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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:2011
QUESTION ONE (30 MARKS)
a) With an aid of decided cases, define the term plant & machinery. ( 10 Marks) b) Kibirichia Ltd company has provided the following details with respect to its fixed assets for the year of income 2011.
1. Building Class I Class II Class III Class IV 1,400,000 460,000 610,000 800,000 6,200,000
2. The industrial building had been constructed in 2006 at a cost of Sh. 1,600,000. Processing machines amounted to Sh. 2,000,000
Due to an oversight, no investment deduction has been claimed.
3. During the year the following additional assets were purchased;
Shs. Patents 200,000 Computers 390,000 Stamping machine 800,000 Land 550,000
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4. A car for the use by the directors was involved in an accident and was written off. No recovery were made. 5. In December 2011 all computers were sold as one lot for sh. 1,220,000 6. Assume 60% as the rate on investment deduction for the year 2006. Required: i) Calculate capital deductions for kibiricha Ltd for the year of income 2011. ( 10 Marks) ii) Comment on thee error resulting from non claim of investment deduction. ( 5 Marks)
c) the following details are extracted from the books of Tigania west Ltd a manufacturing company for the month of January 2012.
Date Purchaser Sales Unit Price/Unit Unit Price/Unit
Jan 1 100 1400 10 1800 2 - 20 1800 5 - 30 1800 7 75 1600 - - 10 - 20 1800 12 - 50 2000 175 150 Required: i) VAT account for Tigania west Ltd. ( 4 Marks) ii) State the dates when VAT is payable. ( 1 Mark)
QUESTION TWO (20 MARKS)
R S&T are equal partners carrying out business in Meru county.
The following profit and loss account for the company is provided for the year ended 31/12/2011
Establishment expenses 800,000 Rent business premises owned jointly by partners 180,000 Interest expenses 80,000 Stationery & printing 120,000 Light & heating 40,000 General farm expenses 294,000 Repair of premises 40,000 Depreciation 3000,00 Interest capital: R 80,000 T 120,000 Salary S 160,000 Commission R 96,000 S 96,000 T 96,000 Bad debts 240,000 Gift present & charity 40,000
Gross profit 1,908,000 Sundry receipts 80,000 Interest income 72,000 Profit on sale of shares 200,000 Gross income from farming 340,000 Lottery winnings 800,000 Dividend (gross) 120,000
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Donation to child welfare 200,000 Interest loan taken to pay income tax 20,000 Legal charges 120,000 Net profit 398,000 3,520,000
3,520,000
Additional information
1. Capital allowances have been agreed as follows: Wear & Tear Sh. 180,000, farm works deductions sh. 120,000. 2. The partners had borrowed Sh. 400,000 with a hope of investing it on fixed securities to earn more interest income. Interest expenses sh. 80,000 was incurred while interest income of Sh. 72,000 was received. 3. Legal charges include sh. 40,000 paid to finish a case in the customs department. 4. In 2011, the partners brought forward losses amounting to Sh. 800,000 from the business. Required: a) Compute taxable income derived from the partnership. ( 14 Marks) b) Show the allocation among partners. ( 4 Marks) c) Comment on the result of (a) above. ( 2 Marks)
QUESTION THREE (20 MARKS) a) With reference to section 19 of the income Tax Act CAP 470 (Taxation of Insurance Companies). Explain the ascertainment of taxable income of an insurance company.( 5 Marks) b) Britam Insurance company Limited has the following details with respect to its financial year ended 31/12/2007. Gross premium 19,000,000 Claims paid 5,400,000 Claims outstanding 1/1/2007 1,640,000 Legal expenses relating to claims 540,000 Commission on re-insurance accepted 2,800,000 Reserve for unexpired risk1/1/2007 980,000 Agency expenses 1,560,000 Bad debts 450,000 Investment income 890,000 Life insurance fund 1,540,000 Depreciation 630,000 Foreign exchange gains 420,000 Dividend from life assurance fund 180,000 Management salaries 1,670,000 Bonus utilized reduction & premium 425,000 Rental income on premises 1,260,000 Repairs on rental premises 280,000
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Advertisement expenses 124,000 Purchase of furniture 120,000 Returned premiums 1,230,000 Re-insurance premiums paid 670,000
Additional information 1. The company acquired a saloon car for the general manager for sh. 2,000,000 on 1/7/2005 2. Bad debts relate to compensation due from a re-insurance company under receivership. 3. Management salaries include wages amounting to sh. 670,000 for part0-time employees working in the life assurance.
Required: i) Taxable profit or loss for Britam Insurance company. ( 12 Marks) ii) Tax payable if any. (3 Marks)
QUESTION FOUR (20 MARKS) a) Explain the circumstance when a capital statement is prepared for computation of back duty. ( 5 Marks) b) Mr. Juma Kirianki has not been keeping proper books of accounts since inceptions of the business in 2002. The following balances were extracted from his books;
Details 2002 2003 2004 2005 2006 2007 Land 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 Lorries 5,000,000 7,000,000 4,000,000 3,000,000 6,000,000 6,000,000 Saloon car 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 Swimming pool 800,000 800,000 800,000 800,000 800,000 800,000 Stocks 1,200,000 2,300,000 2,000,000 1,800,000 1,800,000 1,400,000 Computers 500,000 500,000 500,000 400,000 400,000 400,000 Bank 400,000 300,000 20,000 20,000 20,000 20,000 Business deposit A/c 2.2m 2.2m 2.2m 2.2m 2.2m 2.2m Treasury bills 3m 3m 3m 4.5m 4m 3M Debtors 200,000 150,000 250,000 300,000 280,000 520,000 House mortgage - - - 7,000,000 7,000,000 7,000,000 Creditors 340,000 - - 400,000 - - Bank overdraft 20,000 60,000 80,000 120,000 160,000 200,000 Interest on bank Deposit 10,000 5,000 8000 7000 6000 3000 Loss sale of Investment 150,000 120,000 - - 200,000 160,000 Gain of foreign exchange 50,000 60,000 40,000 30,000 20,000 20,000
Required: a) Estimate the Taxable income for each of the three year 2005,2006& 2007. ( 10 Marks) b) List down items that require additional information. ( 5 Marks)
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