PRINCIPLES OF TAXATION

ASSIGNMENT

QUESTION ONE

a) State the FOUR benefits of turnover tax (2 marks)

b) John Hopkins bought a residential house for shs.7,000,000, in the year 2006.legal fees and stamp
duty amounted to shs.300000.

In the year 2008, he added three bedrooms at a cost of shs.920000, and received an improvement
grant of shs. 1000000.In the year 2009, a strong wind damaged the roof and he incurred repair cost
amounting to shs. 480000.In the year 2011, a boundary dispute arose with a neighbor and legal costs
amounting to shs.34000, were incurred in settling the dispute. In the year2012, a further extension
was planned and architects fee of shs.650000,was incurred, however the plan was not approved by
the county council and the extension was abandoned. The residential house was sold in the year
2015.He incurred conveyancing costs of shs.60000, advertising costs of shs.15000 and estate agency
commission of shs.24000

REQUIRED

i. With respect to capital gains tax, calculate the adjusted cost of the residential home at the
point of sale.(6 marks)
ii. Determine the capital gain tax payable to the government (2 marks)

QUESTION TWO

Neptune millers ltd,is a maize and wheat floor milling company.The company started its
operations on 5th January to December,2015.

Shs.000,millions

Cost of land 1,600,000

Fixtures and fittings 250000

Factory building 4200000

Packing machine 960000

Digital weighing scale 60000

Processing machine 540000

Tractor 2400000

Computer 620000

Mobile phone 140000

Combine harvester 1800000

Additional information

i. The company constructed the following structures during the year which were utilized
from 1st september2015
Cost of constr
Sports pavilion shs.640000
Labour quarters shs.1200000
Recreational facility shs.480000
Factory extension shs.960000
ii. The company disposed off two computers at shs.30000 each on 1 st August2015.
iii. The cost of processing machine includes installation cost of shs.120000
REQUIRED
Capital allowances due to Neptune millers ltd for the year ended 31 st December2015.
(10 marks)
QUESTION THREE.
Mambo and Kaka are in partnership operating a hardware shop as maka enterprises and
sharing profits and16%) shs.9280000
Capital gain on sale of property 290000
Rental income 240000
Dividends from Wakii cooperative (net) 170000
Unrealized foreign exchange gain 94000
10074000
Less expenses
Cost of goods sold shs.4000000
Purchase of computers 160000
Salaries and wages 360000
General expenses 720000
Legal expenses 940000
Conveyancing fees 92800
Farm works at cost 60000
Repairs and maintenance 24500
Interest on partners’ capital 450000
Mambos mortgage interest 65800
Donations to Tennis club 34800
Commission to Kaka 21100 6929000
Net profit 3145000
Additional information
1. General expenses include. Sh.
 Embezzlement by kaka 24000
 Partition of staff offices 48000
 Staff catering services 50000
 Pensions contribution 180000
 Prepaid rent and rates 32400
 Stamp duty on land transfer 64000
 Legal expenses include Sh.
 Drafting a partnership deed 42000
  Negotiating a bank loan 28400
 Executing a customs bond security 24600
 Defending the business against breach of contract 38000
2. Salaries and wages include salaries to employees of shs.160000 while the
balance was paid to partners.
3. Salaries to partners and interest on partners capital account is to be shared
according to the profit and loss sharing ratio.
4. Cost of goods sold include purchases valued at shs.300000 which had been
overstated by 20%.

REQUIRED

i. Adjusted taxable profit or loss for the partnership for the year ended 31 st
December2015. (8 marks)
ii. A schedule showing distribution of partners taxable income for the year
ended 31st December2015(2 marks)

QUESTION FOUR

Mehta ltd,a company dealing in electronic items and registered for Value added
tax(VAT)purposes, provided the following details in respect of September2020.
September 1 Purchased 10 cameras for a total of shs.500000
September 2 Purchased flash bulbs for a total of shs. 200000
September 4 Purchased slide projectors for a total of shs.1000000
September 6 Sold 5 cameras each at 35% above cost price.
September 9 Purchased 200 wrist watches at shs.1500 each.
September 12 Sold 2 slide projectors for a total of shs.500000
September 13 Sold flush bulbs that had a cost of shs.100000 for shs.150000
September 15 Purchased 50 stop watches for a total of shs.50000
September 18 Purchased 100 alarm clocks at a total cost of shs.80000
September 23 Sold the remaining 5 cameras each at 25% above cost price.
September 25 Sold 3 slide projectors for a total of shs.750000
September 25 Sold 100 wrist watches at shs.2000 per watch
September 27 Sold 70 alarm clocks each at 30% above cost price.
September 28 Sold 50 stop watches for a total of shs.75000
September 28 Paid electricity for shs.15000
September 30 Paid rent shs.20000
----Motor vehicle repair shs.10000(for business)
----Telephone expenses shs.9000
-----Catering expenses shs.19000
-----Audit fee shs.35000.

All transactions are inclusive of VAT at the rate of 16% where applicable.

REQUIRED

Calculate for Mehta ltd,for the month of September2020,

i. Input tax (5 marks)

ii. Output tax(4 marks)
iii. VAT payable or refundable. (1 mark)