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Accf 431 Tax Planning And Management Question Paper
Accf 431 Tax Planning And Management
Course:Tax Planning And Management
Institution: Kenya Methodist University question papers
Exam Year:2013
KENYA METHODIST UNIVERSITY
END OF 3''RD ''TRIMESTER 2013 (PT) EXAMINATION
SCHOOL : BUSINESS AND ECONOMICS
DEPARTMENT : ACCOUNTING FINANCE & INVESTMENTS
UNIT CODE : ACCF 431
UNIT TITLE : TAX PLANNING AND MANAGEMENT
TIME: 2 HOURS
Instructions:
Answer question one and any other two questions.
RATES OF TAX (including wife’s employment, self employment and professional income rates of tax).
Year of income 2008
Monthly taxable Annual taxable pay Rate of tax
Shillings Shillings % in each shilling
1-10164 1-121968 10%
101650-19740 121969-236880 15%
19741-29316 236881-351792 20%
29317-38892 351793-466704 25%
Excess over-38892 excess over-466704 30%
Personal relief Sh. 1162 per month (Sh. 13944 per annum)
Prescribed benefit rates of motor vehicles provided by employer
Annual Rates
Capital allowances Sh.
upto - 1200cc 43,200
1201 - 1500cc 50,400
1501 - 1750cc 69,600
1751 - 2000cc 86,400
2001 - 3000cc 103,200
over - 3000cc 172,800
Industrial building allowances:
Industrial buildings 2.5%
Hotels 4.0%
Farm works allowances 33.3%
Investment deduction allowance:
2003 - 70%
2004 – 2008 – 100%
Question One
Evaluate how taxation has been used in achieving the fiscal objectives of a developing economy.
Explain each of the following terms:
Resident in relation to body corporate
Turnover tax
Fringe benefit tax
Tax free remuneration
Mr. Kivu is a general manager with Kweli Ltd. He has provided you with the following information about his income for the year ended 31st Dec 2008:
He is paid basic salary of Sh. 75,000 per month (PAYE Sh. 15,000 per month).
He is housed by the employer in a house leased at Sh. 30,000 per month. The house was furnished by the employer at a cost of Sh.200,000. His private telephone charges averaging Sh.1,800 per month are also paid by the employer.
He is a member of a golf club where the employer contributed on 5,000 per month.
He holds a life assurance policy with Maisha Assurance Company Ltd. The employer paid the premiums on the policy for the year ended 2008 amounting to Sh.48,000.
He is a member of a registered collective investment scheme. During the year he earned an income of Sh.40,000 from the scheme. The scheme invests in shares and fixed deposit accounts.
He separated with his wife on 1st October 2008, with effect from 1st November 2008, he started paying alimony of Sh.20,000 per month to his wife as required by a court order.
He is provided with a motor vehicle (2000cc) by the employer which was purchased on 1st January 2007 at a cost of Sh. 1,500,000.
He contributed Sh. 25,000 per month towards a registered pension scheme.
On 1st December 2008, his monthly salary was increased by ten per cent backdated to 1st July 2008.
He owns a commercial property in Limuru. The property reported rental income of Sh. 1,800,000 for the year ended 31st December 2008 before deducting the following costs:
Sh.
Salary to caretaker 300,000
Wages to cleaners 160,000
Construction of fence 48,000
Purchase of a plastic water tank 22,000
Purchase of water for the tenants 410,000
Cost of renovating the property 130,000
1,070,000
Required:
Taxable income of Mr. Kivu for the year ended 31st December 2008
Tax liability from the income computed in b(i) above.
(4 marks)
Comment on any information not used in (i) and (ii) above.
(2 marks)
Question Two
Critically evaluate the extent to which the Kenyan tax system has fulfilled the principles of a good tax system as advocated by Adam Smith in his book "Wealth of Nation."
Batari and Salim are in partnership trading as Basa Enterprises. They share profits and losses in the ratio 3:2 respectively. The following is the profit and loss account for the firm for the year ended 31st December 2008.
Income: Sh.
