MAASAI MARA UNIVERSITY
REGULAR UNIVERSITY EXAMINATIONS 2013/2014 ACADEMIC YEAR
THIRD YEAR FIRST SEMESTER
SCHOOL OF BUSINESS AND ECONOMICS
BACHELOR OF BUSINESS MANAGEMENT
COURSE CODE: BBM 303
COURSE TITLE: TAXATION I
DATE:16TH APRIL 2014 TIME: 9.00AM – 12.00PM
INSTRUCTIONS TO CANDIDATES
Question ONE is compulsory
Answer any other THREE questions
This paper consists of 4 printed pages. Please turn over.
QUESTION ONE.
China building and construction co. ltd. provided the following details with respect to its fixed assets for the year of income 2013:
1. Written down values, 1st January 2013 ;-
Industrial building Class I Class II Class III Class IV
1,400,000/- 460,000/- 610,000/- 800,000/- 6,200,000/-
2. The industrial building had been constructed sometimes back at a cost of 1,600,000/-. Fixed machines were 2,000,000/-. Due to an oversight no investment deduction was claimed.
3. During the year the following assets were purchased:
i. Patents 200,000/-
ii. Computers 390,000/-
iii. Stamping machine 800,000/-
iv. Land 530,000/-
4. A car for use by the directors was involved in an accident and written off. No recoveries were made.
5. In December all computers were sold as one lot for 1,220,000/-.
6. Assume 60% as the rate of investment deductions.
Required:-
a) Investment deduction allowance. (8mks)
b) Industrial building deductions. (4mks)
c) Wear and tear deductions. (10mks)
d) Summary of events. (3mks)
QUESTION TWO.
a) Raising of revenue is not the only purpose for which taxes are levied. In that note explain five other purposes of taxes. (5mks)
b) Using appropriate examples were necessary, describe tax shifting, tax burden and tax incidence. (10mks)
QUESTION THREE.
a) Name and discuss five benefits of a value added tax (VAT) in the context of the principles of good tax system. (10mks)
b) The following purchases and sales were made by kenol ltd. (VAT No. AX45C) during the first two weeks of June 2000. Prices shown are inclusive of VAT at the standard rate of 18%.
Purchases; Sales;
-June 1st- 100 units at 1,400/- each. 10 units at 1,800/- each
-June 2nd – Nil 20 units at 1,800/- each
-June 5th – Nil 50 units at 1,800/- each
-June 7th – 75 units at 1,600/- each. Nil
-June 10th – Nil 20 units at 1,800/- each
-June 12th- Nil 50 units at 2,000/- each
There were no opening stocks at the beginning of the month. The physical inventory confirmed that there were 25 units in stock as at 13th June 2000.
Required:-
Prepare VAT account for Kenol ltd. (5mks)
QUESTION FOUR.
a) Write short notes on the following:
i. Regressive tax (2mks)
ii. Indirect tax (2mks)
iii. Digressive tax (2mks)
iv. Proportional tax (2mks)
b) Name seven important principles of an optimal tax system (7mks)
QUESTION FIVE.
Mr. Kimani a farmer erected a farmhouse in January 2002 for 360,000/- and incurred other expenditures as follows: –
-January 2003 Cattle dip—————————90,000/-
-June // Labour quarters——————120,000/-
-September // Irrigation system—————–150,000/-
-October // milling machinery—————–99,000/-
He sold the farm on 1st of January 2004 to Mr. Ben another farmer and sale agreement gave the following particulars: –
-Farmhouse—————————–540,000/-
-Cattle dip——————————–80,000/-
-Labour quarters———————–180,000/-
-Irrigation systems———————120,000/-
-Milking machinery———————75,000/-
Required; –
Show capital deduction due to Mr. Kimani and Mr. Ben for the year 2002, 2003 and 2004.
(15mks)
QUESTION SIX.
Mr. Mwangi is finalizing his tax affairs for the year of income 2008. He had the following income transactions for the year:-
I. He paid sh.52, 000 Value Added Tax on all his purchases for the year.
II. He was an employee of sonny sugar co. ltd. and was paid an annual salary of sh. 600,000 (P.A.Y.E.) deducted was sh. 147,500).
III. Pension contributions to registered schemes were sh. 100,000 by his employer and sh. 50,000 from his pay.
IV. A dividend received was sh. 40,000 gross. (Withholding tax was deducted as appropriate).
V. Gross interest received was sh. 18,000 of which sh. 10,000 were from post office savings bank.
Mr. Mwangi’s expenses for the year were as follows:-
I. Personal accident insurance premium of sh. 9,000 paid to American Life Insurance Company.
II. Mortgage interest of sh. 62,000 on his house where they stay with his wife and children. The mortgage is from savings and loan Kenya ltd.
The following information is available for tax application:-
Graduated rates; Rates;
Upto 121,968 10%
121,969 – 236,880 15%
236,881 – 351,792 20%
351,793 – 466,704 25%
466,705 and above 30%
Required:
b) What is a registered pension scheme? What are its implications? (5mks)
c) Compute the income chargeable to tax of Mr. Mwangi for the year end 2008.
(5mks)
d) Calculate the tax payable (repayable) by him for 2008. (5mks)
