GAGE COLLEGE

DEPARTMENT OF ACCOUNTING AND FINANCE

PROCESS PAYROLLFINAL EXAM (50%)
Time allowed: 1:30 hrs

Name _________________________________________ID.NO. ____________Department_________

Name ________________________________________ ID.NO. ____________Department_________
Name ________________________________________ ID.NO. ____________Department_________
Part One: Indicate whether each of the following statements is true or false.
1. Employment income includes any payment or gain in cash or in kind received from employment by the
employee with certain exemptions
2. In some exceptional cases, the Ethiopian income tax proclamation requires the employees to pay their
tax by themselves.
3. A worker shall be paid at the rate of two (2) times the ordinary hourly rate for overtime work performed
on a public holiday.
4. What is the employer share of pension contributions for a permanent employee whose regular monthly
salary of Br. 2400 is Br.1680 if pension contributions rate is 7% and 9% to employee and employer
5. Employee income tax deduction is applied on gross earnings of every employees
PART II.II.Choose The Best Answer:
1. Andy Mannamo earns $14 per hour for a 40hour a week and$21 per hour for any overtime work. If
Mannamo works 45hours in a week, his gross earnings are:
A. $560 B. $630. . C. $650 .D. $665.
2. When recording payroll:
A. Gross earnings are recorded as salaries and wages payable.
B. Net pay is recorded as salaries and wages expense.
C. Payroll deductions are recorded as liabilities.
D. More than one of the above.
3. The department that should pay the payroll is the:
A. Timekeeping department. C. Payroll department.
B. Human resources department. D. Treasurer’s department.
4. Asum of money given to an employee to compensate for an inconvenient circumstance caused by the
employer. For instance, unexpected transfer to aw different and distant work area or location.
A. Position allowance C. Hardship allowance
B. Housing allowance D. Desert allowance
5. Ato. Daniel an employee in ABC Company is earning Birr.2, 500 per month as salary plus House
allowance for covering rent expense at 10% of his salary during the year 2012E.C. He is also getting the
medical allowance of Birr.400 per month and a commission of 250 Birr per month. The taxable and non
taxable income for the month respectively.
A. Br 2,500 and Br 650 C. Br 2,500 and Br 900
B. B. Br 3000 and Br 400 D. Br 3000 and Br 650
6. The source document for preparing the payroll register is obtained from the following sources.
A. Letter of employment D. Attendance list
B. Letter of Promotion E. Time card
C. Letter of Demotion F. All of the above
7. earning of an employee that refers to the amount agreed between employers & employees at a time of
employment, & clearly stated in the letter of employment
A. Basic Earning C. Over time payment
B. Allowance D. Severance pay
8. One is not a statutory deduction enforced or imposed by low and subtractions form the gross earning,
so as to identify the net pay of an employee.
A. Contribution for saving and loan association D. Provident fund for private enterprise,
B. Income tax from basic salary E. Absence deductions
C. Pension contribution from public enterprise,
9. An employee earns Br. 50 per hour with one and quarter (1 ¼) times than regular hourly rate for all
hours in excess of 40 per week. If the employee worked 50 hours during the current week, what were
the gross earnings for the month?
A. Br.2000 B. Br.8000 C. Br.2000 D. Br.2625 E. Br.10500

