CPA INTERMEDIATE LEVEL

CIFA INTERMEDIATE LEVEL

PUBLIC FINANCE AND TAXATION
TUESDAY: 3 December 2024. Afternoon Paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your
workings. Any assumptions made must be clearly and concisely stated. Do NOT write anything on this paper.
RATES OF TAX (For employment income including wife’s employment, self-employment and professional income).
Year of income 2023.
Assume the following rates of tax applied throughout the year of income 2023:
Monthly taxable pay Annual taxable pay Rate of tax
(Sh.) (Sh.) % in each Sh.
1 - 24,000 1 - 288,000 10%
24,001 - 32,333 288,001 - 388,000 25%
32,334 - 500,000 388,001 - 6,000,000 30%
500,001 - 800,000 6,000,001 - 9,600,000 32.5%
Excess over 800,000 Excess over 9,600,000 35%
Personal relief Sh.2,400 per month (Sh.28,800 per annum).

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Investment allowance: Rate of investment allowance Residual value Prescribed benefit rates of motor vehicles

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(25% per year provided by employer
on equal (i) Saloons, Hatch Backs and Estates

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instalments) Monthly Annual
Capital expenditure incurred on: rates rates

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(Sh.) (Sh.)
(a) Buildings: Up to 1200 cc 3,600 43,200

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• Hotel building 50% in the first year of use 25% 1201 - 1500 cc 4,200 50,400
• Building used for manufacture 1501 - 1750 cc 5,800 69,600

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50% in the first year of use 25%
• Hospital buildings 50% in the first year of use 25% 1751 - 2000 cc 7,200 86,400
• Petroleum or gas storage facilities 2001 - 3000 cc 8,600 103,200
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50% in the first year of use 25%
• Educational/hostels building 10% per year on straight line basis Over - 3000 cc 14,400 172,800
• Commercial building 10% per year on straight line basis
(b) Machinery: (ii) Pick-ups, Panel Vans (unconverted)
• Machinery used for manufacture 50% in the first year of use 25% Up to - 1750 cc 3,600 43,200
• Hospital equipment 50% in the first year of use 25% Over - 1750 cc 4,200 50,400
• Ships or aircraft 50% in the first year of use 25%
• Motor vehicles and heavy earth 25% per year on straight line basis
moving equipment (iii) Land Rovers/Cruisers 7,200 86,400
• Computer software, calculators, 25% per year on straight line basis
copiers and duplicating machines
• Furniture and fittings 10% per year on straight line basis
• Telecommunication equipment 10% per year on straight line basis
• Film equipment by a local producer 25% per year on straight line basis
• Machinery used to undertake 50% in the first year of use 25%
operations under prospecting rights
and exploration under mining rights
• Other machinery 10% per year on straight line basis
(c) Purchase/acquisition of right to use 10% per year on straight line basis
fibre optic cable by telecommunication
operation
(d) Farm works 50% in the first year of use 25%
Commissioner’s prescribed benefit rates: Monthly rates Annual rates
Services (Sh.) (Sh.)
(i) Electricity (Communal or from a generator) 1,500 18,000
(ii) Water (Communal or from a borehole) 500 6,000
Agriculture employees: Reduced rates of benefits
(i) Water 200 2,400
(ii) Electricity 900 10,800
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QUESTION ONE
(a) Explain the following terms as used in public finance management:

(i) Equalisation fund. (2 marks)

(ii) Appropriation Act. (2 marks)

(b) Discuss FOUR roles of the Controller of Budget in public finance management. (8 marks)

(c) Blue Ports Authority, an agency under the Ministry of Transport is considering a public private partnership (PPP) as
a means of upgrading its current scanning equipment at the ports of entry into the country.

The authority has proposed the following terms and conditions for the PPP:
1. The project will be fully financed by the private sector.
2. Container scanning fee will reduce from the current USD 100 per container to USD 95 per container.
3. The private sector will be exempted against the risks associated with the project.
4. Local materials and skills will be used in the construction and management of the project.

With reference to the above terms and conditions for the PPP, explain the feasibility or otherwise of the proposed
project using four guiding principles of PPP. (8 marks)
(Total: 20 marks)

QUESTION TWO
(a) In a public finance management seminar, one of the facilitators noted that “The Public Debt Management Office is
tasked with the responsibility of conducting an analysis of debt sustainability in the public sector”.

With reference to the above statement, outline THREE benefits of conducting annual debt sustainability analysis.

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(3 marks)

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(b) Evaluate FIVE challenges hindering the effectiveness of e-procurement systems adopted by most developing
countries. (5 marks)

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(c) Delight Ltd., a company registered for the value added tax (VAT) purposes provided the following details for the
month of October 2024:

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October 1: Purchased raw materials from Dubai for Sh.2,981,200 inclusive of import duty at the rate of 25% and

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VAT at the rate of 16%. The raw materials were transported to business for further processing. The
processed goods were later sold on 8 October 2024 at Sh.4,785,000 inclusive of VAT.
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October 3: Purchased goods from suppliers for Sh.3,840,000 net of VAT out of which 20% were from unregistered
suppliers.
October 8: Paid for audit and accounting services amounting to Sh.290,000.
October 12: Sold goods to a client in Rwanda for Sh.720,000.
October 15: Sold goods on credit to Mamba Traders based in Mombasa for Sh.835,200. Mamba Traders paid
Sh.320,000 during the month and the balance to be paid in the following two months.
October 20: Delight Ltd. issued credit notes to the client in Rwanda for defective goods worth Sh.60,000.
October 24: Purchased computers for resale at a hire purchase price of Sh.420,000 exclusive of VAT. Hire purchase
interest was Sh.92,000.
October 25: The Directors of the company took goods worth Sh.160,000 from business for their personal use and
donated goods worth Sh.240,000 to Neemah Children’s Home. It is the policy of the company not to
charge VAT on drawings and donations.
October 26: A customer who was declared bankrupt in May 2024 paid the debt of goods amounting to Sh.100,000
he owed Delight Ltd. Delight Ltd. had claimed a bad debt relief in respect of the debt.
October 29: Purchased goods for cash amounting to Sh.1,240,000.
October 30: Paid for the following expenses:
Sh.
• Bottled water for directors 30,000
• Rent for the business premises 48,000
• Private parking for directors vehicles 30,000
Note: All transactions are inclusive of VAT at the rate of 16% where applicable unless otherwise stated.
Required:
Compute the value added tax (VAT) payable by or refundable to Delight Ltd. for the month of October 2024.
(12 marks)
(Total: 20 marks)
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QUESTION THREE
(a) Explain FOUR benefits that may accrue to a country which is a member of East African Community from harmonising
tariff classifications and customs procedures among East Africa Community members. (8 marks)

(b) Ezekiel Ledama is a resident individual and an investment analyst employed by Salab Insurance Group Ltd. as a senior
investment analyst.

The following details were availed to you in respect of his income for the year ended 31 December 2023:

1. He received a monthly basic salary from Salab Insurance Group Ltd. of Sh.244,800 net of PAYE. The total
PAYE deducted during the year amounted to Sh.607,200.
2. He received a monthly bonus of 20% of his basic salary during the year.
3. He attended a five day training for investment analysts organised by the professional body. The employer
paid Sh.70,000 for his training and also paid a daily subsistence allowance of Sh.14,000 to cater for his
expenses while in the training.
4. He has a life insurance policy where the annual premiums amount to Sh.180,000. He pays 30% of the
premiums whereas the balance is paid by the employer on his behalf.
5. On 1 September 2023, he was provided with a leased saloon vehicle of 2600cc by the employer. The vehicle
was acquired in January 2023 at Sh.2,800,000. The employer paid Sh.36,000 per month as lease charges for
the vehicle.
6. Salab Insurance Group Ltd. has a medical cover for all senior management. He was entitled to a maximum
cover of Sh.2,500,000 per annum although he utilised Sh.280,000 on medical bills during the year.
7. He paid subscription fees to his professional body amounting to Sh.18,000 during the year.
8. He has invested Sh.2,500,000 with Salab Insurance Group Ltd. money market fund. He received interest at
the rate of 12% per annum in the year 2023.
9. His other incomes during the year include:
• Consultancy fees of Sh.57,000 net of tax received from a local examination body for developing

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short courses curriculum on investment analysts.
• Compensation received from previous employer upon termination of his contract of Sh.1,680,000.

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His contract of 5 years was terminated on 31 December 2022 after three years. The payment was

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made as per the terms of the contract.
• Gross farming income of Sh.220,000 out of which farm produce worth Sh.50,000 was for family

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consumption.
•

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Part-time practice income (gross) as an investment consultant and advisor amounting to Sh.600,000
during the year.

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Required:
(i) Compute the taxable income for Ezekiel Ledama for the year ended 31 December 2023. (10 marks)

(ii) Determine the net tax payable (if any) on the income computed in (b) (i) above. (2 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Identify FOUR circumstances under which the revenue authority could cancel a personal identification number (PIN).
(4 marks)
(b) Summarise FOUR reasons why the government in your country levies taxes. (4 marks)

(c) Adamil Mwemah, a retired engineer, set up a manufacturing factory in industrial area on 1 January 2023 to fabricate
mechanical and automotive parts at a cost of Sh.44,900,000. Operations commenced on 1 January 2023 except for the
commercial building which was put into use from 1 September 2023.

The cost of manufacturing comprised of:

Sh.
Factory building 18,000,000
Office within factory building 800,000
Second hand imported machinery 4,400,000
Land 8,000,000
Engineers fee for machine installation 1,400,000
Parking bay 900,000
Conveyor belt 1,400,000
Commercial building 10,000,000
44,900,000
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 Additional information:
1. Commercial building cost included cost of showroom and retail shop amounting to Sh.2,800,000 and
Sh.3,200,000 respectively.
2. The factory building cost included a warehouse at Sh.2,200,000.
3. A building that had been constructed at a cost of Sh.12,000,000 was leased from Juhudi Manufacturers Ltd.
for 5 years. Annual lease rentals were agreed at Sh.2,200,000. Adamil Mwemah imported a processing
machinery from China at a cost of Sh.5,200,000 and installed it in the building and started operations on
1 January 2023.
4. To improve the performance of the factory operations, Adamil Mwemah on 1 July 2023 computerised all its
operations at a total cost of Sh.15,000,000 out of which 30% related to software cost.
5. The following assets were also purchased on 1 July 2023:
Sh.
Furniture and fittings 620,000
Second hand BMW vehicle 4,300,000
4 Tonnes lorry 1,800,000
Backhoe loader 3,680,000
Mobile crane 1,900,000
6. Factory staff labour quarters were constructed during the year at a cost of Sh.2,250,000 and put to use from
1 October 2023.
Required:
Compute the investment allowances due to Adamil Mwemah for the year ended 31 December 2023. (12 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Distinguish between “Export levy” and “Railway Development Levy (RDL) as used in taxation. (4 marks)

(b) Analyse TWO circumstances under which a person may be considered to be a tax representative of another person

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for tax purposes as outlined in the Tax Procedures Act. (4 marks)

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(c) The following information has been extracted from the books of accounts of Yuniserv Ltd., a supplier of office

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equipment for the year ended 31 December 2023:

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Sh.
Trading profit before tax 76,000,000

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Investment income 16,990,000

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Rental income from commercial property 6,920,000
Leasing of photocopying machine 1,000,000
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Additional information:
1. The following expenses were deducted in arriving at the trading profit before tax:
Sh.
Salaries and wages 1,400,000
Contribution to retirement fund 2,000,000
Depreciation 4,000,000
Bank interest 1,800,000
Estimated debts (5% of total debts at year end) 400,000
Legal and professional fees 1,080,000
Repairs and maintenance 400,000
Miscellaneous expenses 1,500,000
Donations 1,000,000
Instalment tax paid 2,200,000
2. Salaries and wages comprised of directors emoluments Sh.3,000,000, salary to directors domestic servants
Sh.1,400,000 and salary to other staff Sh.5,000,000.
3. Bank interest include that of an overdraft taken by a senior manager of Sh.400,000 and mortgage interest for
a director’s house Sh.600,000.
4. Legal and professional fees comprised of:
Sh.
Recovery of trade debts 200,000
Renewal of lease - 100 years 30,000
Tax penalties and interest 500,000
Tax consultancy fees on tax appeals 300,000
Directors loan collection 50,000
1,080,000

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5. Miscellaneous expenses include staff end of year party Sh.170,000 and parking fines Sh.30,000.
6. Donations were towards political campaign kitty.
7. Wear and tear allowance was agreed at Sh.2,800,000 for the year 2023 with the revenue authority.
8. Investment income comprised of:

Interest income: Sh.

• Fedha Bank (K) Ltd. 2,760,000 (Gross)
• Fixed deposit in Lubandah Bank in Uganda 4,930,000 (Gross)
• Sanlam money market fund 3,400,000 (net)
Dividend income: Dell Co. Ltd. 4,000,000 (net)
Mtandao Cooperative Society 1,900,000 (net)
16,990,000
9. Rental income was arrived at after deducting the following expenses:
Sh.
Mortgage interest 400,000
Water meters installation 860,000
Staff salaries 720,000
Replacement of iron sheets roofs with roofing tiles 2,400,000

Required:
(i) Compute the adjusted taxable profit or loss for the year ended 31 December 2023. (10 marks)

(ii) Determine the corporate tax payable (if any) by Yuniserv Ltd. for the year ended 31 December 2023.
(2 marks)
(Total: 20 marks)
……………………..…………..………………………………….

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 CPA INTERMEDIATE LEVEL
CIFA INTERMEDIATE LEVEL
PUBLIC FINANCE AND TAXATION
TUESDAY: 20 August 2024. Afternoon Paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your
workings. Any assumptions made must be clearly and concisely stated. Do NOT write anything on this paper.
RATES OF TAX (For employment income including wife’s employment, self-employment and professional income).
Year of income 2023.
Assume the following rates of tax applied throughout the year of income 2023:
Monthly taxable pay Annual taxable pay Rate of tax
(Sh.) (Sh.) % in each Sh.
1 - 24,000 1 - 288,000 10%
24,001 - 32,333 288,001 - 388,000 25%
32,334 - 500,000 388,001 - 6,000,000 30%
500,001 - 800,000 6,000,001 - 9,600,000 32.5%
Excess over 800,000 Excess over 9,600,000 35%
Personal relief Sh.2,400 per month (Sh.28,800 per annum).

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Investment allowance: Rate of investment allowance Residual value Prescribed benefit rates of motor vehicles

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(25% per year provided by employer
on equal (i) Saloons, Hatch Backs and Estates

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instalments) Monthly Annual
Capital expenditure incurred on: rates rates

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(Sh.) (Sh.)
(a) Buildings: Up to 1200 cc 3,600 43,200

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• Hotel building 50% in the first year of use 25% 1201 - 1500 cc 4,200 50,400
• Building used for manufacture 1501 - 1750 cc 5,800 69,600

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50% in the first year of use 25%
• Hospital buildings 50% in the first year of use 25% 1751 - 2000 cc 7,200 86,400
• Petroleum or gas storage facilities 2001 - 3000 cc 8,600 103,200
So
50% in the first year of use 25%
• Educational/hostels building 10% per year on straight line basis Over - 3000 cc 14,400 172,800
• Commercial building 10% per year on straight line basis
(b) Machinery: (ii) Pick-ups, Panel Vans (unconverted)
• Machinery used for manufacture 50% in the first year of use 25% Up to - 1750 cc 3,600 43,200
• Hospital equipment 50% in the first year of use 25% Over - 1750 cc 4,200 50,400
• Ships or aircraft 50% in the first year of use 25%
• Motor vehicles and heavy earth 25% per year on straight line basis
moving equipment (iii) Land Rovers/Cruisers 7,200 86,400
• Computer software, calculators, 25% per year on straight line basis
copiers and duplicating machines
• Furniture and fittings 10% per year on straight line basis
• Telecommunication equipment 10% per year on straight line basis
• Film equipment by a local producer 25% per year on straight line basis
• Machinery used to undertake 50% in the first year of use 25%
operations under prospecting rights
and exploration under mining rights
• Other machinery 10% per year on straight line basis
(c) Purchase/acquisition of right to use 10% per year on straight line basis
fibre optic cable by telecommunication
operation
(d) Farm works 50% in the first year of use 25%
Commissioner’s prescribed benefit rates: Monthly rates Annual rates
Services (Sh.) (Sh.)
(i) Electricity (Communal or from a generator) 1,500 18,000
(ii) Water (Communal or from a borehole) 500 6,000
Agriculture employees: Reduced rates of benefits
(i) Water 200 2,400
(ii) Electricity 900 10,800
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QUESTION ONE
(a) Explain the following terms as used in public finance management:

(i) Consolidated Fund Services. (2 marks)

(ii) Division of Revenue Bill. (2 marks)

(b) Outline FIVE purposes for which the national government should borrow money according to the Provisions of
Section 192 of the Public Financial Management Regulations 2015. (5 marks)

(c) Section 194 of Public Finance Management Act 2012, specifies the functions to be undertaken by the Public Sector
Accounting Standards Board (PSASB).