Sales revenue 7,280,000
Proceeds from sale of fixed assets 180,000
Refund of VAT 42,760
Interest on Post Bank Savings accounts 9,250
Divided from Linda Ltd (net) 40,200
Total income 7,552,200
Expenditure:
Cost of sales 1,896,800
National Hospital Insurance Fund 102,000
NSSF contributions 180,000
Lorry maintenance expenses 560,750
Salaries to partners 800,000
Household expenses –Batari 92,450
Repairs and maintenance – buildings 52,000
Advertising 180,750
Insurance premiums 145,000
Interest on loan 100,000
Subscriptions to trade associations 80,000
Donations 30,000
Legal expenses 68,000
Value added tax 48,000
Traveling expenses 86,250
Bad debts 61,250
Water and electricity 84,000
Depreciation 21,400
4,788,650
Net profit 2,763,550
Additional information
1. Included in sales revenue were goods valued at Sh. 180,000 consumed by the partners. These goods had cost Sh.120,000 which was included in cost of sales.
2. Insurance premiums include Sh. 74,000 incurred on the life insurance policy of Salim.
3. Bad debts comprise:
Increase in general provisions 20,000
Increase in specific provisions 41,250
61,250
4. Interest on loan and legal expenses relate to a mortgage acquired by Batari for purchases of his house.
5. Salaries to partners comprise
Sh.
Batari 500,000
Salim 300,000
800,000
6. NSSF and NHIF contribution relate to the employees of the firm.
Required:
The adjusted partnership profit or loss for the year ended 31st Dec.
(10 marks)
An allocation of the adjusted profit or loss between the partners.
(2 marks)
Question Three
Mr. Babu obtained a loan of Sh. 1,500,000 from his employer on 1.1.2008. The interest on the loan was fixed at 6% per annum. The market interest rate for 91day treasury bills was averaging to 14%.
Required:
Determine the fringe benefits tax payable for the month of January 2008.
(4 marks)
Comment on the payment of the fringe benefit tax
Saidia Sacco presented the following income statement for the year ended 31st December 2008.
Income Sh.
Interest on members loans 24,000,000
Interest from infrastructure bonds 1,600,000
Interest from treasury bond 400,000
Dividends from Bidii Kenya Limited 420,000
Rental income 440,000
Total income 26,860,000
Expenditure
Salaries and wages expense 405,000
Repairing of buildings 180,000
Purchase of furniture for rental property 140,800
Printing and stationery 39,200
Caretaker wages for rented properties 28,600
Mortage interest for rental premises 29,400
Miscellaneous expenses 14,800
837,800
26,022,200
The Sacco intends to distribute Sh. 1,960,000 as dividends and bonus to members for the year ended 31st December 2009.
Required:
Determine the taxable profit/loss for the Sacco and the tax liability. (14 marks)
Question Four
Outline the rights of registered trader in respect to Value Added Tax.
(6 marks)
In 2007 Solomon Smart started a factory in Webuye town of processing saw dust into charcoal after incurring the following capital expenditure.
Sh.
Cost of land 2,000,000
Factory building 6,000,000
Processing machinery 3,080,000
Computer installed to the machinery 400,000
Weighing scale 100,000
Reconditioned boiler 600,000
Fork lift 500,000
Furniture donated by local MP 100,000
Bought 2 peugeot 504 used for delivery 5,000,000
of products for 2,500,000 each.
1st July, 2008 he started another factory in Eldoret due to heaby demand of his product after incurring the following capital expenditure:
Bought an old building previously used as a shop constrcted in 2006 at a cost of Sh. 4,000,000 and paid Sh. 10,000,000 for it installed therein machinery for manufacturing costing Shs. 3,000,000.
Wife donated a computer and a type writer costing Sh.60,000 , 840,000 respectively.
Furniture acquired during the year of Shs. 40,000 was disposed for Sh. 70,000 and acquired more furniture for the electorate factory for Sh. 200,000
Toyota Corolla purchased had an accident and the Insurance Company compensated than for 720,000 which they used to purchase 1200 pick up which cost 1,1000
Required:
Capital allowances due to the company for 2007 and 2005. (14 marks)
Question Five
Explain five capital allowances that are available to traders in Kenya.
(10 marks)
Explain the following terms
Ad valorem
Tax shifting
Non resident
Incidence and impact of tax.
(10 marks)
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