UNIVERSITY EXAMINATIONS 2024/2025

SCHOOL OF BUSINESS
ORDINARY EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
ACC 3103: ADVANCED TAXATION
FULL TIME
DATE: DECEMBER 2024 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions

QUESTION ONE (20 MARKS)

Kiambu Electronics Ltd. is a distributor of telecommunication equipment. The profit and
loss account for the year ended 31 December 2022 is as follows:

Ksh. Ksh.
Purchases 13,000,000 Sales 19,000,000
Salaries and wages 2,000,000 Discounts 400,000
Rent and rates 125,000 Insurance recovery 180,000
Office expenses 480,000 Profit on sale of assets 240,000
Travelling exp 336,000 Provision for bad debts 80,000
Subscriptions 50,000
Licenses 200,000
Legal fees 436,000
Depreciation 670,000
Audit fees 130,000
Loss on sale of assets 240,000
Bank charges 96,000
Bad debts 415,000
Discounts 336,000
Repairs and maintenance 705,000
Net Profit 681,000
19,900,000 19,900,000
Notes:
1. Distribution and office expenses include the following: Kshs.

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 Subscriptions to Wananchi Sports Club for employees’ benefit 180,000
Directors’ personal expenses 96,000
Donations to charity 50,000
15% of rent and rates relate to payments in connection with directors’ private residences.
2. Insurance recovery is in connection with mobile phones stolen while on transit to a client.
3. Bad debts provision represents a reduction in the general provision for bad debts.
4. Legal fees include the following:
Kshs.
Debt collection 80,000
Employment contracts 60,000
Acquisition of trade mark 120,000
Renewal of lease – 50 years 60,000
Legal suit in relation to counterfeit handsets found in the company’s warehouse 116,000
5. Subscriptions are to the Mobile Phone Dealers Association.
6. Licences and permits represent Kshs. 150,000 paid to the Communications Commission of
Kenya (CCK) and Kshs. 50,000 relates to the single business permit paid to the Nairobi City
Council.
7. Repairs and maintenance include an extension to the warehouse at a cost of Kshs. 450,000.
8. Travelling expenses include Kshs. 240,000 incurred by the sales manager when he travelled to
South Africa to attend a mobile phones and accessories trade fair.
9. Capital allowances have been agreed with the Commissioner of Income Tax at Kshs. 860,000.
Required:
(i) Compute Kiambu Electroniccs Ltd.’s taxable profit or loss for the year ended 31 December
2022. [8 Marks]
(ii) Compute the tax payable thereon. [2 Marks]

(b) The following are sales and purchases of Jasho Limited, a supplier of vatable
goods for the six-month period ended 31 December 2022.
Sales
Standard Zero-rate
Shs. Shs.
July 1,200,000 300,000

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 August 1,000,000 250,000
September 800,000 160,000
October 1,400,000 400,000
November 600,000 100,000
December 1,600,000 380,000
6.600,000 1,590,000
Purchases (standard)
July 900,000
August 750,000
September 350,000
October 1,100,000
November 400,000
December 1,200,000
4,700,000
All purchases and sales above are VAT exclusive
Required:
VAT account for the six-month period ended 31 December 2022 [10 Marks]

QUESTION TWO (15 MARKS)

(a) Kericho dairy co-operative society prepared the following income statements for the year
2020.
Sale of milk and other products 21,600,000
Dividends from quoted companies 400,000
Less: Expenses
Donation to a registered charitable organization 80,000
Income tax paid (2019) 800,000
Legal fees on bank overdraft 125,000
Bad debts written off 160,000
Loss on investment 60,000
Committee sitting allowance 300,000
Interest on overdraft 200,000

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 Stationary 100,000
Bonus &divided to members 20,000,000 (21,825,000)
Surplus 175,000
Required:
(i) Taxable income [8 Marks]
(ii) Tax Payable [2 Marks]
(b) Tax on Business Entities is imposed under Section 3(2)(a)(i) of the Income Tax Act. In line
with this statement, explain five factors that are useful in ascertaining whether a business in
the nature of trade is carried on. [5Marks]

QUESTION THREE (15 MARKS)

The following information was obtained from the financial records of Chase Bank for the year
ended 31st December 2021
Sh. "000"
Interest on loans and advances 464,800
Contribution to deposit protection fund 98,000
Occupancy expenses 6,480
Interest on government securities 14,600
Interest paid on deposits 142,740
Interest on placement with other banks 2,660
Loss on disposal of collaterals 840
Fees and commission expenses 1,420
losses from investment in securities 790
Purchase of equipment 1,200
Depreciation 496
Transfer to statutory reserves 626
Loss on stock brokerage dealings 348
Gain on foreign exchange dealings 1,470
Discounts on bills purchased 329
Auditor remuneration 786
Provision for bad and doubtful debts 1,540

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Investment in government securities 1,850
Bills receivable 314
Guarantees and performance bond 378
Interest accrued and paid 1,974
Rebate on bills discounted 292
Corporate taxes 400
Staff cost 6,250
Loss on sale of assets 400
Commission received on brokerage 784
Security expenses 490
Additional information
1. Provision for bad and doubtful debts include specific bad debts at the beginning and the end
of the year amounting to sh. 680,000 and 1,400,000
2. Capital allowance for the year amounted to sh. 1,240,000
Required
(i) Taxable income for Chase Bank for the year ended 31st December 2021 [13 Marks]
(ii) Tax payable (refundable) for the year ended 31st December 2021 [2 Marks]

QUESTION FOUR (15 MARKS)

Ukweli Insurance Company Limited has provided the following details with respect to its financial
year ended 31 December 2021.
Sh.
Gross premium 19,000,000
Outstanding premiums b/d 01-01-2021 400,000
Outstanding premiums c/d (31-12-2021) 230,000
Prepaid premiums b/d 01-01-2021 186,000
Prepaid premiums c/d (31-12-2021) 314,000
Claims paid 5,400,000
Claims outstanding: 01-01-2021 740,000
Claims outstanding: 31-12-21 1,640,000
Claims recovered on reinsurance 400,000
Legal expenses relating to claims 540,000

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Commission of reinsurance accepted 2,800,000
Commission on reinsurance ceded 860,000
Reserve for unexpired risks: 01-01-2021 980,000
Agency expenses 1,560,000
Bad debts 450,000
Investment income (dividend from quoted companies) 890,000
Life insurance fund 1,540,000
Depreciation 630,000
Foreign exchange gains 420,000
Dividends from life assurance fund 180,000
Management salaries 1,670,000
Bonus utilized in reduction of premium 425,000
Rental income on premises 1,260,000
Repair or rented premises 280,000
Advertisement expense 124,000
Purchase of furniture 120,000
Returned premium 1,230,000
Reinsurance premium paid 670,000
Additional information
1. The company acquired a saloon car for the General Manager for Sh. 2,000,000 on 1 July
2021.
2. Bad debts relate to compensation due from a reinsurance company under receivership.
3. Management salaries include wages amounting to Sh670,000 for part-time employees
working in the life assurance department.
4. Capital allowance for the year amounted to sh. 1,230,000
Required:
(i) Taxable profit or loss for Ukweli Insurance Company Limited for the year ended 31
December 2019. [13 Marks]
(ii) Tax payable (if any) from the profit or loss computed in (i) above [2 Marks]

THE END

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