QUESTION ONE ) Mr. Wilson an SME owner, prepared the following income statement for his business for the year ended 31st December 2019. Ksh '000 Ksh '000' Income Sales 18,400 Discount received 600 Profit on sale of shares 400 Foreign exchange gain 15 Insurance recovery on stole stock 35 19,330.6 Expenditure Purchases 12,800 Salaries 1,200 Audit fee 45 Tax consultancy fee 30 Legal expenses 325 Licences & Permits 64 Depreciation 145.60 Loss on sale o equipment 78.40 Bank charges 44.20 Donations to a political party 50 subscriptions 12.80 Repairs & maintenance 174.20 Additional Information: 1. Legal Expenses comprise: Employment contracts Ksh. 5,000 . . Acquisition of Trademark Ksh 80,000 Successful defense of legal suit for breach of a trade contract Ksh 200,000. Debt collection Ksh. 40,000 2. Subscriptions includes: Chamber of commerce & Industry Ksh 2,800 Child care International Ksh 8,000 Golf club membership Ksh. 2,000 3. Repairs and maintenance expenses includes Ksh. 74,200 used for the renovation of a store. 4. Capital allowances were agreed with the tax authorities at Ksh. 680,000. Required: Prepare the Adjusted Taxable Profit or Loss for and the tax payable by Mr. Wilson for the year. (11 mks) (b) Briefly explain four roles of the Commission of Revenue Allocation (COR) of Kenya. (2 mks) (c) Highlight four types of taxes levied by the Kenyan government. (2 mks) QUESTION THREE (a) Briefly explain four principles of public finance applicable in your country. (4 mks) (b) Briefly explain any four types of assessments carried out by Kenya Revenue Authority (KRA), Kenya. (4 mks) (C) The following income statement was presented by Limuru Farmers' Co-operative society Limited a county co-operative society, for the year ended 31st December 2018: Ksh '000' Ksh '000' Turnover 18,000 Profit form canteen operations 4,000 Interest income Co-operative bank ltd. (net) 1,200 Treasury bills (net) 750 Member's loans (aross) 3.500 Honoraria to management committee 400 Other operating expenses 1,600 23,200 Net profit 8,130 . Additional Information: 1. Staff costs include court fines of Ksh. 200,000 and legal fees incurred in relation to: Preparation of scheme of service for staff. Ksh. 180,000. Drafting of the society's by-laws Ksh. 120,000. 2. Other operating expenses include Ksh. 300,000 incurred to the preparation of the strategic plan for the co-operative society. . Required: Calculate corporation tax payable by Limuru Farmers' Co-operative society for the year 2018 (6 mks) State the date(s) when the tax computed above would be payable. mks) ) (1 APPENDICES Section A Kenya Tax rates RATES OF TAX (Including wife's employment, self employment and professional income cates of tax). Year of income 2005 Rates of tax % in each shilling 10 Monthly taxable pay (shillings) 10,164 10,165 19,740 19,741 29,316 29,317 36,892 Excess over 36,892 Annual taxable pay (shillings) 1 121,968 121,969 236,850 236,881 351,792 351,793 466,704 Excess over 466,704 15% 20% 25% 30% Personal relief Shs. 1,162 per month (Shs. 13,944 per annum) Section B: Capital Deductions Industrial Buildings Deductions: Industrial Buildings (2.5%) in the First 40 years . . Section B: Capital Deductions Industrial Buildings Deductions: Industrial Buildings (2.5%) in the First 40 years Hotels 10% for the first 10 years Hostels & Educational Buildings certified by CIT: 50% for the first 2years Wear & Tear Deductions Class I: 37.5% Class II: 30% Class III: 25% Class IV: 12.5% Class V: 20% Farm Works Deductions This refers to expenditure by the owner or tenant of agricultural land on construction of farm works. Applicable rates Farmhouse- Allow 1/3 of the expenditure on one house. Employee houses Any other immovable buildings for the proper operation of the farm deduct 100% of the whole amount. . C Investment Deductions This is a deduction granted on cost of a building and machinery installed therein as an incentive to encourage investments. Applicable rates Investments situated within Nairobi, Mombasa and Kisumu - 100% investment allowance Investments worth 200 Million Kenya shillings situated outside Nairobi, Mombasa, Kisumu attract a 150% investment allowance Investment Deduction-Manufacturing Under Bond- For production of export goods under bonded warehouses Investment Deduction-Export Processing Zones- 100% investment deduction Shipping Allowance - applies to the purchase of a new and unused power-driven ship of more than 125 tons gross or the purchase and subsequent refitting for the purpose of that business of a used power-driven ship of more than 125 tons-100% investment deduction Section C: hent Benefits & allied