CRAFT CERTIFICATE IN ACCOUNTANCY - Kenyan Exams

Turn over © 2017 The Kenya National Examinations C ouncif.

Candidates should check the question paper to ascertain that all the pages are printed as indicated and that no questions are missing.

•' This paper consists of 7 printed pages

This paper consists of TWO sections; A and B. Answer ALL the questions in section A and any FOUR questions in section Bin the answer booklet provided Maximum marks for each part of a question are as indicated Candidates should answer the questions in English.

INSTRUCTIONS TO CANDIDATES

3 hours

TAXATION

CRAFT CERTIFICATE IN ACCOUNTANCY

THE KENYA NATIONAL EXAMJNATIONS COUNCIL

1804/305 TAXATION July 2017 Time: 3 hours

2 1804/305 July 2017

(4 marks) Calculate the output VAT.

10. Akot Limited purchased raw materials for Ksh. 240,000. The company incurred 30% of the cost of raw materials as production cost. The finished goods were sold at a mark up of 25%. The Value Added Tax (VAT) rate is 16%.

(2 marks) Highlight two functions of the Commissioner of Domestic Taxes. 9.

(3 marks) Outline three reasons that may cause a government to levy taxes in an economy. 8. (2 marks)

Highlight two advantages of a progressive tax system. 7. (4 marks)

Compute Mr. Oyugi's annual taxable income.

- Basic salary Ksh. 80,000 per annum. - Medical allowance Ksh. 15,000 per month. - He is housed by the employer.

6. The following information relates to Mr. Oyugi, an employee of Kuku Limited, for the year of income 2016:

(4 marks)

5. In the year of income 2016, Amba Limited realised a taxable profit ofKsh. 1,230,000, before deducting capital allowances of Ksh. 333,000.

Determine the company's tax liability for the year 2016.

(4 marks) 4. Outline two circumstances that may cause the Commissioner of Domestic Taxes to issue an

amended assessment to a taxpayer. ( 4 marks)

(ii) An industrial building f\._· _

(iii) A farm house (iv) A warehouse

Capital Expenditure Capital Allowance (i) A delivery van

3. State the type of capital allowance that is granted for each of the following capital expenditures: -: (2 marks)

State the difference between tax avoidance and tax evasion. 2. (3 marks) List three types of tax reliefs that may be available to an individual taxpayer. 1.

Answer ALL the questions in this section.

SECTION A (32 marks)

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• Mr. Rukendo is housed by the company.

• - Mr. Rukendo is the General Manager of a company where he owns 25% of the shares. - Mrs. Rukendo is employed in the same company as the personal assistant to the General Manager.

• PAYE deducted: Ksh. - Mr. Rukendo 21,600 - Mrs. Rukendo 14,400 -Pension 62,160

Additional information:

48,000 96,000

96,000 150,000

144,000 9,600

240,000 Employment Gross pay House Allowance Pension Share of partnership profits Housing development Bond - gross interest Rent income

Mrs. Rukendo Ksh.

Mr. Rukendo Ksh.

12. The following information relates to Mr. Rukendo and Mrs. Rukendo for the year of income, 2016:

(9 marks) late filing penalty for each of the instalments. late payment penalty for each of instalment taxes.

I. II.

(i) State the dates when each of the instalments would be payable. (ii) Calculate the:

(b) Mr. Kama is a practicing engineer. He failed to submit instalment tax for the year ended 31 December 2016. He estimated that each instalment's tax liability would be Ksh. 50,000. The Commissioner of Domestic Taxes issued him with an annual estimated assessment ofKsh. 400,000 for the year of income, 2016.

Abdi and Macha intend to operate a business as a partnership. Explain four tax benefits that may accrue from such a business. (8 marks)

11. (a)

Answer any FOUR questions in this section.

SECTION B (68 marks)

. , ·.

4

Income Statement For the year ended 31 December 2016

Ksh. Ksh. Rent and rates 288,000 Gross profit 1,4400,00 -, Repairs 40,800 Dividends received 48,000 Audit fees 14,400 Discounts received 18,000 Bank: Interest 18,000 General Expenses 54,000 Depreciation 69,600, Water and Electricity 72,000 Salaries and wages 420,000 Bad debt 28,800 Legal expenses 19,200 Posta~ 1) 50,400 \ / o I ').-0

:13Q 800 Net profit

1.506.000 1,506DOO

) Additional information:

• General expenses include: Ksh.