Use the following information from question No 26-30 .Assume an employee who earns a basic
monthly salary of Br. 1800, a non taxable allowance of Br. 300, and an overtime earning of Br. 400
10. What is his gross earnings and amount of taxable income respectively?
A. Br 2200 and Br 300 B. Br 2700 and Br 300 C. Br 2700 and Br 400 D. Br 2700 and Br
2200
11. The amount of income that is not included in determination of taxable income
A. Br. 300 B. Br. 1800 C. Br. 400 D. None
12. What is the amount as income tax liability deducted from his taxable earnings
A. Br.323 B. Br 187.5 C. Br 315 D. None
13. Compute his total deduction if he contribute a monthly deduction of br. 150 for credit association
and 7% for pension contribution.
A. Br 276 B. Br 126 C. Br 591 D. Br463.5
14. Determine the net pay(take-home-pay) for this employee
A. Br. 2036.5 B. Br.1609 C. Br.1924 D. Br.2074 E. None
PART III– Attempt the Following Questions
1. Assume ErechaMegersa is a permanent employee expected to work 40 hours per week and during
Meskerem there are 4 weeks. The worker has done as he has been expected and he is entitled to a total
of 18% pension of which 11% from the employer and 7% from the employee
The following data are available:
 Regular monthly salary Br. 3600 and Taxable allowance Br. 300.
 Megersa has also worked 5 hours of overtime: 2 hrs during weekly rest days and 3 hrs b/n 10 p.m. – 6
a.m.
 ErechaMegersa agreed to has a monthly deduction of br. 250 for credit association
Based on the above data, compute the amount of Erecha Megersa’s::
A. Compute gross earnings for Erecha Megersa’s
B. Compute the total deductions for the employee.
C. Determine the net pay (take-home-pay) for this employee.
D. Compute the total withholding tax for the month.
E. Compute the total payroll tax expense.
F. Pass the journal entry to record the payment of salary as of Meskerem 30, 2005
2. ABC Company pays the salary of its employees according to the Ethiopia calendar of Hidar 1996.
 S.No Name of Employee Basic Monthly OT hours Duration of OT work Basic Salary
Salary Allowance worked Per Hour
1 SenaitBahru 680 ---- 8 10 P.M. to5a.m 4.25
2 PetrosChala 1800 --- 10 Weekly rest days 11.25
3 Abdu Mohammed 1280 200 --- -------------- ---
4 Leila Jemal 1900 300 6 10 P.M to 5 A.M. 11.875
5 KirkosWoldie 2400 100 10 Public Holiday 15
N.B.
N.B.
Note that management of the agency usually expects a worker to work 40 hours in a week and during Hidar,
1996 all workers have done as they have been expected. Besides, all workers of this agency are permanent
employees except Petros Chala; the monthly allowance of Kirkos Woldie is not taxable; Abdu agreed to
have a monthly Br. 200 be deducted and paid to the credit association of the agency as a monthly saving.
Instructions:
Instructions:Based on the above information
1. Prepare a payroll register (or sheet) for the company for the month of Hidar, 1996.

MICRO LINK INFORMATION TECHNOLOGY COLLEGE

DEPARTMENT OF ACCOUNTING AND FINANCE
PROCESS PAYROLL QUIZE (10%)
Name ________________________________________ ID.NO. ____________Department_________
1. Employee earns Br. 50 per hour with one and quarter (1 ¼) times than regular hourly rate for all hours in
excess of 40 per week. If the employee worked 50 hours during the current week, what were the gross
earnings for the month?
2. PAN-AFRICA trading, a private owned business pays its employees’ salaries according to the Ethiopian
calendar month. The following data relate to the month of Meskerem 1995.
S.N Name of employee Basic salary
01 Shewit. S. Br. 2.920
02 Abraham. N. 800
03 Chala. T. 1,120
 Additional information
- All workers are expected to work 40 hours per week. The workers have done as they are expected.
- Abraham N. has worked 8 hours of overtime during Meskerem: 4 hours during Ethiopian Meskel and the
other 4 hours before 10 p.m
- Shewit. S. has also worked 10 hours of overtime: 5 hours during weekly rest days and 5 hours between 10pm – 6
am
- Shewit and Chala received a month allowances of Br. 400 and 200 respectively, which are both non-
taxable.
- Chala agreed to contribute Br. 150 monthly to the credit association of the company.
- The company has a policy of contributing 15% of basic salary to a provident fund of which 5% is
contributed by the employees and the other 10% is contributed by the employer (PAN-Africa trading)
- All workers are permanent except Abraham N.
Instructions
1. Determine the net pay for:
(a) Shewit S. Abraham N Chala T.
2. Calculate the total
(a)Withholding taxes expense (b) Payroll taxes expense
3. Record the payment of salary as of Meskerem 30,1995
4. Record the payment of the claim of the credit association of the company as of Tikimit 4, 1995
Record the payment of income tax payable to the Inland Revenue Administration as of Tikimit 5,
1995

MICRO LINK INFORMATION TECHNOLOGY COLLEGE

DEPARTMENT OF ACCOUNTING AND FINANCE
PROCESS PAYROLL Group Project1(20%)
1. Assume an employee's regular hourly pay is Br. 16,
16, with a time and a half for every hour worked in
excess of 48 during a week. The following data are available:
Hours worked during current month 200hrs
Regular monthly salary Br. 3072
Allowance (transportation) Br. 300
Assume that according to company policy transportation allowance in excess of Br. 200 is subject to
employment income tax.Based on the above data, compute the amount of the employee's:
i. net pay for the current month;
ii. employment income tax,
iii. Total deductions, assuming the employee is permanent civil servant.
2. An employee is working a dangerous task in a chemical factory at Akaki. On account of this condition
he is paid a hardship allowance equal to 30% of his basic salary. His monthly salary is birr 670.
Compute:A) The gross income B) Taxable income, and C) Income tax payable.
3. Akaki Textile Factory pays the salary of its employees according to the Ethiopian calendar month of the
Federal Government Tax Authority. The forth-coming data relates to the month of Miazia, 2004.

