KASNEB Public Finance and Taxation - Question 3a

Outline the challenges that may affect the operations of the recently introduced itax system. ... [Click to view full question and step-by-step solution]

KASNEB Public Finance and Taxation - Question 4a

Outline any five specified sources of income as detailed in Section 3 (2) of the Income Tax Act. ... [Click to view full question and step-by-step solution]

Pilot September 2015

1a

Introduction to Public Financial Management

Explain the meaning of the following as provided in Public Finance Management Act:

i. County Public Debt

ii. Appropriation Act

1b

Relationship between National and County Governments on budget and economic matters

Discuss the function of the Commissio on Revenue Allocation (CRA) or its equivalent as provided in your country's Constitution.

1c

Relationship between National and County Governments on budget and economic matters

State two considerations that guide revenue sharing between the national government and county government.

2a

Procurement in public entities

State the relevance of the Public Procurement Oversight Authority (PPOA) in public financial management in your country.

2b

Oversight Function in Public Finance Management

Explain the responsibilities of the National Assembly Budget Committee in public finance matters

3a

Administration of Income Tax and Tax Procedures

Outline the challenges that may affect the operations of the recently introduced itax system.

3b

Administration of Income Tax and Tax Procedures

Explain the treatment of the following as provided under the Employer's PAYE regulations:

(i) Tax-free remunerations.

(ii) Payment in lieu of leave.

(iii) Personal relief granted to persons leaving the country.

3c

Taxation of Income

Asafa and Bon have been partners trading as AB enterprises. They prepare their accounts to 31 December every year. Due to the need to expand their business, they decided to admit Carter on 1 September 2014. Carter brought in Sh.2,000,000 as his capital plus his contribution towards goodwill. Prior to the admission of Carter, the profit and loss sharing ratio was 2:3 between Asafa and Bon respectively. However, with the admission of Carter, they revised the profit and loss sharing ratio to 2:3:1 for Asafa, Bon and Carter respectively. Their business was changed to trade under the name ABC enterprises.

The partners have presented the following profit and loss account for the year ended 31 December 2014

Income	Sh.	Sh.
Gross profit		6,000,000
Foreign exchange gain		312,000
Interest on drawings:Asafa		500,000
Interest on drawings:Carter		60,000
Interest on bank deposits (net)		120,600
Insurance compensation for stolen vehicle		400,000
		7,392,600
Expenditure:
General expenses	3,500,000
Salaries & wages	2,400,000
Interest on capital:Asafa	160,000
Interest on capital:Bon	140,000
Interest on capital:Carter	30,000
Legal expenses	487,500
Loss on sale of assets	15,200
Stamp duty on lease agreement	8,160
License permits	14,400
Subscription to trade assossiations	56,000
Conveyance fee	150,000
Rent and rates	240,000
Salaries to partners: Carter	180,000
Mortgage interest	240,000
Repairs on computers	60,000
Furniture purchased (cost)	84,000
Bank charges	80,000	(7,845,260)
Reported loss		(452,660)

Additional information:

1	General expenses comprise:	Sh.
	Embezzlement by accountant	120,000
	Staff Christmas party	800,000
	Amount paid to retrenched staff	760,000
	Replacement of car engine	140,000
	Partition of an office	600,000
		3,500,000

2	Salaries and wages include Sh.700,000 and Sh.800,000 paid to Asafa and Bon respectively during the year.
3	Interest on capital was provided at 45% of the capital contributions.

4	Legal expenses include:	Sh.
	Parking fines paid to county government	15,200
	Legal fees for breach of contract	200,000
	Drafting of tender documents	18,000
	Drafting of lease agreements (99 years)	9,000
	Defending a partner in a tax case	12,000
	Legal cost of debt collection	233,300

5	Mortgage interest relates to a partner's residential house.
	Assume that the income accrued evenly throughout the year.
	Ignore capital allowances.

Required:

(i) The adjusted partnership profit or loss for the year ended 31 December 2014.

(ii) Allocation of the profits or losses in (c) (i) above to the partners.

4a

Taxation of Income

Outline any five specified sources of income as detailed in Section 3 (2) of the Income Tax Act.

