UNIVERSITY EXAMINATIONS:2021/2022
SCHOOL OF BUSINESS
ORDINARY EXAMINATION FOR BACHELOR OF COMMERCE
ACC 3103: ADVANCED TAXATION
WEEKEND & DL
DATE: DECEMBER 2021 TIME: 2 HOURS
INSTRUCTIONS: ANSWER ALL THE QUESTIONS
QUESTION ONE (20 MARKS)
(a) Distinguish between the following:
(i) Trading receipt and balancing charge (2Marks)
(ii) Tax evasion and tax avoidance (2Marks)
b) “All revenues belonging to the government should be collected by Kenya Revenue
Authority (KRA)”, said the retired commissioner general. Discuss this statement.
(6 Marks)
c) Martin Maina operates an electronics shop along Luthuli Avenue in Nairobi. He undertook
the following transactions for the month of March 2021.
1 March 2021 Purchased 10 cameras for a total of Sh. 500,000.
4 March 2021 Purchased flashbulbs for a total of Sh.200,000
4 March 2021 Purchased 5 slide projectors for a total of Sh. 1,000,000
5 March 2021 Sold 5 cameras each at 25% above cost price.
6 March 2021 Purchased 200 wrist-watches at Sh.1,500 each
8 March 2021 Sold 2 slide projectors for a total of Sh. 500,000
9 March 2021 Sold flashbulbs that cost Sh. 100,000 for Sh.150,000
12 March 2021 Purchased 50 stop watches for a total of Sh.50,000
15 March 2021 Purchased 100 alarm clocks at a total value of Sh.80,000
18 March 2021 Sold the remaining 5 cameras each at 25% above cost price
20 March 2021 Sold 3 slide projectors for a total of Sh.750,000
22 March 2021 Sold 100 wrist-watches at Sh.2,000 per watch
25 March 2021 Sold 70 alarm clocks each at 30% above cost.
27 March 2021 Sold 50 stop watches for a total of Sh. 75,000
1
The prices above are inclusive of VAT at 16% where applicable
Required
Prepare the VAT account for Mr. Martin Maina clearly showing the VAT payable (refundable).
(10 Marks)
QUESTION TWO (20 MARKS)
(a) I) Mr. Allan Movozi is a Ugandan business man wishing to invest in Kenya. He has
approached you for professional advice on the tax implication of various forms of
business.
Required:
Explain to him four tax advantages enjoyed by sole properties over a company. (4Marks)
2) Mr. John Mpole accepted voluntary retirement from the cruel services on 1 st January
2020. He received a golden handshake of 2 million. He is now considering six possible
investments as listed below:
(i) Purchase ordinary shares in Kenya Airways limited.
(ii) Purchase ordinary share in Uganda breweries limited.
(iii) Open affixed deposit account with Kenya Commercial Bank Limited.
(iv) Purchase government treasury bills.
(v) Open a saving account with Kenya post office saving Bank limited.
(vi) Subscribe for debentures in National Bank of Tanzania limited.
Required:
For each of the investment above, advise Mr.Pole on the income tax consequences. (6Marks)
b) Mr. Duda is a professional medical doctor, practicing in Mandera. Given below are
the financial details of her clinic for the year ended 31 December 2020
Sh.
Gross professional fees received 3,000,000
Directors’ fees received (deductions at source) 360,000
Interest income from AB Bank Ltd. – Gross 72,000
Dividend income (net 102,000
Subscriptions to professional association and publications 60,000
Donations to destitute children’s home 30,000
Subscriptions to Wildlife Magazine 6,000
Debt collection (patients) expenses 18,000
Wages for clinic assistant 360,000
Replacement of clinic instruments 120,000
Rent for the clinic premises 420,000
2
Electricity and water – clinic 120,000
General expenses – clinic 210,000
Car hire expenses – for use in practice 150,000
Uniform for staff 115,000
Payment of school fees for own children 120,000
Contribution to Registered Provident Fund – self 180,000
Payment of life insurance premium – self 60,000
Terminal benefits paid to retired receptionist 150,000
Depreciation on furniture – clinic 36,000
Rents received from sub-rentals 42,000
Rent collection expenses 6,000
Wages paid to cleaners an watchman – clinic 150,000
Tarmacking of drive-way – personal residence 240,000
Additional servant quarters – personal residence 420,000
Required
i. Taxable income of Mr. Dida for the year ended 31 December 2020. (6 Marks)
ii. Tax payable by Mr.Dida. (2 Marks)
iii. Indicate the date when the tax, if any, is payable to the Income Tax Department. (2 Marks)
QUESTION THREE (10 MARKS)
The Gitoro Food Processing Industries Ltd. commenced business on 1 January 2020 and the
following are the fixed assets of the company which it acquired prior to the commencement of the
business:
Sh.
