SCHOOL OF BUSINESS AND PUBLIC MANAGEMENT

BACHELOR OF COMMERCE
CFM 300
ADVANCED TAXATION (DISTANCE LEARNING MODULE)
CAT EXAM SEMESTER 2, 2015 (DUE ONE WEEK FROM DATE OF UPLOADING)
Instructions: Answer BOTH Questions. Show all workings and state all assumptions used to
support your answers.
RATES OF TAX (Including wifes employment, self employment and professional income rates of tax).
Year of income 2014.
Monthly taxable pay
Annual taxable pay
Rates of tax
(Shillings)
(Shillings)
% in each shilling
1 Capital- allowances:
10164
1
121968
10% rates of motor vehicles provided by
Prescribed benefit
10165
19740
121969
236880
15%
employer
(i) Wear and tear allowances:
19741 29316
236881 351792
20%
29317Class
- I
38892
351793 466704
25%
37.5%
Monthly Annual
Excess
over
38892
Excess
over
466704
30%
rates
Rates
Class I
30%
Class
I Kshs. 1162 per month (Kshs.13,944
25% per annum)
Personal
relief
Class I
12.5% (i) Saloons, Hatch Backs & Estates

(ii) Industrial building allowances:

Industrial buildings
Hotels

10%
10%

(iii) Farm work allowances

(iv) Shipping investment deduction

100 %
40%

(v) Mining allowance:

Year 1
Year 2-7

40%
10%

Up to
1201150117512001Over

Kshs.

1200 cc
1500 cc
1750 cc
2000 cc
3000 cc
3000 cc

Kshs.

3600
4200
5800
7200
8600
14400

43200
50400
69600
86400
103200
172800

3,600

43,200

(iv) Pick-ups, Panel Vans (Unconverted)

Up to

1750 cc

Over

1750 cc

4,200
50,400
7200
86400
(vi)
Land Rovers/ Cruisers
OR 2% of the initial capital cost of the vehicle for each month.

Commissioners prescribed benefit rates

Monthly rates
Kshs.
1500
500

Services
(i) Electricity (common or from generator)
(ii) Water (Communal or from a borehole)

Annual rates
Kshs.
18000
6000

(iii) Provision of furniture (1% of cost to employer) If hired, the

cost of hire should be brought to charge
(iv) Telephone (Landline and mobile phones)

30% of bills

Agricultural employees
(i) Water

200

2,400

(ii) Electricity

900

10800

QUESTION ONE
Serena Campo Ltd. has been in the manufacturing business since 2009. The following summary relates
to the companys assets as at 31 December 2012.
Asset
Plant building
Boilers and processors
Other machinery (auxiliary)
Graders and Tractors
Computers
Prado for manager
Plant building extension
Nissan sunny
Furniture and fixtures
Scanners and printers
Sports Hall
Staff Dispensary
1.

Cost Kshs.
10,200,000
6,800,00
3,200,000
3,000,000
600,000
3,800,000
2,400,000
900,000
800,000
500,000
2,400,000
1,600,000

Year of First Use

5 January 2009
12 August 2009
1 July 2010
1 February 2010
25May 2010
6 July 2011
1 September 2011
24 October, 2011
17 November 2011
2 December 2011
1 July 2012
3 October 2012

Additional Information
On 1 January 2013, a sewerage system was constructed at a cost of Kshs. 1,420,000. A generator was
also purchased on the same date for Kshs. 900, 000.
2. The following additions assets were purchased or disposed of in the year 2013.
Date
1 March 2013
4 May 2013
24 July 2013
10 September 2013
15 October 2013
Date

Asset Purchased
Computers
2 Saloon cars
Trailer
Lorry (7 tonnes)
Curtains

Asset
Disposed off
2 July 2013
Boilers
30 September 2013 Prado

Cost (Kshs.)
500,000
2,500,000 (each)
2,200,000
5,200,000
50,000

Original Cost
(Kshs.)
2,700,000
3,800,000
2

Sales Proceeds Net book

(Kshs.) value (Kshs.)
1,600,000
800,000
1,800,000
2,200,000

30 November 2013 Tractor

2,200,000
1,500,000
3. On 1 January 2014, the company imported the following machines:
Processing machinery
Weighing machines
Water pump

1,300,000

Kshs.
5,500,000
940,000
875,000

The cost of the imported processing machinery includes an import duty waiver of Kshs.
500,000 granted by the tax authorities.
Required:
Compute the capital allowances due to the company for the two years ended 31 December 2013 and
2014.
(20 marks)
QUESTION TWO
(a)

Briefly explain one similarity and two differences between the taxation of companies and that of
co-operative societies in your country.
(6 marks)

(b)

Sabina Farm Ltd. grows flowers for sale in both domestic and international markets.
The following income statement was prepared by the company for the year ended 31 December
2013:
Income
Sales
Cost of sales
Gross profit

Kshs.

Expenditure:
Salaries and wages
Establishment costs
Staff training costs
Telephone and postage
Printing and stationery
Professional fees
Advertising and promotions
Entertainment
Fines and penalties
Finance costs
Bank charges
Net profit

4,600,000
800,000
600,000
400,000
200,000
380,000
120,000
30,000
35,000
450,000
15,000

Kshs.
57,600,000
(24,300,000)
33,300,000

7,630,000
25,670,000

Additional information:
1.
Cost of sales includes Kshs. 1,400,000 represents the value of flowers destroyed in a
hailstorm. An insurance compensation of Kshs. 900,000 is due on the loss but has not
3

2.
3.
4.

been included in the above income statement. Also included in the cost of sales is Kshs.
2,000,000 incurred on the construction of a water reservoir within the farm.
Establishment costs represents the amortization of the companys formation costs.
Salaries and wages include Kshs. 160,000 paid to workers hired on a temporary basis
during a period of strike by regular workers.
Staff training costs include:
Fire emergency training
Leadership and team-building course
Training of local farmers on water management

5.

Profession fees relate to:

Kshs.
180,000
60,000
80,000
60,000
380,000

External audit
Internal audit
Defense of companys title to land
Tax planning consultancy
6.

Finance costs comprise:

Kshs.
220,000
150,000
80,000
450,000

Interest on loans
Foreign exchange losses: Realized
Unrealized
7.

Kshs.
50,000
200,000
60,000

Analysis of the fixed assets register revealed the following details as at 1 January 2013

Class I
Class II
Class III
Class IV

Net book value (NBV)

Kshs. 000
500
380
2,200
1,800

Tax written down value (WDV)

Kshs. 000
380
220
1,900
2,100

Industrial buildings:
Year of acquisition/
construction
1 January 2010
1 July 2010
1 January 2011

Net book value (NBV)

Kshs. 000
1,250,000
960,000
380,000

Tax residual value

Kshs. 000
84,000
133,000
88,000

Net book value (NBV)

Kshs. 000

Tax residual value

Kshs.

Farm works:
Year of construction

1 August 2012

6,000

Nil

Required:
(i)
Taxable profit of Sabina Farm Ltd. for the year ended 31 December 2013. (12 marks)
(ii)
Tax payable (if any) by the company for the year.
(2 marks)
(Total: 20 marks)