Institute of Certified Management Accountants of Sri Lanka Operational Level May 2016 Examination. Business Law and Taxation (BLT / OL 4-204)

Transcription

1 Copyright Reserved Serial No Institute of Certified Management Accountants of Sri Lanka Operational Level May 2016 Examination Examination Date : 8 th May 2016 Number of Pages : 06 Examination Time: 1.30 p:m p:m. Number of Questions: 07 Instructions to Candidates 1. Time allowed is three (3) hours. 2. Total: 100 Marks. 3. Answer all questions in Part I and four (4) questions from Part II selecting two (2) questions from each of the Sections, A and B. 4. Part I: - Section A: Business Law and Section B: Taxation & Part II: - Section A: Business Law and Section B: Taxation 5. Use separate two (2) Answer Booklets to answer Business Law and Taxation parts for both MCQs and written based questions. 6. Candidates are allowed to use non-programmable calculators. 7. The answers should be in English Language. PART I Subject Subject Code Business Law and Taxation (BLT / OL 4-204) Question No. 01 (20 Marks) Answer all parts of Question No.1. Select the most correct answer to each part of the question. Write the number of the part of the question and the selected answer by stating the relevant English letter, in your answer booklet. E.g. (1) (relevant English letter), (2) (relevant English letter) etc Section A Business Law (1) An offer may be terminated by Revocation by the offeror Lapse of time (c) Failure of a condition; subject to which the offer was made (d) All of the above (2) A void contract is: A contract which legally binds the parties. Not a contract at all. (c) A contract which one party may sets aside. (d) A contract in which if either party refuses to perform or to complete their part of the performance of the contract, the other party cannot compel them to do so. (3) X goes into a shop and sees a price label on a marker pen for Rs.50/-. He takes it to the cashier, but the cashier informs him that the price stated in the price tag is incorrect and it should be Rs.150/-. X argues that he only has to pay Rs.50/-. How would you describe the price on the price label in terms of contract law? Display of goods for sale with a price label is an invitation to treat. In this context the shop must be treated as making an offer which X had accepted. (c) The original offer of Rs.50/- had been terminated by the counter-offer of Rs.150/-. (d) None of the above Institute of Certified Management Accountants of Sri Lanka 1

2 (4) Ostensible authority does not arise: Where a person allows another person, who is not his agent to appear as if he is. Where a principal allows his agent to give the impression, that he has extensive authority to enter into a contract. (c) Where, following termination of the agency relationship, a principal allows his former agent to continue to appear to be his agent. (d) Where a principal explicitly give the authority to the agent to perform particular tasks, along with the powers necessary to perform those tasks (5) Under a contract of sale of goods if the seller delivers a larger quantity of goods than ordered, the buyer may: Sue for non-delivery Accept the quantity ordered and reject the rest. (c) Accept the whole and pay only for the quantity of goods the buyer ordered. (d) None of the above Section B Taxation (6) What is the corporate income tax rate applicable for Banking and Finance institutions including leasing and related activities under the Budget Proposals for 2016? 28% 15% (c) 12% (d) 30% (7) Which of the following does not qualify as a person for taxation purposes as defined in the charging section of the Inland Revenue Act? An individual A partnership (c) A government (d) A trust (8) Determine which of the following income received by a company engaged in manufacturing operation forms part of relevant turnover for the purpose of ESC. Sales value of manufactured goods Interest income from fixed deposits (c) Dividend income from investment in shares (d) Sale value of fixed asset (9) A company has defaulted the first (1 st ) quarterly installment of Rs.2,000,000/- for the year of assessment 2014/2015 and made the late payment on 16 th November What is the penalty to be paid by the company? No penalty Rs.320,000/- (c) Rs.200,000/- (d) Rs.188,633/- (10) Mr. Piyal submitted his income tax return for the year of assessment 2014/2015 on 4 th December What is the date ending the time bar for Mr. Piyal for the above return? On or before 31 st March 2017 On or before 30 th November 2018 (c) On or before 30 th November 2015 (d) On or before 30 th November 2017 (10 2 Marks = Total 20 Marks) End of Part I Institute of Certified Management Accountants of Sri Lanka 2

3 PART II Section A: Business Law Answer any two (2) questions Question No. 02 (20 Marks) Milan informed Nimal that his car is available for sale and promised to keep the offer open until Sunday 10 a:m. In return Nimal paid an advance of Rs.50,000/-. In the meantime on Wednesday Milan enters into a contract to sell the same car to Olga and informs Nimal that he revokes his offer to sell the car to Olga. On Friday Nimal accepts the offer and delivers the acceptance to Milan. Is Nimal s acceptance valid? Explain. (10 Marks) Raman decided to sell his Alsatian dog Arrow. He wrote to his friend Lal as follows: Dear Lal, Arrow is for sale. The price is Rs.75,000/-. If you are interested, visit my residence and take Arrow after paying Rs.75,000/-. Lal received Raman s letter and replied as follows: Dear Raman, many thanks for the offer. I would dearly love to buy Arrow. However Rs.75,000/- is rather too high for a dog. I will pay you Rs.50,000/- for her. Raman did not reply to Lal s letter. Two days later Lal phoned Raman stating that he is now willing to buy Arrow for Rs.75,000/-. However by that time Raman had already sold the dog to Saman. Lal wishes to sue Raman for breach of contract. Advise Lal with reasons as to whether or not he would succeed. (10 Marks) Question No. 03 (20 Marks) Velu residing in Jaffna ordered 20 boxes of fish cans from Pala in Matara. Pala consigned 190 boxes by train and directed railway officials to set aside 20 boxes for Velu. The train was delayed to reach Jaffna and the fish has deteriorated before those 20 boxes had been appropriated for Velu. Is Velu liable to pay the price of the fish to Pala? Explain. (08 Marks) In relation to the law of agency, explain how the doctrine of the undisclosed principal can create a binding contract. (12 Marks) Question No. 04 (20 Marks) Malani is an optician. She agreed to purchase an eye testing machine from Nethra Ltd and signed the contract without reading its terms. The contract contained an exclusion clause excluding liability for all kinds of defects in the machine. The machine proved to be totally defective. Malani wishes to terminate the contract. Advise Malani as to whether or not she would succeed. (08 Marks) List out the circumstances under which a cheque is discharged. (08 Marks) (c) Explain what is a force majeure clause in a contract? (04 Marks) End of Section A Institute of Certified Management Accountants of Sri Lanka 3

