CPA ADVANCED LEVEL – ADVANCED TAXATION REVISION KIT

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Complete copy of ADVANCED TAXATION REVISION KIT is available in SOFT ( Reading using our MASOMO MSINGI PUBLISHERS APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.co.ke

AT SAMPLE

 

SAMPLE WORK

Complete copy of ADVANCED TAXATION REVISION KIT is available in SOFT ( Reading using our MASOMO MSINGI PUBLISHERS APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.co.ke

 

TOPIC 1

 

TAXATION OF BUSINESS INCOME AND SPECIALIZED BUSINESS ACTIVITIES

 

QUESTION 1

November 2020 Question Two A

The following financial information was extracted from the books of Oil Drillers and Exporters Ltd. for the year ended 31 December 2019:

Income   Sh.
Proceeds of oil sold to foreign subsidiary company (50,000 barrels of crude oil at Sh.500 per barrel) 25,000,000
Value of oil disposed of to local refineries 125,000
Freight charges received from other oil companies for transporting their crude oils to neighbouring country 190,000
Sale of natural gas 160,000
Expenditure  
Staff accommodation expenses 60,000
Wages and salaries for employees 15,000
Annual compensation paid to local people for disturbance during petroleum exploration 75,000
Royalties incurred in respect to crude oil exported 42,000
Interest on loan from a foreign subsidiary company 31,250
Specific bad debts written off 8,500
Depreciation of non-current assets (Class IV) 45,100
Exploration and drilling costs in respect to cement and casing of oil wells 24,500,000
Contribution to approved provident fund 65,000
Custom duties on imported equipment 21,500
General expenses 65,000

 

 

Additional information:

  1. Non-current assets comprised; drilling machines Sh.900,000, Furniture Sh.240,000 and saloon car Sh.2,800,000 acquired during the year.
  2. Staff accommodation expenses include management fees of Sh.18,000 for a director from a foreign subsidiary company.
  3. Lorries for transporting crude oil comprised:

7.5 tonnes lorry Sh.2,400,000.

4.2 tonnes lorry Sh.1,800,000.

 

Required:

A statement of taxable profit or loss for the year ended 31 December 2019.

(12 marks)

QUESTION 2

November 2020 Question Three A

M and K are in partnership trading as MK enterprises. The partners deposited Sh.4,000,000 and Sh.6,000,000 into the business account as their initial capital before commencing trading. They also agreed to share profit and loss in the ratio of their initial capital contribution and interest on capital at 5% per annum on outstanding capital balances.

On 1 January 2018, the firm purchased the following assets for use in the business:

                                               Sh.

Saloon car                    2,400,000

Computers                         80,000

Furniture and fittings        96,000

Fax machine                      48,000

Switchboard                      64,000

Bookshelf                          18,000

Office kitchen utensils        9,000

Office television set           54,000

Carpets                               36,000

Safe for cash office            45,000

 

The firm’s books were kept in a single entry bookkeeping. The details for the accounting records for the year ended 31 December 2018 obtained were as follows:

 

  1. Sales for the year was Sh.1,860,000 out of which Sh.360,000 was on credit and the balance was cash banked.
  2. The following monthly expenses were paid from cash proceeds before banking the proceeds from cash transactions

                                            Sh.

Transport expenses           6,000

Telephone and postage      5,600

Office meals                      5,000

Repairs and maintenance  4,800

 

  1. The bank statements summary for the full year showed payments made during the year as follows:

                                                   Sh.

Rent payment                         325,000

Purchase of 3 tonnes lorry  1,800,000

Purchase of motor bike            90,000

Office expenses                   1,460,000

Advertising                             240,000

 

  1. The office expenses paid in note (3) above included:

Sh.

Partners’ salaries: M                       270,000

K                       360,000

Employees’ pension contribution   420,000

Donations to society for blind           78,000

Tax consultancy fees                         32,000

Training of partners’ children           28,000

Motor vehicle insurance                    24,000

 

The business failed to file returns for the year of income 2018 and on 1 July 2019, they received an estimated assessment of Sh.78,000 from the revenue authority for each partner.