QUESTION ONE ) Mr. Wilson an SME owner, prepared the following income statement for his business for the year ended 31st December 2019. Ksh '000 Ksh '000' Income Sales 18,400 Discount received 600 Profit on sale of shares 400 Foreign exchange gain 15 Insurance recovery on stole stock 35 19,330.6 Expenditure Purchases 12,800 Salaries 1,200 Audit fee 45 Tax consultancy fee 30 Legal expenses 325 Licences & Permits 64 Depreciation 145.60 Loss on sale o equipment 78.40 Bank charges 44.20 Donations to a political party 50 subscriptions 12.80 Repairs & maintenance 174.20 Additional Information: 1. Legal Expenses comprise: Employment contracts Ksh. 5,000 . . Acquisition of Trademark Ksh 80,000 Successful defense of legal suit for breach of a trade contract Ksh 200,000. Debt collection Ksh. 40,000 2. Subscriptions includes: Chamber of commerce & Industry Ksh 2,800 Child care International Ksh 8,000 Golf club membership Ksh. 2,000 3. Repairs and maintenance expenses includes Ksh. 74,200 used for the renovation of a store. 4. Capital allowances were agreed with the tax authorities at Ksh. 680,000. Required: Prepare the Adjusted Taxable Profit or Loss for and the tax payable by Mr. Wilson for the year. (11 mks) (b) Briefly explain four roles of the Commission of Revenue Allocation (COR) of Kenya. (2 mks) (c) Highlight four types of taxes levied by the Kenyan government. (2 mks) QUESTION THREE (a) Briefly explain four principles of public finance applicable in your country. (4 mks) (b) Briefly explain any four types of assessments carried out by Kenya Revenue Authority (KRA), Kenya. (4 mks) (C) The following income statement was presented by Limuru Farmers' Co-operative society Limited a county co-operative society, for the year ended 31st December 2018: Ksh '000' Ksh '000' Turnover 18,000 Profit form canteen operations 4,000 Interest income Co-operative bank ltd. (net) 1,200 Treasury bills (net) 750 Member's loans (aross) 3.500 Honoraria to management committee 400 Other operating expenses 1,600 23,200 Net profit 8,130 . Additional Information: 1. Staff costs include court fines of Ksh. 200,000 and legal fees incurred in relation to: Preparation of scheme of service for staff. Ksh. 180,000. Drafting of the society's by-laws Ksh. 120,000. 2. Other operating expenses include Ksh. 300,000 incurred to the preparation of the strategic plan for the co-operative society. . Required: Calculate corporation tax payable by Limuru Farmers' Co-operative society for the year 2018 (6 mks) State the date(s) when the tax computed above would be payable. mks) ) (1 APPENDICES Section A Kenya Tax rates RATES OF TAX (Including wife's employment, self employment and professional income cates of tax). Year of income 2005 Rates of tax % in each shilling 10 Monthly taxable pay (shillings) 10,164 10,165 19,740 19,741 29,316 29,317 36,892 Excess over 36,892 Annual taxable pay (shillings) 1 121,968 121,969 236,850 236,881 351,792 351,793 466,704 Excess over 466,704 15% 20% 25% 30% Personal relief Shs. 1,162 per month (Shs. 13,944 per annum) Section B: Capital Deductions Industrial Buildings Deductions: Industrial Buildings (2.5%) in the First 40 years . . Section B: Capital Deductions Industrial Buildings Deductions: Industrial Buildings (2.5%) in the First 40 years Hotels 10% for the first 10 years Hostels & Educational Buildings certified by CIT: 50% for the first 2years Wear & Tear Deductions Class I: 37.5% Class II: 30% Class III: 25% Class IV: 12.5% Class V: 20% Farm Works Deductions This refers to expenditure by the owner or tenant of agricultural land on construction of farm works. Applicable rates Farmhouse- Allow 1/3 of the expenditure on one house. Employee houses Any other immovable buildings for the proper operation of the farm deduct 100% of the whole amount. . C Investment Deductions This is a deduction granted on cost of a building and machinery installed therein as an incentive to encourage investments. Applicable rates Investments situated within Nairobi, Mombasa and Kisumu - 100% investment allowance Investments worth 200 Million Kenya shillings situated outside Nairobi, Mombasa, Kisumu attract a 150% investment allowance Investment Deduction-Manufacturing Under Bond- For production of export goods under bonded warehouses Investment Deduction-Export Processing Zones- 100% investment deduction Shipping Allowance - applies to the purchase of a new and unused power-driven ship of more than 125 tons gross or the purchase and subsequent refitting for the purpose of that business of a used power-driven ship of more than 125 tons-100% investment deduction Section C: hent Benefits & allied