With reference to above statement, describe SIX functions of PSASB. (6 marks)

(d) In relation to the Public Procurement and Assets Disposal Regulations 2020, outline FIVE methods that an accounting
officer of a procuring entity may use to dispose assets. (5 marks)
(Total: 20 marks)

QUESTION TWO
(a) Revenue raised nationally should be shared equitably among the national government and county governments.

Summarise SIX criteria that should be taken into account in determining the equitable shares as provided under Article
203 of the Constitution. (6 marks)

(b) Masomo Public University (MPU) intends to get into a Public Private Partnership (PPP) to assist in the construction
of new hostels. Currently the University’s challenge is how to maintain the control of hostels facility after the

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construction under PPP.

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Required:

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Explain TWO PPP investment models suitable for addressing the needs of MPU. (4 marks)

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(c) Suntec Traders is a business registered for value added tax (VAT) purposes. The following transactions were recorded

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in the month of May 2024:
Sh.

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May 4: Purchases of goods (local) 4,640,000
May 6: Purchase of a computer 162,400
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May 8: Return outwards 139,200
May 10: Legal fees 62,640
May 12: Imports Cost, Insurance and Freight (CIF) 300,000
May 14: Advance salaries and wages 580,000
May 16: Sales (local) 5,916,000
May 18: Export sales 600,000
May 20: Exempt sales 1,840,000
May 24: Printing and stationery 27,840
May 28: Electricity 53,940

Additional information:
1. During the month, import duty was at 20% on Cost, Insurance and Freight (CIF) basis.
2. A debtor of goods valued at Sh.121,800 was declared bankrupt on 20 May 2024.
3. Input tax relating to goods sold as exempt sales could not be directly identified and it was found appropriate
to restrict deductible import tax.
4. Transactions are inclusive of VAT at the rate of 16% where applicable.

Required:
(i) Output tax. (3 marks)

(ii) Deductible input tax (5 marks)

(iii) VAT payable or refundable. (2 marks)

(Total: 20 marks)

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QUESTION THREE
(a) Outline FIVE items that should be specified in writing to a taxpayer, when the commissioner has made a default
assessment. (5 marks)

(b) Talisa Abara is a citizen of South Africa (SA) and was employed by Bright Insurance Ltd. as a senior financial advisor
in the year 2020. In January 2023, she was posted to work and to be paid by the company’s branch in Kenya on a
five-year contract. She earned the following incomes from her employment and other sources for the year of income
2023:

1. Basic salary of Sh.300,000 per month net of pay as you earn (PAYE) of Sh.50,000 per month.
2. The employer paid for her passage of Sh.200,000 during the year. She used 30% of the amount to visit local
tourist sites.
3. In March 2023, she bought 15,000 shares of the company at a price of Sh.30 per share although the market
price was Sh.35 per share. At the end of the year she received a dividend of Sh.6,000.
4. She was provided with accommodation by the employer. The employer leased the house at a monthly rental
charge of Sh.120,000. The house was fully furnished at a cost of Sh.400,000. She had a house servant whom
the employer pays a salary of Sh.20,000 per month.
5. In the month of October 2023, she worked in the company’s headquarters in South Africa where she was
tasked with a responsibility of training employees in a newly installed finance software. She received her
salary for the month from the Kenya branch.
6. She was provided with a leased vehicle of 2000cc by the employer. The vehicle was leased from Betalite
Motors at a monthly charge of Sh.60,000. Betalite Motors had bought the vehicle in January 2022 for
Sh.3,200,000, but the value of the vehicle in January 2023 was Sh.2,400,000.
7. The employer paid for her life insurance cover amounting to Sh.240,000 during the year.
8. During the year, she fell sick and was admitted at a local private hospital. She paid a bill of Sh.180,000
which was reimbursed by the employer. The company has a policy that covers all senior managers and it
provides for a maximum reimbursement of Sh.1,000,000 in a year.

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9. Due to the nature of her work, the employer entered into an agreement with Laserbite hotel to be delivering
her meals to the office from 1 April 2023. The cost of the meals was Sh.15,000 per month.

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10. Her salary was adjusted upwards by Sh.30,000 per month on 1 November 2023 and backdated to 1 September

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2023.
11. The employer contributed 15% of her basic salary to a registered pension scheme and she also contributed

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7.5% to the same scheme.

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12. She invested in the real estate and financial sector during the year where she earned the following incomes:
Sh.

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• Gross rental income from commercial property 1,200,000
• Dividend from Samco Cooperative Society (net) 85,000
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• Interest income from Union Bank Ltd. (net) 255,000
• Consultancy fee for training (net) 114,000

Required:
(i) Compute the total taxable income for Talisa Abara for the year ended 31 December 2023. (12 marks)

(ii) Determine the tax payable (if any) on the income computed in (b) (i) above. (3 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Explain the following terms as used in taxation:

(i) Duty drawback. (2 marks)

(ii) Sufferance wharf. (2 marks)

(iii) Import declaration fee. (2 marks)

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(b) Wakah and Barakah started a partnership business in the year 2022, sharing profits and losses in the ratio of 5:3
respectively.

The following is the statement of profit or loss of the partnership for the year ended 31 December 2023:

Sh. Sh.
Sales 5,780,000
General bad debts recovery 75,000
Anticipated foreign exchange gain 180,000
Capital gain on sale of land 352,000
Insurance recovery on stolen vehicle 320,000
Release of liability 122,000
Interest from Ulinzi Sacco Ltd. 34,000
Total income 6,863,000
Less expenses:
Purchases 3,706, 000
Purchase of computers 216,000
Repairs expenses 682,000
Legal and professional fees 816,000
Rent and rates 244,000
Interest expenses 166,000
General expenses 642,000
Motor vehicle expenses 560,000
Insurance 187,000
Welfare expenses 1,035,000
Audit and accounting fees 95,000
Computer software and programs 1,200,000

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Travelling expenses 64,000 (9,613,000)
Net loss for the year (2,750,000)

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Additional information:

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1. Legal and professional fees comprised:

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Sh.
Legal fees on defense against alleged breach of trade contract 180,000

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Legal fee on tax appeals 64,800
Land conveyance fees 72,400
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Stamp duty 36,600
Negotiating a business loan 25,400
Recovery of bad debts 45,000
Signing a 100 year lease agreement 128,400
Purchase of partners private vehicle 137,400
Legal fee on renewal of patents 126,000
816,000
2. Repairs expenses comprised:
Sh.
Purchase of furniture 260,000
Designing and partioning a new office block 341,000
Repainting of old office block 81,000
682,000
3. General expenses included:
Sh.
Impairment of patent rights 120,000
Provision for general bad debts 208,000
Drawings of goods by partners 314,000
4. Purchases and sales were inclusive of value added tax (VAT) at the rate of 16%.
5. Closing inventory was valued at Sh.1,200,000 while opening inventory was valued at 10% of sales net of
value added tax. Both opening and closing stocks were undervalued by 10%
6. Interest expenses include interest on partners’ capital of Sh.120,000 which was shared according to profit
and loss sharing ratio. The partners agreed that they would not receive salaries until the business starts
making profits.

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 Required:
(i) Compute the adjusted taxable profit of the partnership for the year ended 31 December 2023. (12 marks)

(ii) Allocation of the profit or loss in (b) (i) above to the partners. (2 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Argue FOUR cases against indirect taxes imposed in your country (4 marks)

(b) Assume that you have been requested to make a presentation in a tax seminar on measures that should be put in place
to curb the problem of tax evasion in your country.
Required:
Identify FOUR measures of curbing tax evasion that you would include in your presentation. (4 marks)

(c) Smartboots Manufacturing Ltd. commenced manufacturing of leather shoes on 2 January 2022 after incurring the
following expenditure:

Sh.
Factory building 14,640,000
Processing machinery 4,712,000
Computers 384,000
Conveyor belts 1,240,000
Staff canteen 2,440,000
Delivery vans (two) 4,160,000
Sewerage system 1,280,000
Generator 400,000

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Godown 2,600,000
Heating plant 1,400,000

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Lorry 2,948,000
Sports pavilion 1,800,000

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Loose tools 144,000

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Additional information:

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1. The company purchased the following assets on 1 January 2023:

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Sh.
Furniture 224,000
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Saloon car 3,400,000
Boilers 768,000
Scanners 112,000
Wheelbarrows 180,000
Packaging machine 1,200,000
2. A staff clinic was constructed at a cost of Sh.2,080,000 and utilised with effect form 1 October 2023.
3. A borehole was drilled at a cost of Sh.800,000 and utilised with effect from 1 July 2023.
4. One of the delivery vans was involved in an accident on 1 March 2023 and was written off. The insurance
company paid Sh.1,400,000 as full compensation on 1 December 2023.
5. A perimeter wall was constructed at a cost of Sh.1,200,000 and put in to use from 1 July 2023.

Required:
Compute investment allowances due to Smartboots Manufacturing Ltd. for the years ended 31 December 2022 and
31 December 2023. (12 marks)
(Total: 20 marks)
………………………………..………………………………….

CA26 & CF25 Page 5

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 CPA INTERMEDIATE LEVEL
CIFA INTERMEDIATE LEVEL
PUBLIC FINANCE AND TAXATION
TUESDAY: 23 April 2024. Afternoon Paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your
workings. Any assumptions made must be clearly and concisely stated. Do NOT write anything on this paper.
RATES OF TAX (For employment income including wife’s employment, self-employment and professional income).
Year of income 2023.
Assume the following rates of tax applied throughout the year of income 2023:
Monthly taxable pay Annual taxable pay Rate of tax
(Sh.) (Sh.) % in each Sh.
1 - 24,000 1 - 288,000 10%
24,001 - 32,333 288,001 - 388,000 25%
32,334 - 500,000 388,001 - 6,000,000 30%
500,001 - 800,000 6,000,001 - 9,600,000 32.5%
Excess over 800,000 Excess over 9,600,000 35%
Personal relief Sh.2,400 per month (Sh.28,800 per annum).

om
Investment allowance: Rate of investment allowance Residual value Prescribed benefit rates of motor vehicles

.c
(25% per year provided by employer
on equal (i) Saloons, Hatch Backs and Estates

ya
instalments) Monthly Annual
Capital expenditure incurred on: rates rates

en
(Sh.) (Sh.)
(a) Buildings: Up to 1200 cc 3,600 43,200

ak
• Hotel building 50% in the first year of use 25% 1201 - 1500 cc 4,200 50,400
• Building used for manufacture 1501 - 1750 cc 5,800 69,600

me
50% in the first year of use 25%
• Hospital buildings 50% in the first year of use 25% 1751 - 2000 cc 7,200 86,400
• Petroleum or gas storage facilities 2001 - 3000 cc 8,600 103,200
So
50% in the first year of use 25%
• Educational/hostels building 10% per year on straight line basis Over - 3000 cc 4,400 172,800
• Commercial building 10% per year on straight line basis
(b) Machinery: (ii) Pick-ups, Panel Vans (unconverted)
• Machinery used for manufacture 50% in the first year of use 25% Up to - 1750 cc 3,600 43,200
• Hospital equipment 50% in the first year of use 25% Over - 1750 cc 4,200 50,400
• Ships or aircraft 50% in the first year of use 25%
• Motor vehicles and heavy earth 25% per year on straight line basis
moving equipment (iii) Land Rovers/Cruisers 7,200 86,400
• Computer software, calculators, 25% per year on straight line basis
copiers and duplicating machines
• Furniture and fittings 10% per year on straight line basis
• Telecommunication equipment 10% per year on straight line basis
• Film equipment by a local producer 25% per year on straight line basis
• Machinery used to undertake 50% in the first year of use 25%
operations under prospecting rights
and exploration under mining rights
• Other machinery 10% per year on straight line basis
(c) Purchase/acquisition of right to use 10% per year on straight line basis
fibre optic cable by telecommunication
operation
(d) Farm works 50% in the first year of use 25%
Commissioner’s prescribed benefit rates: Monthly rates Annual rates
Services (Sh.) (Sh.)
(i) Electricity (Communal or from a generator) 1,500 18,000
(ii) Water (Communal or from a borehole) 500 6,000
Agriculture employees: Reduced rates of benefits
(i) Water 200 2,400
(ii) Electricity 900 10,800
CA26 & CF25 Page 1
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QUESTION ONE
(a) (i) With reference to sources of public debt, distinguish between “external sources” and “domestic sources”
giving an example in each case. (2 marks)

(ii) Summarise THREE objectives of public debt management office. (3 marks)

(b) Highlight FOUR documents that are prepared in the process of county government budget preparation clearly
indicating their timelines as envisaged by the provisions of Public Financial Management Act. (4 marks)

(c) The Public Procurement and Asset Disposal (PPAD) Act requires that all public entities delegate the responsibility of
evaluating tenders to the tender evaluation committee upon submission of the tenders by the tenderers.

Summarise SIX criteria used by the tender evaluation committee to conduct a preliminary evaluation of the tenders
pursuant to Section 80 of the PPAD Act. (6 marks)

(d) Outline FIVE roles of the council of governors in county financial management. (5 marks)
(Total: 20 marks)

QUESTION TWO
(a) Explain the term “special purpose vehicle” as used under the Public Private Partnerships Act. (2 marks)

(b) Discuss THREE ways through which the National Assembly budget committee contributes to the scrutiny and
oversight of public finance management. (6 marks)

(c) Kenley Ltd. is a merchandising company operating in Kenya. The following transactions were extracted from the
company’s records during the month of September 2023:

om
Sh.
Sales at standard rate 6,199,997

.c
Exports to Egypt 800,000
Purchases at standard rate 4,000,000

ya
Purchase of oil and fuel for delivery van 360,500

en
Repairs of office furniture 64,000
Audit fees 160,000

ak
Salaries and wages 1,480,000
Purchase of stationery 68,000
Electricity bills for the month (not paid) 56,400
me
So
Legal fees 48,600
Purchases from traders not registered for VAT 580,000
Zero rated sales 400,000

Additional information:
1. The VAT accountant established that standard rate purchases were understated by 20%.
2. Sales at standard rate included goods valued at Sh.278,400 sold to a credit customer who was declared
bankrupt during the month.
3. A customer returned goods sold at standard rate valued at Sh.58,000 to the company and a credit note was
issued immediately.
4. Credit suppliers issued debt notes in respect to suppliers at standard rate amounting to Sh.580,000.
5. The accountant also established that an invoice of Sh.480,000 from a foreign supplier was not recorded in
the books. The import duty for these goods was at the rate of 20%.
6. Repairs of office furniture was carried out by a local carpenter not registered for VAT.
7. Transactions are inclusive of VAT at a rate of 16% where applicable.

