BSc (Hons) Accounting with Finance & BSc (Hons)

Management – Finance

BACF/13B/FT, BMANF/11B/PT & BMANF/12B/FT

Examinations for Academic Year 2014 – 2015 Semester II /

Academic Year 2015 Semester I

MODULE: BUSINESS TAXATION

MODULE CODE: ACCF 3115
Duration: 2 Hours
Reading time: 10 Minutes
Instructions to Candidates:

1. This question paper consists of Section A and Section B.

2. Section A is Compulsory.
3. Answer any two questions from Section B.
4. Always start a new question on a fresh page.
5. Questions may be answered in any order but your answer
should show the question number clearly.
6. Total Marks: 100.

This Question Paper is printed on BOTH SIDES.

This Question Paper Contains 5 questions and 9 pages.

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 SECTION A: COMPULSORY

QUESTION 1: (40 MARKS)

PART A (25 MARKS)

Mr Danraj is a sole trader who has been trading for many years. His
summarised accounts for the year ended 31st December 2014 are as follows.

Rs Rs
Sales 3,600,000
Cost of sales 1,750,000
Gross Profit 1,850,000
Dividend Received from Mauritian companies 23,500
Interest received on Bank account 52,350 75,850
1,925,850
Less: Expenses
Wages and salaries 550,000
Rent and rates (note 1) 120,000
Repairs and Maintenance (note 2) 30,000
Interest on overdraft 2,000
Exchange loss (note 3) 29,700
General expenses (note 4) 3,000
Mr. Danraj’s personal taxation 48,000
Bad debts (note 5) 5,000
Legal and Professional Fees (note 6) 8,400
Depreciation 3,600
Loss on sale of furniture 600
Entertainment (note 7) 16,000
Motor expenses (note 8) 8,000
Electricity (note 1) 14,000
838,300
Net Profit 1,087,550

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Notes:
1. Mr Danraj uses the premises mainly for business purposes. However one
quarter of the floor area occupied is for private use.

2. Repairs and maintenance include an amount of Rs10,000 incurred for

installation cost to fix a machine bought during the year to put it into
working condition.

3. The exchange loss arose as a result of a debtor in America paying at a

later date when the Dollar depreciated against the Mauritian Rupee.

4. General expenses comprise of:

Rs
Fines for late submission of PAYE returns 1,400
Donations to approved institutions 600
Sundry expenses 1,000
3,000

5. Bad debts consist of the following:

Rs
General provision for bad debts 1,000
Bad debts actually written off 4,000
5,000

6. Legal and professional fees comprise of:

Rs
Notary fees in connection with the purchase of a
plot of land 2,400
Debt recovery 6,000
8,400

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7. Entertainment comprise of:
Rs
Staff end of year party 4,400
Staff lunch 3,600
Customer entertainment 8,000
16,000

8. The tax office has agreed that one fifth of Mr Danraj’s mileage is private.

9. Capital allowances have been computed at Rs24,000.

10. Goods drawn by Mr Danraj during the year were Rs200,000 at cost price.
The normal gross profit margin is 20% on selling price.

11. Assume that Mr Danraj is married and that his wife is unemployed. He
does not have any other income and has one dependent child.

Required:

(a) Compute Mr Danraj’s chargeable income and tax liability for the year
ended 31st December 2014. (20 marks)

(b) State the due date for the submission of annual return and payment of
tax. What are the fines and penalties for late payment? (5 Marks)

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PART B (15 MARKS)

During the year 31st December 2014, computer equipment bought on 1st July
2012 with a net book value of Rs140,000 was sold at an accounting loss of
Rs30,000.
Depreciation is calculated at the rate of 10% per annum using the straight line
method, with full depreciation in the year of acquisition and no depreciation in the
year of disposal.

Required:

(a) Calculate the balancing adjustment for the year ended 31st December
2014. (6 Marks)

(b) Calculate the balancing adjustment if the selling price was Rs210,000.
(4 marks)

(c) Explain why depreciation is not an allowable expenditure for tax purposes.
(5 Marks)

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 SECTION B: ANSWER TWO QUESTIONS

QUESTION 2: (30 MARKS)

Mr Jones came to take employment in Mauritius on 1st April 2014 as the

managing director of a locally incorporated company. He is entitled to a monthly
salary of Rs85,000. He is also paid a pro-rata end of year bonus of one month’s
salary in December for every twelve months of service.

