KASNEB Public Finance and Taxation - Question 1c

Summarise the steps that each public entity should follow under the e-procurement process.... [Click to view full question and step-by-step solution]

KASNEB Public Finance and Taxation - Question 2b

Discuss three functions of the Council of Governors in county financial management. ... [Click to view full question and step-by-step solution]

KASNEB Public Finance and Taxation - Question 3a

Distinguish between 'objection' and 'appeal' as used in administration of income tax. ... [Click to view full question and step-by-step solution]

KASNEB Public Finance and Taxation - Question 3b

Outline four disadvantages of a multiple tax system. ... [Click to view full question and step-by-step solution]

KASNEB Public Finance and Taxation - Question 4a

The following information was extracted from the books of Fanaka Ltd. for the year ended 31 December 2017: ShSales4,800,000Purchases1,100,000Bad debts reco... [Click to view full question and step-by-step solution]

KASNEB Public Finance and Taxation - Question 5b

Argue four cases against capital gains tax or equivalent tax in your country. ... [Click to view full question and step-by-step solution]

May 2018

1a

Relationship between National and County Governments on budget and economic matters

When the Cabinet Secretary for the National Treasury or equivalent ministry presents the Division of Revenue Bill to Parliament, it should be accompanied by a memorandum explaining various matters.

With reference to the above statement. identify such matters.

1b

Oversight Function in Public Finance Management

Outline functions performed by the Controller of Budget in relation to public finance management.

1c

Procurement in public entities

Summarise the steps that each public entity should follow under the e-procurement process.

2a

Relationship between National and County Governments on budget and economic matters

Identify four factors that are considered by the Commission on Revenue Allocation (CRA) or equivalent body while selecting marginalised counties for purposes of allocating the equalisation funds.

2b

Relationship between National and County Governments on budget and economic matters

Discuss three functions of the Council of Governors in county financial management.

2c

Administration of Value Added Tax (VAT)

Mwanahawa Hamisi is a trader dealing in fast moving consumer goods and electronics. She is duly registered for value added tax (VAT). Details of her business transactions for the month of October 2017 were as follows:

1	Sales during the month:
	Sh. Standard rate 1,900,000 Zero rated 418,000 Exempt. 342,000
2	Customers for the sales at standard rate are offered a 15% discount if they settle within the same month. From past experience, 40% of the customers take advantage ofthe discount facility.
3	Purchases of goods constituted Sh.1,200,000 made at the standard rate and Sh.500,000 exempt. All the purchases are made in cash.
4	The exempt sales were all from the batch of exempt purchases with some remaining in inventory at the end of the month.
5	During the month, she paid rent for the business premises for the month of October and the remaining portion of the year. The landlord charges Sh.80,000 per month.
6	The business accountant wrote off debts amounting to Sh.280,000 as irrecoverable and made an allowance for specific irrecoverable debts of Sh.11,600 as the portion for that month.
7	During the month, a supplier from whom the business had made purchases of goods worth Sh.292,000 and a a customer to whom goods were sold at standard rate in July 2017 and still owed Sh.325,000 were declared bankrupt.
8	A pick-up vehicle was acquired at a cost of Sh.870,000 (inclusive of VAT) for business purposes.
9	At the end of every month, Mwanahawa prepays the electricity for the following month using prepaid meter tokens. This is done by establishing her standard usage for the following month. During the month, she paid Sh.42,500 whereas in the previous month she had paid Sh.38,500.

10	Other expenses paid during the month of October 2017 were as follows:

		Sh.
	Telephone	13,200
	Audit fee (Tax invoice including VAT)	111,070
	Stationery	36,000

11	Mwanahawa made donations to registered charities consisting of Sh.100,000 in cash and Sh.280,000 in ferm of goods.
12	Closing inventory for the month was valued at Sh.340.000.

(All the above transactions are quoted exclusive of VAT at a rate of 16% where applicable unless otherwise stated).

Required:

The value added tax (VAT) payable by (or refundable to) Mwanahawa Hamisi for the month of October 2017.

3a

Administration of Income Tax and Tax Procedures

Distinguish between "objection" and "appeal" as used in administration of income tax.