N.B: The management of the factory usually expects a worker to work 40 hours in a week and during
miazia 2004 all workers have done as they have been expected. Besides, AlemuBekele,
AlemtsehayTaddess agreed to have a monthly Br 300 be deducted and paid to the credit Association of
the Factory as a monthly saving.
1. Prepare a payroll register sheet for the factory for the month of Miazia, 2004.
2. Record the payment of Salary as of Miazia 30, 2004 using CK. No. 5 as a source document.
3. Record the payroll taxes expense for the month of Miazia, 2004. Memorandum no. 3.
4. Record the payment of the claim of the credit association of the factory that arises from Miazia’s
payroll assuming that the payment was made on sene 1, 2004.
5. Assuming that the withholding taxes and payroll taxes of the month of Miazia, 2004 have been paid
on sene 5, 2004 via Ck. No. 12, record the required entry.

INDIVIDUAL ASSIGNMENT 1(15%)

MODEL EXAMINATION QUESTIONS
Part I Discussion
1. Describe the objectives of payroll system?
2. What is payroll register?
3. Identify and briefly describe the components of payroll register?
4. What is (a) gross pay? (b) Net pay or take home.
5. What is taxable income?
6. What is medical allowance?
7. What does payroll tax mean?
8. What is the difference between withholding tax and payroll tax?
9. What is the main difference between pension contribution and provident fund contribution?
10. What are the main activities and procedures involved in accounting for payroll? Explain.
Part II.PAYROLL PREPARATION
1. The following payroll related data pertains to Micro link Information Technology Collegefor the
month of Megabit 2006. In this college, Salary is paid on monthly basis and each employee is expected
to work for 176 hours per month. As per the personnel department’s confirmation, all staffs were on
duty for the month of Megabit. The pension contribution is 5% from employees and 7% by the college
on their basic salary. All staffs were permanent except Abay.

Earnings

Other Deductions

Instruction
Based on the above Informationyou are required to perform the following
2. Prepare a payroll register (or sheet) for the organization for the month of Megabit 2006.E.C.
3. Record the payment of salary and the accrued liabilities as of Megabit 2006.E.C. using check no. 03391
4. Record the payroll taxes expense for the month of Megabit 2006.1996
5. Record the payment of the claim of the credit association staff loan and donation of the company, and
other payroll related liabilities to the concerned authorities(withholding taxes, and payroll taxes) that
arouse from payroll assuming that the payment was made on Megabit 2006.via Ck. no.0339

Group Project 2(20%)

Exercise -1
Ethiopia for Better, a governmental organization pays salary of its employees according to the Ethiopian
calendar month. The following data relates the month of Tkimt, 1996 E.C.
S.No. Name of Employee Basic OT hours Duration of OT Monthly Basic Salary
Salary Worked work Allowance Per Hour
1 TizitaDagne 640 10 Weekly rest days 100 4
2 MamoRegassa 1280 7 Public holiday --- 8
3 Ali Temam 1920 9 10 P.m. –5 A.m 150 12
4 BerihuGebre 320 --- --- --- 2
5 NigistAbebe 3520 12 Up to 10 P.m 300 22
Additional Information:
 An employee is expected to work 176 hours in a month and during Tkimt, 1996 all employees have
done as they have been expected.
 All employees are permanent employees except AtoMamoRegassa
 The monthly allowance of Ato Ali Temam is not taxable
 TizitaDagne agreed to have a monthly Br 150 be deducted and paid to the organization’s credit
association as a monthly saving
Instructions: Based on the above Information
1. Prepare a payroll register (or sheet) for the organization for the month of Tikimt, 1996 E.C.
2. Record the payment of salary and the accrued liabilities as of Tikimt 30, 1996 E.C. using check no.
03391
3. Record the payroll taxes expense for the month of Tikimt, 1996
4. Record the payment of the claim of the credit association of the company, and other payroll related
liabilities to the concerned authorities(withholding taxes, and payroll taxes) that arouse from Tikimt’s
payroll assuming that the payment was made on Tikmit’s 1, 1996 via Ck. no.0339