Required:
Compute the value added tax (VAT) payable by or refundable to Kenley Ltd. for the month of September 2023.
(12 marks)
(Total: 20 marks)

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QUESTION THREE
(a) Explain the applicable rate and the due date for the affordable housing levy. (2 marks)
(b) Explain THREE ways through which individuals could engage in tax avoidance. (3 marks)
(c) John Musyoka is employed as a finance manager by Safari Real Estate Ltd. He reported the following details of his
income and that of his wife for the year ended 31 December 2023:
1. He was entitled to a basic salary of Sh.400,000 per month (PAYE of Sh.120,000 per month was deducted).
2. He was also entitled to an annual bonus of Sh.120,000 during the year. The bonus for the year 2023 was
however not paid until February 2024.
3. The employer provided him with a motor vehicle of 2600cc that had cost the company Sh.3,200,000 in the
year 2021. The vehicle was valued at Sh.2,500,000 at the beginning of the year 2023.
4. His annual mortgage repayment of Sh.820,000 inclusive of interest of Sh.180,000 was settled by the
employer. The loan was obtained from Elite Bank on 1 January 2023 to purchase own residential house.
5. The following deductions were made from his salary during the year:
Sh.
Subscription to Jenga Golf club 66,000
Contribution to a registered pension scheme 180,000
6. He received a gross dividend of Sh.80,000 from his shares in Safari Real Estate Ltd. where the withholding
tax was paid by the company.
7. His wife Janet Musyoka is employed by Bright Farmers Co-operative Society as a general manager at a basic
salary of Sh.160,000 per month.
8. She is housed within the co-operative society’s farm where she contributes 5% of her basic salary as rent.
She received free farm produce worth Sh.24,000 during the year.
9. Her other income comprised of:
• Interest income, 10 year infrastructure development bond Sh.120,000
• Interest from Wemah Development Bank Ltd. Sh.85,000 (net).
•

om
Gross farming income of Sh.240,000 excluding family consumption valued at Sh.30,000.
10. John Musyoka and his wife Janet Musyoka have been filing separate tax returns to the revenue authority.

.c
11. Ignore computation of affordable housing levy.

ya
Required:

en
(i) Compute the taxable income for John Musyoka and his wife Janet Musyoka for the year ended 31 December
2023. (11 marks)

ak
(ii) Determine the tax payable (if any) on income computed in (c) (i) above. (4 marks)

me
(Total: 20 marks)
QUESTION FOUR
So
(a) Explain the term “credit method” as used in double taxation agreement. (2 marks)

(b) Describe THREE ways in which the operation of bonded warehouses contributes to trade facilitation and international
commerce in your country. (6 marks)
(c) Lamek Ltd. is a company engaged in manufacturing business. The following details were extracted from the financial
statements of the company for the year ended 31 December 2023:
Statement of profit or loss for the year ended 31 December 2023
Sh. Sh.
Turnover (inclusive of VAT at the rate of 16%) 9,744,000
Profit on sale of motor vehicle 260,000
Insurance compensation for stock destroyed by fire 374,200
10,378,200
Less expenses:
Purchases 2,880,000
New furniture 400,000
Salaries and wages 380,000
Legal expenses 420,000
General expenses 1,560,000
Corporation tax 464,000
Advertisement 520,000
Audit fees 194,000
Office rent 240,000
Purchased goodwill 90,000
Repairs and maintenance 360,000 (7,508,000)
Net profit 2,870,200
CA26 & CF25 Page 3
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 Additional information:
1. Purchases were overstated by 20% and includes carriage cost of Sh.20,000 for furniture for use in the
business.
2. Legal expenses comprised: Sh.
Conveyance fees - Company land 40,000
Defending the company against tax evasion case 68,000
Registration of trade mark 42,000
Negotiation of goodwill 40,000
Renewal of 100-year lease agreement 36,000
Loan negotiation fees 74,000
Defending company against trade dispute 20,000
Negotiating employee salaries with Union 100,000
420,000
3. General expenses included: Sh.
General allowance on bad debts 38,400
Office partitions 60,000
Purchase of photocopier 180,000
Purchase of computers 350,000
Donations to charitable organisations 124,000
Construction of sewerage plant 680,000
4. Repairs and maintenance included: Sh.
Purchase of metallic doors 28,200
Purchase of motor vehicle engine 54,000
Purchase of plastic tank 60,000
Construction of fire exit 184,000
5. Advertisement costs include software expenses for office computers at a cost of Sh.190,000.

om
Required:
(i) Prepare a statement of adjusted taxable profit or loss for the year ended 31 December 2023. (10 marks)

.c
ya
(ii) Determine corporation tax payable or refundable, assuming total instalment tax paid was Sh.2,084,920.
(2 marks)

en
(Total: 20 marks)

ak
QUESTION FIVE

me
(a) Summarise FOUR criticisms associated with the imposition of miscellaneous fees and levies in developing countries.
(4 marks)
So
(b) Identify FOUR benefits that could accrue to a taxpayer from appointing a tax representative. (4 marks)

(c) Fantah Manufacturing Company Ltd. started its operation on 1 January 2022 producing soft drinks for the local market.

The company acquired the following assets on commencement of its operations:

Sh.
Land 12,500,000
Factory building 44,000,000
Office building 8,000,000
Processing machinery 2,400,000
Patents 400,000
File cabinet 100,000
Office furniture 480,000
Electric ceiling fans 230,000
Delivery vans 12,000,000
LCD television 120,000
Photocopier 280,000
Computers 1,800,000
Telecommunication equipment 640,000
Borehole 2,400,000
Water tanks 720,000
Water pump 360,000
3 lorries (4 tonnes) 9,600,000

CA26 & CF25 Page 4

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Additional information:
1. The company disposed of computers and electric ceiling fans that were not suitable for the company on
1 January 2023 which had cost Sh.240,000 and Sh.80,000 respectively.
2. The company acquired the following assets during the year 2023:

Sh.
Trucks and trailers 4,800,000
Data handling machine 360,000
2-saloon cars (each Sh.3,600,000) 7,200,000
Workshop machinery 2,100,000

Required:
Compute investment allowances due to the company for the years ended 31 December 2022 and 31 December
2023. (12 marks)
(Total: 20 marks)
………………………………..………………………………….

om
.c
ya
en
ak
me
So

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 CPA INTERMEDIATE LEVEL
CIFA INTERMEDIATE LEVEL

PUBLIC FINANCE AND TAXATION

TUESDAY: 5 December 2023. Afternoon Paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your
workings. Any assumptions made must be clearly and concisely stated. Do NOT write anything on this paper.
RATES OF TAX (Including wife’s employment, self-employment and professional income rates of tax).
Year of income 2022.
Monthly taxable pay Annual taxable pay Rate of tax
(Sh.) (Sh.) % in each Sh.
1 - 24,000 1 - 288,000 10%
24,001 - 32,333 288,001 - 388,000 25%
Excess over - 32,333 Excess over - 388,000 30%
Personal relief Sh.2,400 per month (Sh.28,800 per annum).
Investment allowance: Rate of investment allowance Residual value Prescribed benefit rates of motor vehicles

om
(25% per year provided by employer
on equal (i) Saloons, Hatch Backs and Estates

.c
instalments) Monthly Annual
Capital expenditure incurred on: rates rates

ya
(Sh.) (Sh.)
(a) Buildings: Up to 1200 cc 3,600 43,200

en
• Hotel building 50% in the first year of use 25% 1201 - 1500 cc 4,200 50,400
• Building used for manufacture 1501 - 1750 cc 5,800 69,600

ak
50% in the first year of use 25%
• Hospital buildings 50% in the first year of use 25% 1751 - 2000 cc 7,200 86,400
• Petroleum or gas storage facilities 2001 - 3000 cc 8,600 103,200

me
50% in the first year of use 25%
• Educational/hostels building 10% per year on straight line basis Over - 3000 cc 14,400 172,800
So
• Commercial building 10% per year on straight line basis
(b) Machinery: (ii) Pick-ups, Panel Vans
• Machinery used for manufacture 50% in the first year of use 25% (unconverted)
• Hospital equipment 50% in the first year of use 25% Up to - 1750 cc 3,600 43,200
• Ships or aircraft 50% in the first year of use 25% Over - 1750 cc 4,200 50,400
• Motor vehicles and heavy earth 25% per year on straight line basis
moving equipment
• Computer software, calculators, 25% per year on straight line basis
copiers and duplicating machines
• Furniture and fittings 10% per year on straight line basis
• Telecommunication equipment 10% per year on straight line basis
• Film equipment by a local producer 25% per year on straight line basis
• Machinery used to undertake 50% in the first year of use 25%
operations under prospecting rights
and exploration under mining rights
• Other machinery 10% per year on straight line basis
(c) Purchase/acquisition of right to use 10% per year on straight line basis (iii) Land Rovers/Cruisers 7,200 86,400
fibre optic cable by telecommunication
operation
(d) Farm works 50% in the first year of use 25%

Commissioner’s prescribed benefit rates: Monthly rates Annual rates

Services (Sh.) (Sh.)
(i) Electricity (Communal or from a generator) 1,500 18,000
(ii) Water (Communal or from a borehole) 500 6,000
Agriculture employees: Reduced rates of benefits
(i) Water 200 2,400
(ii) Electricity 900 10,800

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QUESTION ONE
(a) Summarise FOUR roles of the Cabinet Secretary of the National Treasury and Planning in relation to public debt
management. (4 marks)

(b) The Cabinet Secretary for the National Treasury or the state officer responsible for finance in your country is mandated
by law to manage the national budget process. One of the task is to issue circulars for setting guidelines to be followed
to all government entities.

With reference to the above statement, highlight FOUR contents of such a circular. (4 marks)

(c) In a tax seminar, one of the facilitators noted that, “Not later than three months after the end of each financial year,
the National Treasury shall prepare and submit to the Auditor-General financial statements for that year including
certain information in respect of the contingencies fund as provided in the Public Finance Management Act, 2012.

With reference to the above statement, outline FOUR contents of information included in the financial statements in
respect to contingencies fund. (4 marks)

(d) Summarise FOUR roles of internal audit as an oversight function in public finance management. (4 marks)

(e) The Committee of National Assembly submits to the National Assembly recommendations on revenue matters for
approval. This is included in the finance bill as per the Public Finance Management Act, 2012.

With reference to the above statement, examine FOUR considerations that guide the recommendations by the
committee. (4 marks)
(Total: 20 marks)

QUESTION TWO

om
(a) An accounting officer of a public entity shall be primarily responsible for ensuring that the public entity complies with
the Public Procurement and Asset Disposal Act.

.c
ya
With reference to the above provision, outline FOUR responsibilities of an accounting officer of a procuring
entity. (4 marks)

en
(b) Citing THREE benefits derived by the government, justify the establishment of Public Private Partnerships (PPPs)

ak
arrangement adopted by most developing countries. (6 marks)

(c) me
Janette Cheptoo is a practicing accountant under Cheptoo and Associates. Her firm is registered for value added tax
So
(VAT) purposes.

The firm made the following transactions in the month of October 2023:

October 2: Tax consultancy work for Betterlife Ltd. at a fee amounting to Sh.840,000 exclusive of VAT.
October 4: Audit for Rwandacell, a company based in Rwanda at a fee amounting to Sh.920,000 exclusive
of VAT.
October 10: Consultancy services for Whitestar Ltd. She billed the company Sh.348,000 inclusive of VAT.
October 15: The firm was contracted by Zedcom Ltd. to undertake review of its internal control system at a
fee of Sh.603,200 inclusive of VAT.
October 17: Conducted an audit for Whitestar Ltd. for the year ended 31 December 2022. The fee charged
was Sh.487,200 inclusive of VAT.
October 18: Stima Ltd. contracted the firm to conduct a survey on power consumption at a fee of Sh.2,400,000
exclusive of VAT.
October 19: The firm audited accounts of Glory Ministries, a church where Cheptoo serves as a volunteer
auditor. She estimated that the fees would have been Sh.720,000 excluding VAT.
October 21: Billed Whitestar Ltd. Sh.136,880 inclusive of VAT for debt collection services.
October 22: The firm undertook a financial consultancy services for Speed Netcom S.A, a company based in
South Africa. The fee charged was Sh.640,000 exclusive of VAT.
October 24: Conducted an audit for Walkah Ltd. at a fee of Sh.232,000 inclusive of VAT.

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 October 26: Provided accountancy services to Compassionate Children Home on volunteer basis. She
estimated the value of the services was Sh.139,200 inclusive of VAT.
October 31: She paid the following expenses which were inclusive of VAT where applicable:
Sh.
Electricity 25,520
Water bills from county water and sewerage company 5,400
Garbage collection 35,960
Rent for the office 127,600
Stationery 26,680
Computer repairs 30,160
Telephone bills 19,720
Required:
(i) Prepare a value added tax (VAT) account for the month of October 2023 for Cheptoo and Associate.
(8 marks)

(ii) Assuming Whitestar Ltd. was adjudged bankrupt by a court having paid Cheptoo and Associate Sh.237,800
only and that all conditions for claiming bad debt refund are met, compute the amount of VAT bad debt
refund that is claimable by Cheptoo and Associates. (2 marks)
(Total: 20 marks)
QUESTION THREE
(a) Explain the following terms as used in customs and excise taxes:
(i) Transshipment. (2 marks)
(ii) Ex-factory selling price. (2 marks)

om
(iii) Prohibited goods. (2 marks)

.c
(b) Rosemary Aswani is a resident individual who is employed as a senior financial analyst by United Homes Ltd. from

ya
the year 2022.

en
She has provided the following information relating to her income for the year ended 31 December 2022:

ak
1. She received a monthly basic salary of Sh.204,000 from United Homes and a bonus equal to one month basic
salary for her exemplary performance. PAYE deducted during the year was Sh.607,200.

me
2. Terminal dues received from her previous employer for services not rendered amounted to Sh.1,400,000. Her
4-year contract of employment was terminated after 2 years in December 2021 and payment was made as
So
per the employment contract.
3. A commission of Sh.100,000 was paid to her for promoting the sale of houses where two houses were sold
to the customers she had referred to the business.
4. She attended a five day master class for financial analysts organised by her professional body and the
employer paid Sh.100,000 for the seminar and she was paid daily subsistence allowance of Sh.12,000 by the
employer.
5. She was given an offer to buy a house from United Homes at 20% below the market selling price. She
accepted the offer and bought one house whose market selling price was Sh.8,000,000.
6. She has a fixed deposit account of Sh.2,500,000 at Maisha Bank Ltd. from which she received interest of
Sh.150,000 during the year.
7. She has a life insurance policy where she pays 60% of the premiums while the employer pays the balance.
Annual premiums as per the insurance policy was Sh.240,000 for the year.
8. She was provided with a leased saloon car of 2000cc by the employer for both personal use and official duties
on 1 September 2022. The saloon car had an initial cost of Sh.2,800,000 and lease charges were Sh.36,000
per month.
9. United Homes has a medical cover for all management staff. She was entitled to a maximum cover of
Sh.880,000 per year although she utilised Sh.420,000 on medical costs during the year.
10. She paid subscription fees to her professional body amounting to Sh.24,000 during the year.
11. Her other incomes include:
• Royalties income of Sh.180,000 net of withholding tax.
• Gross farming income of Sh.450,000 out of which Sh.80,000 was in respect of own consumption of
farm produce.
• Part time practice as content creator where she made Sh.600,000 during the year.

