CS Foundation Level
Principles of Accounting and Taxation flashcards
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What is the accounting equation, and why does it always hold?
Assets = Liabilities + Capital. Capital is the owner's residual interest, assets less liabilities. Every transaction affects at least two of the three elements by equal amounts, so the equation holds after each one.
What does a trial balance that agrees prove, and what does it not prove?
It lists every account's balance, debits in one column and credits in the other, and agreement checks the arithmetic of double entry. It does not by itself prove that every entry was correctly classified.
What counts as the disposal proceeds when an asset is sold, part exchanged or lost in an accident?
Sale: the sale proceeds. Part exchange: the trade-in value allowed against the replacement asset. Accident: any insurance proceeds received; an uncompensated loss is written off in full. Profit or loss on disposal = proceeds compared with the carrying amount.
How is a share issue at a premium recorded?
Number of shares x nominal value goes to share capital. The excess over nominal value goes to the share premium account, a capital reserve not available for dividends. Example: 50,000 shares of KES 10 issued at KES 13 give share capital of KES 500,000 and share premium of KES 150,000.
How is subscription income for the year worked out from the subscriptions received?
Subscriptions received + closing arrears (earned, not yet received) - opening arrears (counted as income last year) - closing advances (received, not yet earned) + opening advances (received last year, earned this year).
How do public sector entities differ from private sector entities?
Objective: public services and policy outcomes, not profit for owners. Funding: taxation, grants and budget allocation, not trading revenue and investors' capital. Accountability: to Parliament, county assemblies and the public, not shareholders and the market. Performance: service delivery against budget and mandate, not profit and return on investment.
What is the difference between tax evasion and tax avoidance?
Evasion: illegally reducing tax liability, such as concealing income or falsifying records. An offence under Kenyan tax law. Avoidance: legally minimising tax by structuring affairs within the law as written. Not illegal, though KRA may challenge an arrangement judged abusive. The test is legality, not degree.
What is a wear and tear allowance, and how is it worked?
The tax equivalent of depreciation for plant, machinery and equipment. Given by class of asset at the rate the Income Tax Act's Second Schedule sets. Since the Finance Act, 2021 each class is written off in equal annual instalments on cost (straight line), not on a reducing balance. Finance Acts revise the schedule, so use the rates in force or any rates a question supplies.
In what order do import duty, excise duty and VAT apply to an import, and on what base?
Import duty: on the customs (CIF) value. Excise duty: on CIF plus import duty. VAT: on CIF plus import duty plus excise duty. Each tax is charged on a base that already includes the ones before it, so the order changes the final figure.
What is the Kenya Revenue Authority's role, and how is it organised?
Established in 1995 under the Kenya Revenue Authority Act to assess, collect and account for government revenue on behalf of the National Treasury. Departments cover domestic taxes, customs and border control, and investigations and enforcement. It administers income tax, VAT, excise and customs law, largely through iTax.
Who uses accounting information, and what does each group need?
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What are IFRS, IAS and IPSAS, and who issues each?
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What do ICPAK, the IASB, the IAESB and the IPSASB each do?
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What are the five fundamental principles of professional ethics?
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What do the going concern, accrual, consistency and prudence concepts say?
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What are the steps of the accounting cycle?
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Which accounts normally carry debit balances, and which carry credit balances?
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What are journals, ledgers and cashbooks used for?
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How do straight-line and reducing-balance depreciation differ?
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How does a property, plant and equipment movement schedule reconcile the year?
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What is the difference between a bad debt write-off and a provision for doubtful debts?
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How are an accrued expense and a prepaid expense treated?
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What happens in the accounts on the admission or retirement of a partner, and on dissolution?
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What do the memorandum of association, the articles and the certificate of incorporation do?
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What is the difference between authorised, issued, called-up and paid-up share capital?
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What happens when a share issue is over-subscribed or under-subscribed?
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How are forfeited shares and their reissue accounted for?
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What makes up a complete set of published financial statements under IAS 1?
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What are the features of a not-for-profit organisation?
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What is the difference between a general fund, a restricted fund and an endowment fund?
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How do a not-for-profit's statements differ in wording from a business's?
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What are cash, accrual and commitment accounting in the public sector?
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Who regulates and oversees public sector finances in Kenya?
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What is the difference between a direct tax and an indirect tax?
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What are the principles of an optimal tax system?
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What makes a tax progressive, regressive or proportional?
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What is the difference between a single tax system and a multiple tax system?
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What is tax shifting, and what decides how far a tax can be shifted?
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What are taxable capacity and fiscal policy?
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Why does the tax law give investment allowances instead of allowing depreciation?
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What does the investment deduction for manufacturers cover?
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How does an industrial building deduction differ from a wear and tear allowance?
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What do the farm works, shipping and other deductions cover?
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What are the stages of customs procedure?
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What is the difference between prohibited goods and restricted goods?
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How do transit goods move through Kenya without paying duty?
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What are the Import Declaration Form, pre-shipment inspection and the Clean Report of Findings?
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How do excise licences, excise stamps and the EGMS control excisable goods?
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What is the difference between goods under customs control and excisable goods?
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