Exercise – 2
 Employees Basic Salary Overtime Admin. Allowa.
No
1. AyeleLema 270 --- ---
2. AzebMebrahtu 340 50 ---
3. Belay Nega 420 180 50
4. BirzafDebesay 510 60 ---
5. DendirTenkir 600 120 100
6. KidaneBeyene 285 75 ---
7. FekaduZewdie 380 --- 50
8. GetachewDesta 400 --- 100
9. Solomon Hailu 310 75 70
10. ZenaMelaku 135 70 ---
Additional Information:
a) The payroll register is more or less is the same as the payroll register shown in the illustration before.
The exceptions are the deduction columns. The deduction columns are the following: Income tax, Idir
fund, union fees, pension fund and total deductions.
b) All employees are to pay Idir fees of:
1. Birr 2 for all employees whose basic salary is up to Birr 500
2. Birr 3 for all employees whose basic salary is above Birr 500
c) All employees are required to pay union fees of 1% of their basic salary (assume that all employees are
members of the Labour Union).
d) Ato Belay Nega, AtoDendirTenkir, AtoFekaduZewdie and AtoZenaMelaku contribute 5% of their basic
salary to the Credit association of the company
Instruction:
1. Prepare the payroll register for the month of Tir, 1996
2. Prepare a journal entry to record the payment of salary and the accrued liabilities for the month of Tir,
1996
3. Record the payroll taxes expense for the month of Tir, 1996
4. Record the payment of the claim of the credit association of the company, and other payroll related
liabilities to the concerned authorities (withholding taxes, and payroll taxes) that arouse from Tir’s
payroll assuming that the payment was made on Tir 1, 1996 via Ck. no.1050
 Addis Tire Factory
Payroll Register
For the Month Ended, Tir 30,1995
S.N Name of employee Sex Earnings Gross Deductions Total Net Signa
Basic Allow. OT Earnings Income Pension Others Deduction Pay ture
salary Earnings Tax
01 AbebeKebede M 3,800 400 445 4,645 921 266 100 1287 3,358
02 Fatuma Ali F 2,500 200 351 3051 527.75 175 100 802.75 2,248
03 G/Meidihin M 1,600 __ 120 1,720 226.5 __ __ 226.5 1,494
04 SelamawitTeshome F 900 100 __ 1,000 87.5 72 __ 159.5 841
05 TesemaTollosa M 400 100 106 606 45.6 28 __ 73.6 532

Grand total 9,200 800 1,022 11,022 1,808.35 532 200 2549.35 8,473
2 recording the payment of salary on Tir 30, 1995
Tir 30 Salary expense---------------------------11, 022
2007 Cash---------------------------------------8,473
Cash---------------------------------------
Income tax payable-----------------------1808.35
Pension payable----------------------------836
Payable to hope enterprise----------------200
1. The amount of cash paid to the employee is equal to the net pay amount on the payroll register.
2. Salary expense is equal to the gross earnings of the employees on the payroll register, which is also
equal to the sum of total deductions and net pay.
(3) Recording payroll tax expense
In Ethiopian case all government organizations are required by law to contribute 11% of the basic salary of
each permanent employee to the pension fund. This means that the total pension contribution is 18% of the
basic salary of permanent employees of which 7% is contributed by the employees and the remaining is
contributed by the employer organization. Therefore, the payroll tax expense of Addis Tire Factory will be:
Basic salary of permanent employees X 11%= (3,800 + 2,500 + 900 + 400) X 11/100
= 7600 X 11/100= 836
The journal entry to record the payroll tax expense will be
Tir 30 payroll tax expense-----------------836
1995 pension payable------------------------836
(4) To record the payment of cash to hope enterprise
Yekatit 5, Payable to hope enterprise----------------200
1995 Cash------------------------------200
(5) Payment of withholding and payroll tax on Yekatit 6, 1995.
The balance of income tax payable = 1808.35
The balance of pension payable (532+
(532+836)
836) = 1368
Total liability to be paid to Inland Revenue3176.35
Revenue3176.35
The journal entry to record the payment of withholding taxes and payroll tax will be
Yekatit 6, 1995 income tax payable---------------------------1808.35
Pension payable--------------------------------1368
payable--------------------------------1368
Cash-------------------------------------------------3176.35