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 Required:
(i) Compute taxable income for Rosemary Aswani for the year ended 31 December 2022. (12 marks)
(ii) Determine tax payable (if any) on the income computed in (b) (i) above. (2 marks)
(Total: 20 marks)

QUESTION FOUR
(a) In relation to Tax Procedures Act 2015, explain the circumstances when a taxpayer may appeal to:

(i) Tax appeals tribunal. (2 marks)

(ii) High court. (2 marks)

(b) Bright Décor Ltd. is a company engaged in furniture and fittings making for both local and export market. The
company provided the following statement of profit or loss for the year ended 31 December 2022:
Bright Decor Ltd.
Statement of profit or loss for the year ended 31 December 2022
Sh.“000” Sh.“000”
Sales 95,000
Cost of sales:
Opening inventory 6,000
Purchases 40,000
Closing inventory (10,000) (36,000)
Gross profit 59,000
Other incomes:
Interest from Bestway Bank (gross) 1,800
Insurance recovery - Pick-up 1,000

om
Profit from sale of marketable securities 900
Dividend from Tea Co-operative Society (net) 600

.c
Income from sale of saw dust 2,100

ya
65,400
Less expenses:

en
Finance charges 500
Insurance 2,000

ak
Salary and wages 4,800

me
NHIF contributions - Staff 300
Intangible assets written off 1,400
So
Legal expenses 2,000
Bad debts 200
Repairs and maintenance 2,500
Floating expenses 1,400
Pick up scrapped in an accident 2,000
Depreciation 3,400
Donations to local church 800
Rates and licenses 4,000
Directors allowances 4,000
Travelling expenses 6,000
Pension to retired staff 8,700
Entertainment 1,100
Computer software purchase 300
Telephone expenses 200 (45,600)
Net profit for the year 19,800

Additional information:
1. Directors allowances include Sh.1,200,000 paid to defend one of the directors in a private legal suit.
2. Legal expenses comprise:
Sh.“000”
Preparing lease for 100 years 800
Collection of business debts 200
Defence against claims of breach of trade agreement 800
Purchase of directors private residence 200
2,000

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 3. 40% of entertainment expenses relate to one of the directors entertainment while on a family holiday in Paris.
4. Inventories were valued at 10% below the cost price consistently.
5. The cost of floating shares was in respect of a private placement where 30% of the shares were sold.
6. Capital allowances were agreed at Sh.2,000,000. No investment allowance had been claimed in respect of
the computer software.
7. Bad debts include an estimated default of Sh.80,000.

Required:
(i) Compute the taxable profit or loss for Bright Decor Ltd. for the year ended 31 December 2022. (8 marks)

(ii) Compute the tax payable (if any) on the income computed in (b) (i) above. (2 marks)

(c) Fountain Ltd. manufactures soft drinks for sale in the local market. The company started operations on 1 January 2021
and acquired/constructed the following assets:

Asset Year of acquisition/ Cost of acquisition/

construction construction
Sh.
Factory building 2021 40,000,000
Factory machinery 2021 12,500,000
2 lorries (Sh.5,000,000 each) 2021 10,000,000
Godown 2021 4,100,000
Computers 2021 800,000
Computer software 2021 240,000
2 saloon cars (Sh.3,500,000 each) 2022 7,000,000
Other machineries 2022 300,000

om
Required:
Compute the investment allowances for Fountain Ltd. for each of the two years ended 31 December 2021 and

.c
31 December 2022. (6 marks)

ya
(Total: 20 marks)

en
QUESTION FIVE
(a) Identify THREE distinctions between “direct taxes” and “indirect taxes”. (3 marks)

ak
me
(b) Hezron Mwaniah, the owner of fleet of vehicles has learnt that, there were changes on motor vehicles advance tax
introduced in the Finance Act 2023.
So
Required:
Advise Hezron Mwaniah on the rate of advance tax and the effective date as provided in the finance Act, 2023.
(2 marks)
(c) The Revenue Authority in your country established a Medium Taxpayers Office (MTO).

In relation to the above statement, propose THREE objectives of the Medium Taxpayers Office (MTO). (3 marks)

(d) James and Patrick are partners trading as Highway Enterprises and sharing profits and losses equally.

The following information was extracted from their books of accounts for the year ended 31 December 2022:
Sh. Sh.
Sales 93,800,000
Rental income (commercial properties) 750,000
Dividend income (gross) 560,000
Sundry receipts 200,000
Gain on foreign exchange realised 65,000
Interest on deposit with foreign bank 48,000
Profit on disposal of machinery 35,000
95,458,000
Less expenses:
Cost of goods sold 66,750,000
Registration of patents 145,000
Hosting of business website 72,000
Purchase of a computer 220,000
Staff salaries and wages 5,620,000

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 Sh. Sh.
Partners salary: James 1,150,000
Patrick 1,140,000
Audit fees 225,000
Insurance 350,000
Purchase of office machinery 480,000
Commission to partners: James 2,120,000
Patrick 2,180,000
Stamp duty 126,000
Impairment of goodwill 114,000
Bank charges 65,000
Fixing of neon sign 80,000
VAT paid 180,000
Repair of machinery 18,000
Purchase of telephone equipment 53,000
Legal fees 280,000
Gift to employees for meeting target 160,400
Donation to Red Cross 75,000
Loan to employees written off 138,400
Cost of relocating to new premises 275,600
Redundancy payments to employees 1,184,300
Investment seminar for retired employees 325,500
Depreciation 185,000 (83,712,200)
Net profit 11,745,800

Additional information:
1. Insurance comprises: Sh.

om
Insurance cover for imported machinery against loss on transit 150,000
Insurance cover for business premises 200,000

.c
350,000

ya
2. Legal fees include Sh.25,000 incurred on drafting a loan arrangement between the partnership and a bank.
3. Cost of goods sold include carriage cost of a machine to the business premises amounting to Sh.34,000.

en
4. Closing inventory was overvalued by Sh.25,000 and opening inventory undervalued by Sh.48,000.

ak
5. Dividend income was from investment in share in a local Farmers Cooperative Society.

me
Required:
(i) Compute adjusted taxable profit or loss of the partnership for the year ended 31 December 2022. (10 marks)
So
(ii) Allocation of taxable profit or loss computed in (d) (i) above to the partners. (2 marks)
(Total: 20 marks)
………………………………..………………………………….

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 CPA INTERMEDIATE LEVEL
CIFA INTERMEDIATE LEVEL

PUBLIC FINANCE AND TAXATION

TUESDAY: 22 August 2023. Afternoon Paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your
workings. Any assumptions made must be clearly and concisely stated. Do NOT write anything on this paper.
RATES OF TAX (Including wife’s employment, self-employment and professional income rates of tax).
Year of income 2022.
Monthly taxable pay Annual taxable pay Rate of tax
(Sh.) (Sh.) % in each Sh.
1 - 24,000 1 - 288,000 10%
24,001 - 32,333 288,001 - 388,000 25%
Excess over - 32,333 Excess over - 388,000 30%
Personal relief Sh.2,400 per month (Sh.28,800 per annum).
Investment allowance: Rate of investment allowance Residual value Prescribed benefit rates of motor vehicles

om
(25% per year provided by employer
on equal (i) Saloons, Hatch Backs and Estates

.c
instalments) Monthly Annual
Capital expenditure incurred on: rates rates

ya
(Sh.) (Sh.)
(a) Buildings: Up to 1200 cc 3,600 43,200

en
• Hotel building 50% in the first year of use 25% 1201 - 1500 cc 4,200 50,400
• Building used for manufacture 1501 - 1750 cc 5,800 69,600

ak
50% in the first year of use 25%
• Hospital buildings 50% in the first year of use 25% 1751 - 2000 cc 7,200 86,400
• Petroleum or gas storage facilities 2001 - 3000 cc 8,600 103,200

me
50% in the first year of use 25%
• Educational/hostels building 10% per year on straight line basis Over - 3000 cc 14,400 172,800
So
• Commercial building 10% per year on straight line basis
(b) Machinery: (ii) Pick-ups, Panel Vans
• Machinery used for manufacture 50% in the first year of use 25% (unconverted)
• Hospital equipment 50% in the first year of use 25% Up to - 1750 cc 3,600 43,200
• Ships or aircraft 50% in the first year of use 25% Over - 1750 cc 4,200 50,400
• Motor vehicles and heavy earth 25% per year on straight line basis
moving equipment
• Computer software, calculators, 25% per year on straight line basis
copiers and duplicating machines
• Furniture and fittings 10% per year on straight line basis
• Telecommunication equipment 10% per year on straight line basis
• Film equipment by a local producer 25% per year on straight line basis
• Machinery used to undertake 50% in the first year of use 25%
operations under prospecting rights
and exploration under mining rights
• Other machinery 10% per year on straight line basis
(c) Purchase/acquisition of right to use 10% per year on straight line basis (iii) Land Rovers/Cruisers 7,200 86,400
fibre optic cable by telecommunication
operation
(d) Farm works 50% in the first year of use 25%

Commissioner’s prescribed benefit rates: Monthly rates Annual rates

Services (Sh.) (Sh.)
(i) Electricity (Communal or from a 1,500 18,000
generator)
(ii) Water (Communal or from a 500 6,000
borehole)
Agriculture employees: Reduced rates of benefits
(i) Water 200 2,400
(ii) Electricity 900 10,800

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QUESTION ONE
(a) Explain the following terms as used in public finance management:

(i) Equitable share. (2 marks)

(ii) Conditional grants. (2 marks)

(iii) Own source revenue. (2 marks)

(b) The societal needs of most developing countries are mostly greater than the resources available to the government.
The countries must therefore develop a public financial management framework to act as a tool for guiding formulation
and implementation of public policies so as to improve the welfare of the citizens.

In relation to the above statement, outline FOUR principles of public financial management regulations that govern
all aspects of public finance in your country. (4 marks)

(c) Summarise FOUR roles of the Senate as an oversight function in public finance management. (4 marks)

(d) Discuss THREE parameters used by the Commission on Revenue Allocation in sharing revenue among county
governments or their equivalent in your country. (6 marks)
(Total: 20 marks)

QUESTION TWO
(a) Developing countries face significant challenges in meeting their development objectives and at the same time
ensuring that their debt levels remain sustainable. They are therefore, advised by the International Monetary Fund
(IMF) and World Bank to develop a framework for Debt Sustainable Analysis that is country specific.

om
With reference to the above statement, analyse TWO objectives of conducting an annual debt sustainability analysis
in your country. (4 marks)

.c
ya
(b) According to the Public Procurement and Asset Disposal Act, 2015, the county treasury is required to establish a
procurement function.

en
In relation to the above provision, outline SIX responsibilities of the county government procurement function.

ak
(6 marks)

(c) me
Baraka Traders has provided you with the following details in respect of transactions for the month of December 2022:
So
Sh.
December 4: Purchases 725,000
December 8: Return outwards 58,000
December 12: Catering expenses 87,000
December 15: Repairs of delivery van 29,000
December 18: Audit fees 26,100
December 20: Cost insurance and freight (CIF) imports 125,000
December 22: Sales (local) 1,131,000
December 24: Sales (export) 250,000
December 27: Exempt sales 350,000
December 28: Photocopying 11,600
December 30: Telephone bill 23,200

Additional information:
1. Input tax relating to goods sold as exempt sales could not be directly identified and it was found appropriate
to restrict deductible input tax.
2. All transactions are inclusive of value added tax (VAT) at the rate of 16% where applicable.
3. Import duty is at 20% on cost, insurance and freight (CIF) basis.
4. A debtor of goods valued at Sh.50,750 was declared bankrupt on 15 December 2022.

Required:
(i) Compute output tax. (2 marks)

(ii) Compute deductible input tax. (4 marks)

CA26 & CF25 Page 2

p of07
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 (iii) Determine VAT payable by or refundable to Baraka Traders. (2 marks)

(iv) Advise the management of Baraka Traders on the penalty applicable for late filing and late payment of VAT.
(2 marks)
(Total: 20 marks)

QUESTION THREE
(a) Explain the term “export levy” as used in miscellaneous fees and levies. (2 marks)

(b) Summarise FOUR roles that taxation policies of a country play in achieving budgetary objectives. (4 marks)

(c) Solomon Chuchuh is employed as the Managing Director of Utamu Millers Ltd. During the year ended 31 December
2022, he presented the following information relating to his income:

1. His basic salary was Sh.120,000 per month net of PAYE of Sh.48,000 per month.
2. He was provided with lunch by the employees from 1 August 2022 of Sh.6,000 per month.
3. He enjoyed a medical allowance from the company which is only available to senior managers. The
allowance was Sh.12,500 per month.
4. The company paid for him Life Insurance premiums of Sh.4,800 per month for each member of his family
from 1 September 2022. This included himself, wife and the daughter.
5. During the year, the employer paid a total of Sh.200,000 as school fees for his daughter. This amount was
allowed in the company’s income statement.
6. He was provided with a fully furnished house with electricity and water. The employer paid monthly rent of
Sh.50,000 for the house and deducted 5% of his basic salary for rent. The cost of furniture was Sh.240,000
while the monthly electricity bill and water bill amounted to Sh.1,800 and Sh.1,000 per month respectively.
7. On 1 October 2022, the company provided him with the following:
• A land cruiser which was acquired at a cost of Sh.3,200,000 with an engine capacity of 3000cc.
•

om
A house servant and a night watchman whose monthly salaries were Sh.12,500 and Sh.15,000
respectively. The fair market value was agreed with commissioner at Sh.14,000 per month for each

.c
of them.
8. He contributed 15% of his monthly basic salary towards a registered pension scheme while the employer

ya
contributed 10% of his basic salary towards the same scheme.

en
9. Other incomes for the year include:
He has invested in the real estate and from his rental houses, he reported a net rental income of Sh.2,400,000

ak
after deducting the following expenditure:

me
Sh.
Caretaker wages 420,000
So
Fencing cost 640,000
Loan repayment 320,000
Monthly rental income tax 487,820
Insurance, rent and rates 248,000
Advertising 360,000
Partitioning and CCTV cameras 222,000
Repairs and maintenance 268,200
2,966,020
10. Dividend received from United Millers Co-Operative Society was Sh.306,000 net and interest received from
Fanaka Bank Ltd. was Sh.240,000 net.

Required:
(i) Compute the total taxable income for Solomon Chuchuh for the year ended 31 December 2022. (12 marks)

(ii) Determine tax payable (if any) from the income computed in (c) (i) above. (2 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Highlight FOUR factors that have contributed to the growth of Public Private Partnership (PPPs) arrangements in
most developing countries. (4 marks)

(b) Outline FOUR determinants of taxable capacity in your country. (4 marks)

(c) Mambo, Moto and Mutokah are in a partnership sharing profits and losses in the ratio of 2:1:1 respectively.

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 Their statement of profit or loss for the year ended 31 December 2022 was as follows:
Sh. Sh.
Gross profit 4,200,000
Sale of delivery van proceeds 1,400,000
Expenses:
Advertisement 380,000
Depreciation 148,000
Rent and rates 120,000
General expenses 450,000
Value added tax (VAT) 150,000
Bad debts 250,000
Purchase of furniture 620,000
Salaries and wages 900,000
Legal fees 540,000
Goodwill written off 225,000
Interest on capital - Mambo 80,000
Moto 140,000 (4,003,000)
Net profit 1,597,000

Additional information:
1. Advertisement expenses include Sh.120,000 spent on acquisition of a neon sign.
2. General expenses comprised the following: Sh.
Partners end year party 150,000
Staff catering services 90,000
Embezzlement by cashier 210,000
3. Bad debts represented the general provision made for the year.
4. Legal fees comprised the following: Sh.

om
Parking fines 130,000
Settling a dispute with a customer 200,000

.c
Appeal on a tax assessment 210,000

ya
5. Investment allowances were agreed at Sh.380,000 with the Commissioner of domestic taxes.

en
Required:

ak
(i) Prepare adjusted taxable profit or loss of the partnership for the year ended 31 December 2022. (7 marks)

me
(ii) The allocation of the taxable profit or loss in (c) (i) above to the partners.
So (2 marks)

(d) Bright Traders is a small business in the Jua Kali sector. The following information has been presented to you for the
year ended 31 December 2022:

1. Sales for the year were reported as follows:

Sh.
January - April 1,800,000
May - August 2,200,000
September - December 3,200,000
2. The business purchased goods four times during the year as follows:
Sh.
January 600,000
May 800,000
September 200,000
December 500,000
3. Expenses incurred during the year were as follows:
Sh.
Salaries and wages 260,000
Electricity expenses 180,000
Legal expenses 100,000
Stationery 60,000
Water expenses 28,000
Rent expenses 280,000

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 The proprietor of Bright Traders is not conversant with turnover tax requirements and has approached you to advise
him on whether the business is liable to turnover tax and if so, the amount of tax payable for the year ended
31 December 2022.

Required:
Using the information provided above, advise the proprietor of Bright Traders on his turnover tax position and turnover
tax liability (if any). (3 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Following the convergence of market economies, most business transactions currently take place through the digital
market place. Most countries have come up with ways of taxing the digital economy, although some countries continue
to struggle in taxation of this economy.

