INSTRUCTIONS: Answer ALL Questions

Explain the canons of an optimum tax system. (15 Marks)

The following details were extracted from the books of Salama traders for the month of August 2009. The transactions are inclusive of VAT at the rate of 16% where appropriate.

August 1 Opening stock: 45 units valued at Ksh 67,500 2 Purchased 300 units at Ksh. 1,800 per unit 3 Sold 60 units at Ksh 2,400 per unit 5 Sold 80 units at Ksh 2,500 per unit 8 Purchased 180 units at Ksh 2,000 per unit 10 Returned 40 units which had been purchased on 2nd August 14 Sold 120 units at Ksh 2,400 per unit 19 Sold 80 units at Ksh 2,200 per unit 27 Exported 60 units at Ksh 3,000 per unit 1

200. A fully furnished house. 8. migrated to Canada in 2001. (12 Marks) b) Compute the tax payable from this income (8 Marks) 2 . A life insurance cover whose annual premium was Ksh 30. 5. His salary was increased by Ksh 50. 3. Monthly salary Ksh 250. The following details relate to his salary and benefits for the year ended 31st December 2008: 1.000 per annum for visiting his family in Canada. The cost of furnishing the house amounted to Ksh 200.000) 2. he was offered a job by a company based in Nairobi. (15 Marks) QUESTION THREE Mr. Passage allowance of Ksh 400. His tuition fees amounting to Ksh 65.000 during the year from his previous employer. He received a lumpsum pension of Ksh 360.000 (PAYE Ksh 27.000 per month by the employer. A motor vehicle (1750 cc) whose initial cost was Ksh 1. Mbaye for the year 2008.Required A VAT account for the month of August 2009 clearly showing the VAT payable or refundable.000 4. Kenya which he accepted. He was provided with mobile phone airtime worth Ksh 3. Required: a) Compute the total taxable income of Mr. 7.000 was paid by the employer.000 per annum were paid by the employer.000 per month was paid by the employer.000 on 1st October 2008 and backdated to 1st July 2008. Mbaye.000 6. 9. Approximately 30% of his mobile phone calls were for private purpose. a Kenyan. The employment commenced on 1st January 2008. The house rent of Ksh 30.

000 40.000 30.000 25.000 26.292.000 12.QUESTION FOUR The management of Mali Limited has presented the following income statement for the year ended 31 December 2008 Mali Limited Income Statement for the year ended 31 December 2008 Sh Gross profit Other incomes Dividend from a subsidiary company Interest from foreign bank accounts Discount received Refund of VAT Gain on sale of motor vehicle 200.550.000 15.000 3 .000 Expenditure Salaries and wages NHIF contributions Subscriptions to a trade association Hire purchase interest Bad debts written off General expenses Depreciation Legal expenses Insurance premiums Rent Electricity Purchase of furniture Net profit 800.000 4.000 14.000 Sh 5.000 124.000 80.000 28.000 34.000 5.000 50.000 60.000 66.000 258.000 4.350.000 1.200.

3. The company paid stamp duty of Sh 6.000 relating to a piece of land purchased in August 2004.000 due from a former employee of the company who was dismissed in October 2008.000 incurred in defending a manager against a traffic offence Insurance premiums include Sh 24. Required: a) Compute the adjusted taxable profit or loss of Mali Limited for the year ended 31 December 2008 (18 Marks) b) Calculate the tax liability (if any) of the company for the year ended 31 December 2008. 4.000 paid to the National Hospital Insurance Fund (NHIF) as a penalty for late submission of contributions. Capital allowances were agreed with the Revenue Authority at Sh 75. The payment is included in the rent expense for the year ended 31 December 2008. (2 Marks) 4 . 5.Additional information: 1.000 Included in bad debts is a loan of Sh 15. 2. Legal experts include Sh 20.

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