4 Section B: Taxation Answer any two (2) questions Question No. 05 (20 Marks) The tax Economic Service Charge (ESC) was introduced in Sri Lanka from 1 st April 2004, which is an annual tax imposed for each year of assessment with quarterly payment. (i) Briefly explain the purpose of introducing ESC. (02 Marks) (ii) A Limited is a BOI registered company and currently enjoying a tax holiday. The revenue of the company for the year of assessment 2014/2015 is given below. Calculate ESC payable by the company for the year. (03 Marks) Quarter ending 30 th June th Sep st Dec st March 2015 Revenue Rs. 60 million Rs. 45 million Rs. 100 million Rs. 48 million Nations Building Tax (NBT) is chargeable in relation to import of any article, business of manufacture of any article, provision of any service or wholesale or retail trade of any article. (i) Determine the exempted supply and the liable turnover of each of the following companies for NBT purposes for the Quarter ended 31 st December (04 Marks) Company Business Activity Revenue (Rs.) P Ltd Manufacturing and selling 525 million Q Ltd Retail trading 1,020 million R Ltd Distribution services 720 million S Ltd Medical services 244 million (ii) In relation to (i) above, what is the amount of NBT payable by Q Ltd for the quarter ended 31 st December 2014? And what is the due date of filing the tax return? (02 Marks) (c) Sirisanda (Pvt) Ltd. is a garment manufacturer and a registered person for VAT. A breakdown of the supplies (exclusive of VAT) of the company for the quarter ended 31 st December 2014 is given below. Rs. Manufactured and locally supplied 340,000,000 Manufactured and exported 500,000,000 Manufactured and locally supplied - exempt articles 35,000,000 Manufactured and exported - exempt articles 8,000,000 The following is a breakdown of the value of purchases exclusive of VAT for the above taxable period. Rs. Local Purchases from VAT registered persons 130,000,000 Local Purchases from VAT non-registered persons 54,000,000 Imported raw materials 225,000,000 You are required to: (i) Calculate the output tax for the quarter ended 31 st December (05 Marks) (ii) Calculate the input tax for the quarter ended 31 st December (04 Marks) Institute of Certified Management Accountants of Sri Lanka 4

5 Question No. 06 (20 Marks) Since taxes have economic effects on the entire community, the tax system should be formulated to cause as little disturbance as possible to economic activity and productive efficiency, so that the system of income tax should be based on certain widely accepted principles. However, in Sri Lankan context, the effective application of these set out principles is questionable. Briefly explain the principle the stability of taxation system and evaluate to what extent this principle is applied in Sri Lankan taxation system. (05 Marks) (c) Describe the purpose of introducing Withholding Taxes (WHT) and give three (3) income sources from which the WHT is deducted. (05 Marks) What is the due date for the payment of tax on dividend distribution for the year of assessment 2014/2015? (02 Marks) (d) State two (2) types of information to be declared in the return of income. (02 Marks) (e) What is the due date for making the final payment of the income tax for the year of assessment 2014/2015? (01 Mark) (f) KDN Associates is a partnership of which the divisible income for the year ended 31 st March 2015 is Rs.6,479,525/-. In the same year the partnership has gained an interest income of Rs.270,000/- (Net). Calculate the tax liability of the partnership for the year of assessment 2014/2015. (05 Marks) Question No. 07 (20 Marks) Mr. Mahinda is employed as the Finance Director of KSK (Pvt.) Ltd. The monthly salary details of Mr. Mahinda is as follows for the year of assessment 2014/2015. Pay Sheet Basic salary 250,000 Incentives 75,000 Gross salary 325,000 Deductions: - EPF 26,000 - PAYE 39,600 Net Salary 259,400 Employer s contribution to EPF was Rs.39,000/- per month. In addition, following information is related to his employment. - He was provided with a BMW car (engine capacity 2,000 cc) with a driver and the fuel cost was borne by the company. - Mr. Mahinda is entitled for a bonus payment of 0.5% of the profits of the company, as part of his employment contract. As a result, he received Rs 1.5 Mn in May 2015 after the accounts of the company for the year ended 31 st March 2015 were completed and audited. - The company has paid a rent of Rs.240,000/- for his residence for the year, as agreed in the service contract. - The residence telephone bill of Rs.60,000/- was paid by the company. Institute of Certified Management Accountants of Sri Lanka 5

6 (c) Mr. Mahinda owns following three houses; NAV (Rs.) House in Nugegoda 300,000 House in Kandy 200,000 House in Matara * 225,000 * House in Matara is rented out for a monthly rent of Rs.60,000/- for the whole year. The rates for the house is paid by Mr. Mahinda at 30%. He resides at both Nugegoda and Kandy. (d) During the year he donated Rs.150,000/- to an elders home to purchase wheel chairs for the elderly people. Any assumptions you made should be clearly stated. You are required to compute the taxable income of Mr. Mahinda for the year of assessment 2014/2015. End of Section B End of Part II End of Question Paper Institute of Certified Management Accountants of Sri Lanka 6