Unit: Advanced Taxation
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Login to Access| December 1: | Opening inventory 6,400 units each costing Sh.400. |
| December 5: | Purchased goods on credit for Sh.584,000 and sold goods on cash basis at Sh.938,600. The suppliers also issued credit notes of Sh.48,000 and debit notes of Sh.19,200. |
| December 8: | The company made cash purchases of Sh.1,080,000. The goods were sold in the same day on cash basis at a profit margin of 25%. |
| December 12: | Purchased goods on credit from a VAT non-registered supplier worth Sh.420,000. The goods were sold on cash to VAT registered customer at a markup of 20%. |
| December 15: | Sold goods valued at Sh.218,000 after removal of their VAT certificate of registration from the business premises. They also did not issue tax invoices on the goods. |
| December 19: | Sold goods worth Sh.380,000. The customer paid a deposit of Sh.200,000 and the balance was to be received in January 2025. |
| December 20: | Imported goods from China valued at Sh.1,000,000 (cost, insurance and freight). Import duty was at the rate of 25%. |
| December 23: | It was established that the debt note and credit note for the month were overvalued by Sh.12,000 and Sh.8,400 respectively. |
| December 24: | Exported goods to Uganda worth Sh.680,000. |
| December 28: | Purchased goods on cash worth Sh.890,000. |
| December 30: | Paid the following expenses: |
| Sh. | |
| Salaries and wages | 880,000 |
| Electricity bill | 12,000 |
| Water bill - county government | 18,800 |
| Audit fees | 230,000 |
| Rent expense (for three months each Sh.90,000) | 270,000 |
| County government sewerage services fee | 32,000 |
| September 2: | Purchased goods from local market for Sh.103,240. |
| September 4: | Imported goods from Japan with a landed cost of Sh.340,000 excluding import duty and value added tax. The import duty rate was 25% |
| September 6: | Sold goods to the local market for Sh.180,960 on credit. |
| September 8: | Paid audit fees of Sh.17,400 in respect to establishing an internal control system. |
| September 10: | Goods valued at Sh.20,880 were returned to the business by credit customers and a credit note issued immediately. |
| September 12: | Paid for catering expenses Sh.26,680 in respect to a restaurant facility managed by another firm. |
| September 14: | Sold goods to a firm operating in Egypt for Sh.480,000. |
| September 16: | Received debit notes for 62,640 in respect to erroneous invoices received earlier. |
| September 18: | Exported goods to Malawi valued at Sh.240,000. |
| September 20: | Purchased computer and computer software for Sh.208,800 for use in the business. |
| September 22: | Supplied unprocessed fruits and milk to Starlight Enterprise for Sh.170,000. |
| September 24: | Sold goods to Lucky Enterprise for Sh.64,960. |
| September 26: | Purchased oils and fuel of Sh.9,280 for a generator used in the business. |
| September 28: | A customer owing the business goods worth Sh.20,300 was declared bankrupt and the debt was written off immediately. |
| September 30: | Sold goods exempt from VAT for Sh.250,000. |
| 1. | Inventory in trade at 1 May 2024 was valued at Sh.813,000. |
| 2. | The company purchased goods on credit and cash worth Sh.4,750,000 and Sh.2,980,000 respectively. Goods purchased on cash worth Sh.180,000 did not have supporting fiscal receipts. |
| 3. | The company sold goods worth Sh.8,768,000 during the month. These goods included exempt sales worth Sh.3,670,000 and exports to South Africa worth Sh.1,500,000. |
| 4. | The company received credit notes and debit notes worth Sh.600,000 and Sh.540,000 respectively. |