3b

Administration of Income Tax and Tax Procedures

Outline four disadvantages of a multiple tax system.

3c

Taxation of Income

Bonface Huka is a resident individual and a qualified pharmacist who has been employed by Sawa Hospital since his early retirement from the public service in 2016.

The following details were availed to you in respect of his earnings for the year ended 31 December 2017:

1. He received a monthly basic salary of Sh.184,000 from Sawa Hospital. Additional one month's basic salary was paid to him in December 2017 as a bonus. PAYE deducted during the year was Sh.897,600.

2. Pension received from the public service was Sh.540,000 as a lumpsum amount.

3. A commission of Sh.199,000 was paid to him for the promotion of drugs under identified brands during the year.

4. During the year, he was sent to Mombasa for a four day medical conference and was paid daily subsistence allowance of Sh.18,000 by the hospital.

5. He has a fixed deposit account of Sh.1,500,000 at the Broad Bank Ltd. from which he received an interest of Sh.105,000 during the year.

6. He has a life insurance policy where he contributes 40% of the premiums, while the employer contributes 60%. Annual premiums as per the insurance policy during the year was Sh.460,000.

7. He was provided with a saloon car of 2000 cc by the hospital for personal and official duties on I July 2017. The saloon car had an initial cost of Sh.2,800,000.

8. The hospital has a medical cover for all staff. He was entitled to a maximum cover of Sh.180,000 per annum while he utilised Sh.74,000 on medical bills during the year.

9. During the year, he was provided with a house. The market value of the house was Sh.120,000 per month and he contributed Sh.20,000 per month as nominal rent.

10. During the year, the hospital settled his bills as follows: telephone Sh.68,000, water Sh18,200 and electricity Sh.24,600.

11. The hospital contributed 5% of his basic salary towards a registered pension scheme while he contributed an equal amount to the scheme.

12. The hospital paid subscription fees on his behalf to the Pharmacy and Poisons Board amounting to during the year.

13. He was reimbursed private entertainment expenses of Sh.120,000 by the hospital during the year.

Required:

(i) Taxable income for Bonface Huka for the year ended 31 December 2017.

(ii) Tax payable (if any) on the income computed in (c)(i) above.

4a

Taxation of Income

The following information was extracted from the books of Fanaka Ltd. for the year ended 31 December 2017:

	Sh
Sales	4,800,000
Purchases	1,100,000
Bad debts recovered	540,000
Rent received (commercial premises)	280,000
Dividends received (Mkopo Ltd.)	100,000	(net)
Interest received (Hekima Bank Ltd.)	340,000	(net)
Discount allowed	54,000
Discount received	133,000
Salaries	960,000
Electricity	180,000
Advertising	395,000
Provision for bad debts	45,000
Subscriptions to a trade association	65,000
Audit fees	168,000
Legal fees	139,500
Car hire expenses	420,000
Purchase of machinery	1,600,000
Loss of stock	530,000
Installation of machinery	42,000
Foreign exchange gain (realised)	232,000
Donations to a political party	1,050,000
General expenses	52,000

Additional information:

1	Opening stock and closing stock were valued at Sh.912,000 and Sh.840,000 respectively.
2	Included in the sales figure was a sale of Sh.928,000 that was inclusive of VAT at the rate of 16%, while the other sales were recorded net of VAT.
3	Advertising includes an amount of Sh.195,000 spent in the erection of a bill board.
4	Loss of stock includes Sh.120,000 relating to insured stock.
5	Two thirds of the bad debts recovered relate to bad debts which were previously written off from the company's books.
6	Legal fees relate to the following:

		Sh.
	Conveyance of land	42,000
	Trade dispute	27,000
	Breach of contract	36,500
	Preparation of employment contracts	34,000

Required:

Adjusted taxable income for Fanaka Ltd. for the year ended 31 December 2017.