With reference to the above statement, suggest FOUR challenges faced by your country in taxing the digital economy.
(4 marks)

(b) Section 17 of the Excise Act empowers the commissioner to consider an application for excise license and either grant
or refuse to issue the applicant with the license.

Identify THREE instances in which the commissioner may refuse to grant an excise license to the applicant.
(3 marks)

(c) Sky Rift Growers Ltd. was incorporated in the year 2021, but commenced agribusiness on 1 January 2022.
The statement of profit or loss for the company for the year ended 31 December 2022 was as follows:

Sky Rift Growers Ltd.

om
Statement of profit or loss for the year ended 31 December 2022

.c
Sh. Sh.
Sales 28,000,000

ya
Dividend income 270,000
Interest income (net) 264,000

en
Surplus from pension scheme 120,000

ak
28,654,000
Expenses

me
Administration expenses 1,570,000
Clearing land and planting roses 8,940,000
So
General insurance 200,800
Bad debts 460,000
Lease expenses 600,000
Donations 42,000
Repairs and renewals 252,000
Loss on sale of investment 96,000
Legal and professional fees 300,000
Transport costs 296,000
Depreciation 840,000
Farm works 12,640,000
Loan repayment 280,000
Pension contribution 350,000
Compensation to staff for work injury 420,600
Motor vehicle expenses 186,000 (27,473,400)
1,180,600

Additional information:
1. The company’s main activity is growing flowers for local and export market.
2. The company has leased the land on which it grows flowers from Enkalop Roses Ltd. One of its shareholders,
Enkalop Roses Ltd. owns 25% of the share capital in Sky Rift Growers Ltd.
3. Donations were made to the National Flowers Council to support its activities.
4. The loss on sale of investment relates to sale of shares that Sky Rift Growers Ltd. held in a quoted company.
5. Bad debts comprise: Sh.
General provision 220,000
Specific provision 240,000

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6. The surplus from pension scheme arose after an actuarial valuation was carried out by a firm of actuaries.
7. Dividend income was received from Enkalop Roses Ltd.
8. Repairs and renewals were analysed as follows:
Sh.
Repair of plough 97,200
Repair of green house 34,800
Office partitions 120,000
252,000
9. Farmworks cost comprises: Sh.
Farmhouse where the farm manager resides 5,100,000
Irrigation system (including water pump Sh.120,000) 800,000
Electrification network 1,200,000
Construction of gabions 300,000
Construction of godowns at the firm 2,400,000
Plough and lawn mower 380,000
Labour quarters for workers 1,800,000
Farm implements 540,000
Surveillance cameras 120,000
Total 12,640,000

Required:
(i) Compute the investment allowances due to Sky Rift Growers Ltd. for the year ended
31 December 2022. (5 marks)

(ii) Compute total taxable income for the company for the year ended 31 December 2022.
(7 marks)

om
(iii) Determine the tax liability due to the company for the year ended 31 December 2022. (1 mark)
(Total: 20 marks)

.c
………………………………..………………………………….

ya
en
ak
me
So

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 CPA INTERMEDIATE LEVEL
CIFA INTERMEDIATE LEVEL

PUBLIC FINANCE AND TAXATION

TUESDAY: 25 April 2023. Afternoon Paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.
Any assumptions made must be clearly and concisely stated. Do NOT write anything on this paper.
RATES OF TAX (Including wife’s employment, self-employment and professional income rates of tax).
Year of income 2022.
Monthly taxable pay Annual taxable pay Rate of tax
(Sh.) (Sh.) % in each Sh.
1 - 24,000 1 - 288,000 10%
24,001 - 32,333 288,001 - 388,000 25%
Excess over - 32,333 Excess over - 388,000 30%
Personal relief Sh.2,400 per month (Sh.28,800 per annum).
Investment allowance: Rate of investment allowance Residual value Prescribed benefit rates of motor vehicles

om
(25% per year provided by employer
on equal (i) Saloons, Hatch Backs and Estates

.c
instalments) Monthly Annual
Capital expenditure incurred on: rates rates

ya
(Sh.) (Sh.)
(a) Buildings: Up to 1200 cc 3,600 43,200

en
• Hotel building 50% in the first year of use 25% 1201 - 1500 cc 4,200 50,400
• Building used for manufacture 1501 - 1750 cc 5,800 69,600

ak
50% in the first year of use 25%
• Hospital buildings 50% in the first year of use 25% 1751 - 2000 cc 7,200 86,400
• Petroleum or gas storage facilities 2001 - 3000 cc 8,600 103,200

me
50% in the first year of use 25%
• Educational/hostels building 10% per year on straight line basis Over - 3000 cc 14,400 172,800
• Commercial building
So
10% per year on straight line basis
(b) Machinery: (ii) Pick-ups, Panel Vans
• Machinery used for manufacture 50% in the first year of use 25% (unconverted)
• Hospital equipment 50% in the first year of use 25% Up to - 1750 cc 3,600 43,200
• Ships or aircraft 50% in the first year of use 25% Over - 1750 cc 4,200 50,400
• Motor vehicles and heavy earth 25% per year on straight line basis
moving equipment
• Computer software, calculators, 25% per year on straight line basis
copiers and duplicating machines
• Furniture and fittings 10% per year on straight line basis
• Telecommunication equipment 10% per year on straight line basis
• Film equipment by a local producer 25% per year on straight line basis
• Machinery used to undertake 50% in the first year of use 25%
operations under prospecting rights
and exploration under mining rights
• Other machinery 10% per year on straight line basis
(c) Purchase/acquisition of right to use 10% per year on straight line basis (iii) Land Rovers/Cruisers 7,200 86,400
fibre optic cable by telecommunication
operation
(d) Farm works 50% in the first year of use 25%

Commissioner’s prescribed benefit rates: Monthly rates Annual rates

Services (Sh.) (Sh.)
(i) Electricity (Communal or from a 1,500 18,000
generator)
(ii) Water (Communal or from a 500 6,000
borehole)
Agriculture employees: Reduced rates of benefits
(i) Water 200 2,400
(ii) Electricity 900 10,800

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QUESTION ONE
(a) Explain the following terms as used in division and sharing of revenue in relation to the public finance management:

(i) Vertical sharing. (2 marks)

(ii) Horizontal sharing. (2 marks)

(b) Outline FIVE different entities whose accounts the Auditor General is required to audit and report within six months
after the end of each financial year as provided in the constitution of Kenya, 2010. (5 marks)

(c) Identify FIVE matters that are included in the budget estimates submitted to the County Assemblies by the County
Executive Committee members for finance in respect of the budget for every financial year. (5 marks)

(d) In a public finance workshop, one of the facilitators noted that “public debt in most developing countries are at high
level and could slowly be approaching distress levels”.

With reference to the above statement, summarise SIX measures that could be taken to mitigate the level of increasing
public debts. (6 marks)
(Total: 20 marks)

QUESTION TWO
(a) Explain the term “electronic reverse auction” as used in Public Procurement and Asset Disposal Act, 2015. (2 marks)

(b) Summarise FOUR benefits of applying e-procurement in the public sector. (4 marks)

(c) The Public Private Partnership (PPP) Act establishes the public private partnership project facilitation fund as a
mechanism for financing the PPP arrangements. Highlight FOUR sources of funds deposited into this fund. (4 marks)

om
(d) Hyrax Stores Ltd. deals in a variety of vatable and non-vatable goods. The following transactions took place during the

.c
month of January 2023:

ya
January 2: Sold goods on credit to Kikoi Traders for Sh.800,000.

en
January 3: Purchased goods on cash basis from Riverroad Traders for Sh.196,000.

ak
January 5: Purchased electronic tax register for Sh.150,000 and paid by cheque.
January 7: Kikoi Traders returned goods valued at Sh.60,000 and received a credit note.

me
January 9: Sold goods to JB Ltd., a company based in Uganda for Sh.300,000.
January 12: Paid electricity bills amounting to Sh.16,000.
So
January 14: Received a debit note of Sh.48,000 from Riverroad Traders.
January 18: Purchased office stationery for Sh.36,000
January 20: Supplied goods to Ministry of Trade valued at Sh.1,600,000.
January 21: Imported goods from Dubai for Sh.800,000 exclusive of import duty at the rate of 25% and value added
tax at the rate of 16%.
January 24: Purchased fuel for business vehicles for Sh.150,000.
January 28: Paid Sh.68,000 for catering services.
January 29: Paid Sh.45,000 for audit services

Transactions are stated exclusive of VAT at the rate of 16% where applicable.

Required:
(i) A value added tax (VAT) account for the month of January 2023. (9 marks)

(ii) Comment on the penalties and interest due where the VAT is not paid by Hyrax Stores Ltd. on the due date.
(1 mark)
(Total: 20 marks)

QUESTION THREE
(a) Highlight THREE benefits of the Integrated Customs Management System (ICMS) in the administration of customs
taxes. (3 marks)

(b) Identify THREE activities that require a licence or registration by the commissioner before undertaking as per the
excise duty Act 2015. (3 marks)

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(c) Oscar Ebala is employed as an IT Officer by County University. He reported the following details of his income and
that of his wife for the year ended 31 December 2022:
1. He was entitled to a basic salary of Sh.1,200,000 per annum net of PAYE of Sh.250,000 per annum.
2. The employer provided him with a motor vehicle of 2600cc that had cost Sh.2,800,000, from 1 August 2022.
3. Sitting allowance for attending the university meetings at the head office for the year amounted to Sh.120,000
out of which 30% was in relation to reimbursement of travel costs incurred between the month of January 2022
to July 2022. This amount was paid in January 2023.
4. The employer had provided him with a house within the university where he lived up to 30 June 2022. The
market rental value of the house was Sh.45,000 per month and he contributed Sh.10,000 per month towards
the rent.
5. On 1 July 2022, he moved to his residential house which he purchased using his savings from Home Ownership
Savings Plan (HOSP) where he was contributing Sh.8,000 per month up to 30 June 2022. He also obtained a
mortgage loan from Technology SACCO to top up the savings from HOSP. For the 6 months up to
31 December 2022 he had paid Sh.360,000 (inclusive of interest Sh.100,000) for the mortgage loan. Half of
this amount was reimbursed by the employer at year end.
6. Technology SACCO paid him Sh.24,000 net as dividend on his shares and interest of Sh.48,000 gross on his
deposits.
7. The following deductions were made from his salary during the year:
Sh.
Family life insurance premiums 48,000
Subscription to ICT Association 16,000
Contribution to registered pension scheme 300,000
8. He enrolled for an online Cyber Security Certification course in September 2022 and the employer paid his fee
of Sh.60,000.
9. His wife Erica Ebala works for an IT Consultancy firm where she received a basic salary of Sh.60,000 per
month and other benefits from employment as follows:
• Medical allowance of Sh.15,000 per month. The firm has a medical scheme for all senior employees only.

om
• She worked out of office for 7 days to install a Human Resource Management Software where she received

.c
a subsistence allowance of Sh.7,000 per day.
• She attended a one week training on Artificial Intelligence Master Class. The employer paid Sh.120,000

ya
for the training.

en
Her other income comprised of:
- Part time IT Consultancy (Sh.120,000)

ak
- Royalties on sale of literature books Sh.95,000 net of tax at source.
10. Oscar Ebala and his wife have a tradition of filing tax returns separately to the Revenue Authority.
Required: me
So
(i) Compute the separate taxable income for Oscar Ebala and his wife for the year ended 31 December 2022.
(10 marks)
(ii) Determine tax payable (if any) on income computed in (c) (i) above. (4 marks)
(Total: 20 marks)
QUESTION FOUR
(a) Distinguish between a “single tax system” and a “multiple tax system”. (4 marks)
(b) In a tax seminar, one of the facilitators noted that, “tax evasion has remained a major challenge for revenue authorities
in most developing countries, in effort to achieve revenue collection target”.
With reference to the above statement, propose FOUR measures that could be applied to curb tax evasion. (4 marks)

(c) Zahari Processors Ltd. presented the following statement of profit or loss for the year ended 31 December 2022:
Sh. “000” Sh. “000”
Turnover 760,000
Cost of sales (296,000)
Gross profit 464,000
Other income
Provision for foreign exchange gain 84,000
Gain on sale of motor vehicle 28,000
Release of liability 32,000
Refund of excise duty 16,000
Investment income (gross) 24,000
Total income 648,000
Less expenses
Purchase of trademark 48,800

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 Sh. “000” Sh. “000”
Design of company website 12,400
Directors fees 28,000
Donations to charitable institutions 2,400
Depreciation expense 3,240
Marketing expenses 5,900
Management and professional fees 1,896
General expenses 6,000
Legal costs 5,400
Loan repayment 2,600
Allowance for doubtful debts 2,250
Impairment loss of property 1,500 (120,386)
Net profit for the year 527,614

Additional information:
1. On 1 April 2022, the company acquired the following assets:
Sh.“000”
Factory building 28,800
Warehouse 2,800
Processing machinery 16,000
Lorry (4 tonnes) 3,500
Drainage system 2,600
Saloon car 4,840

2. Management and professional fees comprised: Sh.“000”

Development of a strategic plan 1,280
Tax consultancy fees 208

om
Audit fees 152
Environmental assessment fees 256

.c
1,896

ya
3. General expenses included: Sh.“000”

en
Installation of neon sign 820

ak
Car grant to a director 2,800
Installation of processing machine 1,560

me
Staff Christmas party 240
Retrenchment costs 580
So
6,000

4. Legal fees comprised: Sh.“000”

Defence against claims of breach of trade agreement 1,450
Renewal of Kenya Association of Manufacturers Membership 680
Negotiating a bank loan 1,168
Preparation of employment contracts 1,250
Drafting lease agreement – 60 years 852
5,400

5. Release of liability was in respect of a loan obtained from one director who decided to write off the loan as it
was due for over four years.

Required:
Compute the total taxable profit or loss for Zahari Processors Ltd. for the year ended 31 December 2022. (12 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Explain the following terms as used in investment allowances:

(i) Trading receipt. (2 marks)

(ii) Balancing deduction. (2 marks)

(b) Describe THREE instances where a taxpayer is considered to have made self-assessment return, as provided under
Section 28 of the Tax Procedures Act, 2015. (6 marks)
CA26 & CF25 Page 4
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(c) You have been provided with the following incomes from various sources. You are required to determine how much
withholding tax is deductible from each source:

(i) Withdrawal of Sh.1,800,000 (gross) from a registered pension scheme by a resident who retired early in year
2022 at an age of 49 years after serving for 12 years. (2 marks)

(ii) Royalties of Sh.760,000 gross received by Janet Nikoye a popular Ugandan musician from sale of ringtone
tunes in Kenya. (1 mark)

(iii) Moses Patibhai received Sh.68,000 (net) for placing bets on football from Shinda Pesa, a sports betting house.
(1 mark)

(d) Shebe Abdallah disposed of his property in September 2022 for Sh.18,500,000. The property consisted of a piece of
land he had bought in 2007 for Sh.1,300,000. He had incurred legal costs of Sh.650,000 on its transfer in addition to
stamp duty of Sh.13,000. He put up a hotel building at a cost of Sh.9,800,000 and was completed in 2008. A local
politician laid claim to the property in 2011. Sheba Abdallah filed a suit against her and won having spent legal charges
amounting to Sh.3,450,000 on the case.

The following costs were incurred to dispose of the property:

Sh.
Valuation costs 247,000
Advertisement 52,000
Commission to buyer-seeking agents 1,850,000

Additional information:
1. During the existence of the hotel business, the buildings had been allowed investment deductions amounting
to Sh.740,000.

om
2. The capital gains tax rate during the year was 5%.

.c
Required:

ya
(i) Compute the capital gains tax (CGT) if any payable by Shebe Abdallah on the disposal of his property.
(5 marks)

en
(ii) Citing a reason, identify which of the following forms Shebe will use to file returns on transactions in (d) (i)

ak
above.
• CGT1.

me
• CGT2P.
• CGT3.
So
(1 mark)
(Total: 20 marks)
………………………………..………………………………….