4b

Investment Allowances/deductions

Compare and contrast the provisions of the Income Tax Act as relates to "Wear and Tear" and "Farm Works Deduction".

Your analysis should be guided by the following key aspects:

(i) Acquisition of items previously used by another person for the same qualifying business.

(ii) New items acquired during the year of income.

4c

Investment Allowances/deductions

Hal Meat Processing Company (HMPC) was established on 1 January 2014 to process meat products for the local market. The company incurred the following costs in constructing relevant structures which were utilised from 1 January 2014:

	Sh.
Factory building	72,000,000
Labour quarters	24,000,000
Show room	950,000
Staff recreation facility	4,500,000
Retail shop	700,000
Perimeter wall	1,550,000
Administrative offices	1,600,000
Driveway	800,000
Sports pavilion	2,600,000
Drainage system	900,000
Loading bay	1,200,000
Weigh bridge	600,000

Additional information:

1	A borehole was drilled at a cost of Sh.1,300,000 and utilised with effect from 1 November 2014.
2	On 1 December 2014, the company constructed a factory extension at a cost of Sh.2,650,000 and put to use immediately.
3	The following items were purchased on 1 December 2014:

3		Sh.
	Pick-up	2,400,000
	Conveyor belt	600,000
	Scanners	250,000
	Mobile phones	260,000
	Digital weighing machines	90,000
	Computers	300,000

4	The following assets were disposed of during the year:

4		Disposal Date	Initial Cost Sh.	Disposal proceed (Sh.)
	Computers	30 December 2014	100,000	60,000
	Mobile phones	20 December 2014	60,000	20,000

Required:

Capital allowances due to Hal Meat Processing.Company (HMPC) for the year ended 31 December 2014

5a

Investment Allowances/deductions

Explain any two cases in which a business can close the year with a negative balance in any class of wear and tear elaborating on how such a balance would be treated.

5b

Introduction to Taxation

Regressive taxes present an unmatched opportunity for any developing country to increase its revenue collection from taxes.

Explain the validity or otherwise of this assertion.

5c

Taxation of Income

The following is the trading, profit and loss account of Cobalt Ltd. for the year of income 2014. The company is engaged in furniture making both for the local market and the foreign market:

	Sh."000"		Sh."000"
Stock (1 January 2014)	450,000	Sales	3,490,000
Purchases	1,400,500	Stock (31 December 2014)	423,000
Bank charges	30,200	Interest from Post Bank	4,800
Wages to casual workers	588,000	Insurance recovery - van	88,000
Insurances	78,000	Profit on sale of shares	54,000
Salaries to permanent staff	144,000	Dividend (net)	32,000
NSSF contributions - workers	13,000	Income from sale of saw düst	250,000
NHIF contributions- workers	14,000
Legal expenses	20,400
Bad debts	50,600
Commissions	30,200
Repairs and maintenance	120,200
General expenses	53,800
Listing expenses - NSE	147,600
Delivery van scrapped	22,400
Depreciation	193,400
Donations	8,800
Rent and rates	83,000
Electricity and water	28,100
Travelling expenses	560,300
Pension paid to retired staff	48,700
Entertainment	17,100
Purchase of office calculator	3,600
Telephone expenses	11,900
Net profit	224,000
	4,341,800		4,341,800

Additional information:

Sales of saw dust require a payment of 20% commission on the income to the hawkers who pick up the items from the company premises and deliver them to the market. Such commission has not yet been included in the company books.
Legal expenses analysis:
Sh. 000'
Preparing a lease for 50 years
1,200
Collection of business debts
2,200
Purchase of directors house
17,000
20,400
Entertainment expenses relate to customers and staff.
The company was listed at the Nato Securities Exchange (NSE) at the beginning of the year, a process that led to 42% ofthe company's shares being offered to the public.
The capital allowances were agreed at Sh.2,000,000 for the year.

Required:

(i) Adjusted taxable income for the year ended 31 December 2014.

(ii) Compute the tax payable (if any) on the income in (c) (i) above.

Pilot September 2015

Download Complete Period

Questions

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

Want to join the discussion?

	Sh. 000'
Preparing a lease for 50 years	1,200
Collection of business debts	2,200
Purchase of directors house	17,000
	20,400