- Fines for breach of law 12,000 - Corporation tax paid 18,000 - General administration 24,000

54,000

The following income statement relates to Ngele Limited for the year ending 31 December 2016:

Explain four ways in which PAYE system satisfies the principles of a good tax system. (8 marks)

(17 marks) total taxable income of Mr. Rukendo for the year of income 2016; tax liability for Mr. Rukendo for the year of income, 2016.

(i) (ii)

Calculate the:

- Medical expenses reimbursement Ksh. 43,200. - Life insurance premium Ksh. 20, 160. The policy is with a Kenyan insurance company

and the capital sum assured is Ksh. 360,000. - Contribution to a registered pension scheme of Ksh. 28,000.

• The company also incurred the following expenses on behalf of Mr, Rukendo in year 2016:

1804/305 July 2017

(b)

3. (a)

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Calculate the capital allowances due to the company for the year of income, 2016. (9 marks)

Ksh . 800,000

48,000,000 120,000,000

8,000,000 1,600,000

400,000

Cost of land Cost of building New machinery installed Godown (converted) Delivery vans Office furniture and equipment

Cooky Limited started business operations on 1 January 2016. The following capital expenditures were incurred:

Explain four types of tax offenses that may be committed by a tax payer as per the Income Tax Act. (8 marks)

(9 marks) Compute the adjusted taxable profit for the year of income, 2016.

• Repairs consist of: Ksh.

- Installation of CCTV cameras 30,000 - Repairs of machinery 10,800

40 800

• Legal expenses consist of:

Ksh. - Staff employment contracts 9,600 - Debt collection expenses 9,600

19.200

• Bad debts analysis: Ksh.

- Bad debts incurred 9,600 - Increase in provision for bad debts:

General 12,000 Specific 7,200

28,800

1804/305 July 2017

•

(b)

J 14. (a) ......

6 1804/305 }11/v 2017

(9 marks) Prepare a VAT account. (ii)

I. output tax; II. input tax.

(i) Calculate the:

• Prices shown are inclusive of VAT at the standard rate of 16%.

• There were no opening stocks at the beginning of the month but 30 units were in stock as at 17 April 2017.

Additional information:

80 2,800 150 3,200

2,500 250

400 I 2 6 9 16

Units Price per unit Ksh.

50 2,800 110 2,800 230 2,800

Price per unit Ksh. 2,100

Units

Sales Purchases 2017 April

(b) Bidii Limited recorded the following purchases and sales during the month of April 2017.

(8 marks) Explain four advantages of indirect taxes. 15. (a)

1804/305 July 2017

THIS IS THE LAST PRINTED PAGE. 7

2,400

10,800 200

900

Agricultural employees: Reduced rates of benefits (i) Water

(ii) Electricity

(i)

(ii)

Electricity (Communal or from a generator)

Water (Communal or from a borehole)

Monthly rates Ksh

1,500

500

Annual rates Ksh 18,000

6,000

2005 - 2010 100%

Shipping investment deduction 40% Mining allowances

Year 1 4-0% Year 2 -7 - 10%

Commissioner's prescribed benefit rates Services

Hotels 4.0%

Farm works allowance 33.3%

Investment deduction allowance: 2003 - 70% 2004 - 100%

Industrial building allowance: Industrial buildings 2.5%

12.5% Class IV

Wear and tear allowance: Class I 37.5% Class II 30% Class III 25%

Capital allowances

rates rates (Ksh) (Ksh)

(i) Saloons, Hatch Backs and Estates

Upto 1200cc 3,600 43,200 1201 1500 cc 4,200 50,400 1501 1750 cc 5,800 69,600 1751 2000cc 7,200 86,400 2001 3000 cc 8,600 103,200 Over 3000cc 14,400 172,800 (ii) Pick-ups, Panel Van

(uncovered)

Upto 1750 cc 3,600 43,200

Over 1750 cc 4,200 50,400

(iii) Land Rovers/Cruisers 7,200 86,400

OR 2% of the initial capital cost of the vehicle for each month, whichever is higher.

29,317 - 38,892 351793 466,704 25% Excess over - 38,892 Excess over 466,704 30%

Personal relief Ksh.1,162 per month (Ksh.13,944 per annum) Prescribed benefits rates of motor vehicles provided by employer

Monthly Annual

121969 236881

l 10,165

19,741

10%

15%

20%

- 10,164 - 19,74-0 - 29,316

121,%8

236,880 351,792

Annual taxable pay (Ksh)

Rate of tax % in each (Ksh)

RATE OF TAX (including wife's employment, self employment and professional income rate of tax). Year of income 2016.

Monthly taxable pay (Ksh)