Conveyer and sorter (installed in the building) 3,120,000
Packaging machine 2,325,000
Milling machine 2,580,000
Crashing machine 2,760,000
Fork lifts 1,290,000
Farm tractors 5,850,000
Lorry 1,8000,000
Saloon car 585,0003
Delivery van 1,350,000
Furniture, fittings and partitions 408,000
Land at cost 15,000,000
The building in use was constructed at a cost of Sh.10,200,000 but its value after construction was
estimated at Sh.12,600,000 by a professional valuer.
3
Additions During the year included
Sh.
Tractor 2,655,000
Lorry 3,900,000
Toyota – Land Cruiser 2,025,000
Furniture 210,000
Partitions 408,000
Land 4,680,000
3 computers – year 2020 compliant 450,000
The following assets were disposed off in Year 2020:
Sh.
Land 4,290,000
Fork lifts 360,000
Saloon car 690,000
Further enquiry revealed that under repairs and maintenance Sh.276,000 was paid for office
partitions done in year 2020.
Required
(a) Compute the capital allowances for the company for the year 2020 (8 Marks)
(b) Comment on any information not used in (a) above. (2 Marks)
RATES OF TAX (Including wife’s employment, self-employment and professional income rates of tax).
4
Year of income 2020.
Assume that the following rates of tax applied throughout the year of income 2020:
Monthly taxable pay Annual taxable pay Rate of tax
(Sh.) (Sh.) % in each Sh.
1 - 24,000 1 - 288,000 10%
24,001 - 40,667 288,001 - 488,000 15%
40,668 - 57,334 488,001 - 688,000 20%
Excess over - 57,334 Excess over - 688,000 25%
Personal relief Sh. 2,400 per month (Sh. 28,800 per annum)
Investment allowance: Rate of investment allowance: Residual Prescribed benefit rates of motor vehicles
value provided by employer.
Capital expenditure incurred on: (per Saloons, Hatch Backs and Estates
year on
reducing
balance)
Buildings: Monthly Annual rates
rates (Sh.)
(Sh.)
Hotel building 50% in the first year of use 25% Up to - 1200cc 3,600 43,200
Building used for manufacture 50% in the first year of use 25% 1201 - 1500cc 4,200 50,400
Hospital buildings 50% in the first year of use 25% 1501 - 1750cc 5,800 69,600
Petroleum or gas storage facilities 50% in the first year of use 25% 1751 - 2000cc 7,200 86,400
Educational/ hostels building 10% per year on reducing balance 2001 - 3000cc 8,600 103,200
Commercial building 10% per year on reducing balance Over - 3000cc 14,400 172,800
Machinery:
Machinery used for manufacture 50% in the first year of use 25%
Hospital equipment 50% in the first year of use 25% Pick-ups, Panel Vans (Unconverted)
Ships or aircraft 50% in the first year of use 25% Up to - 3,600 43,200
1750cc
Motor vehicle or heavy earth moving equipment 25% per year on reducing balance Over - 4,200 50,400
1750cc
Computer software, calculators, copiers and 25% per year on reducing balance
duplicating machines
Furniture and fittings 10% per year on reducing balance
Telecommunication equipment 10% per year on reducing balance
Film equipment by local producer 25% per year on reducing balance
Machinery used to undertake operations under 50% in the first year of use 25%
prospecting rights and exploration under mining
rights
Other machinery 10% per year on reducing balance
Purchase acquisition of right to use fibre optic 10% per year on reducing balance Land Rovers/ 7,200 86,400
cable by telecommunication operation Cruisers
Farm works 50% in the first year of use 25%
Commissioner’s prescribed benefit rates: Monthly rates Annual rates
Services (Sh.) (Sh.)
Electricity (Communal or from a generator) 1,500 1,800
Water (Communal or from a borehole) 500 6,000
Agriculture employees: Reduced rates of benefits
Water 200 2,400
Electricity 900 10,800