| 5. | During the month, the company purchased a motor vehicle on hire purchase at Sh.4,500,000 to be used in the business.The cash price was Sh.3,800,000. |
| 6. | The company imported goods valued at Sh.2,400,000 (Cost, Insurance and Freight). The company incurred clearing and transport cost of Sh.450,000 and Sh.150,000 respectively. This import was not included in the purchases above. The import duty rate during the year was 25%. |
| 7. | The company incurred the following expenses during the month: |
| 7. | Sh. | |
| Legal expenses | 350,000 | |
| Salary and wages | 1,334,000 | |
| Office rent | 580,000 | |
| Water from county government | 89,000 | |
| Electricity | 54,000 |
| 8. | The company could not identify goods sold as exempt when they were purchased and therefore restricted deductible input VAT. |
| 9. | Transactions are inclusive of VAT at the rate of 16% where applicable. |
| October 2: | The firm provided consultation for legal information and advice to Weka Ltd. at a fee of Sh.1,200,000. |
| October 5: | Offered training services to practicing accountants on alternative dispute resolution during the annual conference and invoiced the Institute of Accountancy Sh.800,000. The payment had not been received at the end of the month. |
| October 9: | A client by the name Bima Ltd. was declared bankrupt. Weddy Associates had offered arbitration services to the client in April 2023 at a fee of Sh.480,000 but Bima Ltd. had only managed to settle Sh.200,000 by the time it was declared bankrupt. |
| October 11: | Weddy Associates entered into a contract with Apex Bank Ltd. to review the bank lease agreement following a dispute with the bank’s landlord on rent payment. The firm received an advance payment of Sh.400,000 from the bank and the balance of Sh.620,000 was to be received upon submission of the final legal report in November 2023. |
| October 16: | Royal Ltd. engaged the firm to draft its Memorandum and Articles of Association and register the company with the registrar of companies at a fee of Sh.50,000. |
| October 21: | Weddy Associates represented RR International Ltd., a diaspora client in arbitration case with a supplier and charged a fee of Sh.2,100,000. The client had only paid 30% of the total fee by end month. |
| October 25: | Weddy Associates engaged a professional legal firm in the United Kingdom (UK) to train the law firm employees on client mediation and arbitration process at a total fee of Sh.1,800,000 without VAT. The training was conducted just before the end month. |
| October 30: | The firm represented the following clients in the court in the course of the month and charged the fee as follows:
|
| Incomes | Sh.“000” |
| Rent: Apartment | 1,248,450 |
| Rent: Office block | 7,244,200 |
| Expenses: | |
| Garbage collection | 75,864 |
| Sewerage | 92,8090 |
| Repairs and maintenance (outsourced to local company) | 144,420 |
| Housing agents fee (5% of income) | ? |
| Security firm (eight day and eight night guards) | 464,000 |
| Insurance | 580,000 |
| Interest on bank loan | 139,200 |
| Caretakers’ salaries | 92,800 |
| Webhosting (by South Africa-based company) | 67,280 |
| Audit and assurance fee | 1,334,000 |
| Telephone and electricity | 52,952 |
| Other staff salaries | 992,496 |
| Architect’s fee (based in France) | 184,730 |
| 1. | Sales and purchases transactions: | Within the country Sh. | Outside the country Sh. |
| Sales | 4,200,000 | 1,800,000 | |
| Purchases | 2,280,000 | 3,000,000 | |
| Sales returns | 360,000 | - | |
| Purchase returns | 186,000 | - | |
