HBC 2216
W1-2-60-1-6
JOMO KENYATTA
UNIVERSITY
OF
AGRICULTURE AND TECHNOLOGY
University Examinations 2012/2013
THIRD YEAR FIRST SEMESTER EXAMINATION FOR THE DEGREE
OF BACHELOR OF COMMERCE (ACCOUNTING OPTION)
HBC 2216 : ADVANCED TAXATION
DATE: AUGUST 2012 TIME: 2
HOURS
INSTRUCTIONS: ANSWER QUESTION ONE (COMPULSORY)
AND
ANY OTHER TWO QUESTIONS. TAXATION
RATE
TABLES ARE PROVIDED SEPARATELY.
______________________________________________________________________
QUESTION ONE (30 MARKS)
(a) (i) Define the term “tax planning”. [3 marks]
(ii) Explain with examples, two instances in which a business
may apply the concept of tax planning. [6 marks]
(b) Explain the circumstances under which a tax authority may
conduct a PAYE audit on a business. [9 marks]
(c) Discuss the income tax implications of the following from both
the point of view of the employee and that of the employer:
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HBC 2216
(i) A retiring director has been paid Sh. 180,000 as pension.
The director retired on 30.6.2011 and her pension benefits
as at 31.12.2010 amounted to Sh.180,000. [3 marks]
(ii) An education allowance is paid to an expatriate member of
staff. His children attend a high cost international school in
Kisumu and the contract of his employment provides for
this payment. [3
marks]
(iii) The executive chairman will be retiring next year and the
company is contemplating giving him an ex-gratia “golden
handshake” amounting to Sh. 200,000 in addition to his
normal benefits. [3 marks]
(iv) A mileage allowance to senior staff who use their own
vehicles from their homes to the office has been proposed.
[3 marks]
QUESTION TWO (20 MARKS)
Mrs. Orina owns a sugar jiggery in Tabaka, Kisii. The following
particulars relate to assets of the factory in 2010:
1. Purchased a new building from a builder at a cost of Sh.
2,000,000. Administration offices included in the building had an
estimated cost of Sh. 250,000.
2. Purchased three micro computers at a total cost of Sh. 300,000.
3. Other assets of the factor are as follows:
WDV Additions Disposals
1.1.2010
Sh. Sh. Sh.
Office furniture 3,300,000 1,900,000 700,000
Computers 200,000 - 80,000
Tractors 12,000,000 - 2,500,000
Lorries (1 ton) 2,500,000 3,000,000 500,000
Processing machines 4,800,000 2,400,000 1,800,000
Saloon cars 3,200,000 4,000,000 200,000
Buildings 5,000,000 - -
Land 7,500,000 2,000,000 4,000,000
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4. The old buildings were inherited from Orina’s father five years
ago when new and were valued at Sh. 50,000,000.
5. A farm house was constructed in 2010 at a cost of Sh. 600,000.
A cattle dip and milking machinery costing Sh. 120,000 and Sh.
220,000 respectively were constructed and purchased during
2010.
6. The saloon cars (two) disposed of in June 2010 were purchased in
2008 at a cost of Sh. 250,000 each. Another saloon car was
purchased during 2010.
7. Goodwill and patents carried forward from 2008 were valued at
Sh. 1,400,000 on 31 December 2010.
Required:
Capital deductions for Mrs. Orina for the year of income 2010.
[20 marks]
QUESTION THREE (20 MARKS)
(a) List six types of transactions for which the personal identification
number is required. [6 marks]
(b) With reference to the sixth schedule of the VAT Act (Cap. 476)
outline four vatable supplies which are not subject to the VAT
threshold turnover requirements. [4 marks]
(c) XYZ Ltd. has VAT due amounting to Sh. 2,400,000. It was late in
making the returns and payments of the amount due by six
months.
Required:
The penalties that XYZ Ltd. will be required to pay by the VAT
Department. [10 marks]
QUESTION FOUR (20 MARKS)
Amini, Upendo and Umoja are partners in a trading firm sharing profits
and losses in the proportion of [Link]. The profits and loss account of
the firm for the previous year ending 31 December 2011 showed a loss
amounting to Sh. 600,000 before charging the following:
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Interest on capital Commission Salary
Sh. s Sh.
Sh.
Amani 120,000 40,000 20,000
Upendo 80,000 - -
Umoja 160,000 - 40,000
The other incomes of the partners during the same period were
as follows:
Amani - Income from property (net - Sh. 220,000
Upendo - Income from private business - Sh. 400,000
Umoja - Gains from horse racing bets - Sh. 600,000
Required:
Show the assessed income of each partner for the year of
income 2011.
[20 marks]