4b

Investment Allowances/deductions

Zuret Products Ltd. which is engaged in the business of manufacturing and selling of canned fish commenced its operations on I January 2014 after incurring the following expenditure:

	Sh.
Land	4,800,000
Processing machinery	3,200,000
Factory buildings	2,800,000
Staff canteen	860,000
Generator	250,000
Labour quarters	3,600,000
Staff clinic	960,000

Details of property, plant and equipment schedule reflectedI the following as at 31 December 2017:

Assets	Written Down Value 1 January 2017 Sh.	Additions during the year (at cost) Sh.	Depreciation for the year Sh.	Disposal proceeds during the year Sh.
Computers	525,000	345,400	131,250	250,000
Water pump	-	280,000	56,000	-
Furniture	360,000	180,000	82,000	-
Conveyor belts	-	960,000	-	-
Delivery vans	2,500,000	1,420,000	180,000	620,000
Cash registers	620,000	-	58,000
Printers	120,000	60,000	42,000
Tractors	2,500,000	1,800,000	360,000
Motorcycles	380,000	-	68,000
Packaging machine		860,000
Non-processing machinery	960,000		62,000

Additional information:

1. A perimeter wall was constructed at a cost of Sh.960,000 during the year ended 31 December 2017.

2. A godown and a drainage system were constructed at a cost of Sh.2,860,000 and Sh.1,780,000 respectively and put into use on 1 October 2017.

3. The company constructed a borehole at a cost of Sh.1,500,000 during the year which was put in use on 1 July 2017.

Required:

Capital allowances due to Zuret Products Ltd. for the year ended 31 December 2017.

5a

Customs Taxes and Excise Taxes

Highlight four circumstances under which duty paid on imported goods may be refunded by the commissioner.

5b

Taxation of Income

Argue four cases against capital gains tax or equivalent tax in your country.

5c

Taxation of Income

Chege and Telek have been partners trading as Chetel Traders. On 1 September 2017, they admitted Lopez in the business and changed the partnership name to Chetelop Traders. Prior to the admission of Lopez, the profit and loss sharing ratio was 2:3 between Chege and Telek respectively. However, with the admission of Lopez, they revised the profit and loss sharing ratio to 2:3:1 for Chege, Telek and Lopez respectively.

The partners have presented the following income statement for the year ended 31 December 2017:

Income	Sh.	Sh.
Gross profit		4,500,000
Foreign exchange gain		234,000
Interest on bank deposit (net)		90,000
Insurance compensation for stolen vehicle		300,000
Profit on disposal of computers		160,000
		5,284,000
Expenditure
General expenses	2,625,000
Salaries and wages	1,800,000
Interest on capital: Chege	120,000
Telek	105,000
Lopez	22,500
Legal expenses	365,625
Loss on sale of assets	11,400
Stamp duty on lease agreements	6,120
Licenses and permits	10,800
Subscriptions to trade association	42,000
Conveyance fees	112,500
Rent and rates	180,000
Mortgage interest	180,000
Repairs on computers	45,000
Furniture purchased (cost)	63,000
Bank charges	60,000
Repair and maintenance	560,000
Bad and doubtful debts	123,750
Depreciation	193,400	(6,626,095)
Net profit (loss)		1,342,095

Additional information:

1	General expenses comprise:	Sh.
	Embezzlement by a cashier	900,000
	Staff christmas party	600,000
	Replacement of car engine	105,000
	Partition of an office	450,000
	Partners private insurance policy	570,000

2	Salaries and wages include Sh.525,000, Sh.600,000 and Sh.235,000 paid to Chege, Telek and Lopez respectively.
3	Mortgage interest relates to a partner's residential house.
4	Assume that the income accrued evenly throughout the year.

5	Legal expenses comprise:	Sh.
	Parking fines paid to county government	11,400
	Legal fees for breach of contract	150,000
	Drafting a tender document	13,500
	Drafting a lease agreement (100 years)	6,750
	Defending a partner in a tax case	9,000
	Legal cost of debt collection	174,975

6	Repair and maintenance costs comprise:	Sh.
	Purchase of weighing scale	252,000
	Installation of CCTV cameras	224,000
	Fixing a leaking roof	84,000
7	Bad and doubtful debts comprise:	Sh.
	Specific bad debts	74,250
	General provision	49,500

8	Capital allowance was agreed with the commissioner of revenue authority at Sh.260,800.

Required:

(i) Adjusted taxable profit or loss for the partnership for the year ended 31 December 2017.

(ii) Allocation of profit or loss to the partners.

May 2018

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