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 CPA INTERMEDIATE LEVEL

CIFA INTERMEDIATE LEVEL

PUBLIC FINANCE AND TAXATION

TUESDAY: 6 December 2022. Afternoon Paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.
Any assumptions made must be clearly and concisely stated. Do NOT write anything on this paper.
RATES OF TAX (Including wife’s employment, self-employment and professional income rates of tax).
Year of income 2021.
Assume that the following rates of tax applied throughout the year of income 2021:
Monthly taxable pay Annual taxable pay Rate of tax
(Sh.) (Sh.) % in each Sh.
1 - 24,000 1 - 288,000 10%
24,001 - 32,333 288,001 - 388,000 25%
Excess over - 32,333 Excess over - 388,000 30%
Personal relief Sh.2,400 per month (Sh.28,800 per annum).

om
Investment allowance: Rate of investment allowance Residual value Prescribed benefit rates of motor vehicles

.c
(per year on provided by employer
reducing (i) Saloons, Hatch Backs and Estates

ya
balance) Monthly Annual
Capital expenditure incurred on: rates rates

en
(Sh.) (Sh.)
(a) Buildings: Up to 1200 cc 3,600 43,200

ak
• Hotel building 50% in the first year of use 25% 1201 - 1500 cc 4,200 50,400
• Building used for manufacture 25% 1501 - 1750 cc 5,800 69,600

me
50% in the first year of use
• Hospital buildings 50% in the first year of use 25% 1751 - 2000 cc 7,200 86,400
• Petroleum or gas storage facilities 25% 2001 - 3000 cc 8,600 103,200
So
50% in the first year of use
• Educational/hostels building 10% per year on reducing balance Over - 3000 cc 14,400 172,800
• Commercial building 10% per year on reducing balance
(b) Machinery: (ii) Pick-ups, Panel Vans
• Machinery used for manufacture 50% in the first year of use 25% (unconverted)
• Hospital equipment 50% in the first year of use 25% Up to - 1750 cc 3,600 43,200
• Ships or aircraft 50% in the first year of use 25% Over - 1750 cc 4,200 50,400
• Motor vehicles and heavy earth 25% per year on reducing balance
moving equipment
• Computer software, calculators, 25% per year on reducing balance
copiers and duplicating machines
• Furniture and fittings 10% per year on reducing balance
• Telecommunication equipment 10% per year on reducing balance
• Film equipment by a local producer 25% per year on reducing balance
• Machinery used to undertake 50% in the first year of use 25%
operations under prospecting rights
and exploration under mining rights
• Other machinery 10% per year on reducing balance
(c) Purchase/acquisition of right to use 10% per year on reducing balance (iii) Land Rovers/Cruisers 7,200 86,400
fibre optic cable by telecommunication
operation
(d) Farm works 50% in the first year of use 25%

Commissioner’s prescribed benefit rates: Monthly rates Annual rates

Services (Sh.) (Sh.)
(i) Electricity (Communal or from a generator) 1,500 18,000
(ii) Water (Communal or from a borehole) 500 6,000
Agriculture employees: Reduced rates of benefits
(i) Water 200 2,400
(ii) Electricity 900 10,800

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QUESTION ONE
(a) Explain the following types of funds:

(i) The contingency fund. (2 marks)

(ii) The equalisation fund. (2 marks)

(b) An accounting officer of a procuring entity is empowered at any time, prior to notification of tender award, to terminate
or cancel procurement or asset disposal proceedings without entering into a contract.

Highlight SIX circumstances under which the procurement or asset disposal proceedings may be terminated or cancelled
as provided under the Public Procurement and Asset Disposal Act, 2015. (6 marks)

(c) Outline SIX contents that should be included in development plan prepared by every county government as specified
under Section 126 (1) of the Public Finance Management Act, 2012. (6 marks)

(d) “Each year, the county treasury shall submit to the county assembly a statement setting out the debt management strategy
of the county government”.

With reference to the above statements, identify FOUR items that the county treasury should include in the statement.
(4 marks)
(Total: 20 marks)

QUESTION TWO
(a) The Revenue Authority is empowered to undertake different types of tax audit to ascertain the actual tax liability of the
tax payers involved. The tax audit may be triggered by general or specific details that come to the attention of the
Commissioner.

om
With reference to the above statement, suggest FOUR triggers of PAYE audit. (4 marks)

.c
ya
(b) A contracting authority is empowered to use direct procurement method as one of the Public Private Partnerships (PPPs)
procurement methods by the Act.

en
ak
In relation to the above statement, summarise SIX circumstances under which a contracting authority could use direct
procurement as one of the PPPs procurement method. (6 marks)

(c) me
The following are the transactions of Starlite Traders for the month of August 2022. The business is registered for value
So
added tax (VAT) purposes:
Sh.
Income:
Sales to unregistered customers 2,337,480
Sales to registered customers 5,939,483
8,276,963
Expenditure:
Purchases from VAT registered suppliers 3,617,924
Purchases from VAT unregistered suppliers 1,780,020
Depreciation 240,600
Electricity 204,450
Printing and stationery 66,700
Motor vehicle parking charges 42,050
Water bill 23,200
Legal fees 133,400
Motor vehicle fuel 167,400
Repair and maintenance 105,850
Computer software 49,532
Salary and wages 960,000

Additional information:
1. The reported sales to unregistered customers include goods sold to a customer in South Sudan of Sh.536,000.
2. An invoice of Sh.160,000 issued to Wema Traders has been omitted from the records during the month.
3. Motor vehicle fuel and repairs and maintenance relates to the van used to supply goods to customers.

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 4. Water bill related to the water supplied by the county government during the month.
All transactions are inclusive of value added tax (VAT) at the standard rate of 16% where applicable.

Required:
A value added tax (VAT) account for the month of August 2022 for Starlite Traders. (10 marks)
(Total: 20 marks)

QUESTION THREE
(a) Explain the term “Certificate of Origin” as used under customs and excise taxes. (2 marks)

(b) Identify FOUR categories of information the Commissioner should include in the default assessment sent to the
taxpayer. (4 marks)

(c) Henry Mwala who holds a dual citizenship, had been living in Denmark since September 2014. He returned to the
country on 17 December 2020 and opened a hardware shop on 2 January 2021. On 1 July 2021, he secured a formal
employment with Bestfreight Ltd. a logistic company as a fleet manager.

He provided the following information relating to his income for the year ended 31 December 2021:

1. Basic salary Sh.180,000 per month (PAYE Sh.46,000 per month).

2. He was paid overtime amounting to Sh.30,000 per month and risk allowance of Sh.25,000 per month during the
year.
3. The employer provided him with meals worth Sh.5,000 per month.
4. He received house allowance of Sh.60,000 per month.
5. Up to 30 September 2021, he used his personal car for official duties and the employer reimbursed a monthly
mileage allowance of Sh.40,000.
6. On 1 October 2021, he was provided with a saloon car of 2400cc purchased by the company in year 2019 at a cost

om
of Sh.2,000,000.

.c
7. He was out of office on official duties for five days and received a per diem of Sh.6,000 from the employer.
8. The company paid school fees of Sh.80,000 for each of his three children during the year. This was included in the

ya
employer’s books of accounts.

en
9. The employer bought a Sh.120,000 air ticket to facilitate Henry Mwala to visit the rest of his family in Denmark
during his annual leave.

ak
10. With effect from 1 July 2021, he contributed Sh.15,000 (monthly) as pension contribution and Sh.92,000 for life
insurance annual premium respectively.

me
11. He bought a residential house on 1 September 2021 through mortgage of Sh.6,000,000 provided by Excel Bank
So
Ltd. at an interest rate of 16% per annum. He moved into the house on 2 October 2021.
12. The net loss from the hardware shop during the year amounted to Sh.370,000.
This was after deducting the following:
Sh.
Salary (sales person) 1,050,000
VAT paid 180,000
Rent 680,000
Electricity 30,000
Furniture and fittings 250,000
Computers 300,000

Required:
(i) Determine total taxable income for Henry Mwala for the year ended 31 December 2021. (12 marks)

(ii) Compute tax payable (if any) from the income computed in (c) (i) above. (2 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Explain the term “Railway development levy” as used in taxation. (2 marks)

(b) Highlight THREE benefits derived by member countries of the East African Community from use of the Single Customs
Territory. (3 marks)

(c) Identify THREE objectives of fiscal policies adopted by most developing countries. (3 marks)

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(d) Leeds Manufacturing Ltd. commenced operations on 1 January 2021 after incurring the following expenditure:

Sh.
Factory building 24,200,000
Land 16,000,000
Processing machinery 12,500,000
Power generator 1,800,000
Delivery van 3,600,000
Computers 650,000
Staff canteen 2,350,000
Boilers 800,000
Computer software 420,000
Staff clinic 960,000
Lorry (4 tonnes) 3,200,000
Duplicating machines 240,000
Furniture and fittings 530,000

Additional information:
1. The factory building includes the cost of a showroom and a retail shop of Sh.1,850,000 and Sh.1,690,000
respectively.
2. A perimeter wall was constructed at a cost of Sh.4,200,000 and utilised from 1 October 2021.
3. The company acquired the following additional assets during the year ended 31 December 2021:
Asset Cost Date of first use
Sh.
2 saloon cars for directors at (Sh.4,000,000 each) 8,000,000 12 January 2021
Plant and machinery 680,000 20 January 2021

om
Mitsubishi canter 3,200,000 20 January 2021
Electronic type-writers 190,000 2 March 2021

.c
Labour quarters 2,400,000 1 June 2021
Parking bay 560,000 1 June 2021

ya
Mobile forklift 3,000,000 10 October 2021

en
Water pump 280,000 15 October 2021
Calculators 10,000 1 December 2021

ak
Conveyor belts 1,800,000 1 December 2021

me
Workshop machine 720,000 5 December 2021
4. In June 2021, one of the saloon cars was involved in an accident and the insurance company paid Sh.3,000,000
So
as compensation.
5. A borehole was drilled at a cost of Sh.1,400,000 and put in to use on 1 November 2021.
6. The company made a gross profit of Sh.56,000,000 during the year ended 31 December 2021.
7. The following were the summary of operating expenses incurred during the year ended 31 December 2021:
Sh.
Selling and distribution expenses 8,400,000
Administrative expenses 4,200,800
Depreciation 16,000,000
Instalment tax paid 780,000
Tax penalty and interest paid 420,000
Bad debt written off 120,000

Required:
(i) Compute Leeds Manufacturing Ltd.’s Investment allowances for the year ended 31 December 2021. (9 marks)

(ii) Ascertain the taxable profit or loss for the year ended 31 December 2021. (3 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Identify FOUR factors that might influence tax shifting. (4 marks)

(b) Summarise FOUR roles of the Parliamentary Budget Office. (4 marks)

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(c) Hightec Ltd. presented the following statement of profit or loss for the year ended 31 December 2021:

Sh. Sh.
Sales 64,000,000
Less: Cost of sales (42,400,000)
Gross profit 21,600,000
Other incomes:
Gain on disposal of property 280,000
Dividend income 800,000
Sundry income 450,000
Interest income 420,000
Total income 23,550,000
Expenditure:
Preliminary expenses 1,540,000
General insurance 424,600
Legal costs 820,000
Medical expenses 36,200
Donations 980,000
General provision for bad debts 360,000
Household expenses 845,000
Depreciation 148,200
Salaries and wages 1,560,000
Miscellaneous expenses 236,000
Advertising expense 192,400 (7,142,400)
Net profit (16,407,600)

Additional information:

om
1. Dividend income was received from:

.c
Sh.
Apex Ltd. (Associate company) 240,000 Gross

ya
Jijenge Co-operative Society 180,000 Net
Tawah Ltd. Company (Uganda) 380,000 Gross

en
2. Interest income was received from:

ak
Sh.
Tenzi Sacco Ltd. 285,000 Net
Tilda Limited 135,000 Gross
me
So
3. Donations include Sh.340,000 made to a golf club during a national golf tournament. The balance was made
to an organisation involved in household poverty reduction campaigns, and it is a tax exempt organisation.
4. Inventories at each year end has consistently been undervalued by 20%. Closing inventory amounted to
Sh.2,600,000 and included a photocopy machine of Sh.180,000.
5. Sundry income represents recovery of bad debts previously allowed as a deduction against taxable income of
Sh.200,000 and insurance recovery on stolen cash while in transit of Sh.250,000.
6. Miscellaneous expenses comprised of tools and implements of Sh.180,000 and computer software purchased
at a cost of Sh.56,000.
7. Advertising expense includes annual trade fair fee of Sh.40,000 and Sh.50,000 fee for renewing billboards
advertising license.
8. Legal costs include Sh.236,000 incurred in successfully defending the company against allegations of breach
of contract, Sh.180,000 in respect of renewal of trademark, and Sh.40,000 in respect of an appeal against VAT
assessment by the revenue authority.
9. Sales and purchases are quoted inclusive of VAT at the rate of 16%. Purchases for the year amounted to
Sh.43,600,000 while opening inventory was valued at Sh.1,400,000.
10. Medical expenses represent reimbursements to staff for medical bills paid. The medical scheme only covers
senior employees.

Required:
(i) Prepare the adjusted taxable profit or loss of Hightec Ltd. for the year ended 31 December 2021. (10 marks)

(ii) Determine the tax liability (if any) arising from the profit or loss computed in (c) (i) above. (2 marks)
(Total: 20 marks)
………………………………..………………………………….

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To Get Answers Call/WhatsApp 0707 737 890

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To Get Answers Call/WhatsApp 0707 737 890

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To Get Answers Call/WhatsApp 0707 737 890

 CPA INTERMEDIATE LEVEL
CIFA INTERMEDIATE LEVEL
PILOT PAPER
PUBLIC FINANCE AND TAXATION
December 2021. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your
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 1 - 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).

om
Investment allowance: Rate of investment allowance Residual value Prescribed benefit rates of motor vehicles
(per year on provided by employer

.c
reducing (i) Saloons, Hatch Backs and Estates
balance) Monthly Annual

ya
Capital expenditure incurred on: rates rates

en
(Sh.) (Sh.)
(a) Buildings: Up to 1200 cc 3,600 43,200

ak
 Hotel building 50% in the first year of use 25% 1201 - 1500 cc 4,200 50,400
 Building used for manufacture 50% in the first year of use 25% 1501 - 1750 cc 5,800 69,600

me
 Hospital buildings 50% in the first year of use 25% 1751 - 2000 cc 7,200 86,400
 Petroleum or gas storage facilities 50% in the first year of use 25% 2001 - 3000 cc 8,600 103,200
So
 Educational/hostels building 10% per year on reducing balance Over - 3000 cc 14,400 172,800
 Commercial building 10% per year on reducing balance
(b) Machinery: (ii) Pick-ups, Panel Vans
 Machinery used for manufacture 50% in the first year of use 25% (unconverted)
 Hospital equipment 50% in the first year of use 25% Up to - 1750 cc 3,600 43,200
 Ships or aircraft 50% in the first year of use 25% Over - 1750 cc 4,200 50,400
 Motor vehicles and heavy earth 25% per year on reducing balance
moving equipment
 Computer software, calculators, 25% per year on reducing balance
copiers and duplicating machines
 Furniture and fittings 10% per year on reducing balance
 Telecommunication equipment 10% per year on reducing balance
 Film equipment by a local producer 25% per year on reducing balance
 Machinery used to undertake 50% in the first year of use 25%
operations under prospecting rights
and exploration under mining rights
 Other machinery 10% per year on reducing balance
(c) Purchase/acquisition of right to use 10% per year on reducing balance (iii) Land Rovers/Cruisers 7,200 86,400
fibre optic cable by telecommunication
operation
(d) Farm works 50% in the first year of use 25%

Commissioner’s prescribed benefit rates: Monthly rates Annual rates

Services (Sh.) (Sh.)
(i) Electricity (Communal or from a generator) 1,500 18,000
(ii) Water (Communal or from a borehole) 500 6,000
Agriculture employees: Reduced rates of benefits
(i) Water 200 2,400
(ii) Electricity 900 10,800
CA26 & CF25 Page 1
Out of 5
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QUESTION ONE
(a) Discuss three roles played by the National Assembly budget committee or equivalent institution in your country in
relation to public finance management. (6 marks)

(b) The national and county governments engage in a number of projects. For the purpose of monitoring these projects
the governments have developed an electronic project monitoring information system (e-ProMIS) to capture
information on projects implemented by the ministries, state corporations and counties.

