ELEMENTS OF PUBLIC FINANCE AND ADMINISTRATION MAY 2021 PAST PAPER

MONDAY:  17 May 2021.                                                                                         Time Allowed: 3 hours.

Answer ALL questions.  Marks allocated to each question are shown at the end of the question.  Show ALL                     our workings.  Any assumptions made must be clearly and concisely stated.

RATES OF TAX (Including wife’s employment, self-employment and professional income rates of tax). Year of income 2020.

Assume that the following rates of tax applied throughout the year of income 2020.

Monthly taxable pay                                  Annual taxable pay                               Rate of tax

                 (Sh.)                                                               (Sh.)                                            % in each Sh.

1                       –      24,000                           I                        –    288,000                                  10%

24,001             –       40,667                          288,001           –    488,000                                  15%

40,668             –       57,334                          488,001           –    688,000                                 20%

Excess over    –      57,334                          Excess over    –    688,000                                 25%

 

Personal relief Sh.2,400 per month (Sh.28,800 per annum).

Prescribed benefit rates of motor vehicles provided by employer

                                                                                 Monthly rates                Annual rates

                                                                                      (Sh.)                                 (Sh.)

Saloons, Hatch Backs and Estates

Up to      1200 cc                                                            3,600                             43,200

1201       1500 cc                                                            4,200                              50,400

1501       1750 cc                                                            5,800                              69,600

1751      2000 cc                                                             7,200                              86,400

2001       3000 cc                                                             8,600                            103,200

Over        3000 cc                                                           14,400                           172,800

 

Pick-ups, Panel Vans (unconverted)

Up to       1750 cc                                                            3,600                              43,200

Over        1750 cc                                                            4,200                              50,400

 

Land Rovers/Cruisers                                                   7,200                              86,400

Commissioner’s prescribed benefit rates

Monthly rates                      Annual rates

Services                                                                                                                           (Sh.)                                      (Sh.)

Electricity (Communal or from a generator)                                          1,500                                      18,000

Water (Communal or from a borehole)                                                      500                                         6,000

 

Agriculture employees: Reduced rates of benefits

Water                                                                                                                    200                                         2,400

Electricity                                                                                                            900                                       10,800

 

QUESTION ONE

1.         Explain the following terms as used in public finance management:

Appropriation Act.                                 (2 marks)

Sinking fund.                                 (2 marks)

Budget circular.                                 (2 marks)

2.       Outline six roles of the Commission on Revenue Allocation (CRA) or its equivalent in your country. (6 marks)

3.          Describe four types of offences that a public officer of a procuring entity might commit as envisaged by the Public Procurement and Asset Disposal Act.                                                                                                                                                                                                        (8 marks)

(Total: 20 marks)

 

QUESTION TWO

1.          Identify four parties that could be interested in the Public Sector financial statements and the Auditor General’s report.                 (4 marks)

2.         Summarise six roles of the Director of Public Prosecution (DPP).                (6 marks)

3.         Kenview Enterprises is a registered business for value added tax (VAT) purposes. During the month of August 2020, Kenview Enterprises made the following transactions:

 

Date                                        Transaction                                                          Amount (Sh.)

August 5:                               Cash sales                                                                   480,000

August 7:                               Credit purchases                                                        180,000

August 9:                               Returns inward                                                             64,000

August 10:                             Purchase of stationery                                             172,000

August 12:                             Credit sales                                                                 640,000

August 13:                             Exports to Uganda                                                    380,000

August 15:                             Cash purchases                                                          560,000

August 16:                             Paid for legal fees                                                       45,000

August 18:                             Returns outward                                                         120,000

August 20:                             Bought airtime for mobile phones                          12,000

August 23:                             Cash received from debtors                                   164,000

August 25:                             Paid for catering services                                         62,000

August 28:                             Paid suppliers                                                            220,000

August 31:                            Paid for electricity                                                       18,000

 

All transactions are stated exclusive of VAT at the rate of 14% where applicable unless otherwise stated.

