W1-2-60-1-6

JOMO KENYATTA UNIVERSITY OF AGRICULTURE AND TECHNOLOGY

UNIVERSITY EXAMINATIONS 2021/2022
END OF SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR
OF COMMERCE [ACCOUNTING OPTION]
HBA 2302: ADVANCED TAXATION
DATE: APRIL 2022 TIME: 2 HOURS
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INSTRUCTIONS: ANSWER QUESTION ONE [COMPULSORY] AND
ANY OTHER TWO QUESTIONS
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QUESTION ONE [30 MARKS]
(a) Write down brief notes on the following :-
(i) Tax evasion [5 marks]
(ii) Tax avoidance [5 marks]
(b) Explain the role of Kenya Revenue Authority [5 marks]
(c) Highlight five bottlenecks confronting VAT administration in Kenya.
[5 marks]
(d) Gesora Ltd deals in a variety of goods,. In the month of September 2011,
the company accountant recorded the following transaction (exclusive of
VAT).

Wages and salaries 42 000

Audit fees paid 700
Provision for bad and doubtful debts 400
Telephone and electricity bills 500
Export of goods 10 000
Sales at standard rate 45 000
Exempt sales 20 000
Purchases at standard rate 25 000
Purchases at zero rates 10 000
Sales of motor vehicle 12 000

The accountant believes that allocation method is ideal in determining the

input VAT deductable against output tax. He also believes that 20% of
purchase of standard rate were also sold at the same rate.

REQUIRED: Determine VAT payable. [10 marks]

QUESTION TWO [20 MARKS]
Limo Ltd prepares its accounts to 31st Dec each year. The company’s trading profit
and loss account for the year ended 3 Dec 2007 is presented below.

Sh. Shs.
General Expenses 780 000 Gross profit b/f
Interest Expenses 1 220 000 8,560 000
Donations 165 000
Repairs 865 000
Directors fee 1 455 000
Dividends 900 000
Depreciation 2 100 000
Balance to reserves 1 075 000
8 560 000 8 560 000

On 1st January 2007, Limo Ltd purchased its current factory from Kip Ltd a
registered contractor, shs. 25 000 000 Kip Ltd provided details to limo as regards
the construction account as follows:

shs.
Acquisition of Land 800 000
Old building demolished to put up the factor 900 000
Labour quarters built on site 3 000 000
Factory building 9 200 000
Stone wall around the factory 1 500 000
Interest during construction 1 200 000
Total costs of construction 16 000 000

New machinery installed in the factory on 1 Jan 2007 cost shs 10 000 000/
Required:
(i) Capital allowance due to Limo Ltd for the year ended 31 Dec 2007.
[10 marks]
(ii) Taxable profit (or loss) of Limo Ltd for the year ended 31 Dec 2007.
[5 marks]
(iii) Tax liability (if any) from the profit (or loss) computed in b(i) above.
[5 marks]

QUESTION THREE [20 MARKS]

(a) Naivansha dairy co-operative society Ltd prepared the following income
statement for the year ended 31 Dec 2011.

Sh. Shs.
Sale of milk and other products 21 600 000
Dividends from quoted companies 40 000
Expenditure
Legal fees on overdraft 125 000
 Income tax paid (Year 2010) 807 000
Donations 68 000
Bad debt reserves 160 000
Repairs and maintenance 82 000
Loss on sale of investment 60 000
Vocational workshop for members 120 000
Committee sitting allowance 300 000
Interest on overdraft 200 000
Purchase of stationary 100 000
Bonusses and dividends to farmers 12 000 000 14 000 000
Surplus 7 618 000

Required:
(i) Tax payable by the co-oprative society for the year 2011.[10 marks]

(ii) Outline five ways for mitigating tax evasion in Kenya. [10 marks]

QUESTION FOUR [20 MARKS]

The directors of Totale Engineering Company limited presented the following
profit and loss account for the year ended 31st Dec 2010.

Revenues Shs.
Sales 30 780 000
Interest on government securities 50 000
30 830 000

Expenses:
Purchases 24 000 000
Wages 2 320 000
Carriage inwards 370 000
Rent 300 000
Insurance 190 000
Trade expenses 100 000
Repairs – Building 300 000
- Machinery 56 000
Advertising 254 000
Legal charges 80 000
Audit fees 70 000
Depreciation 3 017 000
Provision for doubtful debts 104 000
Debenture interest 600 000
Interim dividend 400 000
Proposed dividend 731 300
32 892 300
Net Loss 2 062 300
Additional information
(i) Purchases returns and sales returns were shs 500 000 and shs 700 000
respectively. These were left out while preparing trial balance
(ii) Wages include shs 25 000 per month paid to a consultant who helps the
com0any whenever there is problem with VAT department. VAT of shs
560 000 remains unpaid and the consultant promises to find a way of
getting it written off. Full PAYE is deducted from his salary.
(iii) Trade expenses include an amount of shs 60 000travel expenses to Korea
for director as part of the National chamber of commerce and industry
promotion tour.
(iv) Repairs to machinery include small loose tools written off y shs 10 000.
(v) Bad debts which are specifically bad are shs 74 000.
(vi) Capital allowance have been agreed at shs. 2 000 000

Required:
(a) Taxable profits for the year of income 2010 [10 marks]
(b) Tax payable if any for 2020 comment on results. [10 marks]

QUESTION FIVE [20 MARKS]

(a) What is tax planning? Outline five benefits accruing from tax planning.
[5 marks]
(b) Highlight five limitations of VAT [5 marks]
(c) Explain five tax mitigation strategies that you may advise a corp9orate entity
to adopt in order to achieve competitive edge. [10 marks]