Required:
Discuss four specific objectives that the National and County governments might realise from the e-ProMIS
(8 marks)
(c) Discuss three reasons why Public Sector Finance is important in your country (3 marks)

(d) Discuss three roles of the National Treasury in public procurement and assets disposal. (3 marks)
(Total: 20 marks)

QUESTION TWO
(a) Highlight the steps followed by your county government in developing its annual budget. (9 marks)

(b) The County Treasury is required to submit to the county assembly a statement setting out the debt management
strategy of the county government over the medium term with regard to its actual liability and potential liability in
respect of loans and its plans for dealing with those liabilities.

Required:
Identify the information to be included in the statement of debt management strategy (5 marks)

om
(c) Discuss three roles of taxation in achieving budgetary objectives (3 marks)

.c
(d) During a devolution seminar in your country, one of the key speakers noted that country governments should be

ya
allocated national government share of revenue based on the ability of a county to enhance its revenue raising
measures.

en
Required:

ak
Identify three sources of revenue to the county governments. (3 marks)

me
So (Total: 20 marks)

QUESTION THREE
Mr. Japtheth Murunga is employed as a finance manager by Top Notch Ltd. He reported the following details on his income
and that of his wife for the year ended 31 December 2020:
1. He was entitled to a basic salary of Sh.2,500,000 per annum (PAYE Sh.250,000 per annum).
2. The employer provided him with a motor vehicle (2600 cc) which was leased from Unique Car Hire Services at
Sh.32,000 per month. The cost of the vehicle was Sh.2800,000 in 2018
3. His annual mortgage repayment of Sh.576,000 (including interest of Sh.120,000) was paid by the employer. The
loan was obtained from Absa Bank in 2019 for the purpose of constructing own residential house.
4. He was entitled to a bonus of Sh.120,000 per annum, The bonus for 2020 was however not paid until February 2021.
5. The· following deductions were made from his salary during the year:
Sh.
Life insurance premiums 96,000
Subscription to Railway Golf Club 56,000
Subscription to accountants professional body 90,000
Contributions to registered pension scheme 300,000

6. During the year he received a dividend from Top Notch Ltd. of Sh.120, 000 (gross) since he holds 2% of the
company’s share capital. The employer paid the Withholding tax on his behalf.
7. His wife Truphena Murunga works for a Taxation consultancy firm where she received a basic salary of Sh.80,000
per month. She is housed by the firm together with her family in a house where she contributes 3% of her basic pay
as rent. She received the following additional benefits for the year ended 31 December 2020:
 Subsistence allowance of Sh.6,000 per day. In total she worked out of the office station for 21 days in the
year.
 Medical allowance of Sh.10, 000 per month. The firm has a medical scheme for all senior managers.

CA26 & CF25 Page 2

Out of 5
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  She enrolled for a seminar on women empowerment in Kenya at Sh.120,000. 30% of this cost was met by
the employer.
 She received 10,000 shares from the company at a price of Sh.50 per share. The par value share is Sh.72
while the market price at the time was Sh.79 per share.
Her other income comprised:
Interest income: Sh.
Housing development bonds 200,000
Treasury bonds 120,000
Century Ltd. 85,000 (net)
Dividend income: Mapato Sacco Ltd. 95,000 (net)
Uwezo Co-operative Society 150,000 (gross)
Rental income from residential property 290,000 per month
Reported farming income was Sh.48,000 after deducting own consumption of Sh.20,000 which was equivalent to
18% of total farm produce.
8. Mr. Japtheth and his wife have agreed that each files his or her returns to the revenue authority.

Required:
(a) Taxable income of Mr. Japtheth and his wife. (16 marks)
(b) Tax due on the income(s) computed in (a) above. (4 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Ernest a citizen of USA has been assigned to work for his company’s branch located in Kenya for the next ten years.
He has approached you to assist him in understanding the Kenyan tax system especially on the basis of taxing an
income in Kenya.

Required:

om
Explain to Ernest the Cardinal rules of taxing an income in Kenya. (5 marks)

.c
(b) Jessica and Mbatha established a partnership business sharing profits and losses in the ratio of 3:2 respectively. The

ya
following is the income statement of the partnership for the year ended 31 December 2020:

en
Sh. Sh.
Sales 8,678,000

ak
General bad debts reduction 112,000
Unrealized foreign exchange gain 270,000
Capital gain on sale of shares
me
528,000
So
Recovery from insurance on stock stolen 480,000
Discount received 184,000
Dividends from Safari Cooperative Society 51,000
Total income 10,303,000
Less Expenses:
Purchases 4,263,000
Purchase of computers software 324,000
Partners salaries 1296,000
Legal expenses 1224,000
Repairs expenses 1023,400
Rent and rates 366,900
Interest on loan 249,300
General expenses 964,000
Motor vehicles expenses 840,000
Insurance 280,800
Preliminary expenses 473,000
Directors fees 1080,000
Audit and accountancy fees 142,000
Debenture interest 1800,000
Travelling expenses 96,000 (14,422,400)
Net loss (4,119,400)

CA26 & CF25 Page 3

Out of 5
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 Additional information:
1. Purchases and sales were inclusive of value added tax at a rate of 16%.
2. Closing stock was valued at Sh. 1, 840,000 while opening stock was at 10% of sales net of value added tax.
Both stocks were undervalued by 10%.
3. Legal expenses comprised: Sh.
Legal fee on defense against alleged breach of trade contract 180,000
Legal fee on tax objection and appeals 164,800
Conveyance fees of business premises 72,400
Stamp duty 136,600
Negotiating a business loan 120,800
Recovery of bad debts 145,000
Signing a 100-year lease agreement 128,400
Purchase of partner’s private residence - Jessica 150,000
Legal fee on renewal of patents 126,000
1224,000
4. Repairs expenses comprised: Sh.
Purchase of furniture 460,000
Installation of neon sign 260,000
Designing an office block 140,000
Cost of partitioning office block 141,000
Repainting of office block 22,400
1,023,400
5. General expenses included, impairment of patent rights Sh.144, 000, provision for general bad debts
Sh.148, 000 and drawings of goods by partners Sh.568, 000.
6. Interest on loan includes interest on partners’ capital of Sh.120, 000 which was shared according to profit
and loss sharing ratio.

om
Required:

.c
Compute the total taxable income for each partner for the year ended 31 December 2020. (15 marks)
(Total: 20 marks)

ya
QUESTION FIVE

en
(a) Johari Ltd. a manufacturer of leather products commenced operation on 1 January 2020. The following information
relates to the assets that the company purchased or constructed before commencement of operations.

ak
(Sh.)

me
Asset Cost
Factory building (including godown Sh.700,000) 3,800,000
So
Parking bay 480,000
Drainage systems 240,000
Delivery van 420,000
Processing machine 1,680,000
Security wall 720,000
Office block (including staff canteen Sh.380,000) 980,000

Additional information:
1. Processing machine was imported and includes customs duty and VAT of Sh.120,000 and Sh.100,000
respectively which was waived by the government.
2. On 1 September 2020, the company sunk a borehole at a cost of Sh.1,600,000 and installed a water pump
for sh.200,000.
3. Spots pavilion was constructed at a cost of Sh.1,200,000 and put to use from 1 May 2020.

Required:
Compute the investment allowances due to Johari Ltd for the year ended 31 December 2020. (5 marks)

(b) Bitech Ltd. is registered for VAT. In May 2021, the company imported goods costing sh. 2,600,000 excluding freight
charges of Sh.180,000.
The company then incurred Sh.400,000 to transport the goods from the port to its warehouse.
The conversion costs were 25% of the relevant costs incurred up to the point of processing.
The goods were subsequently sold at a profit margin of 33 ⅓%.
Required:
The VAT payable on the above transaction. Use a VAT rate of 16% and customs duty rate of 25%. (5 marks)

CA26 & CF25 Page 4

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(c) Analyse three circumstances where the revenue authority might cancel a taxpayer’s personal identification number.
(3 marks)
(d) Write brief notes on the following terms as used in taxation:

(i) Tax agents. (2 marks)

(ii) Excisable Goods Management System. (2 marks)

(iii) Warehousing of goods. (2 marks)

(iv) Railway development levy. (1 mark)

(Total: 20 marks)
…………………………………………………………………….

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 CPA INTERMEDIATE LEVEL
CIFA INTERMEDIATE LEVEL
PILOT PAPER
PUBLIC FINANCE AND TAXATION
December 2021. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your
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 1 - 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).

om
Investment allowance: Rate of investment allowance Residual value Prescribed benefit rates of motor vehicles
(per year on provided by employer

.c
reducing (i) Saloons, Hatch Backs and Estates
balance) Monthly Annual

ya
Capital expenditure incurred on: rates rates

en
(Sh.) (Sh.)
(a) Buildings: Up to 1200 cc 3,600 43,200

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 Hotel building 50% in the first year of use 25% 1201 - 1500 cc 4,200 50,400
 Building used for manufacture 50% in the first year of use 25% 1501 - 1750 cc 5,800 69,600

me
 Hospital buildings 50% in the first year of use 25% 1751 - 2000 cc 7,200 86,400
 Petroleum or gas storage facilities 50% in the first year of use 25% 2001 - 3000 cc 8,600 103,200
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 Educational/hostels building 10% per year on reducing balance Over - 3000 cc 14,400 172,800
 Commercial building 10% per year on reducing balance
(b) Machinery: (ii) Pick-ups, Panel Vans
 Machinery used for manufacture 50% in the first year of use 25% (unconverted)
 Hospital equipment 50% in the first year of use 25% Up to - 1750 cc 3,600 43,200
 Ships or aircraft 50% in the first year of use 25% Over - 1750 cc 4,200 50,400
 Motor vehicles and heavy earth 25% per year on reducing balance
moving equipment
 Computer software, calculators, 25% per year on reducing balance
copiers and duplicating machines
 Furniture and fittings 10% per year on reducing balance
 Telecommunication equipment 10% per year on reducing balance
 Film equipment by a local producer 25% per year on reducing balance
 Machinery used to undertake 50% in the first year of use 25%
operations under prospecting rights
and exploration under mining rights
 Other machinery 10% per year on reducing balance
(c) Purchase/acquisition of right to use 10% per year on reducing balance (iii) Land Rovers/Cruisers 7,200 86,400
fibre optic cable by telecommunication
operation
(d) Farm works 50% in the first year of use 25%

Commissioner’s prescribed benefit rates: Monthly rates Annual rates

Services (Sh.) (Sh.)
(i) Electricity (Communal or from a generator) 1,500 18,000
(ii) Water (Communal or from a borehole) 500 6,000
Agriculture employees: Reduced rates of benefits
(i) Water 200 2,400
(ii) Electricity 900 10,800
CA26 & CF25 Page 1
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QUESTION ONE
(a) Discuss three roles played by the National Assembly budget committee or equivalent institution in your country in
relation to public finance management. (6 marks)

(b) The national and county governments engage in a number of projects. For the purpose of monitoring these projects
the governments have developed an electronic project monitoring information system (e-ProMIS) to capture
information on projects implemented by the ministries, state corporations and counties.

Required:
Discuss four specific objectives that the National and County governments might realise from the e-ProMIS
(8 marks)
(c) Discuss three reasons why Public Sector Finance is important in your country (3 marks)

(d) Discuss three roles of the National Treasury in public procurement and assets disposal. (3 marks)
(Total: 20 marks)

QUESTION TWO
(a) Highlight the steps followed by your county government or equivalent in developing its annual budget. (9 marks)

(b) The County Treasury is required to submit to the county assembly a statement setting out the debt management
strategy of the county government over the medium term with regard to its actual liability and potential liability in
respect of loans and its plans for dealing with those liabilities.

Required:
Identify the information to be included in the statement of debt management strategy (5 marks)

om
(c) Discuss three roles of taxation in achieving budgetary objectives. (3 marks)

.c
(d) During a devolution seminar in your country, one of the key speakers noted that county governments should be
allocated national government share of revenue based on the ability of a county to enhance its revenue raising

ya
measures.

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Required:

ak
Identify three sources of revenue to the county governments. (3 marks)

me
So (Total: 20 marks)

QUESTION THREE
Mr. Japtheth Murunga is employed as a finance manager by Top Notch Ltd. He reported the following details on his income
and that of his wife for the year ended 31 December 2020:
1. He was entitled to a basic salary of Sh.2,500,000 per annum (PAYE Sh.250,000 per annum).
2. The employer provided him with a motor vehicle (2600 cc) which was leased from Unique Car Hire Services at
Sh.32,000 per month. The cost of the vehicle was Sh.2800,000 in 2018.
3. His annual mortgage repayment of Sh.576,000 (including interest of Sh.120,000) was paid by the employer. The
loan was obtained from UNA Bank in 2019 for the purpose of constructing own residential house.
4. He was entitled to a bonus of Sh.120,000 per annum, The bonus for 2020 was however not paid until February 2021.
5. The· following deductions were made from his salary during the year:
Sh.
Life insurance premiums 96,000
Subscription to Railway Golf Club 56,000
Subscription to accountants professional body 90,000
Contributions to registered pension scheme 300,000

6. During the year he received a dividend from Top Notch Ltd. of Sh.120,000 (gross) since he holds 2% of the
company’s share capital. The employer paid the withholding tax on his behalf.
7. His wife Truphena Murunga works for a taxation consultancy firm where she received a basic salary of Sh.80,000
per month. She is housed by the firm together with her family in a house where she contributes 3% of her basic pay
as rent. She received the following additional benefits for the year ended 31 December 2020:
 Subsistence allowance of Sh.6,000 per day. In total she worked out of the office station for 21 days in the
year.
 Medical allowance of Sh.10, 000 per month. The firm has a medical scheme for all senior managers.

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  She enrolled for a seminar on women empowerment in Kenya at Sh.120,000. 30% of this cost was met by
the employer.
 She received 10,000 shares from the company at a price of Sh.50 per share. The par value per share is Sh.72
while the market price at the time was Sh.79 per share.
Her other income comprised:
Interest income: Sh.
Housing development bonds 200,000
Treasury bonds 120,000
Investment fund 85,000 (net)
Dividend income: Mapato Sacco Ltd. 95,000 (net)
Wezo Co-operative Society 150,000 (gross)
Rental income from residential property 290,000 per month
Reported farming income was Sh.48,000 after deducting own consumption of Sh.20,000 which was equivalent to
18% of total farm produce.
8. Mr. Japtheth and his wife have agreed that each files his or her returns to the revenue authority.

Required:
(a) Taxable income of Mr. Japtheth and his wife. (16 marks)
(b) Tax due on the income(s) computed in (a) above. (4 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Ernest, a citizen of USA has been assigned to work for his company’s branch located in your country for the next
ten years. He has approached you to assist him in understanding the Kenyan tax system especially on the basis of
taxing an income in Kenya.