| Understatements: Sales | 540,000 | - | |
| Understatements: Purchases | 288,000 | - | |
| 2 | Purchase of capital items: | ||
| Office furniture and fittings | 84,000 | - | |
| Delivery truck on hire purchase | 3,600,000 | (cash price Sh.3,000,000) | |
| 3 | Expenses: | ||
| Medical fees | 180,000 | ||
| Sewerage service by government | 6,000 | ||
| Casual labour | 480,000 | ||
| Office rent | 240,000 | ||
| Hire of taxis for staff | 28,800 | ||
| Customer satisfaction survey by a management consultant | 165,000 | ||
| Renovation of existing buildings | 780,000 | ||
| Penalties for late payment of VAT | 18,000 |
| 4. | Imported goods were stated at Cost Insurance and Freight (CIF) value and were subject to customs duty at a rate of 25% on their entry into the country. |
| 5. | Miki Traders donated goods worth Sh.150,000 and cash for Sh.120,000 to a children’s home. The goods were not included in the above sales. |
| 6. | Transactions are stated as VAT inclusive at a rate of 16% where applicable. |
Required: | |
| (i) | Compute the VAT payable or refundable by Miki Traders Ltd. for the month of December 2022. |
| (ii) | Comment on the VAT payable/refundable. |
| Sh.“000” | |
| Sales at standard rate | 10,680 |
| Sales at zero rate | 2,400 |
| Delivery van purchased | 3,600 |
| Exempt sales | 4,800 |
| Purchases at standard rate | 7,200 |
| Purchases at zero rate | 1,800 |
| Rent for factory building | 1,200 |
| Audit and accountancy | 720 |
| Printing and stationery | 960 |
| Nature of service | Value of service | Service provision date | Payment date |
| Audit services to XL Supermarkets | 700,000 | 25 October 2021 | 5 November 2021 |
| Training services to Kyle Securities | 240,000 | 3 November 2021 | Not yet paid |
| Accountancy services: Watoto Children’s Home | 600,000 | 5 December 2021 | 20 November 2021 |
| Debt collection services to Zuwela Computers | 820,000 | 9 November 2021 | 30 November 2021 |
| Strategic Plan development: Bazo (Rwanda) Ltd. | 2,150,000 | 10 November 2021 | Not yet paid |
| Management consultancy: Sylok Investments | 1,440,000 | 13 November 2021 | 40% paid on 13 November 2021 |
| Internal controls reviewed: Lema Ltd. | 960,000 | 18 November 2021 | 10% paid on 7 October 2021 |
| Financial consultancy to W Ltd. | 1,200,000 | 20 November 2021 | 1 December 2021 |
| 1. | Bebabeba Supermarket Ltd. They operate a soft drinks dispensing machine which uses special tokens which resemble coins. During the month of July 2021, the machine dispensed drinks worth Sh.300,000 inclusive of VAT. This dispensing machine is slotted with tokens after every one and a half months, that is, on restocking drinks in any month, the tokens are emptied midway the following month. The machine was restocked during the month of July 2021. |
| 2. | Supa Bread Ltd. The firm bakes ordinary bread. During the month of August 2021 they made sales amounting to Sh.20,000,000, excluding VAT. They have arranged with a distribution company, who ensure bread is delivered to customers. The distribution company raised an invoice of Sh.2,000,000 for services rendered for August 2021. The electricity company also sent Supa Bread Ltd. a bill ofSh.3,000,000 for the month. The firm also hired advisory services from an overseas company and were billed Sh.1,000,000. The above figures are quoted inclusive of VAT unless stated otherwise. |
Required: For each of the two companies, or as otherwise stated, compute: | |
| (i) | The output VAT, if any, for the specified period. |
| (ii) | The input VAT (if any), (for Supa Bread Ltd.). |
| (iii) | The VAT payable (or refundable) for the specified period based on the information provided only. |