 

Required:

A value added tax (VAT) account for the month of August 2020.                                                                                                                                                                                                      (10 marks)

(Total: 20 marks)

 

QUESTION THREE

1.          Highlight five ways through which the Revenue Authority could use to recover unpaid taxes as provided under the Tax Procedures Act.                                                                                                                                                                                                (5 marks)

2.          Alex Namu provided the following information relating to his income for the year ended 31 December 2020:

  1. He was employed by Summerland Ltd. as an electrical engineer with a basic salary of Sh. I 75,000 per month.
  1. The company provided him with the following benefits:
  • A saloon car (1,800cc) which was purchased in the year 2018 at a cost of Sh.1,800,000.
  • A house which had a market rental value of Sh.45,000 per month.
  • An annual bonus of Sh.200,000 payable in the month of December each year.
  • A security guard and a domestic servant who were paid Sh.25,000 each per month by the company.
  1. During the year, the company paid Sh.80,000 as life insurance premiums for Alex Namu.
  2. He contributed Sh.20,000 per month to a registered pension scheme and Sh.10,000 per month to a home ownership savings plan (HOSP).
  3. In the month of June 2020, he received a cash gift of Sh.100,000 from the company for being among the best employees.
  1. The company paid Sh.35,000 as annual subscriptions to the Association of Electrical Engineers for Alex Namu.
  1. Medical bills amounting to Sh.500.000 were settled by the company in respect of Alex Namu’s sick child. The company has a medical scheme for its senior employees only.
  1. PAYE deducted by the employer during the year amounted to Sh.504,000.

 

Required:

Taxable income for Alex Namu for the year ended 31 December 2020.                                     (12 marks)

Tax payable (if any) on the income computed in (b) (i) above.                                                      (3 marks)

(Total:   20 marks)

 

QUESTION FOUR

1.         Argue four cases in favour of indirect taxes imposed by the revenue authority or similar body in your country. (8 marks)

2.         The following income statement relates to Bidii Ltd. for the year ended 31 December 2020:

Additional information:

Sales comprised:                                           Sh.

Local sales                                           10,500,000

Export sales                                          4,900,000

Provision for general bad debts of Sh.30.000 was included in the reported bad debts.

  1. Advertisement expenses comprised: Sh.

Erection of a neon sign                                     35,000

Newspapers advertisement                              173,000

Free samples to customers                              42,000

  1. Legal fees comprised the following: Sh.

Debt collection                                                   120,000

Court fines on breach of contracts              300,000

Stamp duty                                                          180,000

  1. Repairs and replacement costs included Sh.180,000 for office partitioning.
  2. Capital allowances were agreed at Sh.196,000 with the Commissioner of Domestic Taxes.
  3. Assume that corporate tax rate during the year was 25%.

 

Required:

Adjusted taxable profit or loss for Bidii Ltd. for the year ended 31 December 2020.            (10 marks)

Tax payable (if any) from the taxable profit computed in (b) (i) above.                                      (2 marks)

(Total:   20 marks)

 

QUESTION FIVE

1.         Identify four structures or items that qualify for investment deduction allowance.                                        (4 marks)

2.        Distinguish between “single tax system” and “multiple tax system” as used in taxation.                                (4 marks)

3.        Tanui and Tembo are partners trading as Tembo Enterprises, sharing profits and losses equally.

 

The following is the partnership statement of profit or loss for the year ended 31 December 2020:

Additional information:

1. Salaries and wages include partners’ monthly salary of Sh.45,000 to each partner.

  1. Legal and professional fees include:                                               Sh.

Stamp duty on purchase of partnership land                                       210,000

Book keeping fees                                                                                        180,000

Defending Tanui on careless driving                                                      150,000

Court expenses for collection of bad debts                                            85,000

Court expenses for breach of contracts                                                355,000

980,000

  1. General expenses include:                                                                     Sh.

General bad debts provision                                                                     118,000

Installation of CCTV cameras                                                                  220,000

Bad debts written off                                                                                  522,000

860,000

  1. Capital allowances  during  the  year  were  agreed  with  the  Commissioner  of Domestic Taxes  at Sh.960,000.

 

Required:

Adjusted taxable profit or loss for the partnership business for the year ended 31 December 2020. (9 marks)

A schedule showing the distribution of the partnership profit or loss computed in  above. (3 marks)

(Total: 20 marks)

(Visited 22 times, 1 visits today)

Leave a Reply

Your email address will not be published. Required fields are marked *