Mr Jones is provided with a company car, which had cost Rs1.8 million,
inclusive of registration duties of 11%. Road tax of Rs8,500, Insurance of
Rs60,000 and petrol amounting to Rs40,000 were paid by the company. The
1,800 cc car was provided to Mr Jones on his arrival for his private use.

The Managing Director is also provided with a fully furnished house which is
rented by the company at Rs 15,000 per month.

On 1st August 2014, Mr Jones travelled to France to meet some clients. The
cost of the air ticket (Rs50,000), was borne by the company. Mr Jones was
given an allowance of Rs70,000 for his trip.

On 1st July 2014, Mr Jones took a five year loan of Rs600,000 to buy a second
hand car for his wife. The loan was granted at an interest rate of 4%, while the
repo rate was 4.5%.

Mr Jones’ wife does not work. The couple has a son and a daughter. The son is
pusuing an undergraduate course in a foreign university for which the fees is
Rs300,000 annually. The daughter is at college in Mauritius doing HSC.

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Required:

(a) Explain how you would determine whether an individual is resident or not in
Mauritius, and state whether Mr Jones will be regarded as resident in
Mauritius. (8 Marks)

(b) Compute Mr Jones’ income tax liability for the year ended 31 st December
2014. (13 Marks)

(c) Explain why it is important to determine the residence status of an

individual for tax purposes. (6 Marks)

(d) Under what circumstances would Mr Jones not be entitled to claim

additional deduction for a child pursuing an undergraduate course?
(3 Marks)

QUESTION 3: (30 Marks)

(a) What are the obligations of employers with regard to the Pay As You
Earn (PAYE) system? (10 Marks)

(b) What are the consequences of late payment of PAYE withheld by

employers to the Mauritius Revenue Authority? (5 Marks)

(b) Roger joined a company in March 2014 and informed his employer that
this was not his first employment. He drew a monthly salary of Rs50,000
and has claimed Income Exemption Threshold (IET) category A in his
Employee Declaration Form (EDF). In May 2014, he got married to Lara,
who is unemployed. Roger submitted a fresh EDF at the end of May
2014, claiming IET Category B.

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 Required:
Calculate the amount of tax to be withheld for the months of March to
June 2014. (15 Marks)

QUESTION 4: (30 MARKS)

PART A
A partnership has four associates Mr Sam, Miss Penny, Mr Joe and Roy
Company Limited. The taxable income of the partnership was Rs1,400,000. In
addition, it received bank interest of Rs560,000, dividends of Rs70,00 from
Mauritian listed companies. Profits have always been shared equally, but on 1 st
October 2014, the ratio was altered to 2:2:2:1. The company’s chargeable
income, before adjusting for its share of income in the partnership was
Rs750,000.

Assume that Mr Sam and Miss Penny are single and Mr Joe has three
dependents. They have no other income during the year.

Required:

Calculate the tax liabilities of the associates for the year ended
31st December 2014. (12 Marks)

PART B
List and explain the nine badges of trade. (18 Marks)

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QUESTION 5: (30 MARKS)

(a) ABC Ltd, a VAT Registered company, provides consultancy services to local and
international companies. The following data are provided for the quarter ending 30
June 2014:
Output (VAT exclusive) Rs

Fees received from local customers 3,500,000

Fees received from International companies 1,000,000

Input (VAT inclusive)

Telephone bills 50,000
Rental of office space 15,000
Stationaries 10,000
Purchase of fax machine 18,000

Required:
Compute the amount of VAT payable for the quarter ended 30 June 2014,
assuming that the company submitted the VAT return on 10 August 2014.
(10 marks)

(b) Mr Alex has been in business for several years. He sells taxable supplies and all
his sales are on the local market. He is not registered for VAT.
At present Mr Alex’s sales are Rs1,850,000. He is planning to increase his prices
and this will increase his annual sales to Rs2,100,000. There is no scope for any
further prices increases. Annual expenses are Rs575,000 (VAT inclusive).
Required:
Advise Mr Alex, as to whether he should now be charging VAT to its customers
and its implications and explain to him the procedures to apply for compulsory
registration. (20 marks)

***END OF QUESTION PAPER***

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