TUESDAY: 25 April 2023. Afternoon Paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.
Any assumptions made must be clearly and concisely stated. Do NOT write anything on this paper.
RATES OF TAX (Including wife’s employment, self-employment and professional income rates of tax).
Year of income 2022.
QUESTION ONE
1. Explain TWO purposes of accounting in a business entity. (4 marks)
2. Describe THREE uses of a trial balance in relation to the preparation of financial statements of a business entity. (6 marks)
3. Explain the following accounting principles that underlie the preparation of financial statements of an entity:
Going concern concept. (2 marks)
Prudence concept. (2 marks)
Consistency concept. (2 marks)
4. Summarise FOUR cases against the accrual basis of accounting in the public sector. (4 marks)
(Total: 20 marks)
QUESTION TWO
1. Outline FOUR ethical issues that guide accountants while conducting their work. (4 marks)
2. The following balances were extracted from the books of Michael Wanjala, a sole trader for the year ended 30 September 2022:
Additional information:
1. Inventory as at 30 September 2022 amounted to Sh.1,188,000.
2. One quarter of lighting and power expenses is to be treated as for personal use of Michael Wanjala.
3. Depreciation is to be provided for as follows on straight line:
10% on fixtures and fittings.
20% on motor vehicle
5% on office building
4. Rates prepaid amounted to Sh.17,280.
5. Insurance unexpired amounted to sh.2,700.
6. Allowance for bad and doubtful debts at the end of the year is to be equal to 10% the trade debtors.
Required:
Prepare statement of profit or loss for the year ended 30 September 2022. (10 marks)
Prepare statement of financial position as at 30 September 2022. (6 marks)
(Total: 20 marks)
QUESTION THREE
The following trial balance was extracted from the books of Hargytech Limited as at 31 December 2022:
Additional information:
1. Depreciation is to be provided as follows:
• Motor vehicle 20% on straight line
• Furniture and fittings 10% on reducing balance
2. Inventory as at 31 December 2022 was valued at Sh.15,592,000.
3. The following balances were available as at 31 December 2022:
4. Corporate tax for the year is estimated as Sh.12,170,000.
5. The directors proposed the following:
• Allowance for bad and doubtful debts at the rate of 8% of trade receivables balance as at 31 December 2022.
• Transfer of Sh.14,000,000 to the general reserve accounts.
• A payment of 10% dividends on ordinary share capital.
Required:
1. Prepare statement of profit or loss for the year ended 31 December 2022. (12 marks)
2. Prepare statement of financial position as at 31 December 2022. (8 marks)
(Total: 20 marks)
QUESTION FOUR
1. Explain the term “clean report of finding” as used in customs and excise taxes. (2 marks)
2. With reference to customs taxes and excise taxes, explain THREE purposes of customs and excise duties. (6 marks)
3. Outline FOUR measures imposed by the government to prevent dumping. (4 marks)
4. With reference to customs and excise duty distinguish between the following terms:
“Customs warehouse” and “bonded warehouse”. (4 marks)
“Prohibited goods” and “restricted goods”. (4 marks)
(Total: 20 marks)
QUESTION FIVE
1. Summarise FOUR objectives of fiscal policies in developing countries. (4 marks)
2. Explain the following terms as used in classification of tax by rates:
Progressive taxes. (2 marks)
Proportional taxes. (2 marks)
3. Faiz Manufacturing Ltd. commenced operations on 1 January 2022 after incurring the following expenditure:
Additional information:
1. Factory building includes the cost of a showroom Sh.1,000,000 and retail shop Sh.800,000.
2. A perimeter wall was constructed at a cost of Sh.992,000 and put into use on 1 April 2022.
3. The godown and staff quarter were constructed at a cost of Sh.1,720,000 and Sh.1,560,000 respectively and put into use on 1 October 2022.
4. On 1 October 2022 the following assets were acquired:
5. In the year ended 31 December 2022, the following assets were disposed of:
6. The saloon car was traded in during the year with another saloon car costing Sh.3,600,000. The trade in value was Sh.1,800,000.
Required:
Compute investment allowance due to Faiz Manufacturing Ltd. for the year ended 31 December 2022. (12 marks)
(Total: 20 marks)