| Sh. | |
| Purchases from local market | 912,000 |
| Sales to local market | 1,710,000 |
| Imports (exclusive of customs duty) | 600,000 |
| Export sales - South Africa | 700,000 |
| Export sales - Nigeria | 350,000 |
| Purchase of lubricants | 456,000 |
| Restaurant services paid | 63,840 |
| Tax consultancy fees | 45,600 |
| Printing and stationery | 17,100 |
| Electricity bills paid | 31,920 |
| Exempt sales | 480.000 |
| Ambulance services | 20,000 |
| Postage services | 8,000 |
| Audit fees | 68.400 |
| Purchases | Delivery date | Invoice date | Invoice amount(Sh.) | Payment date |
| Drilling machines | 5 February 2019 | 10 March 2019 | 5,220,000 | 4 April 2019 |
| Mobile crane | 20 February 2019 | 8 March 2019 | 3,045,000 | 10 April 2019 |
| Concrete mixer | 18 February 2019 | 26 February 2019 | 3,770,000 | 2 May 2019 |
| Poker vibrator | 26 February 2019 | 12 March 2019 | 906,250 | 7 April 2019 |
| Photocopying machine | 12 March 2019 | 4 April 2019 | 174,000 | 5 May 2019 |
| 2 Forklifts | 6 April 2019 | 20 April 2019 | 1,584,125 | 6 May 2019 |
| 700 Tonnes of cement | 26 March 2019 | 4 April 2019 | 28,125,565 | 12 May 2019 |
| Bottled mineral water | 12 March 2019 | 8 April 2019 | 137,460 | 30 April 2019 |
| Executive boardroom table | 19 March 2019 | 4 April 2019 | 145,000 | 12 May 2019 |
| Postal rental box | 2 February 2019 | 24 February 2019 | 13,920 | 15 March 2019 |
| Paint from ABC Ltd | 14 April 2019 | 20 April 2019 | 3,117,500 | 12 May 2019 |
| Petrol for trucks engaged in construction work | 12 March 2019 | 19 March 2019 | 1,200,960 | 8 April 2019 |
| Sh."000" | |
| Sales at standard rate | 6,960,000 |
| Exports to Egypt | 1,200,000 |
| Purchases at standard rate | 4,060,000 |
| Purchase of delivery van oils and fuels | 371,200 |
| Repairs of office furniture | 23,200 |
| Audit fees | 60,320 |
| Wages | 480,000 |
| Purchase of stationery | 55,680 |
| Electricity bills not settled | 46,400 |
| Exempt supplies/sales | 1,500,000 |
| Legal fees | 40,600 |
| Purchases from traders not registered for VAT | 134,000 |
| Sales at zero rate | 400,000 |
| Sh. | |
| Purchase of goods at standard rate | 626,400 |
| Exported goods to South Africa | 380,000 |
| Sales at standard rate | 1,113,600 |
| Audit fees | 37,120 |
| Purchase of fuel and oil for delivery van | 29,000 |
| Telephone bills | 17,400 |
| Exempt sales | 400,000 |
| Exported goods to Zambia | 220,000 |
| Catering services | 41,760 |
| Purchase of stationery | 20,880 |
| Cost of assigning a debt for consideration | 100,000 |
| Car park services provided by county authority | 50,000 |
| Treatment and supply of natural water | 40,000 |
| Purchase of first aid boxes and kits | 30,000 |
| Purchases | Delivery date | Invoice date | Invoice | Payment date | |
| 1 | Concrete mixer | 10 May 2015 | 12 June 2015 | 5,800,000 | 5 July 2015 |
| 2 | Scaffolding pipes | 20 May 2015 | 6 June 2015 | 1,392,000 | 10 July 2015 |
| 3 | Poker vibrator | 6 May 2015 | 29 May 2015 | 696,000 | 2 August 2015 |
| 4 | Xerox photocopier | 30 April 2015 | 10 May 2015 | 928,000 | 22 May 2015 |
| 5 | 10 trolleys | 12 June 2015 | 13 May 2015 | 2,552,000 | 25 May 2015 |
| 6 | Executive boardroom table | 21 May 2015 | 8 June 2015 | 464,000 | 30 June 2015 |
| 7 | 200 tons of cement | 27 April 2015 | 3 May 2015 | 3,712,000 | 2 August 2015 |
| 8 | Water dispenser for the office | 14 May 2015 | 4 June 2015 | 92,800 | 23 June 2015 |
| 9 | Paint from Duracoat (K) Ltd. | 10 May 2015 | 15 May 2015 | 812,000 | 28 May 2015 |
| 10 | Office chairs | 1 May 2015 | 8 May 2015 | 348,000 | 26 May 2015 |