor vehicles purchased on 1st January 2004 was a saloon car acquired at a cost of Sh1,200,000
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(v) The reported profit of the company for the year end 31st December 2007 was Sh.1,840,000, before accounting for capital allowance due for the year and interest expense. The reported profit was based on cash sales. (vi) The following transactions included in the bank statement for the year had also not been accounted for in arriving at the reported profits. Sh. Receipts from trade debtors 2,800,000 Payments to trade creditors 1,400,000 Refund from trade creditors for purchases returned 360,000 General expenses 346,800 Insurance 550,000 Cash sales deposited directly to bank account 140,000
Insurance paid includes a pre-payment of Sh.50,800 for year 2008
(vii) There were no closing balances of trade debtors and creditors at 31 December 2007. All payments from to trade debtors and creditors were made through the bank account.
REQUIRED: For the year ended 31st December 2007 Determine for Fununu Ltd. (a) Capital allowances (8 Marks) (b) Adjusted taxable profit/loss (4 Marks)
QUESTION THREE (20 MARKS)
(a) Discuss the principle of mutuality. (3 Marks) (b) Distinguish between the taxation of trade associations and clubs. (3 Marks (c) Explain any four allowable expenditure of a petroleum company while arriving at the taxable profit. (4 Marks) (d) Galaxy limited is incorporated in Kenya and has a contract with the government of Kenya. The company has been allowed to explore in Kenay and share the proceeds with the government. The company (Galaxy) has contracted Tiamin Ltd to carry out exploration surveys in Kenya for a period of six months. You are provided with the following information with regard to Galaxy Ltd.
GALAXY INCOME STATEMENT Ksh. Ksh. Production sales 600,000,000 Geological costs 40,000,000 Production expenditure 6,000,000 Production staff salaries 4,000,000
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Entertainment directors 6,000,000 Payment to government 1,000,000 Computers purchased for administrative work 2,000,000 Consultancy fee 14,000,000 Interest on loan 8,000,000 Exploration machinery purchased 15,000,000 Service fee paid Tiamin Ltd 200,000,000 Professional fees paid 4,000,000 (300,000,000) 5,700,000,000 Required:
Compute the taxable profit for Galaxy Ltd, and compute the amount of tax payable by Tiamin Ltd and when. (10 Marks)
QUESTION FOUR (20 MARKS)
(a) Explain the various types of returns of income (4 Marks) (b) Discuss the taxation of income of a deceased person (2 Marks) (c) With reference to the provisions of the income tax Act. Identify four methods which the commissioners of domestic taxes is empowered to sued in order to collect overdue tax. From a tax payer. (4 Marks) (d) The reenue authorty may send ts offcers to employer’s payng ponts to chec the ey areas that tax officers should include in the audit procedure on the operations of the PAYE. (10 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%
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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%
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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