MAASAI MARA UNIVERSITY
REGULAR UNIVERSITY EXAMINATIONS
2019/2020 ACADEMIC YEAR
FOURTH YEAR FIRST SEMESTER
SCHOOL OF BUSINESS AND ECONOMICS BACHELOR OF COMMERCE
COURSE CODE: BCM 4103
COURSE TITLE: ADVANCED TAXATION
DATE: 10TH DECEMBER 2019 TIME: 1430 – 1630 HRS
INSTRUCTIONS TO CANDIDATES
1. Answer Question ONE and any other THREE questions
2. Do NOT write on this Question paper
This paper consists of 7 printed pages. Please turn over.
QUESTION ONE
a)Differentiate between the following as applied in tax:
i) Balancing charge and balancing deduction (4 Marks)
ii) Trading receipt and trading deficit (4 Marks)
iii)Zero rated and exempt supplies (4 Marks)
b) Explain the following terms as applied in taxation
i) Pre-shipment inspection (2 Marks)
ii) Tax Havens (2 Marks)
iii)Dumping (2 Marks)
c)The finance act of 2018 increased the VAT on fuel to 8% despite a lot of
opposition by stakeholders. Using your tax knowledge prepare a write up
with your opinion on the implications of such a move. (7 Marks)
QUESTION TWO
The following information relates to Kwavonza Savings and Credit
Cooperative Society Limited for the year ended 31 December 2019.
Additional information:
i) The society paid dividends and bonuses to members amounting to sh.
6,500,000 for the year ended 31 December 2019
ii) Administrative expenses include:
Salaries to officers directly involved in processing of members loans 1,400,000
Salary to caretaker of rental property 200,000
Purchase of computer software 400,000
iii)Operating expenses include depreciation of sh 84,000 and non-performing
loans to members of sh. 120,000 which were written off
iv)Other investment income includes interest from savings account of sh.
500,000
Required:
i) Kwavonza Adjusted taxable profit or loss for the year ended 31
December 2018 (10 Marks)
ii) Tax liability, if any, for the year ended 31 December 2018 (3 Marks)
iii) Comment on any information not used in (i) above (2 Marks)
QUESTION THREE
Simon and Peter have been trading as partners under the name Simope
Enterprises, sharing profits and losses equally. They manufacture motor
vehicle accessories for local and overseas markets. They have provided you
with the following information in relation to their trading results for the year
ended 31 December 2018.
i) They reported a net profit of sh.7,000,000 after charging the following
expenses:
ii) Dividends were received from the following companies:
iv)The old factory building was constructed in 2013 and put into use with
effect from 1 January 2014. The additional building was brought into use
from 1 July 2005.
Required:
a) Capital allowances due to Simope Enterprises for the year 2018 (8 Marks)
b) Taxable profit (or loss) for the partnership and show its division among
the partners. (3Marks)
c) Tax payable by each partner (2Marks)
d) Comment on any information you have not used. (2Mark)
QUESTION FOUR
Malimali Merchants reported the following relating to the month of April
2019. The extract of the company’s cashbook for the month is presented
below:
Additional information:
i) Sales on credit amounted to sh. 600,000 at the standard rate of 16%. One
of the debtors who owed sh. 100,000 was declared bankrupt on 1st may
2019.
ii) Opening stock as at September was valued at sh. 4,800,000
iii) Credit notes amounting to sh. 60,000 were sent to customers. These
related to goods sold at the standard rate
iv) The telephone bill relates to the month of February, March and April 2019.
The expense accrued evenly over the three months period
v) The company returned goods worth sh. 48,000 to suppliers
vi) Insurance was paid in connection to raw materials valued at sh. 288,000
before deducting import duty of sh. 52,000
Required:
a) Prepare the VAT for the month of April 2019. The amounts are stated as
inclusive of VAT where applicable. (8 Marks)
b) In respect to VAT explain the treatment of bad debts (4 Marks)
c) Explain the fines and penalties applicable to the VAT (3 Marks)
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QUESTION FIVE
Kiota Insurance Company Limited based in Nairobi has provided the following
information for the year ended 31 December 2018
Additional information:
i) Reserves for unexpired risks on 31 December 2018 amounted to sh.
200,000
ii) The outstanding claims on 1 January 2018 and 31 December 2018 were
sh. 600,000 and sh. 900,000 respectively
iii) Premiums outstanding on 1 January 2018 and 31 December 2018 were sh.
6,000,000 and sh. 12,000,000 respectively
iv) Agency fees included sh. 200,000 relating to the life assurance business
v) Legal fees included sh. 100,000 relating to settlement of a tax dispute
vi) Investment income comprised the following:
Interest from bank (net) 850,000
Interest from treasury bonds (gross) 350,000
Required:
a)Taxable profit or loss of Kiota Insurance Company Limited from the
general insurance business for the year ended 31 December 2018
(10 Marks)
b)Tax liability, if any, from above (2 Marks)
c)Describe the tax treatment of Trusts (3 Marks)