Required:

om
Explain to Ernest the cardinal rules of taxing an income in your country. (5 marks)

.c
(b) Jessica and Mbatha established a partnership business sharing profits and losses in the ratio of 3:2 respectively. The

ya
following is the income statement of the partnership for the year ended 31 December 2020:

en
Sh. Sh.
Sales 8,678,000

ak
General bad debts reduction 112,000
Unrealized foreign exchange gain 270,000
Capital gain on sale of shares
me
528,000
So
Recovery from insurance on stock stolen 480,000
Discount received 184,000
Dividends from Safari Cooperative Society 51,000
Total income 10,303,000
Less Expenses:
Purchases 4,263,000
Purchase of computers software 324,000
Partners salaries 1,296,000
Legal expenses 1,224,000
Repairs expenses 1,023,400
Rent and rates 366,900
Interest on loan 249,300
General expenses 964,000
Motor vehicles expenses 840,000
Insurance 280,800
Preliminary expenses 473,000
Directors fees 1,080,000
Audit and accountancy fees 142,000
Debenture interest 1,800,000
Travelling expenses 96,000 (14,422,400)
Net loss (4,119,400)

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 Additional information:
1. Purchases and sales were inclusive of value added tax at a rate of 16%.
2. Closing stock was valued at Sh. 1,840,000 while opening stock was at 10% of sales net of value added tax.
Both stocks were undervalued by 10%.
3. Legal expenses comprised: Sh.
Legal fee on defense against alleged breach of trade contract 180,000
Legal fee on tax objection and appeals 164,800
Conveyance fees of business premises 72,400
Stamp duty 136,600
Negotiating a business loan 120,800
Recovery of bad debts 145,000
Signing a 100-year lease agreement 128,400
Purchase of partner’s private residence - Jessica 150,000
Legal fee on renewal of patents 126,000
1,224,000
4. Repairs expenses comprised: Sh.
Purchase of furniture 460,000
Installation of neon sign 260,000
Designing an office block 140,000
Cost of partitioning office block 141,000
Repainting of office block 22,400
1,023,400
5. General expenses included, impairment of patent rights Sh.144,000, provision for general bad debts Sh.148,
000 and drawings of goods by partners Sh.568,000.
6. Interest on loan includes interest on partners’ capital of Sh.120, 000 which was shared according to profit
and loss sharing ratio.

om
Required:

.c
Compute the total taxable income for each partner for the year ended 31 December 2020. (15 marks)
(Total: 20 marks)

ya
QUESTION FIVE

en
(a) Johari Ltd., a manufacturer of leather products commenced operations on 1 January 2020. The following information
relates to the assets that the company purchased or constructed before commencement of operations.

ak
(Sh.)

me
Asset Cost
Factory building (including godown Sh.700,000) 3,800,000
So
Parking bay 480,000
Drainage systems 240,000
Delivery van 420,000
Processing machine 1,680,000
Security wall 720,000
Office block (including staff canteen Sh.380,000) 980,000

Additional information:
1. Processing machine was imported and includes customs duty and VAT of Sh.120,000 and Sh.100,000
respectively which was waived by the government.
2. On 1 September 2020, the company sunk a borehole at a cost of Sh.1,600,000 and installed a water pump
for Sh.200,000.
3. Spots pavilion was constructed at a cost of Sh.1,200,000 and put to use from 1 May 2020.

Required:
Compute the investment allowances due to Johari Ltd for the year ended 31 December 2020. (5 marks)

(b) Bitech Ltd. is registered for VAT. In May 2021, the company imported goods costing Sh. 2,600,000 excluding
freight charges of Sh.180,000.
The company then incurred Sh.400,000 to transport the goods from the port to its warehouse.
The conversion costs were 25% of the relevant costs incurred up to the point of processing.
The goods were subsequently sold at a profit margin of 33 ⅓%.
Required:
The VAT payable on the above transaction. Use a VAT rate of 16% and customs duty rate of 25%. (5 marks)

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(c) Analyse three circumstances where the revenue authority might cancel a taxpayer’s personal identification number.
(3 marks)
(d) Write brief notes on the following terms as used in taxation:

(i) Tax agents. (2 marks)

(ii) Excisable Goods Management System. (2 marks)

(iii) Warehousing of goods. (2 marks)

(iv) Railway development levy. (1 mark)

(Total: 20 marks)
…………………………………………………………………….

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 CPA INTERMEDIATE LEVEL

CIFA INTERMEDIATE LEVEL

PUBLIC FINANCE AND TAXATION

THURSDAY: 4 August 2022. Afternoon paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.
Any assumptions made must be clearly and concisely stated. Do NOT write anything on this paper.
RATES OF TAX (Including wife’s employment, self-employment and professional income rates of tax).
Year of income 2021.
Assume that the following rates of tax applied throughout the year of income 2021:
Monthly taxable pay Annual taxable pay Rate of tax
(Sh.) (Sh.) % in each Sh.
1 - 24,000 1 - 288,000 10%
24,001 - 32,333 288,001 - 388,000 25%
Excess over - 32,333 Excess over - 388,000 30%
Personal relief Sh.2,400 per month (Sh.28,800 per annum).

om
Investment allowance: Rate of investment allowance Residual value Prescribed benefit rates of motor vehicles

.c
(per year on provided by employer
reducing (i) Saloons, Hatch Backs and Estates

ya
balance) Monthly Annual
Capital expenditure incurred on: rates rates

en
(Sh.) (Sh.)
(a) Buildings: Up to 1200 cc 3,600 43,200

ak
• Hotel building 50% in the first year of use 25% 1201 - 1500 cc 4,200 50,400
• Building used for manufacture 25% 1501 - 1750 cc 5,800 69,600

me
50% in the first year of use
• Hospital buildings 50% in the first year of use 25% 1751 - 2000 cc 7,200 86,400
• Petroleum or gas storage facilities 25% 2001 - 3000 cc 8,600 103,200
So
50% in the first year of use
• Educational/hostels building 10% per year on reducing balance Over - 3000 cc 14,400 172,800
• Commercial building 10% per year on reducing balance
(b) Machinery: (ii) Pick-ups, Panel Vans
• Machinery used for manufacture 50% in the first year of use 25% (unconverted)
• Hospital equipment 50% in the first year of use 25% Up to - 1750 cc 3,600 43,200
• Ships or aircraft 50% in the first year of use 25% Over - 1750 cc 4,200 50,400
• Motor vehicles and heavy earth 25% per year on reducing balance
moving equipment
• Computer software, calculators, 25% per year on reducing balance
copiers and duplicating machines
• Furniture and fittings 10% per year on reducing balance
• Telecommunication equipment 10% per year on reducing balance
• Film equipment by a local producer 25% per year on reducing balance
• Machinery used to undertake 50% in the first year of use 25%
operations under prospecting rights
and exploration under mining rights
• Other machinery 10% per year on reducing balance
(c) Purchase/acquisition of right to use 10% per year on reducing balance (iii) Land Rovers/Cruisers 7,200 86,400
fibre optic cable by telecommunication
operation
(d) Farm works 50% in the first year of use 25%

Commissioner’s prescribed benefit rates: Monthly rates Annual rates

Services (Sh.) (Sh.)
(i) Electricity (Communal or from a generator) 1,500 18,000
(ii) Water (Communal or from a borehole) 500 6,000
Agriculture employees: Reduced rates of benefits
(i) Water 200 2,400
(ii) Electricity 900 10,800
CA26 & CF25 Page 1
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QUESTION ONE
(a) Summarise four functions of the Commission on Revenue Allocation (CRA). (4 marks)

(b) Highlight two objectives of the public debt management office. (2 marks)

(c) Explain three roles of the Cabinet Secretary of the National Treasury in public debt management. (6 marks)

(d) Outline the stages to be followed in the budget process for the national government in any financial year. (8 marks)
(Total: 20 marks)

QUESTION TWO
(a) An accounting officer of a procuring entity may use restricted tendering if any of the provided conditions are satisfied.

With reference to the above statement, state four such conditions as provided under the Public Procurement and Asset
Disposal Act (PPADA), 2015. (4 marks)

(b) Outline six values and principles of the constitution and relevant legislation that should guide public procurement and
asset disposal by state organs and public entities, as provided for under the PPADA, 2015. (6 marks)

(c) The following information was extracted from the books of Pately Traders, a registered business for Value Added Tax
(VAT) purposes for the month of May 2022:
Sh.
Export sales 375,000
Imported goods for resale (dutible value) 2,250,000
Telephone expenses 180,000
Audit fees 450,000
Exempt sales 1,460,000

om
Purchase at zero rate 600,000
Purchase at standard rates 3,700,000

.c
Sales at standard rate 8,750,000

ya
Transactions are stated exclusive of VAT at the rate of 16% where applicable.

en
ak
Additional information:
1. Pately Traders received debit notes and credit notes of Sh.1,000,000 and Sh.500,000 respectively for standard

me
rate supplies.
2. The imported goods for resale were subject to custom duty at the rate of 25%. These goods were subsequently
So
transported to the business premises at a cost of Sh.100,000 and repackaged at a cost of Sh. 25,000. The goods
were later sold at a mark up of 10% (sales proceeds on these goods were not included in the reported sales at
standard rate).
3. A debtor for goods sold at standard rate for Sh.300,000 was declared bankrupt.
4. Telephone expenses relate to bills received from the provider of wireless telephone services.

Required:
VAT payable by or refundable to Pately Traders for the month of May 2022. (10 marks)
(Total: 20 marks)

QUESTION THREE
(a) Explain the following terms as used in taxation:
(i) Absolute taxable capacity. (2 marks)

(ii) Relative taxable capacity. (2 marks)

(b) Propose four reasons why you would discourage the government from embarking on Public Private Partnerships (PPPs).
(4 marks)

(c) Henry Musoki is employed as the Finance Manager at Pandah Ltd. He has provided the following details relating to his
income for the year ended 31 December 2021:
1. His employment contract provided for the following:
Sh.
Basic monthly salary 182,500
Transport allowance per month 12,000
Leave pay (paid in December) 60,000
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 2. He was accommodated in a company owned house where he was deducted Sh.25,000 per month as nominal
rent. If the house had been rented at market value, the company could have been charging monthly rentals of
Sh.45,000. The company furnished the house for him at Sh.260,000.
3. He was paid Sh.120,000 as a labour day award by the company for being the most hard working and committed
employee during the year.
4. The company has a registered pension scheme for its employees where it contributes 15% of each employees’
basic salary. Henry Musoki contributed 10% of his monthly basic salary towards the scheme.
5. He was enrolled to a medical scheme with Bahati Insurance Ltd. where he spent Sh.230,000 on medical bills
during the year. The medical scheme catered for senior employees only.
6. His wife was given goods worth Sh.180,000 by the company during the Christmas season.
7. The company provided him with a cook and a security guard from 1 October 2021 where it paid them monthly
salaries of Sh.15,000 and Sh.20,000 respectively.
8. On 1 July 2021, he secured an education insurance policy for his child at an annual premium of Sh.150,000
payable by the company.
9. He was out of the work station in the month of September 2021 for 8 days for which he was paid a daily per
diem allowance of Sh.5,000.
10. PAYE deducted by the company from his salary was Sh.46,500 per month.

Required:
(i) Taxable income for Henry Musoki for the year ended 31 December 2021. (10 marks)

(ii) Tax payable if any on the income computed in (c) (i) above. (2 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Outline four functions of the controller of budget in respect to public finance matters. (4 marks)

om
(b) Parkim Ltd., a large manufacturing company has provided you with the following statement of profit or loss for the year
ended 31 December 2021:

.c
Sh. Sh.

ya
“000” “000”
Gross profit 32,000

en
Less: General expenses 1,400

ak
Loan repayment 1,600
Directors fees 4,200

me
VAT paid 2,700
Depreciation 5,700
So
Salaries and wages 2,400
Donations to a political party 780
Interest expense 4,200
Instalment tax paid 600
Dividends paid 1,005
Repairs and maintenance 2,250 (26,835)
Net profit for the year 5,165

Additional information:
1. On 1 January 2021, Parkim Ltd. purchased an industrial building from Samba Ltd., a contractor for Sh.200
million. The following details were availed that comprised the total purchase price for the industrial building:
Sh. “000”
Land 22,000
Demolition of old building site 10,000
Labour quarters 60,000
Factory building 90,000
Perimeter wall 5,000
Drainage and sewerage system 13,000
200,000
2. The factory building above houses a warehouse costing Sh.7,000,000, administration block costing
Sh.7,000,000 and a showroom at a cost of Sh.4,000,000.
3. Parkim Ltd. purchased and installed a processing machinery in the factory at a cost of Sh.40,000,000 on
2 January 2021 and started manufacturing leather products. The cost of processing machinery included
workshop machine and a boiler at a cost of Sh.5,000,000 and Sh.6,000,000 respectively.

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 4. The following additional assets were acquired during the year ended 31 December 2021:
• On 5 January 2021, computers were acquired on hire purchase at Sh.620,000. Hire purchase interest
included was Sh.140,000.
• Acquired furniture and other machines at Sh.720,000 and Sh.968,000 respectively.
• On 15 March 2021, Parkim Ltd. bought a pickup for Sh.2,250,000, a motorcycle for Sh.190,000, a
water pump for Sh.48,000 and two delivery trucks for Sh.5,000,000 each.
• Two saloon cars were purchased at Sh.3,600,000 each in April 2021. In October 2021, one saloon
car was involved in an accident and the insurance company paid Sh.2,000,000 as compensation.
• In November 2021, the pickup vehicle was traded in with a new delivery van valued at Sh.3,000,000.
The pickup had a value of Sh.1,600,000 at the time of the trade in.
5. Interest expense include:
Sh.
Hire purchase interest for the computers 140,000
Interest on overdue loan 200,000
Provision for interest on a loan to be obtained to expand the business 752,000
Interest on unpaid tax 448,000
6. Gross profit included anticipated foreign exchange gain of Sh.2,000,000 and a reduction in general bad debts
of Sh.620,000.
Required:
(i) Parkim Ltd.’s investment allowances for the year ended 31 December 2021. (8 marks)

(ii) Ascertain the taxable profit or loss for the year. (6 marks)

(iii) Explain the tax treatment of tax losses. (2 marks)

(Total: 20 marks)

om
QUESTION FIVE

.c
(a) Explain the following terms as used under the customs and excise duties:
(i) Bonded warehouse. (2 marks)

ya
(ii) Duty drawback. (2 marks)

en
(b) Outline four cases where a person is considered as the tax representative of another person as provided under the Tax

ak
Procedures Act, 2015 or any other tax law of your country. (4 marks)

(c) me
Kamala, Susan and Kubasu are in partnership trading as Kasuku Traders sharing profit or losses equally. They have
So
provided the following statement of profit or loss for the year ended 31 December 2021:
Sh. Sh.
Gross profit 7,020,000
VAT refund 102,500
Foreign exchange gain 485,000
Dividend income (net) 562,500
Profit on disposal of furniture 591,000
Rental income 415,000
9,176,000
Less expenses:
Insurance premiums 480,000
Legal fees 1,556,250
Depreciation 575,000
Repairs and maintenance 2,250,000
VAT paid 233,750
Sundry expenses 2,702,500
Interest on capital: Kamala 407,500
Susan 185,000
Kubasu 146,000
Motor vehicle expenses 528,500
Custom duty 227,500
Accountancy fees 575,000
Bad and doubtful debts 155,000
Rates and rent 410,000
Salaries and wages 1,700,000 (12,132,000)
Net loss (2,956,000)
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Additional information:
1. Insurance premiums include Sh.282,500 paid to insure Susan’s private car.
2. Legal fees include:
Sh.
Parking fines 150,000
Settling a dispute with a customer 102,500
Appeal against a tax assessment 62,500
Court expenses for breach of a contract 400,000
Preparation of tender documents 235,000
3. Sundry expenses include:
Sh.
Interest charged on hire purchase 425,000
Cash embezzled by the cashier 565,000
Registration of a trade mark 281,250
4. Repairs and maintenance comprised the following:
Sh.
Repair of furniture 22,500
Installation of surveillance cameras 812,500
Cost of office furniture 525,000
5. The partners took goods for personal use which had a cost price Sh.225,000. The gross profit margin was 20%,
as recorded in partnership books of account.
6. The investment allowances were agreed with the revenue authority at Sh.1,475,000 during the year ended
31 December 2021.
7. Salaries and wages included salaries to partners as follows:
Sh.
Kamala 600,000

om
Susan 450,000

.c
Kubasu 225,000

ya
Required:

en
(i) The adjusted partnership profit or loss for the year ended 31 December 2021. (10 marks)

ak
(ii) Distribution schedule of the profit or loss computed in (c) (i) above. (2 marks)
(Total: 20 marks)
………………………………..………………………………….
me
So

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