 

Required:

  1. i) Using the above information, prepare a statement that will form the basis of contesting the estimated assessment for the year of income 2018. (14 marks)
  2. ii) Advise the partners on the appeal position. (2 marks)

 

QUESTION 3

November 2019 Question One C

Sharon and Primus are partners running a hardware business. They have approached you to assist them prepare the partnership returns for the year ended 31 December 2018. The following information has been presented to you:

The partnership agreement provides that

  • Profits and losses will be shared in the ratio of 2:1 for Sharon and Primus respectively.
  • Partners will be allowed to withdraw up to Sh.100,000 in cash without being charged interest. Any excess withdrawals will be subject to interest at a rate of 8% per annum.
  • Each partner will be entitled to a monthly salary of Sh.60,000 per month. However, no salary would be paid to any partner in the months of January, May and September due to expected low sales based on analysis of past trends. Partners would be entitled to a commission.
  1. The balances in the books of account as at 31 December 2018 and 31 December 2017 included the following: 31 December 2018 31 December 2017
  31 December 2018 31 December 2018
  Sh. Sh.
Accrued commission due to partners 400,000 360,000
Accounts payable (trade) 2,000,000 1,600,000
Accrued advertising expense 610,000 340,000
Prepaid royalty income 160,000 100,000
Accounts receivable (trade) 5,900,000 1,700,000
Accrued salaries and wages (partners excluded) 410,000 130,000
Accumulated depreciation 600,000 340,000

 

  1. Extracts of cash payments during the year were as follows:

 

Sh.
Commission paid to partners equally 100,000
Purchases (goods for sale) 1,000,000
Advertising expenses 150,000
Salaries and wages (partners excluded) 1,390,000
Motor vehicle expenses 240,000
Electricity expenses 80,000
Office partitions 60,000
Purchase of office equipment 97,000
Meals to employees 200,000
Loan interest 35,000
Cash withdrawn partners – Sharon 160,000
                                               – Primus 100,000
  1. All receipts were channeled through the account and included the following:
  Sh.
Sales (all were on credit terms) 1,600,000
Royalty income 240,000
Proceeds from sale of office equipment 45,000
Computer leasing charges 6,000

 

  1. The partners withdrew hardware goods for personal use as indicated below: Sh.
Sharon 110,000
Primus 60,000
  1. In December 2018, some of the hardware goods which were valued at Sh.60,000 were destroyed fire:. Compensation of Sh.35,000 was received from the insurance company.

Required:

(i) Taxable profit or loss of the partnership for the year ended 31 December 2018.

(8 marks)

(ii) A schedule showing the partners allocation of taxable income or loss.          (2 marks)

Hint: Ignore opening and closing inventory.

 

QUESTION 4

November 2019 Question Three C

Maisha Mema Insurance Company Limited provided the following information for the year ended 31 December 2018:

 

 

  Sh.”000″
Gross premiums received 30,000
Claims paid 4,000
Commission ceded 800
Commission accepted 20
Claims recovered on reinsurance 3,000
Foreign exchange gains realised 3,500
Dividends from life assurance fund 2,000
Rental income (commercial building) 1,600
Bad debts provision 500
Investment income 1,200
Reserve for unexpired risks (1 January 2018) 1,000
Legal expenses related to claims 400
Agency fees 400
Management fees 120
Repairs on rental properties 200
Entertainment expenses 400
Purchase of furniture 600
Purchase of computer 300
Reinsurance premiums paid 4,000
Returned premiums 5,000

 

Additional information:   

  1. Reserves for unexpired risks on 31 December 2018 were Sh.200,000.
  2. Claims outstanding on 1 January 2018 and 31 December 2018 were Sh.600,000 and Sh.900,000 respectively.
  3. Premiums outstanding on 1 January 2018 and 31 December 2018 were Sh.6,000,000 and Sh.12,000,000 respectively.
  4. Agency fees included Sh.200,000 relating to the life assurance business.
  5. Legal fees included Sh.100,000 relating to settlement of a tax dispute.
  6. Investment income comprised:
Sh.
Interest from bank 850,000 (net)
Interest from treasury bonds 350,000 (gross)

 

Required:

(i)  Taxable profit or loss of Maisha Mema Insurance Company Limited for the year ended 31 December 2018.                                                                               (8 marks)

SAMPLE WORK

Complete copy of ADVANCED TAXATION REVISION KIT is available in SOFT ( Reading using our MASOMO MSINGI PUBLISHERS APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.co.ke

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